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Diocese in cash crunch

The Catholic Diocese of Spokane is running so low on cash that it has stopped paying its lawyers, even as major developments in its bankruptcy case unfold.

The salve could be selling property such as the chancery and the bishop’s home, and asking parishioners to refill the church’s coffers to pay for the bankruptcy, now nearly 16 months old.

The cash crunch is bad enough that the judge overseeing the case wondered aloud during a hearing this week whether churches may have to be sold just to pay the mounting costs of the case, including legal fees. Those payments would have to be made before the diocese could pay sex-abuse victims and exit bankruptcy.

“I’m very concerned, obviously, about the fact that frankly every month this debtor goes further and further in the hole in terms of cash,” U.S. Bankruptcy Judge Patricia Williams said. “That’s a fact of life that is getting worse every single month … and I ask myself periodically, you know, how many churches are we going to have to sell just because we can’t get to plan confirmation?”

Diocese attorney Shaun Cross said that lawyers in the case would never ask that a church be sold to pay their fees.

According to its most recent financial statement, the diocese has about $2 million cash on hand.

It’s unclear how much is now owed to various parties, but the accrual of legal fees alone is at least $1.4 million, according to the diocese. It hasn’t written a check to a law firm in at least two months.

Unpaid legal bills stretch back to last fall when the U.S. trustee, a federal official who watchdogs bankruptcy cases, alleged attorneys overcharged the diocese $294,000 through dual billing, duplicative work and excessive time.

The issue of legal fees is a sensitive issue for the Catholic laity, Cross said during the hearing Monday.

News coverage of attorney fees, he said, can impede progress of the case.

Even though Cross and the other lawyers at his firm, Paine Hamblen Coffin Brooke & Miller, are deferring fees, they expect to be paid.

“We’re assuming we’re going to be paid for our work,” Cross said, “to the extent it has added value to the (diocese) and we’ve done a good job.”

He said the law firm’s partners “are very concerned” about not collecting fees.

James Stang, a creditors’ committee attorney, said he was committed to the case regardless of when or if fees are paid.

“If you told me we were doing this for zero, we’d finish this case,” Stang told the judge. In bankruptcy, the corporation, or in this case the diocese, is responsible for paying the legal bills of not only its own counsel, but that of creditors, too. In this case, there are three separate creditor committees with their own lawyers and consultants.

Judge Williams commended the attorneys for their ongoing work.

“Frankly, it’s admirable that all the counsel are continuing to work on the case to this extent under these conditions,” she said.

The committees often work together, but frequently have competing interests.

Among them: the $45.7 million settlement offer made to 75 of the 179 people who have filed sex abuse claims. The offer has been called a breakthrough in the case that could speed its resolution, possibly wrapping up sometime this autumn.

Yet the settlement has hit stiff opposition. Without a substantial commitment from the diocese’s insurers in place, the proposed settlement backs up its financial obligation with parish property such as churches and schools.

Some smaller, poorer parishes worry that an inability to raise money from the pews could put them in jeopardy.

“The financial obligations proportioned by the settlement terms are well beyond the capacity of our parish to sustain,” wrote Carrie Shields, Chris Laney and Mary Catherine Ruud, three members of Mary Queen of Heaven Parish in Spokane Valley. “Our unfulfilled obligation would therefore domino onto other parishes in the diocese, thus further increasing their financial load.”