By Sean O'sullivan, Maureen Milford and Gary Soulsman
The News Journal
October 20, 2009
http://www.delawareonline.com/article/20091020/NEWS01/910200368
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| Thomas Crumplar, attorney for plaintiff John Vai (second from right), holds a ninth-grade photo of Vai at a news conference Monday. To the right of Vai is plaintiff Mike Sowdenl behind are Thomas Neuberger (center) and Robert Jacobs. Photo by JENNIFER CORBETT/The News Journal |
Diocese trying to keep assets from abuse victims, attorneys say
WILMINGTON -- The bankruptcy filing Sunday night by the Catholic Diocese of Wilmington, just hours before the start of Delaware's first clergy sex-abuse trial, shows the diocese is playing hardball, according to bankruptcy experts, attorneys and advocates.
If the diocese had sought protection in federal court on Friday, or even Saturday, there would have been time to ask the bankruptcy court to allow cases to go forward in Delaware Superior Court, said Lynn LoPucki, a visiting professor at Harvard Law School.
"When you have a trial like that set up, there are a lot of people involved. There are witnesses flown in, jurors are summoned for a panel, a courtroom is set aside. And all of them end up being inconvenienced," LoPucki said.
"It's an 'unchurchly' thing to do, if there is such a word."
On Monday, plaintiff James E. Sheehan, whose trial was set for Nov. 16, petitioned a federal court for a speedy hearing on his motion to allow his trial to go forward. Sheehan, 63, who alleges he was sexually abused while a student at Salesianum School in Wilmington, is suffering from life-threatening health problems, according to court documents.
By filing at the eleventh hour, "it's what Enron would do," said attorney Thomas S. Neuberger, who is part of a legal team representing 88 plaintiffs who allege clergy sex abuse.
"We're pushing back," Neuberger said.
In dueling news conferences Monday, church officials defended the bankruptcy filing as a financial necessity and a way to ensure equity, while attorneys representing plaintiffs in abuse cases against the diocese decried it as a "cover-up."
Diocesan officials and their attorneys claimed in their 25-minute news conference that an attempt by the Diocese of Wilmington to reach a group settlement in 13 sexual abuse cases broke down after 8:30 p.m. Sunday, leading to a filing for bankruptcy shortly thereafter.
Scheduled trials averted
Without the filing, the diocese would have borne the costs for 12 weeks of trial, and if the awards were large, they could have depleted resources available to all 142 claimants suing in 131 cases, said Bishop W. Francis Malooly and diocesan lawyers Tony Flynn and Robert Brady.
"The advantage with this is that it has a neutral party trying to decide how to fairly take care of claimants and our creditors," Malooly said, and that will allow all 142 plaintiffs to be compensated fairly.
Malooly said he's never been involved in a bankruptcy and the decision was painful and necessary to meet the needs of those seeking redress through the courts. He said he hoped this would be more equitable for plaintiffs and easier in the sense that they will not have to go to trial.
Treating victims of abuse well "is a moral obligation on our part," he said. "Our equally significant moral obligation is to continue the charitable, education and spiritual missions of this diocese."
But plaintiffs' attorneys and advocates for those who say they were abused claimed exactly the opposite was going on through the bankruptcy filing.
"Obviously, the diocese was afraid of the truth," said attorney Thomas Crumplar at a nearly hour-long news conference at the Wilmington offices of the Neuberger Firm.
Crumplar, Neuberger and several other attorneys represent John Vai, whose abuse case against the diocese was set to go to trial Monday in state court and apparently prompted Sunday's bankruptcy filing.
"The simple reality is this was never about bankruptcy protection. This is about scandal prevention ... this is about keeping the facts secret," said attorney Michael Reck, who represents 49 other plaintiffs.
Attorneys said Vai would have testified to violent sex acts by a priest that allegedly occurred while he was an altar boy at St. Elizabeth Church from 1966 to 1970.
Tactical move could backfire
The plaintiffs' attorneys said that as a tactical move -- one used by other dioceses facing similar lawsuits -- the bankruptcy filing is not likely to save the diocese money, and could in fact cost it more because the plaintiffs may now get access to financial records they might not otherwise have seen.
Neuberger said in some cases it may speed the financial settlements for some plaintiffs while causing delays for others, or in cases like Sheehan's, who may die in the coming months, prevent any kind of compensation.
"Where this has been a very successful tactic has been to delay public disclosure of shocking secrets that would come out at trial," said Minnesota attorney Jeff Anderson, who has represented hundreds of plaintiffs in priest abuse cases across the country and represents 11 plaintiffs in Delaware.
Anderson said he has been involved in cases in other states where a diocese has sought bankruptcy protection, and like in Delaware it has almost always been sought on the eve of a potentially embarrassing trial.
David Clohessy, national director of the Survivors Network of those Abused by Priests, agreed, charging that bankruptcy "is not about protecting assets and not about being fair to victims, it's about continuing to maintain secrecy."
Bishop Malooly said he has apologized repeatedly for practices that were wrong -- that abusers should not have been moved from parish to parish for decades. And since 2006, when Bishop Michael A. Saltarelli released the names of 18 priests with credible allegations against them, the diocese has been forthcoming about the cases.
"I think we've been very transparent," Malooly said.
He added that the Chapter 11 filing would make the financial holdings of the diocese transparent as well.
The plaintiffs' attorneys said that if simple fairness for all the victims of abuse were the issue, then the diocese already had a mechanism in place -- a comprehensive mediation process between 142 plaintiffs and the diocese and other entities named as defendants that was ordered earlier this month by Superior Court Judge Calvin Scott.
Diocese attorney Flynn, however, said that the eight or nine cases that were lined up for trial, including that of Vai, were not included in Judge Scott's order.
Neuberger said the cases could have all been included in the "global" settlement -- and charged that the diocese did not want to go forward with that process because Judge Scott had ordered the diocese to hand over documents to the plaintiffs that it did not want to give up or make public.
Flynn responded that it was the plaintiffs who refused to allow the cases that were set to go to trial to be included in Scott's process in part because they did not want to give up those scheduled trial dates.
If the eight or nine cases were excluded from the settlement and went to trial, verdicts could result in a disproportionate distribution of the diocese's assets, leaving other plaintiffs at a substantial disadvantage, Flynn said.
"We could have gone to trial with these cases and then appealed issues and all of that," Flynn said. "But to do so with every case would mean we would be litigating for four or five years. And four or five years means there would be no money left. Only about one-quarter of these cases are insured."
In a declaration filed Monday by Monsignor J. Thomas Cini in support of the Chapter 11 petition, the diocese did not seek bankruptcy protection to "dodge responsibility for past criminal misconduct by clergy -- or for mistakes made by Diocesan authorities."
"Nor did the Debtor seek bankruptcy relief to hide the truth or deny victims their day in court."
Cini said in addition to the litigation, the diocese faces an impending default on approximately $11 million of unsecured bond indebtedness and has an approximately $72 million unfunded pension liability.
Inviting federal oversight
With the bankruptcy filing, the federal bankruptcy court will have pervasive oversight of the Diocese of Wilmington, which was founded in March 1868 by Pope Pius IX and has pastoral charge of 233,000 Roman Catholics. The diocese will have to file regular financial information with the court.
"The finances are an open book," Flynn said.
Based on other diocesan bankruptcies around the country, the bankruptcy process could take at least a year.
During his news conference, Bishop Malooly pointed out that the diocese, as a legal entity, is separate from its 58 parishes and 27 schools. He said most of its churches are owned by the parishes and that he expects disruptions to schools and parishes to be minimal, although the diocese provides support services to parishes and schools that will be affected by the filing.
He said a letter has gone out to priests explaining the filing, and that additional information will be sent to parishioners.
The American Red Cross
Neuberger and his team questioned whether parishes will be considered separate legal entities. If they are separate, the plaintiffs' attorneys argue, then some of the lawsuits could proceed against them as individual defendants because they would not be covered by the bankruptcy protection the diocese is seeking. If not, Neuberger said, then the plaintiffs can look into the assets of each as potential sources for the settlement.
"This is a rich diocese," Neuberger said, adding that the plaintiffs' interests will be represented in bankruptcy proceedings and their attorneys will be aggressively looking into the assets of the parishes.
Looking for 'full value'
As a financial issue, Neuberger said, his clients will get "full value" whether the case goes through bankruptcy court or through Superior Court.
Reck also questioned whether the case would remain in bankruptcy court long once the full value of the diocese's assets have been documented.
The diocese is expected to make its first appearance in court Wednesday, when it asks U.S. Bankruptcy Judge Christopher S. Sontchi for permission to pay employees and meet other routine obligations, according to Flynn.
The diocese on Monday filed a list of the "book value" of its assets, which include the chancery office on North Union Street in Wilmington, which it valued at $213,610; the bishop's residence on Bancroft Parkway in Wilmington, valued at $128,801; and the Neumann Center on the University of Delaware's main campus in Newark, valued at $313,195.
The diocese also listed a pooled investment account of $42.1 million, among other things.
Cini said in the filing there are four primary sources of funds used by the diocese to support its operations: an annual tax on parish income; an annual appeal to all parishioners within the diocese; earnings on assets held for investment; and periodic special appeals or capital campaigns for specified purposes, such as new construction or repairs.
Bankruptcy scholar LoPucki said, given the pattern of other bankruptcies by Catholic dioceses, there will be battles over "who owns what."
"The question will be who owns all those assets, and they generally say they do not," LoPucki said.
He said he doesn't know of any decision by a bankruptcy court that determined what assets are available to creditors of a diocese.
"The word 'fraud' will be flying around," LoPucki said.
Staff reporter James Merriweather contributed to this story. Contact Sean O'Sullivan at 324-2777 or sosullivan@delawareonline.com . Contact Maureen Milford at 324-2881 or mmilford@delawareonline.com. Contact Gary Soulsman at 324-2893 or gsoulsman@delawareonline.com.
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