By: Stephen M. Bainbridge & Aaron H. Cole
Since 1950, more than 11,500 sex abuse claims have been filed
against priests and other agents of the Roman Catholic
Church. The eventual direct costs to the Catholic Church of
the priest abuse litigation are predicted to range from $2 to $3
billion.
The corporate structure of the Church under civil law can have a
substantial impact on the ability of priest sex abuse claimants to
recover on favorable judgments or settlements. In many U.S.
dioceses, all Church assets are owned by a single corporation,
typically a corporation sole, by virtue of which the local bishop
becomes the legal titleholder of all Church-affiliated property in
the diocese. The dominant view is that all assets of such
dioceses, including those of individual parishes and other
so-called juridic persons, are available to satisfy tort judgments
against the diocese.
Some dioceses, however, long have separately incorporated at
least some of their affiliated juridic persons. In response
to the priest sex abuse liability crisis, there is a growing trend
for diocesan assets to be divided among multiple incorporated
entities. Although separate incorporation of diocesan assets
implicates a number of legal doctrines, alter ego claims likely
will play a central role in any litigation seeking to reach the
assets of such corporations for the benefit of diocesan
creditors.
There is no constitutional bar to a court using the alter ego
doctrine to treat a diocese and its separately incorporated
parishes as a single enterprise for liability purposes in the
priest sex abuse scandal litigation (or any other dispute, for that
matter). The analysis in this paper, however, suggests that
appropriate cases for invoking the alter ego doctrine in this
context will be few and far between.
Two entities will be treated as alter egos where (1) one entity
exercises such a high degree of control that the other has
effectively lost its separate existence and (2) the controlling
entity has abused its power of control in an unjust or inequitable
manner. As to the former prong, a diocesan bishop who
comports himself in accordance with the requirements of canon law
is unlikely to exercise the requisite degree of day to day control
over a separately incorporated parish. As to the latter
prong, the courts have discretion to consider the potentially
severe deleterious impact of liability on the ability of innocent
parties to exercise religious practices implicating
constitutionally protected values. In other words, while the
Free Exercise and Establishment clauses do not bar judicial
application of the alter ego doctrine to churches, the values
protected by those provisions appropriately may be weighed in the
balance. Given the ready availability of alternative
doctrines better suited to the problems at hand, particularly
fraudulent transfer law, there case against invoking alter ego in
this context thus becomes quite strong.