Victims Target Parish Assets, Maureen Milford, The News Journal, October 22, 2009

Victims Target Parish Assets

By Maureen Milford
The News Journal
October 22, 2009

http://www.delawareonline.com/article/20091022/NEWS01/910220368

Plaintiffs assert that diocese assets must include parish properties, such as the two-year-old St. Joseph Church in Middletown.

Sex-abuse plaintiffs dispute diocese's claim of separate legal status for properties

Following the Catholic Diocese of Wilmington's first court appearance Wednesday, lawyers for sex abuse victims said they would seek to include parish property in the bankruptcy proceedings.

James Stang, the lawyer for the unofficial committee of abuse survivors, said he will challenge the diocese's assertion that the parishes have a separate status from the diocese. He spoke outside the courtroom in downtown Wilmington.

The diocese sought protection in U.S. Bankruptcy Court for the District of Delaware late Sunday night in an effort to manage the potential liability resulting from an avalanche of sexual-abuse claims against the diocese. The diocese estimated assets of up to $100 million and debts up to $500 million.

The Delaware Child Victim's Act in 2007 created a two-year window that allowed victims of clergy sex abuse, whose lawsuits had been barred by the statute of limitations, to bring civil action in Delaware Superior Court.

By the time the two-year period ended on July 9, the diocese was named as defendant in 131 sexual abuse actions, according to a declaration filed by Monsignor J. Thomas Cini. Managing the litigation before 10 different Superior Court judges in all three counties has been "difficult and extremely costly," Cini said.

While the diocese had been in settlement talks, negotiations broke down over the weekend, forcing the diocese into bankruptcy, according to Tony Flynn, the diocese's attorney. Under federal law, the bankruptcy action put an automatic stay on all litigation.

Because the diocese is now under the oversight of the federal court, it had to get interim permission from U.S. Bankruptcy Court Judge Christopher Sontchi to continue to use its money for ordinary business, such as paying employees.

Sontchi rebuffed Stang's efforts in the so-called first-day hearing to wade into the issue of who owns what assets in the Roman Catholic community. He indicated that those issues would be dealt with later.

"There are two issues here," Sontchi said to Stang. "One is source [of the money] and the other is use. This is a motion about use."

Cini said the diocese, which encompasses 57 parishes in Delaware and the Eastern Shore of Maryland, is not seeking to "dodge responsibility for past criminal conduct by clergy -- or for mistakes made by diocesan authorities." The diocese has publicly acknowledged many of the incidents of abuse, but not all of them.

One goal in seeking bankruptcy is to preserve the diocese's assets and make sure "they will be distributed equitably to all creditors, not just a select few." The second goal is to continue the work of the Catholic Church in the diocese.

"In order to do this, the [diocese] must survive. It cannot, and will not, stand by and permit its piecemeal dismemberment at the hands of its creditors," Cini said.

The parish corporations, which are affiliates of the diocese, are not part of the bankruptcy proceeding because they have separate legal status from the diocese, Cini said in his declaration.

The diocese is a tax-exempt company incorporated under the state's general corporation law, Cini said. Real estate held by the diocese includes the bishop's residence and the chancery office in Wilmington and the Neumann Center at the University of Delaware.

The parishes are formed under another Delaware law -- the religious societies and corporations statute -- or Maryland's religious corporations law. Each parish owns a church and rectory. Twenty parishes also own and operate schools, he said.

Some parishes own missions, social halls, convents and cemeteries, according to Cini.

Because they are not considered debtors, no value has been placed on parish assets so far in the proceedings.

Cini said the diocese is hopeful the separate corporate structures of parishes and other Catholic entities not in bankruptcy, such as the Catholic Diocese Foundation, Catholic Charities Inc. and Diocese of Wilmington Schools Inc., will exempt them from litigation over what property is included in the diocese's bankruptcy estate.

Other dioceses that have filed for Chapter 11 bankruptcy "have been mired in litigation" between the dioceses, nondebtor affiliates and creditors over the scope of the dioceses' estates and the value of the assets available to survivors, Cini said.

Stang, who has represented victims in other diocesan bankruptcies, said bankrupt dioceses always seek to maintain a separate legal status. Lawyers for abuse victims in other bankruptcies have managed to include the parish property as part of the settlement to victims, he said.

He said lawyers will also be seeking nonmonetary compensatio similar to provisions negotiated in other settlements. In the Diocese of Davenport, Iowa, which lawyers say most resembles the Diocese of Wilmington in terms of structure, the diocese agreed to identify abusive priests. The Davenport plan called for the bishop to visit parishes in which abuses took place.

"But let me make something clear," Stang said. "To the best of my knowledge, no school or parish was sold to pay survivors of [abuse] claims."

Next month, Sontchi will consider an action brought by James E. Sheehan, an alleged victim who wants his trial to go forward in state court. Sontchi will also hear a motion brought by the diocese to temporarily halt eight trials scheduled in state court. Seven of those cases involve parishes as defendants along with the diocese.

Cini said a swift exit from bankruptcy is "of the utmost importance."

"Although I am hopeful the charity of the Catholic faithful will be unaffected by the pendency of this Chapter 11 proceeding, I suspect the bankruptcy will likely cast a pall upon the (diocese), the Parish corporations and schools, and the various nondebtor Catholic entities and their various ministries," Cini said.

"Some of the faithful may believe that, going forward, their charitable gifts to any Catholic entity will be diverted from their intended purposes and used to satisfy the claims of the [diocese's] creditors in this case, rather than used to fund ongoing ministries of the Church that benefit the faithful and their community."

The diocese will do its best to dispel this misconception, Cini said.

"I believe the best way to resolve the concerns of the faithful will be for the diocese to expeditiously emerge from the bankruptcy process," he said.

Contact Maureen Milford at 324-2881 or mmilford@delawareonline.com