Abuse Claims Spur Stockton Diocese Filing

By Pat Holohan
Deal Pipeline
January 16, 2014

The Diocese of Stockton, Calif., has filed for Chapter 11 as it faces continued sexual abuse claims.

The diocese, legally known as the Roman Catholic Bishop of Stockton, on Wednesday submitted a petition after "months of careful consideration and prayer," according to a Monday statement from Bishop Stephen E. Blaire.

Judge Christopher M. Klein of the U.S. Bankruptcy Court for the Eastern District of California in Sacramento has been assigned to the case. The debtor had not filed any motions as of midday Thursday.

The diocese, which consists of 34 parishes in six counties, has paid $14 million in legal settlements and judgments for sexual abuse over the past 20 years, according to an explanatory document released Monday by the diocese. Including insurers and other payers, sexual abuse victims of Stockton have received approximately $32 million in damages.

Debtor counsel Stephen H. Felderstein of Felderstein Fitzgerald Willoughby & Pascuzzi LLPsaid the diocese is aware of four abuse claims. Felderstein said that before a claims bar date, the debtor cannot estimate how many more abuse claimants might come forward or what settlements the debtor expects to make.

Felderstein said the debtor would not seek debtor-in-possession financing but that the diocese would soon file first-day motions to continue using its bank accounts, pay prepetition wages and continue paying utilities, with a hearing likely for the week of Jan. 20.

The diocese said it has the funds to continue operations but not a reserve to settle pending litigation.

"Very simply, we are in this situation because of those priests in our diocese who perpetrated grave, evil acts of child sexual abuse," Blaire, who has been with the diocese since 1999, said in the Monday document describing the decision to file. "We can never forget that these evil acts, not the victims of the abuse, are responsible for the financial difficulties we now face."

Blaire said the diocese has "relatively little" in property and assets that might be sold. Its five properties include the Eucharistic Franciscan Missionary Sisters convent, the St. John Vianney center, Blaire's home, the Pastoral Center and a parcel in Valley Springs, Calif., to be used as a future parish site.

Blaire said he believed Stockton would spend between 18 and 24 months in Chapter 11 and aims to "compensate as fairly as possible the victims of sexual abuse."

Founded in 1962, the diocese operates in Alpine, Calaveras, Mono, San Joaquin, Stanislaus and Tuolumne counties and said 60% of the diocese's residents are of Hispanic descent.

Ten dioceses have sought bankruptcy protection, according to Blaire. Most recently, the Roman Catholic Church of the Diocese of Gallup filed for Chapter 11 on Nov. 12, Deal Pipeline data shows. Other filings include the Archdiocese of Milwaukee (Jan. 4, 2011), Catholic Diocese of Wilmington Inc. (Oct. 18, 2009) and the Catholic Bishop of Northern Alaska (March 1, 2008). In addition, Christian Brothers' Institute (April 28, 2011) and the Society of Jesus, Oregon Province (Feb. 17, 2009), both religious orders, have sought bankruptcy protection in recent years.

The Stockton diocese listed $1 million to $10 million in assets and $10 million to $50 million in liabilities in its petition, but its 2011-12 annual financial report provides more detail on its operations.

The diocese's settlement and litigation payouts over the period amounted to $2.31 million, with the diocese stating that 20 years of suits and settlements had "severely reduced" its reserves. In 2011-12, 32% of the diocese's operating funds went to abuse victims. Stockton spent $3.25 million on general diocesan ministry activities, including Catholic school education and seminarian education and another $1.09 million in administrative charges.

The diocese brought in $16,000 from public offertory collections in that period.

In the report, the diocese listed $19.15 million in assets and $18.89 million in liabilities.

Court papers show the diocese's largest unsecured creditors are Farmers and Merchants Bank (owed $1.68 million), Tyler McCartney ($500,000), the Pastor of St. Bernadette Church ($36,569), the Pastor of St. Anthony Church of Manteca ($36,569) and Kathleen Lagorio Janssen ($29,255).

Paul J. Pascuzzi of Felderstein Fitzgerald is also debtor counsel.

The diocese did not return calls for comment.


















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