Bankruptcy Best Path for Clergy Sex Abuse Claims

Martin Moylan St. Paul
January 16, 2015

http://www.mprnews.org/story/2015/01/16/-twin-cities-archdiocese-files-for-bankruptcy-amid-abuse-claim-worries

With three clergy abuse lawsuits nearing trial and concerns mounting over the cost of future claims, the Archdiocese of St. Paul and Minneapolis on Friday filed for bankruptcy protection.

The Chapter 11 filing buys the archdiocese time to reorganize its troubled finances as it faces huge potential costs tied to clergy sex abuse. Instead of handling claims through civil suits, alleged victims will likely need to file claims in federal court as creditors of the archdiocese.

The shift into bankruptcy court also stops the coming civil trials, which were set to begin Jan. 26.

The move allows the "finite resources" of the archdiocese to go equitably to clergy abuse victims while letting the institution continue its mission, Archbishop John Nienstedt said at an afternoon press conference.

The archdiocese reported assets of $10 million to $50 million — and liabilities of $50 million to $100 million.

Ultimately, the archdiocese may have to sell some assets to pay its debts, Nienstedt said.

He added that he does not intend to resign.

"I love this archdiocese. I think I have worked hard on behalf of the archdiocese," he told reporters.

Church leaders had been signaling bankruptcy for months as the financial woes of the archdiocese deepened. Last fall, the chancery's outside accountants cast "substantial doubt" about its long term financial health given that future clergy abuse costs were impossible to predict.

In November, archdiocese chief financial officer Thomas Mertens called bankruptcy protection "a way to respond to all victims/survivors by allowing the available funds to be equitably distributed to all who have made claims..."

Still, it was a stunning step Friday for one of the Twin Cities oldest, largest and most influential institutions, one that traces its roots to the 1840s and now shepherds more than 800,000 Catholics and 400 priests in nearly 200 parishes.

The bankruptcy filing comes 16 months after MPR News first published reports that showed an ongoing cover-up of clergy sex abuse by Nienstedt and other top officials. The MPR News investigation plunged the archdiocese into a clergy sex abuse scandal. Within days of the first MPR News report, Nienstedt's top deputy, the Rev. Peter Laird, resigned. As the scandal widened, the archdiocese postponed a $160 million capital campaign, and parishioners' calls for Nienstedt's resignation grew louder.

The Twin Cities archdiocese becomes the 12th in the nation to seek bankruptcy protection.

If this one plays out in a manner similar to other archdiocese bankruptcies, a judge will set up a process to evaluate alleged victims' claims. A deadline will be set for victims and other creditors who had not yet filed claims against the archdiocese.

Bitter disputes are likely over which assets are controlled by the archdiocese and which should be available to settle debts.

The process promises to be more complicated here because of a Minnesota law that gives victims of child sex abuse until May 2016 to file lawsuits for past claims. No other diocese has filed for bankruptcy while such a window was open.

That uncertainty, together with a year of public disclosures detailing how Twin Cities archdiocese leaders reassigned, excused and overlooked sexually abusive priests among their ranks for decades, has left the institution struggling financially.

The archdiocese ended fiscal 2014 in the red, with an operating deficit for the year of about $9.1 million and net assets of about $33 million.

Twin Cities parishes, however, hold roughly $1.7 billion in assets, according to an MPR News analysis of internal parish financial records last year. But buildings and real estate account for most of that, and the parishes could be seriously overestimating what properties are worth.

So will the bankruptcy filing reach into the neighborhood churches? That may be the biggest concern of Twin Cities Catholics.

The archdiocese has maintained that its nearly 200 Twin Cities parishes, the community foundation and charities and other Catholic organizations would be protected in a bankruptcy.

Nienstedt on Friday made a point of saying the archdiocese filing "does not include parishes and schools."

During the afternoon press conference, however, he seemed less certain.

"To my knowledge, I'm not aware that it will impact our parishes and our schools. We are the twelfth diocese in this country to go through reorganization, and from the research that we've done, the parishes and schools in those dioceses had not been affected," he said.

He added: "We don't know. I mean, in a sense I can't make any promises here because we don't know what the judge is going to do as we go through the reorganization. But if it is true to form from what other situations have been, I don't see where they're going to be involved."

Experts say there are likely to be disagreements over what's protected and who pays.

"We're certainly hopeful that a mutually agreeable settlement can be reached with the insurance carriers. But time will tell," said archdiocese attorney Charlie Rogers

"Certainly we have claims against the carriers and carriers have various defenses, but we will work hand in hand with victims to seek the maximum rewards possible," he said. "To speak to it now is a bit premature."

The bankruptcy documents appear to indicate the archdiocese has limited financial resources, said Jeff Anderson, a St. Paul attorney who's represented many alleged victims of clergy sex abuse in the Twin Cities archdiocese.

Anderson's law firm has submitted 112 notices of claim on behalf of clergy sex abuse victims in the Twin Cities archdiocese, in addition to the 16 lawsuits already filed.

"We're confident this we can handle this and will handle this in a way that does not interrupt their core ministry and the good work" of the archdiocese, he said, adding that he believes the insurance coverage is sound.

However, Minneapolis attorney Patrick Noaker, who represents six alleged victims of clergy sex abuse in the Twin Cities archdiocese, said his clients are frustrated by the filing.

"Bankruptcy doesn't protect kids," he said. "But trials and disclosure of past practices does protect kids."

One of his cases had been scheduled to go to trial in 10 days, and Noaker said it was difficult to break the news to his client that the trial wouldn't happen. "He's pretty down today."

The mother of boys abused by the Rev. Curtis Wehmeyer said Friday she hopes that her family will receive compensation as part of the bankruptcy process.

She said her family has spent thousands of dollars so far related to the abuse, including plane tickets to visit two of her sons at a treatment facility in another state.

The archdiocese has covered some, but not all, of their costs, and a lawsuit against the archdiocese has not been settled, she said but added that she trusts Anderson. "I think they're going to get to the point where I can be assured that my kids are taken care of."

The woman, who asked that she not be identified to protect her children's privacy, said she's frustrated that more parishioners aren't calling for Nienstedt's resignation.

"At least for me and my family that would be another step toward healing. Because as far as transparency goes, all's I see when I look at them is lies."

The archdiocese did not give parish priests advance notice of its plan to file for bankruptcy but many priests and parishioners had been expecting it for months, said the Rev. Mike Tegeder, pastor of St. Francis Cabrini Church in Minneapolis.

The ministry of the church will continue, but Nienstedt needs to resign, said Tegeder, a longtime critic of the archbishop.

"He's just not capable of getting us through this," he said. "We need somebody who's more of a healer."

Archdiocese leaders for years made "terrible decisions" in handling clergy sex abuse claims, he added. "It's very sad. We did not have to be in this situation."