By Annysa Johnson
Milwaukee Journal Sentinel
January 8, 2011
http://www.jsonline.com/features/religion/113121629.html
 |
When the Archdiocese of Milwaukee announced Tuesday that it would seek bankruptcy protection to deal with its clergy sex abuse claims, Archbishop Jerome Listecki was adamant it would involve only the assets of the archdiocese itself.
Parishes and schools are protected, he said, because they're separately incorporated. Endowments and trusts - holding everything from the $105 million Faith in Our Future campaign funds to money meant for the perpetual care of cemeteries - he insisted, cannot be tapped.
But a look at Catholic Church bankruptcies across the country suggests that every one of those - every account, every asset, every legal contract that controls them - is likely to be scrutinized, litigated and negotiated as lawyers try to hammer out a settlement in which the archdiocese would compensate victims and emerge from bankruptcy intact.
In the end, if cases elsewhere are an indication, the ramifications will be felt for years - by victims, the dioceses and Catholics in the pews.
"This process will be a challenge to the faith and hope of the people involved," said Mark Chopko, a Washington, D.C., attorney and former chief counsel to the U.S. Conference of Bishops, who advised several dioceses during their bankruptcies. "This is a very painful and long process to go through."
Milwaukee, which already has spent nearly $30 million on the sex abuse crisis, including settlements and legal fees, is the eighth U.S. diocese to seek Chapter 11 protection to deal with looming claims. Across the country, bankruptcies have resulted in multimillion dollar settlements in dioceses in Tucson, Ariz.; Portland, Ore.; Spokane, Wash.; Fairbanks, Alaska; Wilmington, Del.; San Diego; and Davenport, Iowa.
Milwaukee filed for bankruptcy after a failed attempt to settle 24 pending claims for $4.6 million. Listecki said the Chapter 11 filing was the most equitable way to fairly compensate current and future victims, and continue the church's essential missions.
The diocese lists about $98 million in assets on its latest financial statement, though it argues almost all of that is in restricted accounts and trusts. Diocesan officials say earlier settlements already exhausted much of its cash and property. Of the remaining assets, it said it has $1.6 million in cash and $5.5 million in property to pay settlements - figures that Charles Zech, director of the Center for the Study of Church Management at Villanova University, called "highly unusual" for an archdiocese the size of Milwaukee.
"It's unusual and dangerous, because they'd be living right on the edge," he said.
The archdiocese cannot tap insurance funds, under a court ruling, though the archdiocese has said it may appeal that decision.
It's impossible to predict how Milwaukee's bankruptcy will shake out, experts say. Each one differs based on a diocese's assets, financial and operational structures, and how its state statutes intersect with federal bankruptcy laws.
But a review of cases nationally suggests some of the issues likely to surface in Milwaukee:
Parishes and trusts:
Creditors in the Milwaukee bankruptcy are almost certain to challenge the archdiocese's assertion that parish assets are off-limits because parishes are separately incorporated. The first salvo came in the line of questioning by victims' attorney James Stang in a hearing Wednesday. Stang questioned John Marek, the archdiocese's chief financial officer, about parish corporation boards, which includes the archbishop and his vicar general.
Both Stang and archdiocese attorney Bruce Arnold declined to be interviewed for this article.
Legal experts said bankruptcy courts have respected the autonomy of parishes in Davenport and Wilmington, where they are separately incorporated.
But some trusts have not been ironclad.
Trust structures were contested in Portland, Spokane and Wilmington. In Wilmington, the court ruled that millions of dollars in an investment trust held by the diocese for parishes, schools, cemeteries and other organizations would become part of the estate because they had been commingled with diocesan funds and couldn't be traced to their original sources - a decision that is now affecting pensions for lay employees.
Real estate:
During bankruptcies, creditors' attorneys have challenged the amount of real estate initially identified by dioceses as available to pay settlements, in some cases bringing in forensic specialists to mine tax and property rolls, experts said.
In San Diego, where the bankruptcy filing was dismissed after an outside agreement with victims was reached, creditors had accused the diocese of significantly undervaluing its holdings. News coverage at the time of the bankruptcy's dismissal put the assessed value of church properties there at more than $400 million, saying it included single family homes, vacant residential and commercial lots, multiuse buildings and condominiums.
Lawyers for that diocese said Friday that diocesan ownership of the properties was never established at trial.
But U.S. Bankruptcy Judge Louise DeCarl Adler was troubled enough to rebuke the diocese at the close of the bankruptcy, calling it "disingenuous" and saying it had enough assets to settle its claims without ever going to bankruptcy.
Future claims and a final call for sex abuse lawsuits:
One of the advantages of bankruptcy for dioceses fearful of looming court judgments is that it creates a finite pool of money and a deadline for claimants to come forward.
"That's the theory, but everyone is testing that now," Chopko said of the so-called "bar dates" that have traditionally imposed narrow deadlines for compensation.
In Portland, for example, the court set an April 2005 deadline for most claims. But it left the door open for more than 20 years for certain claimants: minors, and those with repressed memories who didn't recall the abuse in time or didn't connect it to their injuries, such as addictions or emotional problems, according to the Portland archdiocese.
"Future claims is one of the big issues on the table," in bankruptcy cases, said Marci Hamilton, the Verkuil chair in public law at Cardozo Law School, who has represented victims in church bankruptcy cases in San Diego, Spokane and Portland. She also represented victims in the Wisconsin Supreme Court case that opened the door for civil fraud lawsuits. "The two things that will be debated are the deadline when people have to come forward, and what happens to those who don't."
Non-monetary terms:
While the bankruptcy proceedings rarely result in the release of significant documents - or depositions like the one Milwaukee victims wanted of retired Bishop Richard Sklba - bankruptcy settlements have included non-monetary terms.
Across the country, dioceses that declared bankruptcy agreed to make public apologies; identify abusive priests, including those of religious order priests (that's now being litigated by the priests); build a monument to survivors; and other provisions.
"One of the most important issues that comes up very quickly is that the survivors are never solely interested in just compensation and damages," said Hamilton.
Even with large financial settlements, many victims are left with emotional damage that money can't assuage. They rarely get the documents and revelations that for some were the primary reason to sue.
"I don't know of any cases where the victims group was satisfied with the level of information revealed by the diocese in bankruptcy," said Zech of Villanova.
In the end, bankruptcy can clear the slate and give an archdiocese some level of certainty about its financial obligations. However, there are risks, including the potential loss of operational control, and the possibility that the negotiated settlement could be greater than it initially expected.
"It's a gamble," said Zech. "The last thing a diocese wants is for outsiders to control their decisions, and they're careful not to go there."
Across the country, dioceses have had to sell or mortgage properties, cut programs, and ask or compel parishes and the faithful to help shoulder the cost of settlements.
"They're mortgaging their futures," Chopko said, "and cutting back on ministries that are vital to the growth and future of the dioceses."
Any original material on these pages is copyright © BishopAccountability.org 2004. Reproduce freely with attribution.