SACRAMENTO (CA)
Bloomberg Law [New York NY]
March 24, 2023
By James Nani
- One California diocese in Chapter 11, others considering options
- Dioceses face issues with parishes, insurance, emboldened survivors
Several California Catholic dioceses are considering bankruptcy to deal with their liabilities, facing a years-long reckoning with an avalanche of child sexual abuse lawsuits.
Abuse victims filed hundreds lawsuits after the state of California paused for three years its statute of limitation on claims for child sexual abuse. The pause ended on Dec. 31, 2022.
The Roman Catholic Bishop of Santa Rosa in Northern California filed Chapter 11 on March 13, becoming the only one in the state to take the leap so far. But the Oakland, San Diego, and Sacramento dioceses also have said recently they’re considering bankruptcy due to hundreds of lawsuits. Others within the state, which has 12 regional dioceses, have said they are evaluating their financial options.
The influx of litigation comes as more states contemplate reopening their statutes of limitations for child sexual abuse cases. At the same time, tensions have grown between bankrupt Catholic institutions and their insurers and fights have erupted over how much non-bankrupt parishes should contribute to plans. Meanwhile, emboldened survivor groups have pushed harder for dioceses to provide greater compensation.
“I fully expect many more bankruptcies in California and in other states such as Pennsylvania that are considering similar statute of limitations reform,” said abuse victim attorney Adam D. Horowitz of Horowitz Law.
Over the last 20 years the Santa Rosa diocese and its insurers have paid more than $35 million to survivors in settlements, according to court records. The diocese, which serves roughly 178,000 Catholics, said it faces more than 200 child sexual abuse claims.
“The goal, of course, for this Chapter 11 would be to fairly, justly, and equitably find a way to compensate the survivors of sexual abuse by clergy,” diocese attorney Paul Pascuzzi of Felderstein Fitzgerald Willoughby Pascuzzi & Rios LLP told a Northern California bankruptcy court last week.
Legislating Abuse
Legislators in California are already considering a new bill that would permanently eliminate any civil statute of limitations for accusations of sexual abuse of a minor by an adult.
That measure has raised additional concerns from California Catholic entities. The San Francisco archdiocese told Bloomberg Law it’s analyzing more than 400 lawsuits—alleging sexual abuse by clergy, volunteers, or archdiocese employees—filed during the last three-year reporting window.
“We are aware of potential new legislation that seeks to eliminate the statute of limitations entirely, leaving a diocese vulnerable to potential lawsuits forever, adding another layer of complexity to the analysis,” said Peter Marlow, a spokesman for the San Francisco archdiocese.
Beyond California, 24 states this legislative season have introduced bills that would reopen statutes of limitations to allow for new child abuse suits to be filed, including in Pennsylvania and Maryland, according to data provided by the National Conference of State Legislatures.
Parishes Get Involved
The fate of the 42 non-bankrupt parishes within the Santa Rosa diocese borders may become an issue in its bankruptcy.
The Santa Rosa diocese is facing a suit in state court challenging the diocese’s reorganization of its parishes years before filing for bankruptcy.
The diocese has said in court papers between 2016 and 2017 it went through a reorganization to incorporate its parishes separately.
Attorneys representing sex abuse claimants filed the suit in February, arguing that the diocese separately incorporated its parishes for the first time ahead of the 2020 opening of California’s statute of limitations. The suit, which says the diocese intended to stop claimants from collecting on the assets, asks the court to void the changes.
The Santa Rosa diocese didn’t immediately reply to a request for comment.
The suit portends a brewing dispute between the diocese and victims, with the potential of “soaking up a lot of attorneys’ fees,” said Marie T. Reilly, a Penn State Law professor who studies Catholic bankruptcies.
Other dioceses that have filed Chapter 11 have sought to extend their bankruptcy protections to their parishes—such as discharging some debt or channeling injunctions, which force future claimants to go through a trust instead of the diocese for compensation.
But survivor creditor groups have increasingly demanded that parishes pay more into bankruptcy trusts in return for survivors’ agreement to release them from future liability.
Insurance Battles Loom
The Santa Rosa diocese says its insurers have contributed roughly $20 million to its previous settlements with abuse victims. It now has “very limited or no insurance coverage” for the more than 200 lawsuits it now faces, it says.
An open question, if more California dioceses file for bankruptcy, is how much of their past settlements has been paid with dioceses’ own assets or insurance, said Michael Reck of Jeff Anderson & Associates PA. Reck represents around 80 people with claims against the Santa Rosa diocese.
Those earlier settlements emerged when California reopened its statute of limitations for the first time in 2003, resulting in hundreds of claims, most of which were settled without bankruptcy.
In a recent trend in diocese bankruptcies, those Catholic institutions have offered victims valuable rights to directly sue church insurers. The victims would receive those rights instead of insurers making lump sum contributions to settlements.
Insurers’ are pushing back on the strategy.
The tactic is still being tested, but it’s a practical way to resolve claims without holding up reorganizations, Horowitz said.
“These issues are complicated and dry—but insurance is a key source of settlement funding and the longer it takes to sort out coverage, the longer and more expensive the chapter 11 process will be,” Reilly said.
Bankruptcy Critics
Bloomberg Law reached out to the 12 regional Catholic institutions in California for comment. Those that responded emphasized efforts over the years to promote a safe environment, root out child sexual misconduct, and support those who have suffered.
Bishop Robert F. Vasa, the leader of the Santa Rosa diocese, said in a statement last week that he is “deeply saddened” by the abuse that occurred but that bankruptcy is “necessary” to provide survivors compensation.
But sex abuse claimants are increasingly criticizing dioceses’ use of bankruptcy.
Bankruptcies prevent victims’ lawsuits from being heard individually and prevent evidence and testimony of victims from being heard by juries who can award damages, said Zach Hiner, executive director of the Survivors Network of those Abused by Priests, or SNAP.
Dioceses across the US are more aware of how bankruptcy rules can streamline cases against them, prevent discovery, and protect their reputations, files, and funds, Hiner argued.
“The whole point of these bankruptcies are so that we learn as little as possible,” Hiner said. “Santa Rosa bragged about its biggest fundraising year ever in their latest annual report, and yet a year later they’re suddenly indigent? It’s nonsense.”
To contact the reporter on this story: James Nani in New York at jnani@bloombergindustry.com
To contact the editors responsible for this story: Maria Chutchian at mchutchian@bloombergindustry.com; Roger Yu at ryu@bloomberglaw.com