Diocese planning to sell properties

The Catholic Diocese of Spokane will start selling property such as its chancery in downtown Spokane and the home of Bishop William Skylstad if a bankruptcy plan filed Monday is approved.

It’s part of a proposal to settle the claims of people who accuse priests and other clergy of sexually abusing them as children beginning decades ago.

Diocese attorney Shaun Cross filed the reorganization plan in U.S. Bankruptcy Court in Spokane. He called it a “general framework” the diocese would like to use to pay claims and continue a ministry that spans two centuries in Eastern Washington.

Victims criticized it as thin on financial detail and dismissive of a significant court ruling that found Catholic churches, schools and other property in Eastern Washington belong to the diocese and could be made available to settle claims.

The reorganization plan needs to be approved by U.S. Bankruptcy Judge Patricia Williams as well as by creditors.

The plan envisions two special trusts to pay sex-abuse victims.

One would be called a “settlement trust” to handle and fund settlements between victims and the diocese. The sides would work with an arbitrator to ensure the validity and seriousness of each claim. If a victim’s claim is deemed to be true, the plan calls for it to be rated on a scale of 1 to 4 and paid.

A second “litigation trust” would be set up to handle claims that cannot be settled, whether it is the diocese that refuses to settle or an alleged victim who prefers a trial in state court.

The second trust would be used to pay the defense costs of the diocese as well as any judgment in favor of a victim.

The bankruptcy plan does not state how much money would be channeled into the two trusts, although Cross said most of the proceeds from property sales and mortgaging the diocese’s real estate would be used to pay victims.

“A vast majority of the money available to the diocese will go into these trusts,” he said. “That’s what this bankruptcy is about, finding an equitable way to compensate victims.”

Attorneys representing victims in the bankruptcy criticized the plan as yet another stall tactic.

“Instead of bringing closure to the bankruptcy case, the diocese’s plan and disclosure statement promise years of fruitless court appeals and legal expense,” said a joint news release from the two creditors committees.

Attorney James Stang, who successfully argued that parish assets belong to the diocese, said he will file an alternative plan of reorganization as soon as allowed by Judge Williams.

Stang said the creditors committees will ask Williams to hire a commercial real estate appraiser to review parish assets and come up with a value of those assets.

Placing a value on the assets of the diocese is basic information that must be included before a plan of reorganization and disclosure statement can be approved, he said.

The Williams ruling has been appealed to U.S. District Judge Justin Quackenbush.

If he affirms the parish ownership ruling, valuing parish assets will be necessary to complete what is called a “liquidation analysis,” a tool used in Chapter 11 bankruptcy cases to ensure creditors will recover at least as much money through a successful reorganization as they might through the outright sale of all assets and property of a bankrupt company or, in this case, the diocese.

Besides property sales, Cross said, the diocese may seek to recover salaries and benefits paid to priests who sexually abused children.

Skylstad took the unusual step of filing for Chapter 11 bankruptcy protection last December, just days before the first of 19 lawsuits were about to begin.

Without including the parishes, Skylstad listed, in that initial filing, assets of $11.1 million, far less than diocese liabilities of $81.3 million, which include potential jury awards.

Settlement talks continue, though lawyers and others close to the case will not comment on progress.