Diocese of Tucson Approaches End of Bankruptcy

TUCSON, Ariz. — The Diocese of Tucson's bankruptcy proceedings will come to an end Sept. 23. Compared to proceedings in the Archdiocese of Portland, Ore., and the Diocese of Spokane, Wash., which remain mired in conflict, reaching a settlement has been orderly and cooperative.

It has been less than a year since Sept. 20, 2004, when the diocese became the second in the United States, after the Archdiocese of Portland, to seek federal bankruptcy protection from the tide of lawsuits demanding ever-higher judgments to compensate for claims of sexual misconduct by clergy and religious.

Now, there is a final settlement that the diocese, the claimants, insurance companies, parishes and other creditors can accept, and U.S. Bankruptcy Court Judge James Marlar has cleared the way for final distributions and discharge of the case.

In a letter to the clergy, religious and laity of the Diocese of Tucson, released to coincide with the filing of the final settlement agreement in late July, Bishop Gerald Kicanas wrote, “God works, sometimes in mysterious ways, but God works. Throughout the history of the Church, crisis has led to conversion and a deepening of faith. Maybe that will be our experience.”

“We must also move forward with the mission of the Church,” he added. “Care for the sick and the poor, spiritual nourishment for those who are searching, formation of the young, fostering vocations and reaching out to the littlest and weakest among us remain critical priorities of our mission.”

The agreement, negotiated under Chapter 11 of the federal bankruptcy code, provides approximately $22.2 million for settling 77 claims of sexual abuse, as well as establishing a fund for responding to additional claims that might arise from previous wrongdoing by clergy. The settlement is funded by $14.8 million provided by insurers, $5.58 million from the sale of diocesan property and $2 million to be paid by parishes.

What started with controversy and dire potential for loss by the diocese and its 75 parishes is concluding with general accord, said Susan Boswell of Quarles & Brady Streich Lang, attorney for the diocese.

“Everybody has cooperated to come up with something that would provide for distributions in a reasonable amount of time,” she said. “The result isn't all that simple. It's an 85-page plan, but it has been accepted by the creditors and all are being dealt with.”

Not Without Pain

Diocese of Tucson spokesman Fred Allison said the fear of a protracted struggle helped move the reorganization forward.

“I don't think this process was painless for anybody who had anything to do with this, but an overall commitment to collaboration existed throughout the process, even in the tort creditors committee.”

He said crucial to the settlement was the successful settlement of insurance claims with four underwriters, ending several years of disagreement over which company was responsible for claims. In a final agreement with the insurers, St. Paul Fire and Marine Insurance agreed to redeem its liability policies for $1 million and Pacific Employers Insurance, along with Century Indemnity Insurance and the Motor Vehicle Casualty Company, agreed to pay $3.5 million. Hartford Fire Insurance agreed to pay $7 million and First State Insurance Co. paid $3.3 million to redeem their policies and settle the claims.

Allison said the most surprising part of the settlement was the sale of 85 properties owned by the diocese, which earned $2.6 million more than the expected $3.2 million.

“It was difficult to lose that property, which was set aside for future expansion,” he said, “but the auction went well and, in combination with what was negotiated with the insurance companies and what was contributed by the parishes, set the stage for the diocese to emerge from Chapter 11.”

However, the sacrifice could have been much greater, noted the attorney for the parishes, Michael McGrath, of the Tucson law firm of Mesch Clark & Rothschild.

Approximately $16.6 million of the $20.7 million in assets held by the diocese were from the parishes. Although restricted construction funds were not threatened, there was $2.3 million in the parish deposit and loan fund, as well as $4.7 million in parish loans to the diocese.

If the funds had been incorporated into the settlement of the sexual abuse claims, approximately $14.7 million in parish expansion and remodeling projects would have been delayed or canceled.

Many projects were put on hold during the Chapter 11 proceedings, McGrath said. “The parishes agreed to freeze the deposit and loan fund until the situation was resolved, but that money is being released. In addition, the loans will be repaid by the diocese over the next 10 years, along with 2.5% in interest, starting in October or November of this year.”

McGrath said, “The sex abuse victims, the diocese and the parishes benefited, and the worst-case scenario was avoided. Everyone's happy with the way things have turned out.”

Attorney Clifford Altfeld, who, along with attorneys Lynne Catigan and Kim Williamson, represented the sexual abuse tort claimants, said, “There's no amount of money that can adequately compensate the claimants.” However, there's a “tremendous cost in terms of emotional distress the longer this bankruptcy process goes on,” he said.

“Getting it resolved is a tremendous non-financial benefit,” Altfeld added, “and holding the diocese accountable goes a long way toward furthering the healing process.”

Other Cases

As far as offering a template for settling the other two bankruptcy cases in Spokane and Portland, the Tucson Diocese settlement is only indirectly beneficial, said Mary Jo Tully, chancellor of the Archdiocese of Portland.

“The situation's so different, there's not a lot we can learn from it,” she said.

Unlike Tucson, where the status of the parishes was never litigated, Portland's claimants have petitioned the bankruptcy court for a decision on whether parishes should be considered assets of the archdiocese. This has resulted in a counter class-action claim by parishioners, which will go before the bankruptcy judge on Oct. 11.

Until that issue is resolved, Tully said, the archdiocese cannot even begin to draft a settlement agreement.

Meanwhile, Bishop William Skylstad of Spokane said he will appeal a federal bankruptcy court's ruling that parish properties must be included in the Spokane diocesan assets used to settle millions of dollars in clergy sex abuse claims.

U.S. Bankruptcy Judge Patricia Williams of Spokane ruled Aug. 26 that civil property laws prevail in a bankruptcy proceeding despite any internal Church laws that might bar a bishop from full control over parish assets. Diocesan lawyers had argued that in Church law parish assets belong to the parish itself, not to its pastor or to the bishop. They said that, while the diocesan bishop was nominally the owner in civil law, even in civil law he only held those properties in trust for the parishes themselves.

“It is not a violation of the First Amendment,” Williams wrote, “to apply federal bankruptcy law to identify and define property of the bankruptcy estate even though the Chapter 11 debtor is a religious organization.”

Her ruling, if upheld, would vastly increase the diocesan assets subject to the abuse claims and would up the ante nationwide for any other diocese considering that approach to resolving sexual abuse claims against its clergy.

Last December, the Spokane Diocese filed for bankruptcy protection under Chapter 11 of the federal Bankruptcy Act, citing $11.1 million in assets and $83.1 million in liabilities, mostly from people seeking recompense for childhood sexual abuse by priests. It did not include parishes, parish schools or cemeteries in its list of assets.

Victims' lawyers claimed that the bishop had more than $80 million in assets under his control if he included the diocese's 82 parishes, 16 diocesan and parochial schools, and various cemeteries and other properties that he claimed he held only in trust.

Bishop Skylstad, who was traveling in Eastern Europe when the ruling was announced, said in a statement that the diocese would “appeal this decision because we have a responsibility not only to victims but to the generations of parishioners … who have given so generously of themselves” to build up the Church in eastern Washington.

In his statement, read to reporters by diocesan Vicar General Father Steve Dublinski, the bishop said, “The court's decision has national consequences. Its impact will be felt not just by Catholic communities but by many other church communities of any denomination, of any faith expression.”

Philip S. Moore writes from Vail, Arizona.

Catholic News Service contributed to this report.

The Earth is Not Our Mother

“The main point of Christianity was this: that Nature is not our mother: Nature is our sister. We can be proud of her beauty, since we have the same father; but she has no authority over us; we have to admire, but not to imitate.”—G.K. Chesterton, Orthodoxy

The Earth is Not Our Mother

“The main point of Christianity was this: that Nature is not our mother: Nature is our sister. We can be proud of her beauty, since we have the same father; but she has no authority over us; we have to admire, but not to imitate.”—G.K. Chesterton, Orthodoxy