Bankruptcy Brings Year of Deadlines for Diocese
By Kevin Parrish
SACRAMENTO - When the Stockton Diocese electronically files for Chapter 11 bankruptcy protection today, it will set in motion a series of deadlines that will take most of this year to play out. The Roman Catholic Diocese of Stockton - the 10th diocese in the nation to file for bankruptcy - represents 250,000 people in 35 parishes and 14 missions. It covers six counties, including San Joaquin and Calaveras, and employs 88 priests. It was founded in 1962 out of what had been territory within the Archdiocese of San Francisco and the Diocese of Sacramento. The Stockton Diocese is being represented by the Capitol Mall-based bankruptcy law firm Felderstein Fitzgerald Willoughby & Pascuzzi. Bankruptcy has its roots in two decades of payouts to the childhood victims of sexual abuse by priests. "Our goal is move as fast as reasonably possible," said Steven H. Felderstein, a managing partner at the law firm. He said today's filing also will be accompanied by three important motions. » Employee wages: The law firm will ask the court for permission to make payroll at the end of the month. » Cash management: Felderstein said the goal is to keep the same banking system in place, thereby making the situation "less complicated" for the diocese. » Utility motion: He said the federal bankruptcy court will be asked to order Pacific Gas and Electric Co. to keep the power on for 30 days. The diocese announced its intention to file for bankruptcy Monday, the same day former priest Michael Eugene Kelly was indicted by a criminal grand jury in Calaveras County on four child sexual-abuse charges. John Manly, the attorney representing the victim, said the timing was not a coincidence. "Bottom line, the diocese wants to pretend like the bankruptcy and the indictment are just incidental," he said. "By filing the bankruptcy, all the discovery in the case is stayed (suspended)." Manly said that after long delays, Bishop Stephen Blaire is scheduled for a deposition next week. Manly accused the diocese of "concealing" what it knows about Kelly. Blaire said Tuesday that the Chapter 11 process is "extremely transparent and public." The bankruptcy filing - and the accompanying motions - will be made at U.S. District Court for the Eastern District of California in Sacramento. Felderstein said he had no idea which judge would ultimately handle the case, but he doubted it would be U.S. Bankruptcy Judge Christopher M. Klein, who is overseeing Stockton's unresolved Chapter 9 case. Felderstein and partner Paul J. Pascuzzi are representing the diocese in its Chapter 11 filing. Felderstein said he anticipated rulings next week on today's motions. The diocese has 120 days to file a reorganization plan, followed by 60 days to negotiate with claimants. As part of that process, the U.S. Trustee Office in Sacramento, an arm of the federal Department of Justice, will appoint a creditors' committee. It will be composed of lawyers representing sex-abuse claimants. A deadline, or "bar date," will be established for those wishing to file claims who have not already done so. "The idea is to give everyone ample opportunity to come forward," Felderstein said. "It brings out all the claimants rather than negotiate with them one by one." He also said that court-allowed extensions of the 120- and 60-day deadlines are possible. A lot depends on how many additional claims are made against the diocese and how much insurance is available for potential settlements. The diocese settled a 2012 lawsuit involving Kelly for $3.75 million. Blaire said this week that the depletion of funds - the diocese has less than $1 million in reserves - was a driving force behind the decision to file for bankruptcy protection. He said it was only way possible to "fulfill (our) responsibilities to victims of sexual abuse." Ten years ago, the Stockton Diocese split off its parishes, Catholic schools and other entities into separate corporations. Critics have said that dividing administrative functions from other aspects of the church has been a legal maneuver designed to protect assets. Felderstein, a litigator for 35 years, disagreed. "This case is different," he said. "These incorporations took place a decade ago. I am not aware of any other case where there was that much seasoning. These incorporations were not created to affect creditors in any way." Staff writer Joe Goldeen contributed to this report. Contact: kparrish@recordnet.com
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