$35 Million in Parish Investment Funds off the Table in Sex Abuse Case

By Annysa Johnson
Milwaukee Journal Sentinel
December 11, 2012

www.jsonline.com/features/religion/35-million-in-parish-investment-funds-off-the-table-in-sex-abuse-case-c07uqgs-182916681.html

The Catholic Archdiocese of Milwaukee, which faces more than a dozen civil fraud lawsuits over its handling of clergy sex abuse cases, filed for Chapter 11 bankruptcy protection in January. As the case proceeds, we'll have updates, analysis, documents and more.

Creditors in the Archdiocese of Milwaukee bankruptcy cannot sue to recover more than $35 million in parish investment funds that the archdiocese moved off its books in 2005, a federal judge ruled Monday.

It was the second major victory for the archdiocese and its parishes in recent days.

In a 23-page decision, U.S. Bankruptcy Judge Susan V. Kelley said, "arguably there was something 'fishy' about the transfer" at a time when the archdiocese was being sued for sexual abuse by priests and had started a mediation program for survivors.

But Kelley said the money never belonged to the archdiocese, that the parishes took the funds back or invested them elsewhere in good faith, and that the high cost of litigation would undermine the archdiocese's ability to develop a reorganization plan.

"Even assuming that the committee prevailed in its lawsuit, the ever looming question of collectability remains," Kelley said.

"Presumably, these entities would look to their parishioners, students and benefactors to help fund any judgment rendered against them," she said.

"Without the support of these individuals, the (archdiocese) undoubtedly will struggle to meet its obligations and fund a Chapter 11 plan."

Attorneys for the archdiocese, creditors and parishes did not immediately return emails or telephone calls seeking comment.

The creditors committee is expected to appeal. Creditors include the archdiocese's pension and health care funds, as well as 574 men and women who allege they were sexually abused by priests and others in the church.

The creditors committee accuses the archdiocese of fraudulently transferring tens of millions of dollars off its books to keep it out of the hands of sex abuse survivors. They point to the minutes of a 2003 archdiocese finance committee meeting in which it discussed "setting up a trust fund to shelter the Parish Deposit Fund."

Kelley's decision follows a ruling Friday that the Archdiocese of Milwaukee's 200-plus parishes are separate legal entities and that their assets will not be consolidated with the archdiocese's as part of its bankruptcy.

She heard oral arguments on both motions Thursday.

Attorneys for the archdiocese call the charges "ridiculous" and lawsuits aimed at recovering those funds "blackmail."

A lawsuit is already pending over $57 million in a cemetery fund created by the archdiocese in 2007.

The $35 million in the Parish Deposit Fund appeared on the archdiocese's financial statements until 2005, when the account was closed. At that time, the archdiocese gave parishes the option of getting their money back or placing it in the newly created Southeastern Wisconsin Catholic Parishes Investment Management Trust.

The archdiocese maintains there was "nothing nefarious" about protecting the asset on behalf of the parishes.

Archdiocese attorney Frank LoCoco argued Thursday that any such lawsuit could drag on for years, destroy parishes and make it impossible for the archdiocese to continue its ministries.

The archdiocese filed for Chapter 11 protection in January 2011 as a way to resolve its outstanding sex abuse claims. From the beginning, the two sides have pursued divergent strategies, with the archdiocese moving to throw out victims' claims and the creditors pursuing church assets that could be used to pay them.