Diocese bankruptcy cloud lifting
Sex abuse settlements expected next month

By Stephanie Innes
Arizona Daily Star
September 20, 2005

On the one-year anniversary of announcing it would file for bankruptcy, the Roman Catholic Diocese of Tucson is expected to officially emerge today from Chapter 11.

The diocese's lead bankruptcy attorney said Monday she expects the bankruptcy plan to become effective today, and hopes victims of sexual abuse by clergy will receive settlement money as early as next month.

"For any Chapter 11 to get to confirmation in 10 months is remarkable," said diocesan attorney Susan Boswell, a Tucson lawyer who has more than 25 years of experience in bankruptcy practice, referring to the case's confirmation hearing in July. "It takes a lot of time to negotiate these cases in general, much less a complex case with the kind of emotional overlay this has."

Last Sept. 20 the diocese announced that in the face of mounting litigation over sexual abuse of children by priests, it would file for federal bankruptcy protection. Tucson was the second Catholic diocese in the nation to seek federal Chapter 11 protection - the first was the Archdiocese of Portland, Ore. Since then one other Catholic diocese has filed for bankruptcy - Spokane, Wash.

Catholic officials in Portland and Spokane continue to litigate their bankruptcy cases.

"It's a very quick resolution of a very complicated matter. The major issues in the other cases is who owns the parishes and the Tucson diocese avoided that, as they should have," said Thomas J. Salerno, a Phoenix bankruptcy attorney and former director of the American Bankruptcy Institute who in 1999 represented the Baptist Foundation of Arizona during its bankruptcy proceedings.

"In Chapter 11, settlement is always preferable to litigating these things out. The Chapter 11 process works best when you have people who can consensually resolve the case."

In Tucson, the issue of who owns diocesan parishes was not litigated. Lawyers for the Tucson diocese, citing church law, claimed that parishes are separate entities - not part of the diocese and therefore not subject to liquidation to pay victims of sexual abuse, even though the diocese is listed in county records as owning the parishes.

Parish ownership was challenged in Spokane, and a judge there recently ruled that parishes and schools are part of the diocese's real property assets.

U.S. Bankruptcy Judge Patricia C. Williams in Spokane wrote that it is not a violation of the First Amendment to determine the nature and extent of a debtor's interest in property "by application of state law rather than internal church doctrine."

But Boswell said the fact that Tucson did not litigate parish ownership in court turned out to be a positive for everyone. The Spokane decision will not be the end of the parish issue, she said - that decision has been appealed and could drag on for years.

"If you fight every little thing, because the debtor pays the fee, you have the possibility of killing the debtor," she said.

Boswell added that higher litigation and administrative costs can mean lower payments to creditors, who in this case included sexual abuse victims. Litigating issues in bankruptcy court has even earned a nickname from lawyers, "feeding off the carcass," which refers to racking up costs to the bankrupt entity.

"One of the paramount concerns of the claimants was to resolve this sooner rather than later," said attorney Lynne M. Cadigan, who represents claimants receiving most of the Tucson diocese settlement money. Cadigan said her clients are pleased with the resolution of the case.

Clifford B. Altfeld , a Tucson attorney who has been practicing bankruptcy law for 15 years, said the local diocese case proceeded with "lightning speed" for two reasons: The plaintiffs were able to approach the case in a practical way rather than as a means of seeking vengeance, and the diocese was able to come up with nearly $15 million in insurance money. He added that Bankruptcy Judge James M. Marlar was effective at "putting the pedal to the metal" in moving the case along.

"It's shocking that it was so quick," said Altfeld, who worked on the case for Cadigan and her law partner, Kim E. Williamson. "There are a dozen things that could have derailed this bankruptcy and would have stretched it out for years."

Boswell said all the parties in the case talked to one another, and though they didn't always agree, they remained focused on a fair resolution.

She is hopeful that checks to 56 people, ranging from $15,000 "compromise" payments to $600,000 for claims of serious sexual abuse, will be issued in mid-October. Distribution of the checks from a $22.2 million settlement fund will be handled by Tucson businessman Fred Boice, who has been appointed trustee of the fund.

In his Monday memo to parishioners, Tucson Bishop Gerald F. Kicanas wrote that emerging from bankruptcy means the diocese can begin to implement its bankruptcy reorganization plan, and that it will no longer be under the oversight of the U.S. Bankruptcy Court. Among other things, the plan calls for incorporating the diocese's 74 parishes as separate financial entities.

"Whether it occurs tomorrow or later this week, I will take the opportunity of the effective date to state publicly again my apology to all victims of abuse for the harm they experienced from priests and other workers for the church and my commitment to them and to the Catholic people that this diocese will do everything humanly possible to create safe environments for children at all parishes and schools," Kicanas wrote.


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