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| Church's Path to Penance Is Chided By Greg Moran and Mark Sauer Union-Tribune September 10, 2007 http://www.signonsandiego.com/news/metro/20070910-9999-1n10bkmoney.html It was February, just a handful of days before the start of Lent, the most sacred time of the year for Roman Catholics around the world. But in San Diego, leaders of the Catholic diocese were preoccupied with a looming crisis in the secular world of the courts: Settle 144 cases of child sexual abuse by clergy for perhaps $1 million or more each. Or go to trial, where details of abuse and efforts over several decades to cover it up – as alleged in court documents – would come to light. San Diego Catholic Bishop Robert Brom and his advisers chose a third way: Chapter 11 federal bankruptcy protection. It was the best method, Brom would tell his nearly 1 million parishioners, to provide "fair and equitable compensation for all of the victims of abuse without disrupting the core mission of the church." Now, more than six bruising months later, the decision is widely seen as nearly disastrous for the diocese. Legal experts who have followed the sexual abuse crisis in Catholic dioceses across the country said the bankruptcy process – intended to dispose of legal claims in a calm, ordered way – turned into a tumultuous, embarrassing ordeal for the church. "This was to my mind the clumsiest bankruptcy of all the dioceses that have gone that way," said Charles Zech, an economics professor who has followed the clergy abuse crisis from Villanova University, a Catholic school near Philadelphia. "They didn't gain a thing. And they lost a lot of credibility." Moreover, those involved in negotiations that led to Friday's announcement of a $198.1 million settlement of the lawsuits said Brom and the diocese would have been far better off financially if they had settled seven months earlier. Several attorneys pursuing lawsuits against the diocese said their clients would have settled for as much as $50 million less than the San Diego diocese and its insurers will ultimately pay had they avoided bankruptcy and settled in February.
But chief diocese attorney Micheal Webb strongly disputed that, saying the $50 million figure was "very incorrect." Webb conceded that a February settlement would have been less costly, especially when the bills for the bankruptcy filing – already more than $5 million with more invoices to come – are factored in. The diocese is responsible for attorneys' fees for both sides in bankruptcy court. After Friday's settlement, Webb reflected on the decision to seek Chapter 11 protection, concluding that the bankruptcy filing was worthwhile. "If you look at the Chapter 11 from the beginning, it was progressing very well," Webb said. "We were on track to conclude the process. "Granted, the order to show cause on why the case should not be dismissed was a setback." In fact, federal Judge Louise DeCarl Adler was on the verge last week of kicking the diocese's case out of bankruptcy court. Webb downplayed that threat, as well as Adler's earlier order to send 42 of the abuse lawsuits back to state court for trial, as being high-pressure prods to reach a deal. "The settlement was not a direct result of (Adler's actions)," said Webb, who was chastised by Chief U.S. District Judge Irma Gonzalez last month for misstating an order she made in the case during an interview published in The San Diego Union-Tribune. "I agree, there was some pressure on the diocese, but it was not only that," Webb said. "We had an energetic and highly intelligent judge (federal Magistrate Judge Leo Papas) who kept working with us and was able to do what other mediators could not over the previous years." Terry Giles, a Houston attorney representing 150 clergy-abuse plaintiffs in California, including 13 in San Diego, also lavished praise on Papas and Adler for bringing the case to conclusion. But Giles took issue with Webb's assessment of the benefits of the bankruptcy filing. "The reason Mr. Webb is taking the position that this bankruptcy was a good thing is that he has been the architect of all the scorched-earth actions taken by this diocese up to now," Giles said. "This case never would have settled if it hadn't been for Bishop Brom finally taking the ball away from Mr. Webb," he said. "They got nothing out of this bankruptcy except to be kicked around by the judge in court and humiliated in the press." The diocese filed for bankruptcy Feb. 27, one day before the first of the lawsuits was set for trial in San Diego Superior Court. The bankruptcy immediately halted all litigation, a plus for the church. But almost from the start, one misstep after another dogged the diocese in bankruptcy court. Formal reports of all church assets, required by federal law, were deemed incomplete and had to be amended four times. Adler, whose handling of the case was widely praised by lawyers and experts, called the diocese's accounting system "byzantine." She ordered a forensic accountant to examine the nearly 900 bank accounts for the diocese. That turned into a crucial event in the case, experts said. A report by financial expert R. Todd Neilson, a former FBI agent, found that the diocese had claimed the assets of its 98 parishes as its own in applications to banks and bond markets. But in bankruptcy court, the church asserted the parish funds were separate and could not be tapped for any settlement. The diocese also was not reporting accurate values for its properties, failed to keep parishes from hiding money from the court and was not properly accounting for all its money, Neilson found. Several bankruptcy experts said the diocese might not have been prepared for the kind of scrutiny its internal operations would receive once it moved from the insular world of the church to the wide-open forum of federal court. "In church law, the bishop is in complete control," said Fred Naffziger, a business law professor at Indiana University South Bend who has studied the four other Catholic bankruptcies that proceeded the San Diego filing. "So they exist in this environment where the bishop is never questioned. And sometimes they have difficulty when they have to shift into an environment where they have to disclose things." Scott Ehrlich, a professor at California Western School of Law in San Diego, said he was optimistic at first that the Chapter 11 filing would work well for the diocese. He soon changed his mind. "They had an excellent opportunity to begin the whole settlement process back in February, but they did not do that," he said. "They just used the bankruptcy process to prolong things." Ehrlich and others said Adler's firmness was a key factor in resolving the case. "I give her an A-plus," he said. "No bankruptcy judge likes to have debtors who are not forthright and not cooperative. The whole nature of the proceeding is when you put yourself in front of the court, you have to be honest and cooperative." As painful as it was, Naffziger said, one good thing came out of the process: the settlement of all the lawsuits. That should not be overlooked, he said, even though it will be a "tremendous financial blow to the diocese." That high cost will be felt by Catholics in San Diego, the nation's largest diocese to declare bankruptcy, and across the nation. "They kept shooting themselves in the foot," mused Zech, the economics professor. "They hurt the credibility of every diocese in the country." Greg Moran: (619) 542-4586; greg.moran@uniontrib.com. |
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