In the 18 years since the U.S. saw the first bombshell investigation into clergy sex abuse out of the Archdiocese of Boston, almost two dozen dioceses have declared bankruptcy.
The majority of them have opted for Chapter 11 under the crushing weight of mounting legal lawsuits from victims.
On Wednesday, the Harrisburg Diocese joined the ranks of dioceses nationwide seeking to minimize the damage wrought by their role in the clergy sex abuse scandal, becoming the first Pennsylvania diocese to seek the protection from mounting lawsuits.
“This difficult decision was made after countless hours of prayer and careful deliberation with our financial experts, attorneys and our Diocesan Finance Council and College of Consultors,” Bishop Ronald Gainer said at the press conference.
In filing for Chapter 11 protection in the U.S. Middle District Court, Gainer seeks to protect the diocese’s assets from potentially crushing lawsuits.
More: Harrisburg Diocese becomes first Pa. diocese to seek bankruptcy protection after clergy sex abuse scandal
Efforts to define the diocese’s bankruptcy parameters would amount to speculation. That’s because the bankruptcy court, in conjunction with an overseeing committee, which will include plaintiff representation, will ultimately determine the parameters of the diocese’s financial liability and responsibility.
To be sure, the assets of the diocese – including its holdings, property, stocks and bonds – will factor in to those legal parameters.
In its court filing, the diocese estimates its assets to be worth between $1 million and $10 million; it lists estimated liabilities of $50 million to $100 million. Estimated creditors are estimated between 200 to 999, the petition states.
In June 2018, the Harrisburg diocese reported $183 million in total assets, including $144 million in investments, The Philadelphia Inquirer reported.
On Wednesday, the outside legal counsel for the diocese, Matt Haverstick, fielded a slew of questions from members of the media regarding the estimated value of the diocese’s assets.
By comparison, in the 2009 bankruptcy reorganization of the Diocese of Delaware, the diocese had a value of $2.1 billion. One funding stream alone – to the tune of $70 million dollars – came from one wealthy individual.
More: Harrisburg bishop talks about bankruptcy filing due to Catholic sex abuse scandal: Key takeaways
Haverstick noted that it was impossible to compare dioceses.
“You’ve seen one diocese, you’ve seen one diocese,” he said. “That calculus is superficial.”
He stressed that neither parish churches nor Catholic schools within the diocese were involved in the bankruptcy action. The churches and schools are all independently operating entities, Haverstick said.
“The entity in bankruptcy is the Diocese of Harrisburg,” he repeated several times.
Gainer said the mounting lawsuits against the diocese have put the organization in a “very challenging position.”
“They’ve had harsh financial consequences for the diocese,” he said. “The current position is unsustainable.”
Haverstick acknowledged that multiple trusts had been formed over a period going back decades, and that some of those assets are restricted, while others are not.
Indeed, one strategy common to entities filing for bankruptcy is the move to transfer assets around – in essence shield assets under different tax identities or entities.
Penn State law professor Marie T. Reilly, an expert in bankruptcy and commercial law, explains that in doing so, organizations are able to control their wealth risk pool in such a way that it protects their assets from liability.
But federal bankruptcy law permits creditors to challenge transfers that the debtor has made, which from the debtor perspective depletes its wealth and leaves them debt insolvent.
More: Catholic Diocese of Harrisburg files for bankruptcy; says move will help it atone financially for ‘sins of the past’
Still, Catholic dioceses have gotten around that issue: They structure their holdings to reflect operation reality.
“What Catholic dioceses have done since 2002 when the Boston Archdiocese scandal broke is they started taking a look at the way parishes within the diocese and cemeteries and schools were organized,” Reilly said. “And how they were holding the title to that property and made an effort to clean their act.”
Under canon law, bishops may assign priests to parishes, but they do not not own parish property. Parish property belongs to the individual parishes, which are separate entities under canon law.
“When a bishop decides to set up parishes as charitable trusts or separate corporations with separate tax ID numbers….It’s a way of form following substance. In substance the property belongs to the parish and the people who make contributions to the parish,” Reilly said. “In terms of ownership, the parish owns the property…..but for the purposes of challenging those transfers, the question will be if under bankruptcy case, claimants can challenge the transfer as a fraudulent transfer.”
Haverstick said the diocese had not transferred assets before filing for bankruptcy.
Haverstick said some parish trusts had been set in 2009, although he said he had nothing to do with those actions and could not answer to them.
“I think it’s a common practice in the Catholic Church and the nonprofit world to organize discreet religious entities that way,” he said. “I don’t think it’s particularly uncommon or emblematic of a deeper concern.”
Marci A. Hamilton, a University of Pennsylvania law professor and victims attorney, said Catholic dioceses have in the past gone the bankruptcy route in order to flush out more victims.
A few years ago, Hamilton worked on an appeals case involving the Archdiocese of Milwaukee, which in 2007 sought to make a one-time transfer of $55 million from the archdiocese’s general accounts to a trust earmarked for maintaining cemeteries, then cited religious liberty freedoms to protect the move. The archdiocese lost the appeals case after the court deemed it had been a fraudulent transfer under bankruptcy.
“They got everyone to come forward and didn’t pay anyone. It was really ugly,” said Hamilton, who was part of the appeal. “It’s why dioceses love bankruptcy.”
Hamilton speculates that the Harrisburg Diocese may be proactively flushing out as many victims as possible. Bankruptcy claims must adhere to a strict time, which will be determined by the court.
“Now everyone has to come forward,” Hamilton said. “It’s all about them.
“There’s no end,” she said. “It’s getting to be a bad Italian opera. It’s a lot of people working to protect themselves. In the end they just don’t care about the victims. They want them to go away.”
Harrisburg last year paid out $12 million in settlements with more than 100 survivors as part of their victims compensation fund. The average payout to those accepting the Harrisburg diocese’s offers was about $114,000. An attorney who represented clergy sex abuse survivors described the Harrisburg diocese’s settlements as “a little light.”
In December, the Associated Press reported that seven Catholic dioceses in Pennsylvania have paid nearly $84 million to 564 victims of sexual abuse, a number that’s expected to grow. The average payout across all seven dioceses has exceeded $148,000.
Across the country, some of the settlements across Catholic dioceses have been stunning. In 2018, the Archdiocese of St. Paul and Minneapolis brokered a $210 million settlement with more than 400 survivors, the largest such settlement in the nation.
Now, with an increasing roster of states that have reformed child sex crime laws, lawsuits against Catholic dioceses have surged as generations of time-barred victims are given long-awaited paths to justice.
Yet, in spite of the potential of a groundswell of lawsuits, no legal precedence points to the dissolution of a diocese as a result of bankruptcy settlements.
“Among the cases that have gone before, that have been litigated in one form or another, no parish assets have been clawed into bankruptcy case successfully,” said Reilly, the Penn State law professor.
“No court has ever ordered the liquidation of a parish church. There is no scenario that you could imagine where the St. Christopher Church has been on the auction block. That has never happened.”
Haverstick said the diocese’s decision to file for bankruptcy protection was done in good faith and with the welfare of victims and parishioners in mind.
“I think it’s the most responsible thing we can do for victims and survivors and for the people supported by diocesan charities,” he said. “It’s an attempt to do right by everybody, not short shrift one group over another group.”
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