Diocese Says Finances for Churches, Schools Safe

By Jennie Rodriguez-Moore
The Record
June 7, 2013

http://www.recordnet.com/apps/pbcs.dll/article?AID=/20130607/A_NEWS/306070313

Bishop Stephen Blaire said Thursday that, despite a potential bankruptcy by the Diocese of Stockton, churches and schools under its umbrella would not be financially impacted.

Bankruptcy could be the next chapter for the church because of child sex abuse scandals, a move more than half a dozen dioceses across the country have made after being hit by lawsuits from victims seeking billions of dollars.

The Diocese of Stockton, based in a city that is facing its own financial problems as the largest U.S. city to file for bankruptcy, said the organization is considering relief from the federal court.

Confirmation of the potential to file for bankruptcy follows a lawsuit settlement for $1.75 million with a victim of defrocked priest Oliver O'Grady, whose pedophilia was chronicled in the documentary "Deliver Us From Evil," and who was convicted in San Joaquin County in the 1990s.

Half of the settlement from this lawsuit will come from an insurance company, and the diocese is responsible for the other half, but Blaire said the organization has few resources left to settle other pending claims.

"There are still four (pending) cases, and we don't even know how many more there are out there," he said.

A potential Chapter 11 filing would halt all litigation and allow the diocese to reorganize its assets and debts. It may result in creditors being paid cents on the dollar. A federal bankruptcy judge would decide how the diocese's resources are dispersed.

Blaire said legal fees and lawsuit settlements have been coming out of its reserves, which have shrunk to less than $1 million.

Operation costs for the diocese are covered with service fees charged to parishes and contributions collected through the Bishop's Ministry Appeal, which helps fund administration, migrant programs, other ministries and Catholic schools.

"That comes in and goes out right away for salaries," Blaire said. "We have never used that money to pay any settlement costs."

The schools and parishes were incorporated separately from the diocese years ago, and because they are separate entities, they do not assume the diocese's liability, he said.

There are 40 corporations connected to the diocese, and those organizations are responsible for generating their own revenue, Blaire said.

He did, however, say that there are still questions as to what resources might be affected, including any funding streams that are linked with the diocese's other corporations.

"You're asking questions that cannot be answered at this time," he said. "If you do go into bankruptcy, then you have to look at everything, and some funds are secure.

"The whole purpose is to find a fair way to meet all your obligations."

But Newport Beach attorney John Manly, who is representing two men who say they are victims of the former priest of St. Andrew's Parish in San Andreas, Michael Kelly, doubts that the diocese might file for bankruptcy because of four outstanding lawsuits.

He believes it might be an attempt to put a lid on the roles Blaire and Monsignor Richard Ryan played in covering up complaints against Kelly.

About 10 years ago, the diocese sent Kelly to a treatment facility for a psychological evaluation, according to church reports submitted to the court. Doctors advised officials that Kelly has pedophilic traits, and they recommended he not be in a ministry involving children.

"They knew about Michael Kelly long before he got to (St. Andrew's)," Manly said, adding that it was church leaders' responsibility to remove Kelly.

"The victims didn't molest themselves," said Manly, who also recently won a settlement from the diocese for Travis Trotter, a former altar boy at Cathedral of the Annunciation in Stockton who said he was raped by Kelly in the 1980s.

Barbara Dorris, outreach director of the Survivors Network of those Abused by Priests, released a statement Thursday.

"When bishops seek bankruptcy protection, all lawsuits, depositions, discovery and trials come to a screeching halt," Dorris said. "The court plays no role in exposing wrongdoers or preventing wrongdoing. It just divides up money. So Catholics and citizens learn nothing about who is committing and concealing clergy child sex crimes."

She said the Church's bankruptcy claims have been "about protecting the power and reputations of powerful church officials who desperately want to keep their complicity in child sex cases under wraps.

"Make no mistake about it: that's the real motivation here," she said. "It's a lack of courage, not a lack of funds. It's to protect reputations, not assets."

Manly believes diocese leaders have been preparing to avoid liability for years, starting with the separate incorporation of its churches and later by setting up a separate entity where funds can be diverted.

Manly referred to The Church of Tomorrow, a $30 million fund that is its own organization.

"It's like putting it in a Swiss bank account and pretending you're broke," Manly said. "Chapter 11 is for organizations that have debt they can't pay."

Blaire countered that The Church of Tomorrow is a campaign specifically set up to raise funds for capital improvements at schools and parishes, to help provide tuition scholarships, and to support ministries.

"We told the people it would never be used for legal fees," Blaire said.

The Diocese of Stockton wouldn't be the first or the largest Catholic arm to file for bankruptcy protection in the United States.

The Diocese of San Diego was the largest to file in 2007, having been hit with 144 civil lawsuits of child sex abuse by priests. Other dioceses to have sought bankruptcy protection include Orange in 2005; Portland, Ore., in 2004; and Tuscan, Ariz., in 2004.

Blaire said he wants the community to know the diocese is looking at all alternate ways to address the financial issue.

"Right now we have enough money to pay our bills," he said, but not enough to compensate for any more settlements.

Blaire said he is not ready to disclose the names of his bankruptcy attorneys. He said the diocese has informed personnel and is preparing discussions with the congregations.

Contact reporter Jennie Rodriguez-Moore at (209) 943-8564 or jrodriguez@recordnet.com. Visit her blog at www.recordnet.com/courtsblog.