Fate of parishes may rest with courts

In the end, the actions of a few priests have finally hit home.

With the threat of bankruptcy looming over the Diocese of Spokane, Catholics in Eastern Washington are coming to grips with the fallout from the sex abuse scandal.

At stake, potentially, are their parishes and schools. Ultimately, a bankruptcy judge must answer a crucial question: Who owns the 81 parishes, 16 schools and other entities that make up the Diocese of Spokane?

Until the bankruptcy proceeding gets under way, many Catholics remain anxious. “Will we have to pay for bankruptcy? Will my church close?” they ask. “Where will my children go to school?”

“We don’t really know what’s going to happen, but I feel confident our bishop is going to be fair,” said Lorraine Welsford, a longtime member of Assumption Parish in north Spokane. “He’ll get us through this terrible time.”

Bishop William Skylstad has said Chapter 11 bankruptcy protection will not shut down schools and parishes.

Church law, or canon law, identifies parishes as individual entities that are separate from the diocese, even though they are held in trust by the bishop of Spokane. That means the money and assets of an individual church belong to that parish – not to the bishop. It also means parishes and other entities cannot be forced to pay the costs of sexual abuse settlements, which are included in the Chapter 11 reorganization. This separation between the diocese and the parishes is also supported by a 1915 Washington state law.

But potential creditors, including victims of the abuse, are questioning the strategy. They argue that all church money and property are in the bishop’s name and must therefore be declared among the diocese’s assets in the bankruptcy filing.

Uncertain situation

As Catholics wrestle with the complexities, confusion abounds.

“All this is so nebulous right now,” said the Rev. Tim Clancy, pastor of Our Lady of the Lake parish in Nine Mile Falls. “I don’t think the lawyers know how vulnerable our assets are. We’re even more in the dark. Nobody knows what’s going to happen.”

When the diocese files for Chapter 11 on Monday, it will venture into the unchartered legal frontier of federal bankruptcy court, into a realm where the laws of the church could clash with the law of the land.

“In the short term, bankruptcy won’t affect the parishes,” said Fred Naffziger, an expert on church finances and a professor of business law at Indiana University South Bend. “In the long term, it’s uncertain.”

The critical issue in bankruptcy is the assets of the diocese, he said. In Oregon and Arizona, both the Portland Archdiocese and Tucson Diocese have argued that their funds are limited only because most of the assets belong to the churches.

But “just because a diocese says it’s canon law, it doesn’t mean civil law has to recognize this,” said Naffziger, who’s also Roman Catholic.

The diocese has to explain why the bishop doesn’t own the parishes, even if the written titles are in his name, Naffziger explained. The argument is that the bishop is simply holding these assets in trust, but the real owners are the parishes themselves. However, if creditors can prove that the diocese has used parish money for diocesan purposes, including the litigation cost of sexual abuse claims, that’s evidence showing it’s potentially diocesan property, he said.

It may get even more complicated if a judge rules against a diocese and forces a bishop to disobey canon law. If that happens, the church can invoke the First Amendment in its defense by citing freedom of religion, Naffziger said.

Parishes organize

Shortly before the Spokane Diocese announced its plan last month to file for bankruptcy protection, about 30 priests and parish administrators met to discuss how they could shield their churches’ assets to continue the mission of the Catholic Church. The gathering led to the formation of the Association of Parishes, an organization composed of representatives from the majority of the Spokane Diocese’s churches.

The association does not have an adversarial relationship with the bishop or the diocese, said John Munding, one of two bankruptcy attorneys representing the churches. “Its goal is basically to protect the interest of the parishes with respect to the diocese’s filing,” he said. “The association will work with the parishes for the common good of everyone involved in this proceeding.”

During an Oct. 28 meeting to formulate the association, participants “expressed sadness over the need to have to prepare for this additional layer of litigation,” according to a recent article in the Inland Register, the official newspaper of the Diocese of Spokane. But creating the association was necessary, they concluded, because of the litigation process. It’s unclear at this point how much the association will cost the parishes in legal expenses.

Banding together

Spokane’s Association of Parishes is similar to groups formed in the Archdiocese of Portland and the Diocese of Tucson, both of which filed for bankruptcy this year. In Portland, more than one-third of the 124 parishes have joined the Committee of Parishes and Parishioners. In Tucson, all 75 parishes came together and hired legal counsel this summer – two months before the Arizona diocese filed for bankruptcy.

The parishes in the Tucson Diocese are the largest creditor in that diocese’s bankruptcy proceeding, according to Michael McGrath, one of two attorneys representing the churches. Two years ago, the diocese borrowed about $5 million from its parishes to finance the litigation settlement. That debt has not been repaid, McGrath said.

Ten of the churches in Tucson have also been named as co-defendants with the diocese in lawsuits alleging clergy sexual abuse, McGrath said.

Despite inevitable tension between creditor and debtor, there has been a lot of dialogue between the diocese and the parishes, he said. The parishes also approved of Bishop Gerald Kicanas’ decision to file for Chapter 11 reorganization, he said.

The Tucson bishop has proposed selling diocesan property and asked parishes to voluntarily contribute to a fund that would be used to pay off creditors.

That fund, which is part of the diocese’s plan for reorganization, would also receive money from the diocese and insurance carriers, McGrath said.

Criticism, support from within

In Spokane, priests and others who participated in the first meeting of the Association of Parishes appear to support the bishop’s decision to file for bankruptcy.

“They recognized that an appeal to the reorganization process provided by Chapter 11 might be the only and best way by which the faithful in the Catholic Diocese of Spokane can continue their mission to others and at the same time address responsibly the just compensation of all victims of abuse,” stated the Inland Register article.

Skylstad also has the backing of many parishioners, who feel he had no choice in light of the numerous claims alleging clergy sexual abuse.

“The bishop is a holy man, a good man and an honest man,” said Joseph G. Cain, a member of Assumption of the Blessed Virgin in north Spokane. “It was the right thing for him to do. We have an obligation to protect ourselves.”

Martin Howser, who attends Mass at Our Lady of Lourdes Cathedral, is not in favor of Chapter 11, but said people have a choice – they don’t have to continue supporting the local diocese. They could choose to donate to other Catholic causes.

Although Howser will continue contributing to the cathedral, he has no intention of helping the diocese pay for the cost of bankruptcy, he said. “This could have been prevented, but people didn’t take the necessary steps to make sure (the abuse) didn’t happen again,” Howser said.

While thousands of parishioners continue to go to church and financially support their parishes and diocese, others demand Skylstad hold meetings to continue talking about the sex abuse crisis. Members of Voice of the Faithful, a lay Catholic group that started in response to the scandal, has asked the bishop to delay the Monday bankruptcy filing and spend more time talking to parishioners, clergy and abuse victims.

“In the interest of openness and transparency, which you and your brother bishops have long promised, we request you go further, and enable your parishioners and your staff from across the entire diocese a chance to talk with and listen to you directly on this bankruptcy matter and the abuse crisis which has been a source of pain and shame for so many in the Spokane area,” they wrote in a recent letter to Skylstad.

Abuse victims also continue to personally criticize Skylstad. Earlier this week, two of three brothers whose lawsuit was originally scheduled to go to trial in late November stood outside the diocese chancery to denounce the bishop. The brothers, alleged victims of Patrick O’Donnell, said the diocese is using bankruptcy to avoid damaging court testimony. By taking this route, the diocese is prolonging their pain, they said. Bankruptcy will also create a deadline that will force victims to come forward, even if they aren’t ready, said one of the brothers, who asked not to be identified.

“It has taken me nearly 30 years to arrive at a place where I can stand before you and acknowledge that this happened to me,” he said. “I needed your protection when I was a child, Bishop. Forgive me if I’m more skeptical and less willing to accept your ‘protection’ now.”

Many parishioners sympathize with the hurt experienced by victims, but some are frustrated with the mounting claims. “We’re not culpable,” Cain said. “We didn’t mistreat those boys. Father Pat did.”

Still, many remain optimistic, even if the consequences of the bankruptcy are up in the air.

At Our Lady of the Lake, parishioners are hoping Chapter 11 will still allow them to someday move their Sunday services from the Tum Tum Community Center to a new church that has yet to be built. The parish is in the middle of a fund-raising campaign and hopes to build in a few years on 14 acres of land along Highway 291. Clancy, the pastor, doesn’t know if the church can continue collecting the $460,000 that has been pledged to the capital campaign. The acreage they hope to build on is also owned by the diocese until the parish can pay off its loan.

Yet, despite all the legal and financial uncertainties, members of Our Lady of the Lake have viewed the building of their church as “a journey of faith,” Clancy said.

“The current bankruptcy is but another test of our faith,” said Clancy, a Jesuit. “The issues that swirl around us these days can delay us, but relying on the patience and perseverance of the Spirit of God, they will not stop us.”