Unlike an officer of an ordinary corporation, the head of a corporation sole, such as an archbishop, is automatically covered by the automatic stay when the corporation sole files bankruptcy, according to Bankruptcy Judge David T. Thuma of Albuquerque, N.M.
Before the Archdiocese of Santa Fe filed a chapter 11 petition, a parish priest reported an alleged embezzlement and claimed he was fired in retaliation. Also before bankruptcy, he filed a retaliation lawsuit in state court against the archdiocese, the parish, and several individuals. The chapter 11 filing stayed the lawsuit automatically.
After bankruptcy, the priest filed another lawsuit in state court, but this time against the archbishop, not the archdiocese. The church responded with a motion for sanctions for violation of the automatic stay.
In his December 14 opinion, Judge Thuma ruled that the automatic stay did apply since the archdiocese is a corporation sole. “Because this area of the law is so esoteric,” he said, he declined to impose sanctions.
The opinion by Judge Thuma describes the leneage of corporations sole. They are, he said, a “vanishing breed . . . now used mostly by religious organizations like the Roman Catholic Church.”
A corporation sole has one officeholder, like an archbishop. When he retires (pardon the use of the male pronoun, but there are no women priests in the Roman Catholic Church), his replacement automatically becomes the officeholder. Automatic succession prevents any interruption in the corporation’s legal status.
Judge Thuma explained that “the assets and liabilities of the officeholder are not the assets and liabilities of the organization, and ‘the creditors of the corporation sole may not look to the assets of the individual holding office, nor may the creditors of the individual look to the assets held by the corporation sole,’” quoting a treatise on corporations.
With regard to ordinary corporations, the automatic stay does not apply automatically to individuals except in “unusual situations,” Judge Thuma said. Typically, the automatic stay cannot cover individuals without entry of a court order.
Judge Thuma asked whether the automatic stay applied automatically to the archbishop, who is the officeholder in the Santa Fe Archdiocese. “The answer is not readily apparent,” Judge Thuma said.
Judge Thuma decided that a “corporation sole is different.” When “a corporation sole files a chapter 11 case,” he held, “the automatic stay also stays claims against the officeholder that relate to his corporate duties.”
Judge Thuma was careful to say that the automatic stay would not apply to all claims against the archbishop. If the archbishop had an auto accident on a fishing trip, the judge said that “he could be sued by the injured party without violating the automatic stay.”
Assuming that the priest and his counsel “promptly cease and desist,” Judge Thuma decided against imposing sanctions for violating the automatic stay because “the legal issues involved are arcane and the authority is spotty or nonexistent.”
In a footnote, Judge Thuma added that he “likely would have” spread the automatic stay to cover the archbishop as though he were an officer of an ordinary corporation, had the debtor sought that relief.
Unlike an officer of an ordinary corporation, the head of a corporation sole, such as an archbishop, is automatically covered by the automatic stay when the corporation sole files bankruptcy, according to Bankruptcy Judge David T. Thuma of Albuquerque, N.M.
Before the Archdiocese of Santa Fe filed a chapter 11 petition, a parish priest reported an alleged embezzlement and claimed he was fired in retaliation. Also before bankruptcy, he filed a retaliation lawsuit in state court against the archdiocese, the parish, and several individuals. The chapter 11 filing stayed the lawsuit automatically.
After bankruptcy, the priest filed another lawsuit in state court, but this time against the archbishop, not the archdiocese. The church responded with a motion for sanctions for violation of the automatic stay.
In his December 14 opinion, Judge Thuma ruled that the automatic stay did apply since the archdiocese is a corporation sole. “Because this area of the law is so esoteric,” he said, he declined to impose sanctions.
The opinion by Judge Thuma describes the leneage of corporations sole. They are, he said, a “vanishing breed . . . now used mostly by religious organizations like the Roman Catholic Church.”