Enforcing the Unenforceable: Monetary Remedies for Breaches of Nonmonetary Provisions in Sex Abuse Chapter 11 Plans.

• Author: Winmill, Woodworth

Since 2004, nineteen Catholic entities--consisting both of dioceses, i.e., regional units of the Catholic Church, and religious orders--have sought bankruptcy protection because of tort claims related to sexual abuse and have emerged from bankruptcy with confirmed chapter 11 plans.1 Of the nineteen confirmed plans, seventeen included "nonmonetary commitments" in the form of promises by the reorganized debtors to take actions beyond the payment of money. (2) Though one plan characterized such commitments as "voluntary," (3) the other sixteen included no such equivocal language. In fact, the language is often both mandatory and detailed. For example, one diocese promised that, within eighteen months of confirmation, its bishop would visit each church where abuse occurred or where an abusive priest worked and "assure survivors and parishioners that no one will go to hell as a result of coming forward regarding the abuse they suffered and that survivors did not commit any sin in coming forward." (4) Other nonmonetary commitments include promises to support publicly the repeal of criminal statutes of limitations for child sex offenses, (5) to cease using the term "alleged" in relation to survivors, (6) to allow survivors to speak publicly in church about their experiences or write about them in official newsletters, (7) to make documents available for review on an ongoing basis, (8) and to send letters of apology to survivors. (9)

Existing scholarship on the Catholic entity bankruptcies focuses on preconfirmation litigation. For example, some scholars have addressed whether creditors may claim the assets of individual churches, called parishes, as a part of the bankruptcy estate of the diocese on theories of substantive consolidation (10) or alter ego (11) or on the theory that, under state trust and corporate law, the parishes never had a legal existence separate from the diocese. (12) Numerous articles have discussed whether doing so would violate the Religious Freedom Restoration Act ("RFRA") (13) or the First Amendment. (14) Another scholar has offered an overview of the various preconfirmation religious freedom and bankruptcy daw issues in these cases. (15) Additionally, scholarship in this area has addressed the implications of such bankruptcies from an employment-anddabordaw perspective, (16) has compared such bankruptcies to those driven by mass-tort, product diability litigation, (17) and has explored the relevant state law, including statutes of limitations (18) and respondeat superior. (19)

By contrast, this Article explores the possibility of postconfirmation litigation related to nonmonetary commitments. It focuses on fifteen of the corn firmed plans, setting aside four plans--the two without nonmonetary commitments, (20) the one with only "voluntary" nonmonetary commitments, (21) and the one that gives exclusive authority to the county attorney to enforce the nonmonetary commitments. (22) Although in one of the fifteen cases, a bankruptcy judge continues to exercise some supervisory power years after confirmation (23) and some of the plans expressly give the bankruptcy court continuing jurisdiction to ensure that the plan is performed, (24) this area of potential litigation is largely uncharted. Indeed, during an interview conducted for this project, an attorney who has represented the unsecured creditors' committees in many of the diocese cases stated that, though the survivors deeply value the inclusion of the nonmonetary commitments in the plans, many advocates view those provisions largely as legally and practically unenforceable. Legally, many lawyers view the First Amendment and the RFRA as major barriers to enforcement. Practically, because plaintiffs' lawyers work on contingency and bankruptcy lawyers work by the hour and are paid by the estate, it can be difficult to find lawyers to sue to enforce the nonmonetary provisions after confirmation.

This Article argues that, assuming specific performance of the nonmonetary commitments is unavailable because of the First Amendment or the RFRA, monetary remedies for a failure to comply with the nonmonetary commitments are available under seven independent theories. The availability of monetary remedies could encourage lawyers to take cases to enforce the commitments, provide relief to survivors, and incentivize reorganized debtors to comply with their commitments. Additionally, this Article suggests provisions, such as liquidated damages clauses, that could be included in future chapter 11 plans to facilitate such monetary remedies.

1. THE EVOLVING APPLICATIONS OF CHAPTER 11

   The statutory scheme of chapter 11 seems to have been drafted with a particular scenario in mind: a business with multiple classes of commercial creditors, some secured and some unsecured. However, with the emergence of product-liability bankruptcies, particularly asbestos bankruptcies, the Bankruptcy Code's expansive definition of "claim" (25) and expansive potential to discharge debtors from claims (26) were put to work in a new scenario involving numerous, individual, unsecured creditors, both known and unknown, along with traditional lenders. (27) Perhaps because these asbestos cases established that the Bankruptcy Code could be used to manage massive tort liability, nonprofit organizations (including not only Catholic entities but also USA Gymnastics (28) and Boy Scouts of America (29)) have begun to file for bankruptcy in response to tort claims related to sexual abuse. (30) Significantly, these organizations apparently have found the bankruptcy courts to their liking, given that only one such sexual abuse bankruptcy case has been dismissed without reaching confirmation (as a result of the debtor reaching settlements outside of the reorganization process). (31)

   Yet these new cases, in which nonprofits file for bankruptcy because of sexual abuse claims, differ in important ways from the productdiability bankruptcies. For one thing, the nonprofit debtors continue to value the goodwill of their donors (32) or, in the case of USA Gymnastics, its sponsors, (33) and intend to emerge from bankruptcy with continued financial support from these same constituencies. Thus, they have an incentive at least to appear to "come clean," bring in new leadership, and institute better practices. In contrast, the asbestos manufacturers generally emerged from bankruptcy as settlement trusts or as businesses that had shifted to manufacturing other products (34) so that they had no continuing need to manage their brands. Additionally, the new leaders of the Catholic debtors may also realize that they can pay survivors less if they also make nonmonetary commitments. Finally, these new leaders may sincerely desire that the organization atone for its past conduct, including nonmonetary provisions in the reorganization plan as a way for the new leadership to gain leverage over individuals within the organization who are opposed to change. At the same time, the creditors in these sexual abuse bankruptcies tend to value provisions that reflect transparency and reform, (35) suggesting the creditors have nonmonetary goals and that envision some level of ongoing relationship with the reorganized debtor, opinions regarding the continuing operations of the organization, or ongoing religious faith. Therefore, during the pendency of the chapter 11 case, the debtor and the creditors may have a shared interest in nonmonetary plan provisions that relate to religious and political speech, thus dragging the bankruptcy courts from their usual, commercial territory into the relative unknown of the First Amendment. (36)

   After confirmation, however, interests between reorganized debtors and creditors may begin to diverge. The "clean-up crew," post-scandal leadership teams that replaced the debtors' previous leadership teams may themselves be replaced with new leaders who, after the cloud of potential tort liability has been managed, believe that the old leadership team gave up too much to plaintiffs-tumed-creditors. The new postconfirmation leaders, for example, might display a photograph of a priest against whom a substantiated allegation was made without posting the appropriate warning language, controverting requirements of the confirmed plan. (37) Similarly, new leaders might renew references to "alleged survivors," (38) even pointing out that the "alleged survivors" never had their claims tested in a trial. To be sure, not all reorganized debtors will take this route. However, given that fifteen confirmed reorganization plans fall within this Article's topic (and that ten more, similar chapter 11 cases are pending (39)), it seems likely that at least one reorganized debtor will take engage in conduct that violates nonmonetary plan requirements, particularly if its leadership believes that such nonmonetary provisions are unenforceable.

2. THE FIRST AMENDMENT AND RFRA AS DEFENSES TO MONETARY REMEDIES

   Given the view that the First Amendment and RFRA may be barriers to the enforcement of the nonmonetary commitments, this Article next explores six related questions: (1) whether suits for monetary remedies for breach of a nonmonetary commitment would be subject to scrutiny under the First Amendment; (2) whether such suits would be subject to scrutiny under RFRA; (3) whether the reorganized debtors have waived any rights otherwise available under the First Amendment and RFRA; (4) assuming the reorganized debtor may raise a First Amendment defense, whether the First Amendment's Speech Clause bars monetary remedies; (5) under the same assumption, whether the First Amendment's Religion Clauses bar monetary remedies; and (6) assuming the reorganized debtor may raise a RFRA defense, whether RFRA bars monetary remedies.

   1. FIRST AMENDMENT SCRUTINY

      The First Amendment applies to the states through the Fourteenth Amendment (40) so that "the action of state courts and of judicial officers in their official...