Other diocese bankruptcies offer clues for Catholics uncertain about future

By Jay Tokasz
Buffalo News
March 01, 2020

https://buffalonews.com/2020/03/01/past-diocese-bankruptcies-offer-clues-for-area-catholics-uncertain-about-future/

The Buffalo Diocese’s plunge this week into federal bankruptcy court marked a new period of uncertainty for more than 500,000 Western New York Catholics concerned about the future of parishes, schools and diocese employees.

It could take years before it becomes clear what a reorganized Buffalo Diocese will look like but what happened in the Archdiocese of Milwaukee in Wisconsin, which has roughly the same number of Catholics as in Buffalo, may provide some insight.

The Milwaukee archdiocese emerged from federal bankruptcy court in 2016 with a deal to pay $21 million to childhood victims of clergy sex abuse. Four years later, it appears to be better off financially than when it first filed for bankruptcy protection in 2011.

Its total revenues in 2019 were $6 million more than in 2011, according to its latest audited financial statements. Its net assets – after dipping to $50 million in the immediate aftermath of the reorganization – climbed back to $71 million last year, surpassing pre-bankruptcy levels.

The bankruptcy filing ultimately had little financial impact on the archdiocese’s 193 parishes and more than 100 Catholic elementary and high schools, and it protected the archdiocese from the possibility of having to pay huge jury verdicts for abuse lawsuits that had been proceeding in the Wisconsin state courts.

But abuse survivors said the proceedings, which took five years to complete, did little to heal their pain or restore trust in church leaders.

“It was a re-wounding. It was a re-damaging,” said Peter Isely, whose sex abuse claim was among 570 against the archdiocese in the bankruptcy proceeding. “The victims were just beaten down by this process.”

Catholic dioceses and archdioceses from coast to coast have relied on federal bankruptcy courts to help them stay afloat while resolving thousands of clergy sex abuse lawsuits. On Friday, the Buffalo Diocese, facing 260 lawsuits under the state's Child Victims Act, became the latest of 23 dioceses or archdioceses in the U.S. since 2004 to file for bankruptcy protection.

Bishop Edward B. Scharfenberger acknowledged he didn't yet have a lot of answers or details to share about what will happen with the Buffalo Diocese in the bankruptcy process.

"We realize we're just at the first stage of a long process," he said. "My hope is that going forward, regardless of the mistakes we have made, regardless of the suspicions that may rightfully have been raised about the way things were done, going forward, we're going to see a lot of action that will result in very fair resolutions, as much as we can."

More than half of the dioceses or archdioceses that sought Chapter 11 protection have completed their reorganization. Many sold properties or took loans against property to help settle abuse claims. Some cut costs by laying off employees and shutting down some ministries.

“With the layoffs, that means cutbacks in programs, so things the diocese used to do automatically for parishes are less likely to happen in many cases,” said Charles E. Zech, professor emeritus of church management at Villanova University, outside Philadelphia.

Zech said no diocese that restructured through a bankruptcy court has gone under, nor have bankruptcy filings led to mass parish and school closings. Most of the reorganizations took more than two years to complete.

So far, none of them took as long – or were as contentious – as the case involving the Archdiocese of Milwaukee.

The archdiocese initially tried to reject each of the 570 claims on legal grounds. Later, it offered a $4 million settlement to 125 victims. In the end, 350 claimants received payments, averaging about $60,000 each.

Isely got nothing, even though the Rev. Gale Leifeld, a Capuchin friar he accused of abuse, admitted in a sworn deposition to molesting boys at a prep school Isely attended in the 1970s.

“The lawyers for the archdiocese walked away with more money than all of the victims combined,” Isely said.

A spokeswoman for the archdiocese didn’t respond to requests for comment on the impacts of the bankruptcy proceeding.

Archbishop Jerome E. Listecki said in a 2015 letter to parishioners that he hoped the Chapter 11 filing “would be an expedited process to bring resolution, healing and fairness for all abuse survivors.”

“My goal was to provide compensation to those who had been harmed; create a path toward healing for abuse survivors; and allow the Church to continue its spiritual, charitable and educational ministries,” Listecki said in the letter announcing that the archdiocese had agreed to a settlement with abuse victims. “With the end of this process now in sight, we can devote our full attention and resources to our ministries.”

The archdiocese agreed to pay for the deal with $16 million from its cemetery trust, including a $3 million loan, and $10.7 million in insurance settlement monies, most of which was to be applied toward legal fees.

Isely said the biggest bright spot for victims in the settlement had nothing to do with money. It was getting the archdiocese to agree to post on its website internal documents revealing what archdiocese officials knew about priests who had been credibly accused of child sex abuse.

“That was one of our demands,” he said.

The Rev. James E. Connell, a retired Milwaukee priest, is a former official in the archdiocese chancery who now advocates on behalf of victims of clergy abuse. He still serves regularly in parishes as a fill-in priest at Masses when pastors are ill or on vacation.

Connell said the archdiocese may have recovered fine – at least on the books – from the tens of millions of dollars it spent on abuse settlements and legal fees before and during the bankruptcy.

“Maybe the money part is finished in Milwaukee and it’s over with,” he said, “but the church is not healed.”

Connell said he believes many Milwaukee Catholics, while outraged and disgusted, have decided they’re not going to let priests who abuse, and bishops who cover it up, ruin their faith.

“They still want Mass and Holy Communion. They want their babies baptized. They want weddings. They want funerals,” said Connell. “They will keep contributing the money to pay the parish bills. They know their money is needed to pay what is primarily salaries and fringe benefits. And they realize that’s lay people who are employed, and, yes, father is still going to get his money.”

“That the monies don’t dry up doesn’t surprise me,” he added, “but that doesn’t mean people are giving a vote of confidence to the bishop.”

Lawyers for abuse victims said the circumstances of the Milwaukee bankruptcy proceeding were unusual.

In most other dioceses that filed for bankruptcy, states had enacted “window” laws that temporarily lifted the statute of limitations in civil court for child sex abuse cases, thus allowing victims from decades earlier to sue.

Wisconsin did not pass such legislation. Instead, 15 to 20 plaintiffs sued alleging that the archdiocese had concealed abuse, amounting to fraud, which has a statute of limitations that begins only after the alleged fraud is uncovered.

The archdiocese filed for Chapter 11, claiming it couldn’t afford to cover the costs of the suits and carry out its mission. The filing forced anyone who alleged abuse by a priest or archdiocese employee to put in a claim by a specified “bar” date or forgo any future opportunity for compensation from the archdiocese for abuse.

A bankruptcy court received 570 claims, the overwhelming majority of which would have been thrown out of the state courts because they were beyond the statute of limitations.

The archdiocese thus had significant legal advantages in negotiations with victims and their attorneys because only the fraud claims would have advanced in the state courts. But because fraud is considered an intentional act, insurance does not cover it, unlike negligence, which is usually cited by plaintiffs in sex abuse cases against dioceses and archdioceses.

“They used that against the survivors overall and just drove an unbelievably low settlement in recovery for the survivors, because they had that law in their pocket,” said attorney Michael Finnegan, who represented several victims.

If Wisconsin lawmakers eventually pass a “look back” window for sex abuse victims to sue – as in New York, New Jersey, California and several other states – the archdiocese still would be off the hook for any abuse cases that happened prior to the bankruptcy.

“Basically, it cuts off all the past liability,” Finnegan said, “so anybody who was abused before that bankruptcy ended would be out, essentially.”

Previous abuse bankruptcy settlements have ranged from a low of $9.8 million in the Diocese of Fairbanks, Alaska, in 2010 to a high of $210 million in the Archdiocese of Saint Paul and Minneapolis in 2018. Insurance covered 15% to 85%, depending on the diocese. Many of the previous settlements also required dioceses and archdioceses to implement new measures aimed at child protection and increasing transparency about diocese operations.

Not all emerged from bankruptcy as intact financially as Milwaukee.

The Diocese of Wilmington, Del., for example, agreed in 2011 to pay $77 million to 149 abuse victims, an average of nearly $520,000 per person. It also paid more than $15 million in legal and professional fees.

About $15 million of the total cost was funded through insurance. The rest came from the diocese and its affiliates, including a diocese foundation, cemeteries and Catholic Charities.

The foundation, which contributed $46.5 million in unrestricted liquid assets, essentially was put out of business, causing parishes and schools to lose a vital resource for financing capital improvements, operational subsidies and emergency grants, according to Anthony G. Flynn, an attorney for the diocese.

An inner-city parish school that served low-income families and relied on annual support from the foundation was forced to close, Flynn said in 2017 testimony before the District of Columbia Council, which at the time was considering enacting a look-back window similar to the one adopted in Delaware in 2007.

Flynn described the impact of the settlement on the diocese as “severe.” The diocese laid off 19 employees, about 10 percent of its workforce, to address an immediate operating budget deficit created by the settlement, and further cuts followed later, he said.

“Although it ensured fair treatment for all survivors, and saved the parishes, the Diocese of Wilmington proceeding was torturous and expensive,” he said in the testimony.

District of Columbia lawmakers passed legislation in 2019 that created a two-year window for child sex abuse victims to sue no matter how long ago the alleged abuse happened. The window opened last May.