A priest had none of the three requisites of standing to mount an objection to a claim that could clear his name of allegations of sexual abuse, according to Bankruptcy Judge David T. Thuma of Albuquerque.
The priest had been ordained in 2011. When the Archdiocese of Santa Fe filed a chapter 11 case in 2018, the priest was working in a high school in New York City.
An individual, whose identity is confidential, filed a lawsuit in a New Mexico state court in 2019 against the order by which the priest was employed. The claimant contended that he had been abused by the priest in 2011 when he was a teenager. The priest was not named as a defendant in state court.
Later, the claimant filed a proof of claim in the archdiocese’s chapter 11 case.
Not even knowing the name of the claimant, the priest “vehemently denied the allegation,” Judge Thuma said in his October 22 opinion. There were no other allegations of abuse leveled anywhere against the priest, the judge said.
In the wake of the allegations, the priest was fired from his teaching position in New York and lost his right to function as a priest. As Judge Thuma said, the priest “cannot pursue his vocation until the allegations against him are withdrawn or proven false.”
The priest could have intervened in the suit in state court, but the claimant and the debtor agreed to apply the automatic stay from the archdiocese’s bankruptcy to avoid depleting insurance coverage.
To clear his name and continue his chosen role in the clergy, the priest filed a motion for permission to object to the claim. Because the debtor had not filed an objection, the priest argued that he was a “party in interest” permitted to raise a claim objection under Section 502(a).
The debtor and the claimant objected on the grounds of standing.
The Three Requisites of Standing
Facially, standing in chapter 11 is governed by Section 1109(b), which says that a “party in interest . . . may raise and appear and may be heard on any issue in a case under this chapter.”
But there’s more, Judge Thuma said. Even if someone has statutory standing under Section 1109(b), that person must also have constitutional and prudential standing. The priest lacked all three.
For statutory standing under Section 1109(b), the person must have a pecuniary interest directly affected by the proceedings in bankruptcy, or, as some say, a financial stake in the reorganization.
If the debtor were to object successfully to the claim and establish there was no abuse, the priest would have been “an incidental, nonfinancial beneficiary of the finding,” Judge Thuma said. The priest did not have statutory standing because his interest was both “remote and nonfinancial.”
For constitutional standing under Article III, the priest must show an injury in fact, causation and redressability. The priest lacked constitutional standing, Judge Thuma said, because “allowance or disallowance of the Claim would have no effect on [the priest].”
With regard to prudential standing, the priest was not within the class of intended beneficiaries. As Judge Thuma said, “a successful objection to the Claim might benefit [the priest] incidentally, but such an incidental, nonfinancial benefit does not put [the priest] among the class of § 502’s intended beneficiaries.”
The priest also argued that the court had discretion to allow permissive intervention under Rule 2018.
Judge Thuma said he would “seriously consider” allowing intervention if the debtor were to object to the claim, even though the priest was not a party in interest. Permissive intervention was “moot,” in Judge Thuma’s view, because there was no claim objection.
Even if the priest had standing, Judge Thuma said he would “likely” impose a stay on an objection proceeding to preserve estate assets and insurance coverage.
The priest had alternatives to a claim objection, Judge Thuma said. He could commence a defamation action to clear his name, and the judge said he would arrange a mechanism allowing the priest to learn the name of his accuser while maintaining confidentiality.
Alternatively, the claimant could pursue the suit in state court after the stay is lifted by moving to intervene.
Judge Thuma denied the motion for leave to object to the claim because the priest lacked standing.
A priest had none of the three requisites of standing to mount an objection to a claim that could clear his name of allegations of sexual abuse, according to Bankruptcy Judge David T. Thuma of Albuquerque.
The priest had been ordained in 2011. When the Archdiocese of Santa Fe filed a chapter 11 case in 2018, the priest was working in a high school in New York City.
An individual, whose identity is confidential, filed a lawsuit in a New Mexico state court in 2019 against the order by which the priest was employed. The claimant contended that he had been abused by the priest in 2011 when he was a teenager. The priest was not named as a defendant in state court.
Later, the claimant filed a proof of claim in the archdiocese’s chapter 11 case.
Not even knowing the name of the claimant, the priest “vehemently denied the allegation,” Judge Thuma said in his October 22 opinion. There were no other allegations of abuse leveled anywhere against the priest, the judge said.