The National Pulse

Church And Chapter 11


The resolution itself–for which the church agreed to put about $22 million into a fund for plaintiffs–isn’t that unusual. But the case did have a twist: As of August, it’s the only clergy sex-abuse case that’s been settled in bankruptcy court.

After the clergy sex-abuse scandal broke in Boston in 2002, lawsuits were filed throughout the country. There was talk in Boston of bankruptcy, but in the end the church settled with the 500-some plaintiffs for about $85 million.

Since July 2004, however, churches in three other cities declared bankruptcy under Chapter 11: the dioceses of Tucson and Spokane, Wash., and the archdiocese of Portland, Ore.

While the Tucson case ultimately settled, the matters in Portland and Spokane are being bitterly contested on several fronts. The issues involve a complicated interplay of federal bankruptcy law with First Amendment religious freedom guarantees and state statutes of limitations.

Complex And Contentious

Sorting through the various contentions is like figuring out “a very complicated exam question,” says University of Texas law professor Douglas Laycock.

One point of contention involves whether the diocese or the local parishes and parishioners own the assets of individual parishes. Another involves whether a bankruptcy judge can set a deadline for the filing of claims that overrides a state’s more liberal statute of limitations, especially when repressed memory issues are involved. And then there’s the issue of how much influence the Vatican may have in directing the cases and settlements.

Nor is there much precedent because most bankruptcies settle. “People can’t afford to litigate all these fancy constitutional issues,” says Laycock, who represented the National Conference of Catholic Bishops a decade ago when it was named as a defendant in Dallas. He’s not involved in any of the recent cases.

In Tucson, for example, the church filed with the expectation of settling, says Tucson attorney Susan Boswell, one of the diocese’s lawyers. She says declaring bankruptcy was viewed as the best way of reaching a settlement that gave the church some assurance of finality.

Otherwise, she says, the diocese might have been hit with an endless succession of suits because Arizona’s usual two-year statute of limitations for these types of tort actions is tolled in so-called repressed memory situations. The statute begins when the individual “retrieves repressed memories of the [sexual] abuse.” Doe v. Roe, 955 P.2d 951 (1998). “The reason that the church filed was, not only was it facing all of these current suits, but it was also worried about new cases,” Boswell says.

Bankruptcy, she adds, provided a “framework where insurers could pay money and know they were done.” Under the terms of the settlement, the church agreed to pay victims from the $22 million fund, with the exact award based on factors such as the severity of the abuse and extent of damages, Boswell says.

A judge approved settlements for almost 40 plaintiffs–25 will receive between $200,000 and $600,000, three will receive at least $600,000, and five parents will receive either $21,500 or $30,000.

A handful of other plaintiffs will take cases to arbitration, Boswell says. Overall, she anticipates that 40 to 50 of the original 100 plaintiffs who filed suit will receive some settlement money. Many of the remaining original plaintiffs’ cases have been dismissed on factual grounds, such as a finding that the alleged abuse happened in another jurisdiction rather than in Tucson.

The church also agreed to set aside settlement money for future claimants. That way, if repressed memory cases surface, the plaintiffs can apply.

But, despite the hope of the church, it’s not clear that future plaintiffs may be bound by a settlement.

One of the thorniest unsettled issues is whether a federal bankruptcy judge can override a state statute of limitations allowing later claims based on repressed memories of sexual abuse. In such a case, a bankruptcy judge would set a date after which all claims and lawsuits would be barred, even if they would still be allowed in state court.

Questions of Pre-Emption

Plaintiffs lawyers say people who don’t remember having been abused shouldn’t in the future be bound by a settlement they didn’t participate in.

“Given that there’s an underlying state claim, there’s a question about whether bankruptcy law can pre-empt state due process rights,” says New York City-based lawyer Marci Hamilton, who represents plaintiffs in both Spokane and Portland. “Federal bankruptcy law can’t deprive [those] victims who don’t come forward of their day in court,” says Hamilton, a law professor at Benjamin N. Cardozo School of Law at Yeshiva University. She specializes in First Amendment issues arising when religious groups are accused of wrongdoing.

Seattle attorney Michael Pfau, one of the lawyers representing plaintiffs in Spokane, adds that plaintiffs lawyers there view the bankruptcy filing as “an end run around the statute of limitations.”

The issue is particularly problematic in Washington because the state has an extremely plaintiff-friendly statute of limitations in child sex-abuse cases: Plaintiffs don’t have to show a repressed memory; they have to show only that they realized later that the abuse had a psychological impact on them.

The deadline is either three years from the date of abuse or the date that the victim determines either the cause of the abuse or its effects.

Another looming problem involves how much property the dioceses own. In Portland and Spokane, the church has taken the position that the diocese doesn’t own local parishes, hospitals or schools.

However, federal bankruptcy judge Patricia Williams in Spokane ruled Aug. 26 that the property belongs to the diocese, significantly enlarging the potential available assets. Without that property–including 16 parochial schools and 82 churches–the diocese’s assets reportedly would total about $25 million, including insurance policies.

But plaintiffs lawyers have said after the ruling that they expect that number to exceed $80 million, according to published reports.

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

In Portland in July, U.S. bankruptcy judge Elizabeth Perris took the extreme step of certifying about 389,000 Catholic parishioners in western Oregon as defendants, because church lawyers said they intended to argue that the individual parishioners owned the local assets.

When the Portland archdiocese declared bankruptcy, it said it owned about $19 million in assets, but if the local parishes and other property are included, the total is closer to $600 million. The church is negotiating with 60 plaintiffs.

In Spokane, church lawyers based their argument on canon law. They argued that the Catholic religion provides that parishes belong to the parishioners, not the diocese. The Vatican recently supported that position by telling the Boston archdiocese that it couldn’t use assets from closed parishes to pay settlements unless the pastors who ran the parishes agreed.

But plaintiffs lawyers counter that the Vatican’s opinion is irrelevant in bankruptcy court. “No American judge would take that as evidence,” Hamilton says.

But the issue didn’t have to come up in bankruptcy. Had there been a trial that resulted in a judgment, the church might have made that argument if plaintiffs tried to execute judgment by obtaining a lien on parish property. Instead, the legal issue is appearing for the first time in bankruptcy court.

In fact, the filings in Spokane and Portland derailed cases that were on the verge of trial. In dramatic fashion, the Portland archdiocese became the first in the country to declare bankruptcy in July 2004–just hours before a trial was to start. In Spokane, the filing occurred in early December, within weeks of a scheduled trial date.

Still, some say there’s room for a settlement. “There’s an obvious deal to be done here,” Laycock says. “The church undertakes a stream of payments, puts enough money in the pot to be worth the plaintiffs’ while, and the plaintiffs agree to leave the parishes alone.”

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