'It is important to know that parishes and Catholic schools are separately incorporated...', by Jennifer Haselberger, Canonical Consultation (February 14, 2015)

'It is important to know that parishes and Catholic schools are separately incorporated...'

By Jennifer Haselberger
Canonical Consultation
February 14, 2015

http://canonicalconsultation.com/blog.html

As I mentioned in an earlier post, it is very possible that the path out of bankruptcy for the Archdiocese of Saint Paul and Minneapolis will include parishes and other institutions contributing to the financial compensation offered to victims of clergy sexual abuse. This could happen in several ways, including by parish insurance policies providing settlement money, parishes voluntarily agreeing to contribute to the final settlement, or with a judgment in support of an alter ego claim. The latter, as I have already mentioned, enables a court to treat separate corporations (such as the parish corporations or other related non-profits) as one legal entity with the Archdiocese, and to hold each liable for the debts of the other and to consolidate the assets of both.

Since that last posting, I have received many emails and comments regarding the alter ego argument. Most, frankly, take the position that the alter ego status is already established by the level of control exercised by the Archbishop over parishes and institutions. However, it is not that easy.

A lot of the control exercised by the Archbishop occurs in the areas of religious practice, such as the appointing of pastors, establishing regulations for the administration of the sacraments, and even dictating prayers and special collections for charitable purposes. A court is unlikely to consider these aspects of Archdiocesan control when determining whether the parish is an alter ego because of constitutional issues arising from the First Amendment. What will be of interest to the court is the extent to which the Archbishop's authority over the temporal operations of the parishes and institutions exceeds that which is permitted by those corporations' governing documents.

As I have already mentioned, the alter ego claim was posited by the Creditors Committee in the bankruptcy proceedings of the Archdiocese of Milwaukee, but the Committee's motion for an alter ego judgment and substantive consolidation failed. The Committee's argument for the determination was 'that the Parishes and the Debtor are part of a single enterprise, both financially and operationally, and that the Parishes are incapable of surviving as independent entities without the Debtor's financial and operational support.' The Committee also noted the overlap between the leadership of the Archdiocese and each Parish. Furthermore, while the Committee conceded that each of the Parishes was separately incorporated, it alleged that the Debtor and the Parishes do not adhere to typical corporate formalities and separateness.

The Archdiocese of Milwaukee responded by indicating that the parishes were incorporated under Wisconsin law, and that many of the questionable governance issues arose from the statute rather than intention.

'The Parish Corporations located within the [Debtor] are separate civil corporations. Other than a few Parish Corporations which are wholly-owned by religious orders, the Parish Corporations are all organized and operate pursuant to Wis. Stat. § 187.19. In Wisconsin, parish corporations have been separately incorporated since 1883 (Wis. Stat. § 187.19 is based on Chapter '37 of the Laws of Wisconsin (1883), and many of the Parish Corporations came into existence in 1883, with the majority incorporated prior to 1930). In accordance with the Wisconsin Statutes, each Parish Corporation has a designated Board of Trustees as prescribed by statute. Parish corporations own their own property, finance their own activities, manage their own assets and are responsible for their own corporate activities.'

The Archdiocese of Milwaukee also successfully argued that its parishes have no money- they 'live on the margins' and any attempt to consolidate assets would result in the parishes no longer being able to continue with their essential services, including by providing the opportunity to 'worship, to provide religious outreach and to continue operations'.

So, if the Archdiocese of Milwaukee was successful in refuting the alter ego argument in its bankruptcy, should we have anything to fear? Unfortunately, the answer to that question is 'yes' and for all the same reasons that have brought us to where we are today. We are not Milwaukee. We did not play by the rules, either canonically or civilly. And, perhaps most importantly, when it appeared everything would be on the line, our leadership was not able to cajole or compel those within into towing the company line. 'Mental reservation' is only useful when everyone is willing to tell the same lie.

So where, legally speaking, are the differences? In the Archdiocese of Saint Paul and Minneapolis, generally speaking, parish corporations are established under Minnesota Statute 315.15, which requires the Archbishop, the Vicar General, and the pastor of the parish to govern the corporation with the assistance of two lay trustees (Board of Directors). The purpose in establishing the parish corporations, as the standard Articles of Incorporation state (see below), is for the corporation to 'take charge of and manage all the temporal affairs of the Roman Catholic Church in the said Parish to promote the spiritual, educational, and other interests of the said Roman Catholic Church in said Parish including all the charitable, benevolent, and eleemosynary work of said Church in said parish...'

You and I know what this means, as it is how most of us experience parish life. We contribute to our parish, and it uses those funds to maintain its property, pay its staff, and to serve the sacramental, educational, and charitable needs of the parishioners. Most of us experience parish life this way, but not all. While the Archdiocese of Milwaukee was able to argue that its parish corporations own their own property, we know from financial information released as part of the Saint Paul and Minneapolis bankruptcy that some of our parishes do not own their own property, such as the Cathedral parish. In those cases, the property used and maintained by the parish is actually owned by the Archdiocese.

Moreover, while Milwaukee was able to state that all parish corporations (except those owned entirely by religious orders) are organized and operated as prescribed by the statute on parish corporations and have largely functioned as such since 1930, that is not the case in the Archdiocese of Saint Paul and Minneapolis. Many of our parish corporations were formed after 1930, and, in fact, several churches that are considered 'parishes' are not organized nor operated as parish corporations at all. This would include Sagrado Corazon de Jesus in Minneapolis, Gichitwaa Kateri, and the Newman Center of the University of Minnesota. All of these were established as Minnesota non-profit corporations according to MN Statute 317A, which permits establishment of such corporations 'for any lawful purpose' (no religious purpose is required) and allows the corporation to be established by 'one or more adult natural persons' rather than requiring the participation of the bishop, Vicar General, and pastor. In these cases the law also does not require those individuals (Archbishop, Vicar General, and 'pastor') to serve as directors of the corporation. It was this statute, and not the statute governing parish corporations, that was used to establish a significant number of 'new' churches in the Archdiocese of Saint Paul and Minneapolis, including those for particular ethnic communities. Most of these were established after 1990, with more than one established in 2011.

It is very difficult to argue, as Milwaukee did, that the overlap in leadership between the Archdiocese of Saint Paul and Minneapolis and its parishes is a statutory requirement of Minnesota law when there is an abundance of evidence that demonstrates that the Archdiocese frequently chose to incorporate its churches under a different, less restrictive statute when it suited it to do so. There is even one institution in the Archdiocese that was established and remains organized as a congregational corporation pursuant to MN Statute 315.01, although it has long ceased to operate according to that particular governance model.

But all is not as it should be even with the corporations established properly as 'parish corporations'. The Archdiocese of Milwaukee was able to demonstrate that its parishes managed their own financial activities and were self-supporting. As many pastors and business administrators in this Archdiocese can attest, that is not true in Saint Paul and Minneapolis. In 2007, the Archdiocese was guaranteeing nearly $100 million in debt owed by parishes or other Catholic institutions (down from $140 million thanks to the Growing in Faith campaign). And, rather than being self-supporting in terms of day-to-day operations, the salaries of many parish employees are subsidized or completely funded by the Archdiocese (hence the payments of $9,900 and multiples of that number which appear in the schedule of payments to creditors filed on January 30). It is also a common occurrence for parishes to be sufficiently underfunded that they either underpay or avoid paying altogether their contributions to the Archdiocesan common platform medical, insurance, or pension funds, sometimes going hundreds of thousands of dollars into arrears with these payments. In fact, this situation had become so critical by 2013 that the new CFO, Tom Mertens, sent letters to nearly fifty parishes that were delinquent in these payments, despite the fact that some of the debts were well beyond the seven year period during which they could be legally collected.

Yet, during the Milwaukee proceedings the court considered whether the Archdiocese exercised dominion over its parishes not only in terms of finances but also in terms of policy and business practices. And, here again, the Archdiocese of Saint Paul and Minneapolis might find itself in trouble. It was generally acknowledged by my co-workers and I that policies promulgated by the Archbishop concerning matters outside his spiritual authority needed to be adopted by the parish corporations through a formal resolution, but this was not deemed expedient. Therefore, you have sweeping policies on parish administration (that exceed the canonical requirements) and employment practices (mandatory arbitration is not a magisterial teaching) that have been imposed upon the parish corporations, and at one point in the late 1980s or early 1990s the Archdiocese even mandated that the parish corporations adopt uniform Articles of Incorporation and Bylaws (distributed through the old Clergy Bulletin binders). Even the independence of the lay trustees can be called into question in light of the yearly 'instruction' provided by the Archdiocese regarding their roles and obligations, at which time the trustees are also informed of Archdiocesan initiatives and programs for their parishes (see the Parish Trustee materials below). The Archdiocese has also compelled a variety of actions and initiatives related to parish finances, from mandating certain forms of financial reporting to dictating accounting practices and the software to be used, and some parishes and institutions have been forced to purchase business services through the Archdiocesan 'Parish Accounting Services Center', primarily in cases where the Archdiocese wanted to exercise complete control over the parish or institution's fiscal operations.

It is also hard to argue that parish corporations in the Archdiocese are permitted to manage their own assets and financial affairs, or that they are governed according to their own Articles and bylaws, when corporate formalities are so frequently disregarded. The bylaws for every parish corporation in this Archdiocese require the Board to meet at least once annually, but ask any lay trustee if they can ever remember the Archbishop and Vicar General appearing for such a meeting- no matter what the circumstances (e.g. parish mergers). Furthermore, in some circumstances, 'separate' parish corporations have been permitted to utilize a single parish register and have intermingled finances so that the separate identities of the parishes is a mere legal fiction. The parishes of St Mary's and St Michael's in Stillwater are a perfect example of this. The two parishes, along with the separately incorporated school and religious formation program, have been permitted to operate as the Stillwater Catholic Community for years- even posting a joint fundraising policy- despite the Archbishop, Vicar General, Pastor, and parish staff being frequently reminded of the need to respect the separate incorporation of each entity. The Delano parishes were also operated this way until recently, when the confusion was rectified by the merger of the corporations.

At other times the assets of one church have been used for the benefit of another, separate, church, (or even the Archdiocese) to the detriment of one or both. Many of you reading this will remember the old Newman Center located at 1701 University Avenue on the campus of the U of M. That property, owned by a non-profit corporation (not a parish corporation) named 'Newman Center and Chapel', was sold in 2009-2010 (if I remember correctly) following multiple bids in the range of $2-$3 million. After mortgage repayment, the estimated proceeds of the sale were thought to be in the range of $1.5 million. So, what happened to that money? It should remain in the bank accounts of the corporation of the 'Newman Center and Chapel', but did such things exist and if they did, is the money there? If not, why not, and where was the money held after the sale of the property?

Or, consider what took place in 2012, when Father Kevin McDonough, chaplain of Sagrado Corazon, wanted to generate income for Sagrado by leasing the church's property to, I believe, a Charter school. In order to complete the lease, the Sagrado property required significant improvements, which the church was unable to afford. So, a loan was taken out by the Church of the Incarnation (a separate parish corporation of which Father McDonough also happened to be pastor), to cover the costs of the renovation of the Sagrado building. The transaction required the consent of the Archbishop, College of Consultors and Archdiocesan Finance Council, along with the intervention of the Catholic Finance Corporation, all of whom were suspicious of the transaction. However, I was told that Father McDonough was able to 'charm' Archbishop Nienstedt into agreeing to his proposal (over the opposition of his councils). Additional difficulties emerged when it was suddenly recognized that the Articles/Bylaws of Sagrado Corazon were so out of date that the positions of the ex officio members of the Board of Directors had largely been eliminated more than a decade before (in other words, the directors had not been able to convene since 2000, when Archbishop Flynn suppressed the old vicariate system). Since those positions no longer existed, Father McDonough had to convince other people to sign the corporate documents, based on the logic that their Archdiocesan positions made them 'close enough' to the ex officio members listed in the Articles/Bylaws.

In this case, Father McDonough occupied only one position on the Board of Directors for each of the corporations. However, that was not always the case. At the time that he was appointed Vicar General, Father McDonough was also appointed as pastor of the parish corporation of Saint Peter Claver, meaning that he held two director positions on that parish's five person board simultaneously (along with the Archbishop and two lay trustees). The statute doesn't explicitly forbid this, although it is far from ideal, and Father McDonough was certainly engaged in the operations of the parish corporation both on behalf of the Archdiocese and the parish. Therefore, this was less of a sham than it might at first appear.

The same cannot be said, however, for the more than seventy-five other parishes to which Father McDonough was also assigned as 'pastor' for purposes of corporate governance during the seventeen years (1991-2008) that he was simultaneously a director of those corporations by virtue of his appointment as Vicar General. For these 75+ parishes, Father McDonough rarely, if ever, celebrated Mass or conferred a sacrament or even did so much as offer a prayer on their behalf, and in many cases the parishioners were unaware of his governance responsibilities although they were effectively under the complete dominion of the Chancery (the Board of Directors being composed of the Archbishop, his appointee Father McDonough, his other appointee Father McDonough, and two lay trustees nominated by Father McDonough and appointed by his two votes and that of the Archbishop).

In many cases this direct, majority governance by the Chancery was benign, a simple expedient rather than an intent to interfere. But, in a number of situations McDonough's dual appointment was made at a time when the Archdiocese was dictating a change in the parish that negatively impacted parish assets and often went contrary to the wishes of the parishioners. In such cases his appointment as 'pastor' meant that the parish corporation was given no opportunity to exercise a mind, will, or existence apart from that which was determined for it by the Archdiocese. Significantly, Father McDonough was appointed to a second, simultaneous ex officio position on the corporate boards of St. Martin and St Walburga when those parishes were transitioning into Mary, Queen of Peace, of Holy Redeemer and St Peter when those parishes were preparing to merge, of St Anne of Minneapolis when it was made the parish of the Vietnamese Community, now known as St. Anne-St Joseph Hien, and during different stages of transition for the Highland parishes now known as Lumen Christi. The Archdiocese was far less subtle in its strategic planning under Archbishop Nienstedt, although I can remember being appointed as a lay trustee (in name alone) during this process and removed just as quickly when I refused to sign certain corporate documents. Still, rather than appointing the Vicar General as 'pastor', Archbishop Nienstedt was able to impose his strategic plan by merely threatening the removal of pastors and forcing the resignations of any lay trustees who were unwilling to sign the corporate merger documents. Neither approach gives the appearance of arm's length transactions, and both raise serious questions about the degree of discretion a parish corporation has regarding its operations and assets.

For these reasons, among others, I don't think it would be difficult for the creditors in this bankruptcy to demonstrate that the parish corporations and related institutions and the Archdiocese have a unity of interest and ownership to the extent that the separate legal personalities of the parishes and other corporations do not effectively exist. But what about the second aspect of the alter ego test? Is this fraud? Has or will an injustice be committed?

To answer that question, it is probably best to go back to 1991, which was seminal time in the Archdiocese of Saint Paul and Minneapolis both in terms of parish corporation reorganization and litigation resulting from sexual abuse by clergy. At that time the new Vicar General, Father McDonough, was made pastor of two parishes for which he would never exercise any type of spiritual leadership or ministry- Saint Elizabeth of Minneapolis and Our Lady of Perpetual Help. Both parishes had suffered a loss of territory and population as a result of the construction of I-35W, so the decision to reorganize the parishes was legitimate. As per canon law, the remaining parishioners of those parishes were accommodated into the neighboring parish of Saint Albert the Great, which also received the remaining territory that had been assigned to the two churches, the responsibility for the care of the faithful in the combined area, and the church ledgers, sacramental registers, etc.

Canonically, such a merger is effected through the issuing of a decree, and the civil law governing parish corporations provides a similar statute (315.365). However, although in every case the outwards signs of a merger of the two parishes were present, the parish corporation of Saint Elizabeth was never merged into the parish corporation of Saint Albert the Great, nor did the assets of the merged parish follow the parishioners, as is required by canon law. Instead, the Archdiocese 'suppressed' Saint Elizabeth (a rare canonical declaration meant to be used when more than a hundred years have passed with no pastoral activity in the territory, and which the Congregation for Clergy has declared must almost never happen in the United States. Prot. No. 20060481). By suppressing rather than merging the parish the Archdiocese was able to seize the assets of the parish corporation of St Elizabeth. And this parish had a lot of assets, in part because its land and buildings (rectory, school, church, etc) had been reclaimed to enable the construction of the interstate. As for the civil corporation, 'suppression' should have resulted in it, and its assets, being subsumed into the Archdiocesan corporation. But this never happened. Instead, the parish corporation continued to exist until at least 2013, with Father McDonough remaining pastor throughout two changes in Archbishops and at least four changes in Vicar Generals, although the 'parish' had operationally, canonically, and physically ceased to exist more than two decades before. As for the money, what amounted to millions of dollars ($8 million is what sticks in my mind, but I could be wrong about that) remained in the parish bank accounts, legally but illegitimately protected as the assets of a 'separate corporation' until a 'convenient' time (i.e. non-litigious) presented and the the Archdiocese was able to transfer the money into its own coffers without the risk of it being subsumed in litigation, settlement, or punitive damage costs.

Second criteria, check.

Now, I know that many of the pastors who are reading this are saying, 'yeah, fine, come after our assets. We ain't got nothing but debt', and they would be right (practically if not grammatically). However, while many of our parishes are deeply in debt and/or 'living on the margins', a fair number of them are also holding onto property- a significant amount of property- the loss of which would not arguably impact the parish corporations' ability to continue its operations or services. Saint Katherine Drexel, for instance, has more than thirty undeveloped acres in Ramsey, and St Joachim and Anne about ten acres in Shakopee. Other parish corporations hold undeveloped land, commercial real estate, rental housing, etc. This property is significant given that the Tucson bankruptcy agreement was reached in part through the sale of 83 unused church properties for more than $5 million, the proceeds of which went directly into the settlement with victims of clergy sexual abuse.

The parishes are also the moral if not legal owners of the excess funding in the General Insurance fund (reputably overfunded by about $14 million), and the Employee Medical Plan (rumored to have an extra $3.5 million), money that is currently being floated as a possible source of the parishes' 'contribution' to the settlement fund. Like the unused parish properties, the use of this money for bankruptcy purposes would likely not significantly impact the day-to-day operations of most of the parishes in the Archdiocese. However, like the possible sale of unused parish property, it does raise issues about donor intent, especially given the number of donors in recent years who contributed money to their parishes for operational purposes based on guarantees that such money would not be used to pay the costs of clergy sexual abuse. And, to the extent that the disbursement of that money to parish-creditors would alter the financial situations of parishes who are being forced into mergers or into closing worship spaces, its use in bankruptcy would have a negative impact on those parishes' ability to continue their present operations.

The point? Despite Archdiocesan statements to the contrary, we have moved beyond the point of stating that parish assets are not at risk in the bankruptcy process. 'It is important to know that parishes and Catholic schools are separately incorporated and are not filing for Reorganization' misses the point. Parishes and schools did not file for bankruptcy any more than (in most cases) they chose to expose their members to sexual abuse by clergy, but they are being drawn into the process nonetheless. All that remains to be determined is the extent to which the faithful in the parishes will have to suffer for the sins of their leaders.