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Court Says Pooled Investment Funds Are Part of Delaware Diocese Bankruptcy Estate

By Howard M. Friedman

In In re Catholic Diocese of Wilmington, Inc., (DE Bankr., June 28, 2010), a Delaware federal bankruptcy court held that funds in a pooled investment program operated by the Catholic Diocese of Wilmington are part of the bankruptcy estate. Individual parishes have over $2.3 million of their funds invested in the pool, while various Catholic charitable and educational organizations have over $25.8 million and the Catholic Diocese Foundation has $45 million there. These 31 participants in the pooled investment program claimed that a trust relationship existed so that their invested funds belong to them and are not property of the diocese. The court held that a trust exists, but that their funds are comingled with funds of the diocese that are also part of the pooled investment vehicle, and that these participants (with the exception of one parish) have not carried their burden of identifying and tracing the funds that belong to them. So these funds become part of the total pool that will be divided among some 140 sexual abuse victims who have sued the diocese. The parishes and institutions with funds in the pool will also have claims and will share pro rata with abuse claimants and other creditors. Bloomberg Businessweek, reporting on the decision, quotes an attorney for sex abuse victims who have sued the diocese who calls the result "a great victory for all the survivors of sexual abuse in the diocese."

Full post as published by Religion Clause on June 30, 2010 (boomark / email).