May 10, 2005

Washington Judge Tackles Thorny Chapter 11 Issue


Matt Miller
The Deal

A Spokane, Wash., judge will hear arguments in June on one of the most basic, highly charged and judicially thorny questions facing the U.S. Catholic Church and its use of bankruptcy protection -- namely, when a diocese is in Chapter 11 protection, what's the legal standing of an individual parish?

On May 2, Judge Patricia Williams of the U.S. Bankruptcy Court for the Eastern District of Washington set June 27 as the date for a hearing on a partial summary judgment motion against the bankrupt Spokane diocese and the 81 parishes within its territory.

Williams said she would rule on the parish-standing question at that hearing.

When she does, Catholic dioceses across the nation will hang on her words because plenty still face potentially crippling litigation associated with sexual abuse by priests.

The Spokane diocese claims it holds parish property in trust for individual parishes and, as such, should exclude from its estate dozens of churches and schools. If Williams determines a parish as a separate legal entity doesn't exist, then the diocese would have a much tougher time establishing the trustee relationship.

A committee of tort litigants in February brought the adversary motion against the diocese and named 131 parishes, schools and other church entities as co-defendants.

The motion demands that the parish properties be included as part of the debtor's estate, something that could potentially increase the value of the holdings several-fold.

Posted by kshaw at May 10, 2005 04:32 AM