Priest retirement home, high schools among assets at risk in Harrisburg Diocese bankruptcy

The Daily Item [Sunbury PA]

February 24, 2022

By Eric Scicchitano, The Daily Item

A federal judge found sufficient claims of fraud allegations exist against the Roman Catholic Diocese of Harrisburg and ruled that attorneys representing sexual abuse survivors can seek a judgment to have an estimated $95 million in assets the Diocese transferred behind two different trusts moved to its bankruptcy estate.

According to the Feb. 17 ruling by Chief Bankruptcy Judge Henry W. Van Eck, the assets include $50 million in real estate like the Diocesan Campus, bishop’s residence and a retirement home for priests, all in Harrisburg, along with eight cemeteries including All Saints Cemetery in Elysburg and seven high schools including Our Lady of Lourdes Regional in Coal Township.

Also at risk of being returned to the bankruptcy estate is $45 million in furniture and appliances, cash and securities, religious artifacts and objects, vehicles, notes, records and books, according to filings with the U.S. Bankruptcy Court for the Middle District of Pennsylvania.

In a grand jury report unsealed in 2018, 45 officials with the Harrisburg Diocese were identified as alleged abusers. Many were included in a church-issued report released two weeks prior naming 71 priests and seminarians accused in church records of sexual misconduct with children dating to the 1940s.

The Harrisburg Diocese filed for Chapter 11 bankruptcy on Feb. 19, 2020. It opened the trusts on Nov. 13, 2009, as allegations mounted around widespread sex abuse nationwide within the Catholic Church, court records show.

Van Eck issued a ruling in Federal court granting a motion to the Official Committee of Tort Claimants to pursue fraudulent transfers claims against the Harrisburg Diocese. Allegations of attempts by the Diocese to defraud creditors through the trusts were “sufficient,” Van Eck found.

Attorneys: Unenforceable

Attorney Robert Kugler of Stinson LLP, Minneapolis, represents the Official Committee of Tort Claimants along with his colleague, attorney Edwin Caldie. On Feb. 18, they filed new, separate motions asking a federal judge to order the assets in the trusts be assigned to the Diocese’s bankruptcy estate, something Van Eck didn’t do in his ruling the day prior.

The attorneys ask the court to rule the transfers were fraudulent, that creditors are entitled to the assets and that the trusts are unenforceable. They wrote in legal findings that shielding property in trusts has been a strategy pursued by Catholic Dioceses in other parts of the U.S. including Milwaukee.

“It was part of a comprehensive strategy to deal with emerging issues of sexual abuse,” Kugler said Wednesday of the 2009 transfer. “I’ve been involved in a number of these cases. The transfers and the timing of the transfers are remarkably consistent across the country.”

According to Kugler, the abuse survivors he represents feel gratified and empowered by the ruling. Barring a resolution, he expects the pursuit of the assets held in trusts might take the next year to play out.

As the current bishop designated by the pope, Bishop Ron Gainer is the trustee of each trust for the Harrisburg Diocese, court records show. However, the Most Rev. Kevin C. Rhoades was bishop at the time the trusts were established.

Van Eck’s opinion found that the Diocese appears to be both the settlor and beneficiary of the trusts, “hallmarks of a self-settled trust” that wouldn’t protect the assets from creditors in this case, according to court records.

Ruling against the Diocese’s defense, Van Eck found that state law allows an unincorporated religious entity to hold title to property, and that the statute of limitations was met because claimants couldn’t reasonably know the assets were transferred until after bankruptcy was declared.

‘Initial step’

Rachel Bryson, spokesperson for the Harrisburg Diocese, released a formal statement on the bankruptcy case development: “This ruling is an initial step in the litigation process between the survivors’ committee and the Diocese, regarding these assets. We will continue to work through this process in order to reach a fair and equitable conclusion to our reorganization, while also continuing to offer support and assistance to survivors for their continued healing.”

Attorney Richard M. Serbin leads the Sexual Abuse Division for the national law firm Janet, Janet & Suggs LLC. He represents some of the abuse survivors. He said the judge’s ruling allows attorneys to “step into the shoes of the Diocese” to determine whether the transfers were done fraudulently in order to escape financial responsibility. The Diocese declined to do this on its own, he said.

Like Kugler, Serbin said there’s been evidence elsewhere of Dioceses attempting to hide assets, including in a place like a cemetery trust. Value estimates of the two trusts belonging to the Harrisburg Diocese could go higher or lower as a result of discovery allowed by the judge’s “important” ruling, he said.

“At the time these trusts were created, the knowledge the Diocese had concerning responsibility for the child sex abuse crisis was being exposed in the courts. This discovery will enable us to find out what was the purpose in creating these trusts. We believe we know the purpose and that was to hide the money,” Serbin sai