Diocese pact in trouble

A federal bankruptcy judge called the landmark $45.7 million settlement offer between the Roman Catholic Diocese of Spokane and a group of 75 sex abuse victims unfair and legally unacceptable during a court hearing Friday.

“Bottom line is I think as a matter of law, on its face, this settlement can’t be approved,” U.S. Bankruptcy Judge Patricia Williams said during the hearing.

She said the settlement favored one group of victims over dozens of other men and women who were sexually abused as children by Catholic clergy.

“This settlement violates a rule that requires fair treatment,” she said, adding that bankruptcy “can’t treat people differently.”

The judge was referring to groups of claimants in the case, the 75 who had hired lawyers and filed lawsuits, and perhaps as many as 109 others who came forward later. Only the group who had hired lawyers before the diocese filed for bankruptcy in December 2005 is included in the settlement.

The judge stopped short of ruling against the settlement offer, giving the lawyers who hammered out the agreement about three weeks to change her mind. She set a hearing for May 15, saying she wanted the matter decided quickly so that lawyers don’t unnecessarily spend tens of thousands of dollars researching and arguing about something she may render moot.

Judge Williams then sharpened her tone and put lawyers who are working on the case on notice: “I will just give you all a little hint,” she said. “If we don’t have a confirmed plan by this fall, I will seriously entertain a motion to dismiss this case.

“I do not want this case to get to a two-year anniversary without a confirmed plan.”

Diocese lawyer Shaun Cross, interviewed after the hearing, tried to salvage something positive from the judge’s comments.

“I think the main themes that came out of today’s hearing are we need a consensual plan; No. 2, we need to have a consensual plan as soon as possible; and No. 3, the process for getting a consensual plan is not through the motion process,” he said.

Cross said he was confident the settlement could be restructured in a way to fit into a proposed plan of reorganization. Bankruptcy plans are blueprints for how a company, or in this case the diocese, will pay its debts, restructure its operations, and then emerge from court protection with a clean financial slate. They usually require broad support from those owed money, called creditors, and the bankruptcy judge’s approval.

In the diocese case, the plan was filed before the settlement offer was announced and thus did not include the details.

“It’s not that the settlement along these lines won’t work, it’s how do you approve a settlement like that,” Cross said. “We think it’s possible.”

Reaching a settlement was not easy. Distrust between the 75 victims included in the offer and church leaders had to be overcome. Secrecy was paramount.

Largely left out of the talks was the Association of Parishes, representing the legal interest of all 82 parishes in the diocese.

Judge Williams said the parishes, which have appealed a ruling governing the ownership of churches and schools, must play a part.

She doubted that she could legally order the parish association to withdraw or terminate its appeal of her ruling that parish property belongs to the diocese.

“I think the parish is a 900-pound gorilla in the settlement,” she said. “If the Association of Parishes doesn’t agree with this settlement, I think it’s a futile act because I don’t think I can impose on the AOP a requirement that it withdraw its appeal.”

She asked parish association attorney John Munding where his clients stood.

“Are we going to wait until September to find out if the parishes go along with this settlement? That’s just not acceptable,” she told him. “Your clients need to, as we would say back home in Missouri, ‘Fish or cut bait.’ “

Munding said the parishes are clearly opposed to the settlement offer now on the table. The deal forces parishes to act as unlimited guarantors of the diocese, a position that isn’t acceptable to them.

Though Bishop William Skylstad reiterated this week that no churches or schools would be sold to fund the settlement, the association is not convinced.

Ford Elsaesser, another attorney representing parishes, said the settlement must be more inclusive.

“Maybe it’s time to invite the Association of Parishes and (other victims) into the negotiations,” he said. “That’s the message we took away from the hearing.”