Eastern Montana Catholic Diocese's Effort to Drop Bankruptcy after Settlement Fails Is a First
By Phoebe Tollefson
For the first time ever, a U.S. Catholic diocese is trying to back out of bankruptcy court due to its failure to reach a settlement with victims of clergy sex abuse. In a motion filed Tuesday, the Great Falls-Billings Diocese said negotiations with the abuse victims had broken down and that continuing through bankruptcy court would only add to litigation costs and diminish the funds that will eventually be used to compensate victims. The diocese filed for bankruptcy a year ago as part of its plan to settle complaints by 72 people claiming sex abuse by Eastern Montana clergy. Later more victims came forward and there are now 86. The diocese is required to pay for all litigation costs, including the work of the victims’ attorneys, under bankruptcy court rules. That tab is likely to run into millions of dollars, the diocese said in a press release issued Wednesday by Chancellor Darren Eultgen. The diocese also said the path ahead in bankruptcy court could compromise the church’s future viability in Eastern Montana. “At this point, that process seems guaranteed to achieve one result with certainty — that of leaving fewer funds for the abuse victims while jeopardizing the ability of the Diocese to carry on its mission,” the press release stated. It’s the first time a Catholic diocese has attempted to drop Chapter 11 proceedings as a result of failed negotiations with victims, opposing attorney James Stang said. Another diocese filed to dismiss bankruptcy proceedings, but that was after reaching a settlement, Stang said. Stang, who is based in Los Angeles, is the attorney for the committee that represents the abuse victims. He's represented creditors in 11 other Catholic church bankruptcies since 2004, including that of the Helena Diocese three years ago. Stang declined to say what the victims committee’s response will be, saying he and his office are reviewing their options. The motion comes a month after the bankruptcy judge gave victims the green light to resume proceedings in state court on two clergy sex abuse lawsuits. Those cases had been on hold pending bankruptcy proceedings. The diocese had opposed the move, saying it would address the complaints of only two of the 86 victims. It also noted the “fact intensive” nature of the lawsuits in state court, and that the victims’ claims vary greatly in frequency, type and severity of abuse. Another reason the diocese cited in its opposition to moving ahead with the lawsuits in state court was that the state courts move more slowly. When the claimants and the diocese met to set a trial date, the earliest available was 11 months away. Mediation proceedings are closed to the public, but much of the dispute between the two sides hinges on what is fair game for the bankruptcy estate, the pot of money that would eventually be distributed to victims. Victims say all assets owned by the diocese and individual parishes should be included. For the Eastern Montana diocese, that’s $71 million. The church says only the bishop’s assets should be considered for victim payout. Those are estimated to be worth $13.8 million. The victims committee has sued to include the finances and real property of Eastern Montana parishes in the bankruptcy estate. Catholic canon law says parishes are separate entities that control their own assets. Parish finances come “almost exclusively” from donations made by individual parishioners, and are used only for facilities upkeep and for the parish to pursue its own mission, the diocese’s press release said. But religious law isn’t in play in bankruptcy court, the victims’ attorneys say, and under Montana law the parishes are merely divisions of the diocese. A similar dispute played out in 2005 in the bankruptcy proceedings of the Archdiocese of Portland in Oregon, with the church saying only between $10 million and $50 million in assets should be considered for the bankruptcy estate, and the victims saying the full $300 million to $500 million — which included assets of parishes — should be considered. The bankruptcy judge in that case ruled in favor of the victims. Local projects The bishop for Eastern Montana, Michael Warfel, put a moratorium on new construction when the diocese filed for bankruptcy, said Rich Moog, finance officer for the diocese. But the moratorium hasn’t halted progress on all Catholic-affiliated projects in Eastern Montana. The Mary Queen of Peace Parish in Billings is in its second phase of fundraising to build a new church at 2715 11th Ave. S. The parish is the result of the consolidation a few years ago of Holy Rosary, Little Flower and Our Lady of Guadalupe churches. Billings South Side church could be new home of program that teaches young children in poverty Additionally, plans for new facilities for Billings Catholic Schools continued to move ahead despite the bankruptcy proceedings. The new K-8 building on Colton Boulevard that opened to students this year is "not in question" under the bankruptcy proceedings, Billings Catholic Schools President Shaun Harrington stressed. The school was privately funded and replaced three older buildings. It is owned by the Billings Catholic Schools Foundation, not by Billings Catholic Schools, Harrington said. Billings Catholic Schools reflect on long journey at first day of new St. Francis Catholic School Additionally, the $5 million loan secured to help finance the new school was simply used to pay immediate costs before pledged donations were scheduled to be fulfilled, Harrington added. The final price tag for the school was roughly $18 million, Harrington said. Initial projections were closer to $15 million.
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