United States: Catholic Health Care & Education: New Era of Litigation Demands Increased Vigilance by Religious Institutes

The massive litigation over the clergy sexual abuse scandal affecting the Catholic Church in the United States is troubling on many different levels. One unfortunate side effect of this litigation is that the historically deferential stance paid to the Church has been forever breeched. We believe that this litigation heralds the dawn of a new day, where the Church and its components are commonly regarded as potential defendants with significant assets. The loss of this deference is likely to have long-standing repercussions for religious institutes that may not have adjusted their business and ministry practices to respond to a highly litigation-prone environment. In this new environment, religious institutes and their ministries are more likely to be sued for errors in judgment or practice. Even if ultimately successful, litigation defense can be expensive. Further, insurance coverage generally is unavailable where a court finds those involved grossly negligent. Coverage might also be excluded where an actor is deemed to have engaged in "willful" or "intentional" misconduct.

There are three key steps that religious institutes should follow to assure that they are minimizing their liability exposure in all of their dealings: review corporate structure and practices, conduct sponsorship reviews and consider development of a sponsorship board.

While it is impossible to know how many lawsuits may ultimately be filed against various dioceses in the United States, the suits that have been filed seek judgments well in excess of $1 billion. Litigation has caused dioceses to undertake the sale of significant assets (such as in Boston), led one archdiocese to file for Chapter 11 bankruptcy protection (Portland) and has caused several other dioceses to raise bankruptcy as a possibility. Hundreds of millions of dollars in claims have been paid and litigation surrounding these claims is likely to last for many years. Already these suits are being likened to the mass tort litigation involving asbestos and silicone implants. Indeed, recently a specialty newsletter was developed for lawyers working in this area, titled Catholic Church Bankruptcy News.

This scandal has been painful to the victims, the accused, the faithful, the general public and the Church. Unfortunately for religious institutes and Catholic ministries, the tsunami created by this litigation is likely to wash over unintended victims. At least three lessons are already apparent:

First, the preferential treatment given the Church in the past has disappeared. The negative coverage of Church leadership in the news media signals the end of the public's willingness to accept "inadvertent errors" as the excuse for illegal conduct. This represents a significant change of attitude that may require decades to reverse.

Second, the general public is less likely to differentiate between activities of various parts of the Church, and more likely to view these activities as "Church." Religious are no longer as present in most ministries as they had been in the past, causing the individual identity of the sponsor to not be as clearly understood by the general public. Actions of one component of the Church may spill over and harm all serving in Catholic ministry.

Finally, in the course of this changing reality, district attorneys and private plaintiffs’ counsel have become well-schooled in the civil and canonical structures used by the Church. The plaintiffs' counsel have discovered the profitability of litigation against the Church and can develop legal and canonical arguments to sweep as many parties as possible into litigation.

In this new era of heightened liability, it is imperative that religious institutes bring a renewed sense of professionalism and acumen to their business and organizational affairs. Religious institutes frequently rely upon outdated corporate structures or business relationships because "that's the way it has always been done," or because the structure was inherited from a prior leadership team. Many religious communities are operating significant ministries within their religious institute corporation because a community member started a ministry years ago and the ministry has now grown in size or complexity. Some religious institutes have failed to shelter retirement assets or clarify donor intentions when receiving gifts, assuming (falsely) that canon law will protect these assets in the event of litigation. Others have failed to reduce understandings to writing, opening the door to disagreements and, in some instances, inadvertent liability exposure should something go awry. Sometimes corporate formalities are not scrupulously followed, resulting in a mix of corporate business and congregational business.

Every religious institute should review its corporate documents to assure that it is properly structured. This includes analyzing the assets of the religious institute to assure that they are housed within an appropriate entity and shielded from unnecessary liability exposure. Ministries operating within the religious institute corporation likely should be relocated.

Insurance policies require review to make certain that they provide adequate coverage. This analysis should consider all activities undertaken by the religious institute, including those activities where the religious institute holds itself out, through lending its name, as being involved in a particular enterprise. While religious institutes have not generally become involved in self insurance models, in certain circumstances consideration of these alternatives may be worth study.

This review should extend to how corporate minutes and other records are maintained, focusing specifically on the separation of corporation and ministry business from internal congregational matters. All undocumented agreements ought to be examined with the goal of reducing these to writing. Policies pertaining to lay employees, lay associates and volunteers serving the religious institute also should be examined.

A review of all individual ministries conducted by congregational members should be undertaken to make certain that there is an appropriate separation of the ministry from the community. In certain instances, processes such as background checks or other mechanisms might be developed so that the religious institute is certain that it has fulfilled any legal duty to which it may be held.

New developments in the law, as well as "slippage" in corporate compliance over time, necessitate that business practices be periodically reviewed. Depending upon the level of activity conducted by the religious community, every one to two years legal review of business practices, including associated documentation (i.e., minutes, policies) should be conducted, and the Superior and Council updated on new practices, which they should be incorporating. Business practices ought to be reviewed when there is a change in the leadership team, as this is often an opportune time to implement new policies and procedures, and to assure that the new team is comfortable with the corporate responsibilities they will be inheriting.

Develop a Litigation Contingency Plan
Litigation against a religious institute is a high profile affair, likely attracting sudden media attention. Religious institutes must know how to respond to media calls, who they are going to seek counsel from and what information they need to maintain and protect.

Beyond liability, which might attach to a religious institute through one of its members, religious institutes are also well-served to remain vigilant over their ministries. Most institutional ministries are incorporated separately from the religious community. Nevertheless, in this era of heightened liability it is possible that the plaintiffs may seek to pierce the corporate veil and attach congregational assets. Alternatively, religious serving on a board can be sued for breeches of fiduciary duty. It is important, therefore, that the congregation keep abreast of developments within its ministries.

Sponsorship reviews should be conducted on behalf of a sponsor, with reports back to the sponsor. Typically these reviews involve interviews with the key persons having a leadership role in the ministry, including the president/CEO, executive team members, board members, council members and other important leaders (medical staff leadership in health care, deans/department chairs in education). Often conducted by an "outside" third party (with anonymity promised to interviewees), these reviews provide valuable insight to the sponsors on the strengths and weaknesses of the ministry, fulfillment of mission objectives and areas of focus. Sponsors should consider engaging their legal counsel to conduct these reviews so as to protect findings under an attorney/client privilege.

Reserved powers are an important mechanism to assure that the ministry remains connected to the Church and operating in accordance with a Catholic mission and philosophy. At the same time, they provide an avenue for ascending liability to potential plaintiffs, who might seek to "pierce the corporate veil" and attach assets maintained by the religious institute. While such veil piercing is rare, its potential is growing as plaintiffs increasingly take a critical eye to Church ministry. Sponsors are well-advised to review all reserved powers maintained over their ministries, retaining only those which they believe are absolutely required to assure fidelity to mission and charism and that they are capable of exercising competently. Powers maintained, but not appropriately exercised, heighten the potential for liability attaching to the religious institute.

One of the best ways sponsors can prevent catastrophic losses is for them to create an environment of compliance in every ministry. Sponsorship reviews should include a confirmation of the effectiveness of the compliance programs established for each ministry. If no compliance plans exist, sponsors should require them to be implemented without delay. Identification of potential compliance problems and quick action to correct their root causes will help reduce overall liability exposure and improve the quality of ministry services.

Some religious institutes, recognizing the high level of responsibility and time commitment associated with congregational oversight and ministry sponsorship, have moved to develop alternative sponsorship models. At their core, these approaches commonly have two goals: to move the superior and council out of day-to-day sponsorship oversight and to put in place a body which has the time and expertise to effectively oversee sponsorship. In this regard, sponsorship boards have attracted significant attention.

In the sponsorship board model, the superior and council delegate significant authority to a body whose sole function is to exercise sponsorship oversight of the incorporated ministries. The sponsorship board may be composed of religious or lay and may involve participation of council members. Generally, the degree of delegation is significant so that the superior and council truly vest oversight in this board. Delegation is not irrevocable, as appointment and removal of sponsorship board members rests with the superior and council.

Beyond exercising delegated reserved powers, sponsorship board members typically assume a role in the ministry, serving on the system or institutional board. These members often become responsible for assuring the presence of the sponsor at important public events. They may also assume other roles within the ministry, such as governance.

Religious institutes which have adopted the sponsorship board model generally report a high degree of satisfaction with how their sponsorship is being effectuated. This results from the enhanced time that the superior and council can now give to the ministry of leadership within the congregation, as well as the expanded commitment and expertise that sponsorship board members can offer to their role. Properly structured sponsorship boards are one way of assuring that the religious institute and the ministries it sponsors each receive the attention they deserve.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.