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	Parishes Key to Diocese Settlement Insurance News Net [Spokane WA] February 9, 2007 http://insurancenewsnet.com/article.asp?n=1&neID=200702092650.1_7489003f507823f3 Dioceses and their attorneys have steadfastly maintained that parishes own their own property, but as a unique and complex loan structure embedded in the reorganization plan of the bankrupt Roman Catholic diocese of Spokane, Wash., shows, parishes can be pivotal to the head office's effort to get back on its financial feet. The Spokane diocese, driven to seek bankruptcy because of sexual-abuse lawsuits filed against it, has come to a $48 million settlement with the litigants. While that settlement is at the core of a consensual reorganization plan filed in January and amended last week, what is so novel about it is the financial role that the Spokane diocese's parishes will play in its execution. Indeed, the diocese's 83 parishes can't be legally coerced into accepting the deal, but all of them have voted in favor of the plan and given written assurances they'll back up promissory notes as part of it. Only three didn't provide such support. The participating parishes as a group will be liable for $10 million of the $48 million settlement. (A few will be on the hook for an additional $6 million.) While nothing is settled, it's likely parishes will pay for the note through a combination of fundraising and a long-term loan from the diocese. This involvement by the parishes is much larger than their counterparts in two other diocese bankruptcies. The 75 parishes in Tucson, Ariz., provided $2 million in that diocese's 2005 reorganization, while the 124 parishes of the archdiocese of Portland, Ore., have no financial obligation in the proposed $74.5 million settlement that's part of the reorganization plan it filed late last year. In Spokane's case, insurance companies have agreed to pay $20 million of the settlement. The diocese will contribute $12 million. Some of this will come from the sale of its property, including the bishop's house and the Catholic Pastoral Center. Parish properties in Spokane, like those in Portland, are held by what's known as a corporation sole, in which the office of the bishop is the sole shareholder. Under the Spokane plan, properties before the reorganization date will be sold by the diocese free and clear to the parishes that use them in return for a total of $16 million. There is no breakdown in the plan as to what each piece of property is being sold for or what each parish will owe. Instead, parishes will be held jointly and severally liable. In other words, each parish is responsible for the entire bill. For the parishes, the proposed reorganization plan works like this: The parishes as a group will sign for a $10 million note, payable to the Spokane diocese by Dec. 31. In turn, the diocese will endorse the note to the plan trustee. A second $5 million note will be signed by the diocese, four parishes and a retreat center. That must be paid off by Oct. 1, under similar arrangements. A third $1 million note will be issued by the diocese and the cathedral. That note is due Oct. 1, 2009. So far, only three small parishes haven't agreed to secure the notes. In total, their share of the loan equals less than $100,000, and they're being given a pass, according to sources involved in the case. Parish properties will serve as collateral for these notes. They have been appraised at almost $80 million, although the diocese maintains the actual market value for such properties is much less. But no one envisions seizing and selling this real estate as a way to enforce payment. Nor do they expect parishes will be forced to put their churches on the market. Instead, parishes will raise funds to help pay for these notes. The rest will likely be financed through debt. Details have yet to be worked out, according to debtor counsel Shaun Cross of Paine Hamblen Coffin Brooke & Miller LLP. One possibility is that the diocese will float a bond issue, secured by its revenue stream. It, in turn, would issue loans to parishes, repayable over several years. And while the notes the parishes are responsible for are collateralized by their property, such a loan to them from the diocese likely wouldn't be. If accepted, the Spokane plan, like its counterparts in Tucson and Portland, will end, but not resolve, one of the biggest legal issues of these disputes: property ownership. The dioceses and their attorneys have always asserted that parishes own their real estate, but are held in trust by the bishops under religious or canon law. Creditors have argued otherwise. Judges have split in their interpretations. In the case of Spokane, a U.S. District Court judge ruled parish property wasn't part of the estate, contradicting the bankruptcy judge who ruled churches and schools should be included. The Spokane reorganization plan calls for dismissal, with prejudice, of the pending litigation brought by creditors to determine whether parish property is, indeed, part of the bankruptcy estate. That means there will be no ruling on the issue and would make it extremely difficult to litigate again. But the financial gymnastics that the diocese is going through with the parish as part of the reorganization plan don't end with the promissory notes. As part of the dismissal, the diocese agreed to pay $19.7 million, a kind of monetary compromise and asset valuation that dodged the much greater issue of ownership. While this $19.7 million is really a bookkeeping subset of the $48 million settlement, it does help with another, more technical issue related to the distribution of funds after reorganization, Cross explained. After subtracting out $7 million for bankruptcy professionals, the remaining $41 million is to be distributed via an $18.25 million estate fund and a $22.75 million release fund, which includes monies from the insurance settlement and $2 million worth of the parish notes. Under the reorganization plan, claimants who don't choose to settle — in other words, those who decide to continue suing the diocese instead of taking what is being offered — will be excluded from the release fund. But they can't be excluded under law from sharing the estate settlement. According to Cross, no decision has yet been made on whether parishes will be individually incorporated once the diocese emerges from bankruptcy, as they have been in Tucson and are being proposed in Portland. The Spokane plan allows for, but doesn't require, incorporation on or before the diocese comes out of Chapter 11. Abuse claimants now total 175. While the settlement list isn't complete, those that are detailed show a wide variance of what individual abuse victims can gain. They range from $4,000 to $300,000. Under the plan, the maximum a claimant can get is $1.5 million. The plan calls for $1 million set aside for future claimants. Confirmation hearings are now scheduled for April 24. Source:TheDeal.com
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