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| Judge Orders Diocese to Defend Filing By Mark Sauer and Sandi Dolbee Union-Tribune August 11, 2007 http://www.signonsandiego.com/news/metro/20070811-9999-1n11diocese.html In a rare and blistering decree, a federal judge yesterday ordered Bishop Robert Brom and his attorneys to show why she shouldn't dismiss the Diocese of San Diego's bankruptcy case for failing to exercise "the financial controls and transparency" required by law. Citing the findings of a court-appointed financial expert, Judge Louise DeCarl Adler said church officials have not reported true property values, failed to keep parishes from deliberately hiding assets and misrepresented the diocese's wealth. Some observers said yesterday's order will ratchet up pressure on the Roman Catholic diocese to settle about 150 claims of child sexual abuse that have languished through four years of legal wrangling. On Monday, the diocese and attorneys for abuse victims are scheduled to start what is expected to be an intense week of secret talks before a federal mediator. The diocese has offered $95 million, or about $600,000 per claim, to settle the cases. That is roughly half the per-case average that the Archdiocese of Los Angeles agreed to pay last month in a record $660 million settlement of 508 abuse claims. The San Diego diocese has asked the U.S. District Court to take over setting the value of the abuse cases. The court is expected to take up the issue Friday.
If Adler dismisses the Chapter 11 bankruptcy case at a hearing set for Sept. 6, the civil lawsuits alleging child sexual abuse by priests and other church workers would likely be scheduled for trials in state court. The first of those lawsuits had been set to begin Feb. 28, just one day after the diocese filed the bankruptcy petition. Based on the report by financial expert R. Todd Neilson that was released July 30, Adler raised these red flags in her order: • The diocese told auditors, bankers and bond markets that it has millions of dollars deposited in a trust account, but it reported to the bankruptcy court that those funds belong to its 98 parishes and are not part of the diocese estate. • "Some parishes are actively and deliberately hiding assets ... or inappropriately designating donations as restricted to circumvent or evade the direction of the diocese and/or the court." • "Bank accounts have not been fully disclosed on the diocese's bankruptcy schedules." And the "diocese failed to disclose material facts to the court with respect to its cash-management system." • The "diocese has persisted in reporting its assets at assessed valuation, rather than fair-market value as required by all debtors in bankruptcy proceedings." Attorneys on both sides in the bankruptcy case were surprised by Adler's action, which she issued without a request from either side – an unusual step. "What she's told (the diocese) is you can't keep ignoring court orders and blithely continue to go along under Chapter 11 protection," said attorney Jim Stang, who represents a committee of abuse victims. He added that in 27 years of practicing bankruptcy law, he hasn't seen a motion like Adler's in a notable case. Although pessimistic that a settlement will be reached during next week's negotiations, plaintiffs' attorney Andrea Leavitt said the judge's actions show "she understands the full picture." "Things like the clandestine movement of money by the diocese to insiders even after the bankruptcy was filed doesn't pass the smell test," Leavitt said. "Their actions just reek of bad faith and fraudulent conduct." Susan Boswell, the diocese's lead bankruptcy attorney, would not discuss Adler's order. "I do not comment on matters that are before the court," she said last night. But Victor Vilaplana, an attorney for the clergy-led Organization of Parishes, which represents the parishes' interests, said he thinks the judge "is just wrong." He said he hopes to clear up misunderstandings concerning statements about the parishes on Aug. 23, when the court is scheduled to hold a hearing on Neilson's report. A key point that has been highly contented is whether the parishes are part of the diocese's estate. Vilaplana said Neilson's report found a few minor problems, "but the fact is the parishes are separate entities. We are not in the bankruptcy." Earlier yesterday, before the court order was filed, Boswell was upbeat about Neilson's report, saying the gist of the findings was that "all the funds are accounted for, the accounting system works and people are working hard and trying in good faith to do the right thing." The diocese's official response to the report, filed late Thursday night, had the same tone. It disagreed with some findings but concluded that the audit "confirmed that the debtor was operating in a manner consistent with the laws." Patrick Hazel, leader of a fledgling group of local parishioners, said he wished the diocese had been more contrite. "If I had written that (diocese response), I think I would have taken substantially more responsibility for what happened," he said. Still, Hazel said he was shocked by Adler's order. "I did not think it was a fair reading of the Neilson report," said Hazel, who is president of the recently formed Parishioners for the Churches and Schools. "The money is accounted for. The problem is it was not put in the right accounts." Although some insiders suggest that the order will spur a settlement, Hazel worries that it will hurt the ongoing mediation sessions with federal Magistrate Judge Leo Papas. "I'm not sure how mediation can continue when the judge has basically thrown one side under the bus," Hazel said. Legal scholars echoed that Adler's move was unusual – and serious. "A neutral expert told the court these things," said Lynn LoPucki, a University of California Los Angeles law professor who specializes in bankruptcy issues. The diocese should be "very concerned." "When someone is in bankruptcy court and has violated the rules, the expectation is they are going to go way out of their way to make sure the problem does not continue," LoPucki said. "They are supposed to jump. The diocese has not been jumping." Scott Ehrlich, a bankruptcy specialist who teaches at San Diego's California Western School of Law, suggested that the judge may be sending a message that the diocese "needs to get serious" about settling with victims. "It's outrageous they are even arguing the point of whether they have sufficient assets to pay these claims," Ehrlich said. "The claims are valid and they have plenty of money between the diocese, the parishes and their insurance to settle. "Is the bishop getting bad advice? The unequivocal answer is yes," he said. Bishop Brom and diocesan attorneys have repeatedly said their settlement goal is two-fold: to justly compensate the victims and keep the church's finances healthy enough that it can continue its mission of educating children and attending to the spiritual needs of parishioners. This is the second time since the diocese filed for bankruptcy that the judge has ordered its attorneys to court to answer questions about their conduct. In April, she threatened some lawyers and priests with contempt after learning that parishes were trying to open new bank accounts. She relented after they told her it was a misunderstanding and that they were not intentionally misrepresenting their finances. Yesterday, a national victims rights group said that regardless of which way Adler rules, they were encouraged by her actions. Barbara Dorris, a spokeswoman for the Survivors Network of those Abused by Priests, said victims will be pleased that "the bishop is being called on his behavior." Mark Sauer: (619) 293-2227; mark.sauer@uniontrib.com Sandi Dolbee: (619) 293-2082; sandi.dolbee@uniontrib.com |
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