In the reorganization of a Catholic diocese in California, the debtor and the official creditors’ committee had promised to hold a conference in the presence of the judge where victims of alleged clergy sexual abuse could tell the bishop how the experiences affected their lives.

When insurers objected to scheduling a conference, Bankruptcy Judge Christopher M. Klein said that the insurers “evince[] stunning ignorance of basic judicial powers.”

In his March 7 opinion, Sacramento’s Judge Klein said that the committee, “with acquiescence by the Debtor-in-Possession,” had made a promise at the outset of the case “to afford sex abuse victim-claimants the option of personally telling the Bishop, in the Court’s presence, how the various abuses have affected their lives.”

Although bankruptcy reorganization “may be proficient in . . . fund[ing] tort damage payments,” Judge Klein said, “it does little to heal festering psychological wounds.” Since a conference would be “neither a trial nor a hearing,” he said that the gathering would be “in the nature of a confidential settlement conference that is an exercise of inherent judicial authority.”

Insurers objected, claiming that the conference was unauthorized under the Bankruptcy Code, that the victims’ statements would constitute testimony, and that the testimony was not being offered in support of any form of relief. In response, Judge Klein said that the “insurers construct and demolish a straw man on a platform of false premises.”

Judge Klein could not fathom how the insurers would be harmed. To the contrary, he said that the insurers “are now basking in the shelter of the automatic stay, without which, they would be paying for legions of defense counsel to conduct discovery in the pending state-court litigation pursuant to their duty to defend.”

The “key point,” Judge Klein said, is that the bankruptcy court “is not the trier of fact in the sex abuse personal injury tort Actions,” nor “could it ever be” under Section 157(b)(5).

Judge Klein said it was “nonsense” to argue that “a Bankruptcy Court lacks authority to permit survivor statements to be made to the Court and to the Bishop in a confidential setting.” He said that victims’ statements would not be made to a trier of fact and will not be made under oath.

Pointing to Bankruptcy Rules 7016 and 5001(b), Judge Klein said it was a “false premise” to contend “that a Bankruptcy Court can do nothing that is not on the record, in open court.” Those rules, he said, “permit various conferences and similar sessions that are neither trials nor hearings to be done in chambers or elsewhere on or off the record.”

The conference, Judge Klein said, “is fundamentally a listening session” in a “private setting” with no responses and no electronic recording. Those in attendance will be limited to people wishing to make statements, their counsel, the bishop and the debtor’s bankruptcy counsel.

Judge Klein granted the committee’s motion to hold the conference and decided that the insurers would not be permitted to attend.