What Albany Roman Catholic diocese’s bankruptcy case might look like

Times Union [Albany NY]

March 17, 2023

By Steve Hughes

Last year the diocese began warning it may file for bankruptcy if it could not reach a global settlement with victims, but that mediation effort fell apart

The Roman Catholic Diocese of Albany’s decision to file for bankruptcy will likely lead to a years-long and expensive delay in abuse survivors receiving compensation, based on a review of bankruptcy filings of other dioceses across the state.

The decision, announced Wednesday, was prompted at least in part by a concern about the diocese’s ability to meet its immediate financial obligations as it faces hundreds of allegations of sexual abuse over the past decades, according to Bishop Edward Scharfenberger.

“(As) more Child Victims Act cases reached large settlements, our limited self-insurance funds, which have been paying those settlements, have been depleted,” he said in a statement Wednesday.

The diocese’s attorneys had threatened for months that if attorneys who represent hundreds of victims who filed lawsuits under the Child Victims Act (CVA) refused to agree to a global settlement offer then the diocese would have no choice but to declare bankruptcy.

In January, the Times Union reported the diocese offered $20 million to be split by the alleged abuse victims and their attorneys. The diocese attorney inadvertently revealed the offer, which was supposed to remain confidential under a court order, during a court hearing.

The Albany diocese is the fifth of the eight Catholic dioceses in the state to declare bankruptcy since the CVA was signed into law in August 2019. All four of the other bankruptcy cases — including that of the Rochester diocese, which filed for Chapter 11 bankruptcy in September 2019 — are still open.

Rochester’s filing offers some indication as to what may happen in the Albany diocese’s case.

The Rochester diocese, which faced a similar number of abuse allegations as Albany, has gone through more than three years of litigation and two years of mediation but has reached at least a partial settlement with the abuse survivors.

Attorney Jeffrey R. Anderson, who represents scores of clients in that case and others across the state, said a key difference between Albany and Rochester is that attorneys representing victims in Albany have been able to go through discovery as they prepared for civil trials in state court. That discovery material includes the revelation that Bishop Emeritus Howard J. Hubbard sat for a deposition in 2021 in which he admitted that he and the diocese systematically concealed incidents of child sexual abuse.

That revelation, along with other information gleaned from diocesan records, may mean that Albany’s bankruptcy process moves more quickly than others in the state, he said.

In Rochester, because the diocese declared bankruptcy so quickly after the passage of the CVA, attorneys were not able to delve into the discovery process. In that case, like others across the state, bishops and diocese insurance companies have worked to deny any measure of real responsibility and repeatedly delayed proceedings, Anderson said.

That claim echoes those that some attorneys made last summer about the Albany diocese’s refusal to turn over clergy personnel files in a timely manner.

In Rochester, one of the diocese’s insurers, Continental National Insurance, refused to pay anything, forcing the diocese to file a lawsuit against it. Meanwhile, victims’ attorneys refused to continue to agree with a pause on civil litigation against individual parishes and other institutions not covered under the diocese’s insurance policies.

That eventually brought the Rochester bishop and the diocese to the table, Anderson said. The diocese agreed to pay $55 million into a trust for abuse survivors, which includes contributions by other institutions associated with the Rochester diocese. In return, the survivors and their attorneys will be allowed to sue the diocese’s insurers for additional damages.

The bankruptcy case is still ongoing

Anderson said that while Wednesday’s bankruptcy filing put an automatic pause on any existing litigation against the Albany diocese, he would pursue litigation against individual parishes if he felt it was necessary.

“If this diocese is going to try to keep these parishes out, I can assure you that we will put pressure on to do that very soon in this process because we think that the claim that they’re not under the control of bishop is a scheme and it’s a scam,” he said.

During his news conference, Scharfenberger said the parishes and other independently incorporated entities were not part of the diocese’s bankruptcy filing but that the diocese would ask churches to contribute to the pool of money in the bankruptcy process available to abuse survivors.

In addition to putting a pause on the abuse claims, the diocese said its filing also impacts lawsuits brought by hundreds of pensioners of the former St. Clare’s Hospital in Schenectady who have for years been pushing church officials and elected leaders to make them whole. 

The Albany diocese said it has $10 million to $50 million in assets, up to $100 million in liabilities and more than 200 creditors, according to documents filed Wednesday in bankruptcy court. Anderson and other attorneys alleged the financial value of the assets the diocese has under its control is closer to $600 million.

The Rochester case and others across the country also reveal the high financial cost of bankruptcy. In the case of the Archdiocese of St. Paul and Minneapolis, which agreed to a $210 million settlement in 2018, legal fees for the diocese and attorneys for the creditors’ committee topped $17 million.

In Rochester, a law firm working for the creditors’ committee, put in a notice for compensation for its work in January of nearly $86,000. An attorney for the Albany diocese previously estimated that bankruptcy fees could reach $600,000 a month.

The Albany diocese’s insurance companies, investment funds and real estate will likely be targeted in any eventual settlement talks.

The court will also hold a hearing on whether the diocese did a full financial disclosure, something Anderson said he doubts.

Anderson said attorneys would also be looking to see if the diocese had moved money or assets over the past few years to avoid them becoming part of any eventual settlement, something he has seen in other bankruptcy cases across the country.

“We are going to be carefully scrutinizing every transfer every transaction and have already carefully scrutinized a lot of the assets that we know the bishop controls, even though he claims he doesn’t,” he said.

Anderson said regardless of how much money the diocese ultimately settles for to emerge out of bankruptcy, his firm will insist on a number of non-monetary conditions as it has in previous settlements with other dioceses. Those conditions would include the disclosure of all files associated with clergy who were abusers and the establishment of rigorous child protection protocols.

“Because that’s what the survivors want. They want other kids to be protected first, and they want to know that they’re having done something has made a difference in making this safer for others, so that they won’t endure the horror that they’ve had to endure,” he said.

In 2019, Scharfenberger called for the creation of an abuse task force to assess and recommend upgrades to the existing diocesan protocols and programs that support the development of a trauma-informed pastoral outreach to survivors of clergy abuse.

The diocese has already reached settlements with dozens of victims, including one struck with the members of a family of children that Francis P. Melfe, a former Schenectady priest, was accused of secretly raising and sexually abusing over a period of years beginning in the late 1960s.

The diocese also paid a $750,000 settlement last June to Stephen Mittler, who was abused by former priest Mark Haight, just weeks before his case was set to go to trial.

Mittler has previously said that the diocese attorney threatened that unless Mittler accepted the settlement the diocese would be forced to declare bankruptcy.

On Monday, just days before the diocese declared bankruptcy, Mittler met in private with the Apostolic Nuncio, Christophe Pierre, the Vatican’s ambassador to the United States, and Scharfenberger in Washington, D.C.

Mittler said he reiterated to Pierre the need for dioceses to be forthcoming and transparent around claims of abuse. He added he was frustrated other people victimized by clergy members in the diocese would have their cases further delayed by the bankruptcy filing.

“I wish the opportunity was there for other victims,” he said.

Top of FormBottom of FormWritten By Steve Hughes

Steve covers the city and county of Albany for the Times Union. He previously covered police, fire and accidents as the paper’s breaking news reporter. Reach him at shughes@timesunion.com or 518-454-5438.