"the Picture That Emerges Is Not Flattering'.

By Jennifer Haselberger
Canonical Consultation
January 21, 2015

http://canonicalconsultation.com/blog.html

A few days ago I wrote about the assertion of Richard D. Anderson, attorney for the Archdiocese of Saint Paul and Minneapolis in its bankruptcy proceedings, that the Archdiocesan Finance Council 'did not consider matters relating...to a potential Chapter 11 reorganization' prior to October of 2013. As I said at that time, I have no reason to doubt that Mr. Anderson is being honest in his statement. However, it continues to puzzle me how the Archdiocesan Finance Council could have been left out of the discussions about potential bankruptcy and the need to protect church assets given that these discussions began long before October of 2013.

These conversations took place in different contexts and with different purposes. Within a short time of my arrival at the Chancery in 2008, for instance, I participated in a series of meetings between Archdiocesan officials and the staff of the Catholic Finance Corporation in which we identified certain problematic decisions and practices that left assets at risk in the event of bankruptcy or even punitive damages awards. Initially these conversations were occurring at times when neither bankruptcy nor litigation was threatened and our concerns were not to shield Archdiocesan resources from legitimate claims and settlements, but instead to fulfill our obligations as stewards of the resources that had been generously given by the faithful of the Archdiocese.

As was generally the case, while everyone could agree to the logic of taking certain actions, the will to do so was not there, and as such these concerns, and mine in particular, were pushed aside. This situation continued until 2012, when two things occurred that brought these issues to the fore. The first was the discovery of the abuse committed by Father Curtis Wehmeyer, which was immediately identified as having potentially disastrous consequences should it reach litigation. The second was the publication of an article in The Economist about the finances of the American Catholic Church entitled 'Earthly Concerns'.

The conclusions presented in that article are grim indeed. In fact, the title of this post ('The picture that emerges is not flattering.') comes from the very text of the article. Drawing its deductions from pre-2012 church bankruptcy proceedings and confidential interviews with church officials, the article concludes that 'the financial mismanagement and questionable business practices [found within the Catholic Church in the United States] would have seen widespread resignations at the top of any other public institution'.

The article, and the concerns that it highlights, resonated deeply with many in Archdiocesan leadership, including priests with important positions in the Archdiocese. It was Father Dan Griffith, I believe, a member of the College of Consultors, who distributed the article to his fellow consultors as well as to the Archbishop and tried to generate conversation about some of the issues which were known to be all too true of the Archdiocese. This movement picked up steam in the winter of 2013 when the Minnesota Child Victims Act was introduced in the state legislature. By March of 2013 the Archdiocese had recognized that bankruptcy was a possible, if not likely, outcome of the bill passing, and began to belatedly take steps to protect its assets.

I resigned at the end of April of 2013, and so am not aware of what actions were taken between then and last week's filing. I look forward to reviewing the bankruptcy documents as they become available. However, it is unlikely that any actions taken in the interim would mitigate my concerns. The three primary areas of concern, or weakness, that I had identified were the Catholic Community Foundation, the Interparish Loan Fund, and the Priests Pension Plan.

The Catholic Community Foundation

As a result of the Doe 1 case, church leaders have finally admitted what was generally understood all along- the Catholic Community Foundation was established to provide a means for donors to contribute to the Church's mission in such a way that those donations could not be used to pay legal settlements or other fees arising from sexual abuse by clergy (McDonough, pp. 302--303). That was legally fine, if morally iffy, for funds collected going forward. But at the time that the CCF was established it was funded in part by a transfer of money from the Archdiocesan coffers. Significantly, the establishment and transfer occurred in 1992, after a 1990 court decision that granted nearly $2.7 million in punitive damages to a victim of Thomas Adamson, the first time any Catholic diocese had been penalized in that way, and in the midst of a similar case involving Father Robert Kapoun.

While the establishment of the Catholic Community Foundation would be contested in subsequent abuse cases against the Archdiocese, the real weakness in the Archdiocese's transfer of assets went largely undiscovered except by those church officials involved in the process. For, while the Archdiocese seemingly complied with the civil law requirements governing the establishment of such a fund, it did not 'pull the trigger', if you will, on the internal and external church processes that were also required. In other words, while to outside observers the foundation seemed to have been established as an independent corporation, from the Church's perspective it (and the donated money) remained the property of the Archdiocese and under its control. This situation continued for more than ten years, despite numerous warnings about the potential exposure this created. And, if what I am hearing is correct, it was only rectified in October of 2014, after the Archdiocese had hired lawyers to guide it through bankruptcy and at a time when an enormous punitive damages award seemed highly likely.

It will be interesting to see how this is viewed if the bankruptcy gets before a judge. In the past, Church officials have counted on the courts to accept its assertions about the independence of civil corporations as well as its interpretation of canon law. But, those arguments may not be available in this case in light of some of the assertions that are being made in preliminary filings. For instance, in his affidavit in support of the bankruptcy petition the Vicar General, Father Charles Lachowitzer, emphasizes the canonical regulations that govern the redistribution of ecclesiastical property. He states, 'all property acquired, retained, administered, or alienated by a public juridic person [e.g. a diocese] is governed by the provisions of canon law...' (Lachowitzer, p. 3), a risky statement for a diocese that has played fast and loose with the canonical regulations for church property for so long. It may be that the Archdiocese will have to acknowledge that the assets seemingly transferred to the Catholic Community Foundation in the 1990s actually remained Archdiocesan assets until recently, which could mean that million of dollars will suddenly become available to satisfy the demands of its creditors.

The Interparish Loan Fund

Ah, the loan fund. This too made an early appearance in bankruptcy filings, with one parish, the predominantly Vietnamese community of Saint Anne- Saint Joseph Hien, presenting itself as one of the top twenty unsecured creditors of the Archdiocese due to its nearly $500,000 deposit into the fund (regrettably, but predictably, the name of the parish- and the corresponding Saint- is misspelled in the Archdiocese's own filing documents).

In 2007, staff of the Catholic Finance Corporation informed then-coadjutor Archbishop Nienstedt that the interparish deposit and loan program had approximately $8 million in its fund, which was primarily used as working capital loans to parishes. However, by 2013, when I raised the issue of needing to protect those parish assets in light of a potential bankruptcy filing, I was informed that was not actually the case. While the deposits and loans appeared on the books, the interparish loan fund was basically in the red. In short, there were no assets to be protected.

The article in The Economist provides some insight into why that might be. Researching the finances of bankrupt Catholic dioceses, the author writes,

'The documents that have been disclosed reveal that some bishops in the bankrupt dioceses presented the diocesan funds of parishes, schools, hospitals and retirement accounts as separate when they were really simply book-keeping entries in the same pooled investment account. The diocese of San Diego, for instance, reported to the bankruptcy court that it had over 500 accounts. But these were merely entries in a “Parish, School Diocese Loan Trust Account”, maintained in a single bank account at Union Bank of California.

Such pooling saves on administrative costs and allows dioceses to use a surplus in one area to cover shortfalls in another, often a legitimate course of action. But it has presented problems when it comes to working out which assets belong to whom in bankruptcy proceedings.'

No wonder the parish of Saint Anne-Saint Joseph Hien, which sold several tracts of commercial property in the 2009-2010, appears as a creditor. The article continues:

'The vast majority of parishes that commingled their funds with those dioceses now in bankruptcy lost all their investments. In some cases they were misled into believing that the money would be kept separate from the main diocesan funds, and thus safe in the event of bankruptcy. The judge in the Wilmington bankruptcy, Christopher Sontchi, said parishes that had suffered this fate had grounds to sue the diocese for breach of fiduciary duty. None has—but that is hardly surprising, given that the bishop and the chancellor of the diocese sit on the five-member board of trustees of each parish.'

The parish does not list an attorney in the filing documents, but hopefully it has one, and one that has not been provided by the Archdiocese. Perhaps then we will see a lawsuit for breach of fiduciary duty, especially given that the trustees of this parish could join with the pastor, who is not a diocesan priest but a member of a religious order, in seeking recourse.

The Pension Plan for Priests

Yesterday, the Archdiocese invited pastors and parochial administrators to attend meetings 'regarding the archdiocesan corporation’s filing for reorganization' that will take place January 25, 26, and 27. However, the email invitations noted that 'because of the large number of people invited and space limitations at the sites, only those in the roles noted above are invited to attend these meetings.'

This leaves out the parochial vicars or assistant priests, retired or senior priests, chaplains, and priests who serve as educators at the seminary or other schools- some of whom have an equal or greater interest than the invited attendees in ending speculation about the 'potential impact of Reorganization on 403(b), pension, medical or other priest benefits'. [1/22- This morning, pastors received an email telling them to invite their parochial vicars to attend one of the meetings.]

For, again, the Pension Plan for Priests made an early appearance in bankruptcy filings, appearing as an unsecured creditor for an unknown amount arising out of an unfunded pension liability (at the very least). This is not surprising, given that The Economist reported that Richard Vega, past president of the National Federation of Priests’ Councils, estimated that 75-80% of clergy pension schemes are underfunded.

But clergy pension funds also do not fall under all of the same federal standards as other retirement plans. Commentators have noted that this looser regulation has allowed dioceses to manipulate church pensions in ways that a corporation or government agency would never be permitted. To understand how this has been done in other dioceses, and why priests in the Archdiocese of Saint Paul and Minneapolis should be concerned about this possibility as well as about other goofiness with the administrator of the plan, I recommend a 2013 article on the topic that appeared in Minnpost.

Attempting to Mediate

Of course, these concerns may never become an issue if the Archdiocese is able to reach an equitable settlement with its creditors in mediation, as it was ordered to attempt to do yesterday. But, the success of mediation will likely hinge on the willingness of the Archdiocese's insurers to pay up, something that they have so far indicated a reluctance to do.

And, it is important to note that financial arrangements are not the only things on the table in a mediation process. The creditors, which in this case will include victims of sexual abuse by clergy, can also seek non-monetary forms of compensation. What might they seek, you ask? Well, the comments of one claimant, the mother of the boys abused by Father Curtis Wehmeyer, might be worth noting in this regard. In a statement to MPR following the notice of the bankruptcy filing, she expressed frustration that Archbishop Nienstedt and other Chancery officials had not been forced to resign. She is quoted as saying, 'At least for me and my family that would be another step toward healing. Because as far as transparency goes, all's I see when I look at them is lies.'

Obviously, a bankruptcy judge could never impose the resignation of a bishop as a way of settling a claim. But, in mediation anything and everything is on the table. The Holy Father would still have to accept the Archbishop's resignation, as well as that of any auxiliary bishops whose retirement is sought, but there is nothing to prevent the creditors committee from naming this and other resignations as part of the agreement it seeks.

If such a thing does occur, it will be interesting to see if the other creditors, especially those who are not victims of sexual abuse, will stand with the mother of the Wehmeyer victims in seeking this as part of or in advance of approving a settlement agreement.

The House Always Wins

The one person that I felt most sorry for after yesterday's announcement of the appointed mediator (Arthur Boylan) was his son-in-law. An employee of a parish of the Archdiocese, he has a personal interest in a resolution that could touch on the 403(b), pension, medical or other employee benefits that are currently up in the air as a result of the bankruptcy filing. A former seminarian, classmate of Father Peter Laird, and an all-around good guy, he may be in for some uncomfortable conversations (or lack thereof) both at home and at work for the foreseeable future. The only thing that in any way tempers the compassion that I feel for him as a result of this turn of events is the fact that he cheers for the Blackhawks.

Go Wild.