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New plan offers parishes protection

Tue., May 16, 2006

An alternate plan to end the Roman Catholic Diocese of Spokane bankruptcy case asks parishes to hand over more than half their value in return for avoiding possible foreclosures on churches and schools.

The proposal filed Monday would require most parishes to pay the equivalent of 65 percent of their fair market appraised value to fund sex-abuse claims against the diocese. The exception would be small parishes and those in rural areas that would be asked to raise the lesser of 65 percent or $100,000.

Coming up with the money, perhaps through a special capital campaign or by finding a lender, would free the parishes from further bankruptcy costs. The plan also calls for parishes to then amend their corporate structures enabling them to hold title to their property and shed financial obedience to the diocese.

The new proposal has drawn interest from the Association of Parishes, a group of priests and laity leaders organized for bankruptcy representation. Representatives of the association have expressed worry in the past that Bishop William Skylstad has pursued a bankruptcy strategy fraught with unacceptable risks to churches, schools and other assets.

In particular, they are worried about the diocese’s current $45.7 million settlement offer made to a group of 75 sex abuse victims, which appears to rely on parishes to act as unlimited guarantors for future payments.

The new plan was filed by creditors committees representing sex abuse victims who were left out of the diocese’s current settlement offer, including a committee representing people who may come forward and file claims in the future.

Competing plans are not unusual in large bankruptcies and certainly not unexpected in this complicated case. Only one reorganization plan can be accepted.

Attorneys Joe Shickich and Gayle Bush spent the past six weeks writing the plan and said it offers equal treatment to all victims whether they hired lawyers and filed lawsuits years ago or didn’t step forward to make claims until this year.

James Stang, an attorney who hammered out the current settlement offer on behalf of victims, said parishioner arguments against the offer are moot.

An earlier Bankruptcy Court ruling finding that parish property is held in trust for the benefit of the bishop means that the diocese owns the property, not church members. He said this stripped any notion that the parishes may hold some sort of right to veto the settlement offer.

The group of 75 victims is a powerful force in the bankruptcy. This group includes the sex abuse victims who sued the diocese in state court and spent years pressing an aggressive public campaign for the diocese to acknowledge decades of abuse by priests. The diocese filed for bankruptcy protection on the eve of court trials by some of these victims.

As for the concerns of other creditors, Stang said he had worked to secure an allowable bankruptcy claim for his clients, not the other creditors.

“This was not meant to be a termsheet for everybody,” he said.

Stang and diocese attorney Shaun Cross are now working to preserve their sweeping settlement offer as other victim groups and the parishes aim to scuttle it.

Attorney Ford Elsaesser, representing the parish association, said the settlement offer could lead to “the fire sale” of Catholic churches if the diocese cannot come up with enough money to fund a $26.6 million balloon payment due in October 2007.

Cross called the proposed settlement the cornerstone of the diocese bankruptcy, now 17 months old.

The deal with victims has let the diocese reach nearly $10 million in settlements with insurance carriers. Negotiations are continuing with other liability insurers, Cross said.

None of this progress would be possible had the diocese not reached an accord with the group of victims represented by Stang, said Cross.

U.S. Bankruptcy Judge Patricia Williamswill decide later this week whether the settlement offer is legal.

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