By Daniel Payne
A recent U.S. Supreme Court decision on bankruptcy law will “absolutely” have a significant effect on U.S. Church abuse lawsuits, one legal expert says, with the highest court potentially opening up individual Catholic parishes and schools to legal action.
In its June 27 decision in Harrington v. Purdue Pharma L.P., the Supreme Court held that U.S. bankruptcy law “does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seek to discharge claims against a non-debtor without the consent of affected claimants,” according to SCOTUSblog.
Untangling the complexities of that ruling requires some knowledge of U.S. bankruptcy law, says John Czarnetzky, the dean and CEO of Ave Maria School of Law in Naples, Florida.
“The most ancient type of bankruptcy is liquidation — a debtor files, sells all of its assets in bankruptcy court, and distributes that money to creditors,” said Czarnetzky, who has taught bankruptcy law and litigated it in private practice.
In contrast, he said, in a U.S. Chapter 11 bankruptcy reorganization, “a debtor files a bankruptcy, and at the end of the case gets a discharge. The debtor also gets to keep its assets.”
In such cases, he said, “the debtor must propose a plan which creditors get to vote on that provides those creditors at least what they would receive in a liquidation.”
“The idea is that if that test is met, it’s a win-win — the corporation continues in business, saving jobs, local business, etc., and creditors are not worse than if the debtor liquidated,” he said.
Yet creditors who disagree with such proceedings, Czarnetzky said, often find that they “have had their rights to sue for what they are owed taken away without their consent.”
“The Supreme Court in the case agreed with them, and held that the bankruptcy code has no provisions that permit this,” he said....