The Bishop's Alter Ego: Enterprise Liability and the Catholic Priest Sex Abuse Scandal
Stephen M. Bainbridge
University of California, Los Angeles (UCLA) - School of Law
Aaron H. Cole
Irell & Manella LLP
UCLA School of Law Research Paper No. 06-23
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.
Number of Pages in PDF File: 43
Keywords: religious corporation, limited liability, enterprise liability
JEL Classification: K22
Date posted: May 12, 2006