A federal bankruptcy judge ruled Friday that Catholic churches and schools are legally owned by the Diocese of Spokane and therefore can be sold to pay dozens of sex-abuse victims.
The ruling worried parishioners, whose offerings have built churches, funded charities and supported parochial schools across Eastern Washington.
Many have been troubled by the diocese bankruptcy strategy, an unproven and expensive process.
“Parishioners have already paid once for the poor decisions of some of the hierarchy. Now some of them will have to pay twice,” said Martin Howser, a member of Our Lady of Lourdes Cathedral in downtown Spokane. “That’s the tragedy.”
U.S. Bankruptcy Judge Patricia Williams’ ruling is a setback for Bishop William Skylstad and his legal team, who continue to insist that bankruptcy is the best way to shield parish properties from lawsuits and ensure that victims are treated equitably.
“It is not a violation of the First Amendment to apply federal bankruptcy law to identify and define property of the bankruptcy estate even though the Chapter 11 debtor is a religious organization,” Williams wrote in her 50-page ruling. “Nor is it a violation of the First Amendment to determine the nature and extent of the debtor’s interest in property by application of state law rather than internal church doctrine.”
Skylstad, who was in Russia on church business, promised an appeal to U.S. District Court in Spokane next week because the 50-page ruling could set a national precedent and give pause to other churches considering the use of federal bankruptcy law to manage legal claims.
“Let me assure everyone that ministry will continue in Eastern Washington,” Skylstad said in a statement read by Vicar General Steve Dublinski.
Victims of sexual abuse said the diocese’s unwillingness to seriously negotiate settlements put the parishes at risk.
“We had no intention to shut down churches or schools,” said Mark Mains, who was abused by former priest Patrick O’Donnell. He is now on the creditors’ committee that filed the parish ownership case.
“If you’re contributing money to an organization that does this, then you do have something to do with it,” he said. “You can fix it or perpetuate the problem. I sympathize with (parishioners’) fears, but I didn’t put their churches on the line – the bishop did that.”
Diocese attorney Shaun Cross cautioned that while he was disappointed with the ruling it was the first step in a lengthy appeals process that could take more than nine years if taken to the U.S. Supreme Court.
The stakes are so high for the U.S. Catholic Church that letting such a ruling stand may not be possible.
Cross believes the judge erred by not looking to Catholic Church laws – called canons.
While acknowledging that parishes and the diocese were legally separate entities with a trust relationship, the judge found that the diocese was the beneficiary of the trust and therefore controlled the assets, he said.
Lawyers who earlier argued that parishes belonged to the diocese pointed to deeds in court hearings and filings that clearly showed parish properties belonged to the bishop of Spokane.
The judge’s decision ignores a recent Vatican declaration that put parish assets outside diocese control, a move that was prompted by parishioners of the Boston Archdiocese upset that churches and other assets were being sold without their consent.
The Spokane Diocese filed for bankruptcy protection in December 2004, listing assets of $11.1 million and liabilities of $81.3 million. It was a strategy already employed by two other dioceses in Tucson, Ariz., and Portland, Ore
At the time, the diocese had predicted it could piece together about $25 million for settlements, including $10 million in property and cash and $15 million from insurers.
Though no recent appraisal has been completed on parish assets, the 82 churches, 16 parochial schools and other assets are worth tens of millions more.
“The decision shows the grave danger a diocese or any religious organization faces by making a decision to file for bankruptcy in the first place unless the diocese has an agreement in principal for a resolution,” said Ford Elsaesser, an attorney representing the Association of Parishes.
Robert Hailey, a member of St. Mary’s Presentation in Deer Park and co-chairman of the parish association, said most parishioners want the bankruptcy resolved but remain unsure how much members can contribute.
“We have been trying to gauge the willingness of parishioners to contribute toward a plan of reorganization,” he said. “It’s difficult to do that when we don’t know how much will be needed.”
The issue of parish ownership never arose in the Tucson case, which is on track to be resolved with payments to sex abuse victims without selling churches.
The Portland case is progressing slowly, and it is unclear how the Spokane ruling will affect that bankruptcy.
The Spokane Diocese has until Oct. 10 to file its plan of reorganization with the bankruptcy court designed to meet the needs of creditors and allow the Diocese to continue.
Nonprofits and organizations such as churches cannot be ordered liquidated like businesses in bankruptcy court.
Cross said no properties would be sold while the issue was being appealed.
He said the ruling further complicates the bankruptcy, although the appeals should not add much more expense to the $500,000 the parish ownership issue has already cost the diocese in legal fees. In all, the diocese has paid $1.3 million in bankruptcy legal fees.
Across the United States, the sex abuse scandal already has cost Catholic churches in excess of $1 billion in settlements, verdicts, legal fees, counseling and other expenses since 1950. Hundreds of priests and other clergy have been accused or dismissed.
The Spokane Diocese has settled 19 claims during the past 15 years for about $1.55 million.
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