Boston Considers Opening Its Books to Chapter 11
The Troubled Archdiocese Weighs the Far-Reaching Consequences of Filing Bankruptcy to Avoid Financial Ruin
By Tom Tracy
Our Sunday Visitor
January 12, 2003
As the Boston archdiocese grapples with the complexities of reaching a "global settlement" to the mounting clergy sex-abuse litigation — including the possibility of filing Chapter 11 bankruptcy — the Church enters the murky waters of historical precedent with far-reaching and unpredictable consequences.
"They need to be quite practical and businesslike with whatever degree of compassion they can muster," said Sister Fran Mlock, treasurer for the Sisters of the Immaculate Heart in Michigan and a former financial adviser to the U.S. bishops.
In weighing its options, the archdiocese needs to take a look at its resources and how to protect them, with legal and financial experts a part of the consultation process, said Sister Mlock. "They need to consider the long-term effects of whatever decision they take, as well as short-term needs and impact on employees and others," she explained. "Bankruptcy may be their best alternative."
In early December, an archdiocesan finance committee gave then-Cardinal Bernard F. Law permission to file for bankruptcy if necessary. Archdiocesan spokesperson Donna Morrissey said the Church would prefer a mediated settlement, but had to "carefully consider the alternative or complementary approach of a Chapter 11 reorganization."
Later that month, more than two dozen lawyers for alleged victims of clergy sex abuse submitted undisclosed estimates of what they are willing to settle for to reach a single settlement of all pending suits against the archdiocese. Church lawyers reportedly have until Jan. 15 to respond. If the two sides are close, the suits could be settled by mediation.
In addition, several insurance companies that provided coverage to the archdiocese over the years may have a large say in the settlements of the 450 lawsuits. And in a move that Bishop Richard G. Lennon, the archdiocese’s interim administrator, saw necessary to meet the demands of those insurers, the archdiocese called for a moratorium on all litigation activities and for dismissal of the litigation on First Amendment grounds.
NO REAL PRECEDENT
Steven Pope, chair of the theology department at Boston College, told Our Sunday Visitor that many Boston-area Catholics, including pastors, have stated "extreme displeasure" at the thought of bankruptcy, primarily because it would support the perception that the archdiocese doesn’t want to honor its commitments.
"Bankruptcy is also regarded as dangerous by some scholars because it would open up the books of the archdiocese to the public, and thereby involve the Church in more probing and intrusion," Pope said. "I agree with these worries. I would like to see Bishop Lennon, and the archdiocese as a whole, do its best to meet its financial responsibilities to the victims."
There is little relevant precedent for this kind of bankruptcy. No U.S. diocese has ever filed for bankruptcy — although the dioceses of Santa Fe, N.M., and Dallas came close to bankruptcy in the 1990s, according to published reports.
• In 1997, the Dallas diocese threatened to file for bankruptcy after a $119.6 million jury verdict to 11 parishioners for abuse by one priest. With the threat of bankruptcy lingering, the opposing lawyers agreed to lower the judgment, settling for $31 million.
• Several grievances are working their way through Canada’s courts over decades of abuse at a now-closed Christian Brothers orphanage in St. John’s, Newfoundland. The province’s government paid $7 million to victims in 1996, shortly after the network of Christian Brothers schools in Canada filed for bankruptcy over the huge lawsuits.
The Christian Brothers now faces $50 million in outstanding claims from more than 120 victims and the Newfoundland government, which hopes to recoup money it paid out.
• Experts predict the sale of Church properties and a relinquishing of control of diocesan affairs to a bankruptcy judge would be a high price to pay. And while bishops have financial independence, Church law apparently requires Vatican approval if the possible sale of assets exceeds a figure set for each country by its bishops’ conference. A federal bankruptcy judge would take the place of Judge Constance Sweeney, the Superior Court judge who has been hearing all the cases, who has ruled consistently for the public disclosure of Church documents about abusive priests.
Bankruptcy is a negotiating tactic to send a message to the attorneys that, if you want an outrageous amount of money, you won’t get it, said Fred Naffzinger, professor of business law at Indiana University’s South Bend campus, who has written an analysis of the bankruptcy option for Boston.
The strategy has some validity in that Boston’s financial resources may be limited. "The fact that the plaintiffs in Dallas took that $30 million shows me that the Dallas diocese was able to demonstrate they couldn’t afford the money," Naffzinger told Our Sunday Visitor.
There is a considerable downside to Chapter 11 filing, however. Bishop Lennon would still exercise normal ecclesial authority, but the day-to-day business control of the archdiocese would be under bank supervision. The court would probably tell the bishop he can sign checks up to a set amount, but anything above that would need court approval, predicted Naffzinger.
"A fast bankruptcy would be 18 to 24 months, but I could foresee this becoming quite contentious. We don’t know how many separate corporations there are in the diocese; I could see litigation among creditors over who gets what assets.
"If things degenerated even further, and claimants could not reach a settlement with the diocese, you could have the bank running small trails over the abuse, and again that could drag things out," Naffzinger added.
There is also the problem of appearances and bad public relations.
"Perhaps the cardinal’s lawyers think a spiritual crisis might be scuttled for 10 cents on the dollar like some dot-com fiasco," wrote The New York Times in a Dec. 5 editorial. "The mere broaching of the possibility of bankruptcy weakens his current attempt to appear more apologetic to the many faithful families still suffering from the diocese’s protection of predatory priests. Courthouse bankruptcy promises no deliverance from the specter of spiritual bankruptcy."— Tracy (email@example.com) is a senior correspondent for Our Sunday Visitor
Bankruptcy must be universal concern
Francis Butler, president of the Washington, D.C.-based Foundations and Donors Interested in Catholic Activities Inc. (FADICA), said there needs to be discussion on all aspects of the Boston archdiocesan financial crisis because the matter is breaking new ground in the legal field as a Chapter 11 filing is considered.
"I think the decision is not for the diocese to make [alone] because of the broader implications; they would be setting standards for many others," said Butler, whose constituents give an estimated $200 million each year to Church endeavors. "Whatever steps are taken should be taken in concert with other dioceses and Church entities." Such consultation would best include the U.S. bishops’ conference, but also every major Catholic institution, including hospitals, colleges and schools, he added.
FADICA’s focus for the last several months has been about restoring donor trust, and "bankruptcy certainly is not moving in that direction," Butler said. "We think an atmosphere of transparency and accountability is what helps." » T.T.
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