Diocese’s offer ruled out

A federal bankruptcy judge urged mediation to settle all sex abuse claims against the Roman Catholic Diocese of Spokane, after rejecting a $45.7 million offer that would have settled fewer than half the cases.

U.S. Bankruptcy Judge Patricia Williams’ ruling Thursday morning derails an aggressive deal between Bishop William Skylstad and a group of 75 people that continued to pit one group of victims against another to push the case along – even as parishes worried about the financial terms.

The complicated bankruptcy, now more than 17 months old, has accrued more than $3.5 million in legal fees and earned tough words from Williams.

“Bottom line is, I will not approve this settlement agreement,” she told more than a dozen attorneys on a telephone conference.

She said the agreement unfairly dictated payments to one group of creditors without guaranteeing equal treatment to another group, who have the same rights under bankruptcy law. Since the settlement was first announced in January, about 100 additional claims have been filed alleging sex abuse; any of those deemed to be credible wouldn’t have been included in the agreement.

Williams’ decision was welcomed by lawyers representing sex abuse victims who had been excluded from the settlement offer.

“The judge reaffirmed what it says in the bankruptcy code, that all be treated the same,” said Gayle Bush, who is representing the interests of alleged sex abuse victims who have not yet come forward with claims. Such a group might include people who have repressed memories and children who currently are being abused.

Diocese attorney Shaun Cross said he had mixed emotions about losing the settlement.

“We tried to solve a horrendous problem with this settlement … but it didn’t work out,” Cross said. “I’m still hopeful that the trust we built up (with the group of 75 victims) can last.”

Cross also said the settlement might have helped mend the rift between the bishop and parishioners.

“I’m sure there are many in the parish community that will see this as a very positive development, and insofar as that draws them nearer to the bishop, that’s very positive,” he said.

Other lawyers involved in the bankruptcy disputed exactly what Thursday’s ruling meant.

“From our perspective, the judge did not rule to deny the settlement,” said attorney Hamid Rafatjoo, who represents the group of 75 victims named in the agreement. Speaking for the group in place of attorney James Stang, who was ill, Rafatjoo interpreted the judge’s ruling as a temporary setback that could be overcome.

“The bishop hasn’t called and said ‘We’re backing out of the offer,’ ” Rafatjoo said. “We still have a settlement offer.”

Technically speaking, he said, the judge ruled that she would not approve the settlement in the form of a motion, so the victims’ group and the diocese will instead work to incorporate the settlement into the final plan of reorganization – the legal blueprint for how the diocese will pay creditors and emerge from bankruptcy protection.

“It’s not devastating to us – this doesn’t scuttle the deal,” said Mark Mains of the group of 75 victims. “We’re confident that things are going to move ahead.”

Attorney Ford Elsaesser, representing the Association of Parishes, disagreed.

“I think the settlement is history. There is no more deal,” he said following the hearing.

John Munding, also representing the parish association, said the judge made a clear ruling and provided a path to closure.

The parishes have protested that the deal would have made them unlimited guarantors in the bankruptcy, exposing them to potentially tens of millions of dollars in settlement costs.

After her ruling, Judge Williams pushed the sides toward mediation.

“I’ve had yet again another opportunity to review the progress of this case,” she said, “and this Chapter 11 is the prototypical case where mediation is appropriate.

“At the next hearing, whenever the hearing may be, whatever the issue may be, my first question is going to be ‘Has a mediation session been scheduled?’

“If the answer is ‘No,’ I’m going to be very interested in hearing an explanation as to why that has not occurred.”

Parishioners have grown frustrated with the lengthy bankruptcy.

While some continue to trust the bishop and the diocesan attorneys’ legal strategies, others are wary. “It’s a mess,” said Martin Howser, a member of Our Lady of Lourdes Cathedral. “I don’t have great confidence in the way things are going.”

The millions of dollars slated to go to attorneys and other legal fees could have been used to settle with victims, said Rita Flynn, a longtime parishioner at Assumption of the Blessed Virgin parish.

While many Catholics try not to think about the bankruptcy and its costs, it “is the big elephant in the room,” she said.

Despite all the unknowns surrounding the bankruptcy, Catholics in Eastern Washington continue to provide financial support to their beleaguered diocese. This year’s Annual Catholic Appeal, for instance, has surpassed its goal of $1.8 million.