The bankruptcy is likely to be complicated and take time. How it could affect the diocese’s operations, along with parishes, schools and other church programs, is not yet clear.

But church officials and attorneys for the victims say they are working to reach a fair and equitable settlement for all claims and avoid fighting in costly and time-consuming jury trials.

On Monday, Montana's U.S. Bankruptcy Judge Benjamin Hursh disqualified himself from hearing the case. The case has been assigned to U.S. Bankruptcy Judge Jim Pappas of Idaho.

Hursh, who was appointed to the bench on Feb. 1, said in a court order that a reasonable person would likely question his impartiality in matters in which his prior law firm, Crowley Fleck, provided assistance. In addition, Hursh said he was obligated to recuse himself because a lawyer he previously practiced with provided assistance on a matter that may be before the court. 

In filing for bankruptcy on March 31, Bishop Michael Warfel issued a statement in which he expressed his “profound sorrow and sincere apologies” to anyone who was abused by a priest, a sister or a lay church worker.

Warfel also said none of those who have been credibly accused was active in parish ministry and nearly all had died.

Bankruptcy was the “best and only way to fairly and equitably fulfill the Diocese’s obligations to all victims, creditors and other parties in interest and represents the only method by which the Diocese may maintain its worship, outreach, educational and charitable services to the community,” said Darren Eultgen, non-ordained and chancellor of the diocese, in court records.

“The Diocese did not seek (bankruptcy) to shirk any responsibility regarding sexual misconduct by clergy or any mistakes made by the Diocese’s administration. The Diocese is not attempting to deny victims their day in court or hide the truth,” Eultgen said.

Rather, the diocese is “committed to pursuing the truth, addressing the wrongs perpetrated against children and other parishioners, and fairly compensating victims,” Eultgen said.

Through the mediation, attorneys for the victims agreed to vacate a July 10 jury trial set for the first two cases, said Milton Datsopoulos, a Missoula attorney who represents a group of victims. He also has represented abuse victims in the bankruptcy of the Diocese of Helena, which was settled in 2015.

The Diocese of Great Falls-Billings has two sexual abuse lawsuits filed against it, one filed in 2012 and the second in 2013. The diocese is defending the civil cases in court and efforts to settle them have been unsuccessful, he said.

Verdicts in similar sex abuse cases across the country have ranged into the millions of dollars, and the diocese has insurance coverage available for only a limited number of claims, Eultgen said.

The pending litigation and lack of insurance coverage for many of the claims has placed “significant strain” on the diocese, Eultgen said.

Any judgement against the diocese would likely leave it without enough assets to fairly compensate other victims and creditors and result in “a disproportionate allocation of the limited funds available to the diocese,” Eultgen said.

Datsopoulos said mediation provided “major progress” and “a good faith commitment” by the diocese to resolve the claims. Without the church’s commitment, he wouldn’t have agreed to set aside the jury trial, he added.

The progress included that the diocese file for bankruptcy, Datsopoulos said. And the diocese is going to have to make “significant contributions if this is going to have any chance of success. The diocese has the capacity to do that,” he said.

Although there has been no agreement on settlement numbers, the diocese has said it and its insurance carrier both would contribute toward a fund to compensate victims and set aside money for additional and unknown victims.

The mediator helped “design a process that makes it more probable there will be some type of global settlement. We’re not near that yet, but we are committed to meet again, and again if necessary,” Datsopoulos said.

The diocese’s 57-page bankruptcy petition details its assets and liabilities, debtors and creditors.

In general, parishes and schools will continue operations as normal, Eultgen said in an interview. The claimants are filing their lawsuits against the bishop, as head of the diocese, and not against individual parishes, he said.

While the petition identifies assets of the diocese that are included in the bankruptcy estate, it also identifies assets — like parishes, schools and some bank accounts and investments — that it says are excluded under Catholic canon law.

Canon law guides and directs the church’s administration and operations. Under canon law, each entity within the diocese is a separate entity within the church, the filing said. The diocese may have title to the property held for the benefit of those separate entities.

The filing identifies properties the diocese says is “held for the benefit of the parishes and institutions of the diocese and is not property of the estate.”

Canon law has come under scrutiny across the country as other dioceses have sought bankruptcy protection to settle sexual abuse claims.

“They (the church) have been challenged, and they will continue to be challenged,” Datsopoulos said.

There are areas where canon law and the laws of Montana and the country are inconsistent with each other, but the litigation is occurring outside of the church, Datsopoulos said.

“We’re governed by the laws of this country, even if we’re Catholics,” Datsopoulos said.

His view, Datsopoulos said, is that assets being excluded under canon law will be a part of the settlement negotiation. Although some of the assets are “off limits,” the analysis is “very technical,” he said.

“It’s clearly a point of contention and a difficult problem,” Datsopoulos said.

“Ethically and legally, our total commitment is making sure our clients get treated as fairly as possible within what’s available and practical. We’re not interested in destroying the diocese or the Catholic Church,” Datsopoulos added.

The petition lists the diocese’s assets as totaling about $20.7 million in real and personal property, cash and investments. Liabilities total about $14.8 million in unsecured claims.

The diocese has about $71 million in real property, including individual parishes and schools, $2.5 million in bank accounts and $15 million in investments, that are not part of the estate under canon law, the petition said.

The diocese holds about $13.8 million in real property that is considered part of the estate. Included in those holdings are five parcels, totaling about $1.2 million, in Billings. Four of the properties are identified as a “future church site,” while the fifth is Holy Cross Cemetery.

Eultgen said the $1.2 million value was based on tax assessments although the church doesn’t pay property taxes.

The bishop owns those properties, which people sometimes donate to the church as surplus property or the bishop has purchased over time, Eultgen said. One of those surplus properties is a 20-acre site in Briarwood, he said.

Surplus properties potentially could be liquidated in the bankruptcy, Eultgen said.

The petition also identified about $5.8 million in payments to creditors within 90 days of the bankruptcy. Those payments included $1.1 million to the Billings Catholic Schools for a construction loan draw and $25,000 in a grant funding pass through to Mary Queen of Peace in Billings.

Billings Catholic Schools is building an estimated $15.1 million, K-8 school at Colton Boulevard and Woody Drive. The school is being funded through private money and is set to open in the fall.

A spokeswoman for the Billings Catholic Schools Foundation referred questions to the chancellor.

Eultgen said the foundation gets loans from the diocese and repays the money through pledges. Meanwhile, the diocese makes payments so contractors can be paid, he said.

Another local building project planned is a new church at 2715 11th Ave. S. for Mary Queen of Peace Parish. The parish is the result of the consolidation a few years ago of Holy Rosary, Little Flower and Our Lady of Guadalupe churches. Last month, the city of Billings issued a building permit to the Roman Catholic Bishop of Great Falls for the project.

Father Jose Marquez said the chancellor has advised the parish to proceed with its building plans.

While there still are uncertainties, Marquez said the parish will carry on as normal and will be “praying for all that is going on.”

The bankruptcy filing prompted a handful of people to talk to him about the action. “They were just concerned,” Marquez said.

For the past three years, the diocese has cut costs to reduce its budget by about 20 percent prior to filing for bankruptcy to “work toward a balanced budget and to ensure that the diocese would continue to have the ability to fairly compensate the alleged victims and to maintain its core functions and missions,” Eultgen said in court records.

The diocese’s gross revenue for the fiscal year ending on June 30, 2016, was about $6.2 million, with revenue coming primarily from donations and parish assessments, Eultgen said.

The gross revenue for the prior fiscal year, ending June 30, 2015, was about $9.4 million, the petition said.

In addition, the filing said the diocese has paid about $122,000 to a law firm in Coeur d’Alene for its representation and about another $102,000 to a Los Angeles law firm, which is a consultant for the victims, as reimbursement for analyzing draft bankruptcy schedules and church financial information.

The diocese is the second Montana diocese and the 15th U.S. diocese to file for bankruptcy to settle abuse claims.

In March 2015, a U.S. bankruptcy judge approved a $20 million payment plan to settle the reorganization of the Diocese of Helena. The diocese filed for bankruptcy in 2014 to resolve abuse claims that prompted lawsuits in state courts from two groups of victims in 2011.

The settlement addressed more than 360 abuse claims and created a trust fund for victims who come forward in the future.

Insurers for the diocese contributed $14.4 million to set up a trust for payments to victims, while the diocese took out a $3.5 million loan to help fund the trust and cover administrative expenses.

The settlement also required the church to take non-economic actions, including posting on its website the names of all known past and present alleged perpetrators of the diocese who were identified in complaints, providing a hotline system for reporting abuse and conducting background checks and psychological evaluations for seminarians.

The claims against Diocese of Great Falls-Billings bankruptcy are from 72 persons who were sexually abused, mostly by priests, when they were eight to 12 years old, Datsopoulos said.

Most of the victims are now in their 60s and still live in Montana. Many of them come from rural Montana and a significant number are American Indians, he said.

Attorneys for the victims assert the abuse caused “deep trauma” and damaged lives to where the victims have trouble developing stable relationships, have suffered extreme depression, anxiety and psychological problems and in many cases turned to substance abuse, Datsopoulos said.

The attorneys also maintain the diocese did not act in “any reasonably prudent manner” to protect the children after learning of the abuse and instead, moved priests to other parishes, Datsopoulos said.

Prior to the bankruptcy filing, diocese leaders and attorneys met twice with all of the priests to brief them on the situation and to answer questions, Eultgen said.

The first meeting was on Jan. 19, with all of the priests coming to St. Bernard’s Parish in Billings, Eultgen said. The second meeting was a conference call on March 30, on the eve of the petition filing.