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  Spokane Case Should Have No Effect on L.A.

The Tidings [Los Angeles]
September 9, 2005

When a federal bankruptcy judge ruled recently that assets such as churches and parochial schools belong to a diocese and not its parishes, and for that reason could be sold off, the decision was viewed as a major victory for those suing over allegations of sexual abuse. Now, according to the media, all assets in a diocese, even down to the parish level, must be available to compensate victims of clergy misconduct.

That message undoubtedly caused concern for parishioners in the Archdiocese of Los Angeles, given the more than 500 lawsuits the Archdiocese faces and which are now the subject of mediation and settlement proceedings.

The fact is, however, that parishioners in the Archdiocese need have no fear that their parish churches, schools and athletic facilities will be taken from them and sold to compensate victims.

In the first place, according to Cardinal Roger Mahony, the Archdiocese of Los Angeles will not declare bankruptcy. The Archdiocese is adequately insured to deal with all of the cases against it.

In the second place, it is likely that the judge's decision which touched off the furor will be overturned on appeal, according to the attorneys for the Los Angeles Archdiocese.

The ruling pertained to the Diocese of Spokane, Wash., which is facing 58 abuse lawsuits and which last December filed for bankruptcy. In legal jargon, it was the Roman Catholic Bishop of Spokane, a "Corporation Sole," which filed the bankruptcy petition. A "corporation sole" is separate from the Diocese of Spokane, which is the body of the faithful and the association of parishes for which the Bishop is chief pastor.

The Diocese of Spokane argued that it had direct control of only $10 million worth of real estate such as the diocesan offices. This was supported recently by a Vatican statement that most assets, such as churches and schools, cannot be sold because they belong to individual parishes rather than to a diocese.

However, attorneys for the victims suing the Diocese of Spokane argued that its assets actually included 82 parish churches and 16 parochial schools, along with cemeteries and other property, totaling some $80 million.

Two weeks ago, the bankruptcy judge overseeing the case agreed and ruled that such assets could be used to pay the debts of the "Corporation Sole."

This, of course, prompted speculation about whether the ruling could be applied to other dioceses, such as Los Angeles, and whether parish assets were now at risk and might be sold out from underneath parishioners.

After analyzing the ruling, however, attorneys for the Archdiocese of Los Angeles offered an assessment that should reassure our parishioners.

According to the attorneys, because the ruling was only one judge's interpretation of the law of the state of Washington and federal bankruptcy law, it is far from certain that judges elsewhere would find it applicable.

But more importantly, the decision will be appealed to a federal judge who will make an entirely fresh appraisal of the case and will reach a decision as if the first judge's ruling had never been written.

And the attorneys for our Archdiocese believe that the ruling will not survive this process because it is deeply flawed.

For example, even though the bankruptcy judge recognized that the "Corporation Sole" and the individual parishes are separate, she concluded that they were all part of one diocesan family and that for this reason the diocese could not hold parish property in a trust that would be protected from bankruptcy.

She then went further and concluded that even if such a trust were valid, the bankruptcy code allowed her to ignore it. And the interests of individuals with claims against the "Corporation Sole" were more important than the interests of the parishes and the parishioners, she decided.

But attorneys for the Los Angeles Archdiocese said they are aware of no case before this one that would even remotely suggest that parish property could not be held in a trust. "We expect that the result of the appeal process will be to remove any effect of the Spokane decision on any diocese," J. Michael Hennigan, lead attorney for the Los Angeles Archdiocese, stated adamantly.

So, the bottom line is that the faithful of Los Angeles, who over the generations have invested so much of their time, effort, money and prayers in building strong and vibrant parishes, need not fear that all of that might be taken from them.

Meanwhile, the Archdiocese will continue to work toward a settlement of the sexual abuse cases that is fair and just --- for everyone.