Thursday, October 12, 2006

Bankruptcy Risky Tactic For Dioceses Facing Sex-abuse Claims

Roman Catholic dioceses facing clergy abuse claims once avoided seeking Chapter 11 protection, but now a fourth American diocese has brought its case to bankruptcy court.
The choice is stunning to experts on law and church management, who say the experience of other dioceses points out the danger of the last-resort legal maneuver for bishops trying to put the abuse crisis behind them.
The Archdiocese of Portland, Ore. — the first American diocese to declare bankruptcy two years ago — and the Diocese of Spokane, Wash., are involved in talks with claimants that are so intense, one analyst compared the negotiations to “trench warfare.”
The federal judges overseeing these separate cases have made conflicting rulings on a key issue in the bankruptcies: whether individual parishes can be considered part of diocesan assets. If the answer is yes, dioceses could be forced to sell the churches to pay off claims.
Only the Diocese of Tucson, Ariz., was able to settle its bankruptcy case in about a year.
Charles Zech, a Villanova University economics professor who specializes in church finances, said he was “amazed” that the fourth diocese, in Davenport, Iowa, filed for bankruptcy protection on Tuesday before those opposing decisions on parishes were resolved.
“With the first bankruptcy, I said there's no way this is going to come out well for the dioceses and I haven't changed my mind on that,” Zech said. “It's opened a Pandora's box that they probably wish they hadn't opened.”
The four bishops said they felt they had no other option.
Dioceses have been trying desperately to move on from the crisis — and some bishops thought the bankruptcy settlements, which put a cap on victims claims, could help. Many dioceses have made multimillion-dollar payouts to victims only to have more people come forward with claims.
The cost of the Catholic sex abuse cases nationwide has risen to about $1.5 billion since 1950, according to figures compiled from various studies by the U.S. Conference of Catholic Bishops.
Advocates for victims have a different view of the filings. They say dioceses gain a legal and public relations advantage by moving to bankruptcy court.
Jeff Anderson, the Minnesota attorney who has brought hundreds of abuse claims against American dioceses and is counselor to claimants in Portland and Spokane, noted that the four bishops filed for bankruptcy protection on the eve of potentially embarrassing trials.
“It's very clear that the strategy has emerged to stay the disclosure of public facts and secrets,” Anderson said.
Anderson said the delay wears down victims, while contributing to the impression that the church is the true victim of the abuse crisis.
“It gives them a real public relations vehicle,” Anderson said. “They say, 'Look at what survivors and the legal system are doing to us. They're shutting down our work.”'
But Fred Naffziger, a professor of business law at Indiana University South Bend, said bankruptcy has been far from an easy out. The Portland and Spokane dioceses are together spending millions of dollars in legal fees as they debate how to tally their assets, he said.
“The bankruptcies have turned into a legal can of worms for these parties,” Naffziger said. “It's costing them an absolute fortune.”
Susan Boswell, the lead bankruptcy attorney for the Diocese of Tucson, said the Arizona diocese emerged from bankruptcy relatively quickly because it included a settlement proposal with its bankruptcy filing that included creating a fund for victims. More than $22 million was set aside to pay the claims.
To avoid a lengthy fight like the ones in Portland and Spokane over whether parish property should be sold to cover the costs, Tucson-area parishes collectively contributed $2 million to the settlement fund, Boswell said.
“A lot of it depends on the people, whether people are willing to work together,” Boswell said. “You have these very emotional, very difficult, very sensitive issues and it's not easy to bring all the constituencies together.”
Douglas Laycock, a religious liberty scholar at the University of Michigan Law School, who described negotiations in Portland and Spokane as “trench warfare,” said it's too soon to know whether the strategy has been a good one. Laycock has been especially concerned about the crisis drawing the courts too deeply into church affairs.
“Filing for bankruptcy may make it worse, but individual collection proceedings are not much better,” Laycock said. The church “could have individual plaintiffs slapping liens on churches and they don't want that.”
Several legal analysts have predicted the fight over whether the dioceses own their parishes will end up before the U.S. Supreme Court. However, Laycock said the cost of the litigation may force dioceses and victims to settle before their cases reach the high court.
“There are enormous pressures on both sides not to keep litigating that far,” Laycock said.
“It's like fighting over a bowl of ice cream. The ice cream keeps melting and by the time you win the fight, there's no ice cream left. ”

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