Times Union [Albany NY]
September 9, 2023
By Brendan J. Lyons
The proceeds were transferred to the Mother Cabrini Health Foundation, where they have remained out of reach in the Child Victims Act lawsuits
Attorneys for hundreds of alleged sexual abuse victims, as well as 1,100 former employees of the now-closed St. Clare’s Hospital in Schenectady, are scheduled to argue their request at an upcoming hearing in U.S. Bankruptcy Court for permission to examine where the proceeds went from the sale of a lucrative insurance business that had been controlled by New York’s bishops.
The 2018 sale of the Fidelis Care insurance company took place months before New York’s Child Victims Act passed — a law change that allowed alleged survivors of childhood sexual assault to sue their abusers or the institutions that may have harbored them. Attorneys for some of those plaintiffs have questioned the timing of the sale and whether it was done to shield billions of dollars in assets before New York’s eight dioceses faced an avalanche of litigation.
The $3.75 billion in proceeds from the Fidelis sale were transferred to the Mother Cabrini Health Foundation, where the assets have remained out of reach in the lawsuits and settlements involving thousands of Catholic church sexual abuse victims. The assets also have not been available to help the former St. Clare’s employees, whose retirement portfolios were wiped out by the hospital’s depleted pension fund that they have alleged was mismanaged by top officials associated with the Roman Catholic Diocese of Albany.
The hearing scheduled for Sept. 18 in Albany will take place before U.S. Bankruptcy Judge Robert E. Littlefield Jr. decides whether the petitioners’ attorneys should be able to subpoena documents and testimony from the organizations and church officials that were involved in the Fidelis sale.
The diocese has opposed the motions filed by the creditors’ committees, but noted in a court filing last month that it has “continued to express its compassion for the St. Clare’s pensioners and has offered support and assistance within the purview of its mission and ministry.”
“However, as sympathetic as one might be to the plight of the pensioners, this court lacks the jurisdiction and authority to grant the ultimate relief that the committee is seeking, which is the unwinding of a final and binding approval of a nonprofit transaction by the (state) Attorney General pursuant to New York state law,” the diocese’s attorneys wrote in a motion filed Aug. 17. “The fruitless exercise being undertaken here by the committee is not beneficial to the estate, the creditors, or the Chapter 11 process.”
On Thursday, when the hearing was scheduled, the diocese issued a court-mandated notification that all potential creditors, including Child Victims Act claimants, must be file formal claims in the bankruptcy case by Nov. 1. The claims should be filed with Donlin Recano, the appointed claims agent. Recano’s case website is https://www.donlinrecano.com/rcda and has both claim forms and information on how to file a claim.
The hearing later this month will center on the efforts by attorneys for the alleged sexual abuse victims and St. Clare’s pensioners to obtain records related to the sale of Fidelis Care and also the holdings of the Mother Cabrini Health Foundation. They are also seeking to depose Bishop Edward Scharfenberger, a Brooklyn native who was appointed as the 10th bishop of the Albany diocese in 2014 following the retirement of Bishop Emeritus Howard J. Hubbard, who died last month.
Lawsuits filed by the pensioners and the state attorney general’s office have accused Hubbard — in league with other diocesan officials — of falsely telling the Internal Revenue Service that required annual contributions were being made to the pension plan. The fund was created in 1959, about a decade after the diocese co-founded the hospital.
St. Clare’s closed in 2008 and merged with Ellis Hospital. The pension plan was shut down in 2018 with a $50 million shortfall — despite having received $28.5 million in Medicaid benefits from the state to fully fund the plan. Of the 1,100 retirees eligible for a pension, about 650 were told they would get nothing. The remaining 450 or so were paid 70 percent of their retirement benefits.
Paul A. Levine, an Albany attorney who filed the first motion seeking access to the records on the Mother Cabrini assets, previously told the Times Union the committee for the pensioners “believes that extensive discovery is needed into the (Fidelis Care) transaction.” That request includes ascertaining the organizational structure of the New York State Catholic Health Plan, Inc., a not-for-profit corporation that sold the insurance company and had been controlled by New York’s eight diocesan bishops.
Levine claimed in his filing that none of New York’s eight dioceses — six of which have filed for bankruptcy due the Child Victims Act — had received any of the billions in sale proceeds. The sale occurred when all of the bishops were aware of “a very significant chance of liability to the abuse survivors, and … the additional risk of liability to the pensioners.”
The pensioners did not file a lawsuit seeking recompensation of their retirement funds until 2019, a year after Fidelis Care was sold. But Levine’s motion notes that three years earlier they were informed the plan was underfunded and they would not receive the full amount of their pensions.
“Indeed, the reality turned out to be much worse, but the (diocese) knew full well, years before the Cabrini transaction, that it was facing a significant liability to the pensioners,” Levine wrote.
By pursuing an investigation of the structuring of the Fidelis sale, the attorney committees for the alleged victims and the pensioners are hoping to ascertain whether billions of dollars were diverted away from the New York dioceses to shield those assets in the impending civil cases and bankruptcy proceedings.
“This was done at a time when the bishops must have known full well that substantial liabilities could drive the dioceses into Chapter 11; as had already happened with dioceses around the nation,” Levine wrote.
The Times Union reported in January that an attorney for the Albany diocese inadvertently disclosed during a court conference that it had offered $20 million toward a global settlement involving the hundreds of alleged child sexual abuse victims who have filed claims accusing priests or other employees of sexually assaulting them.
That offer was not accepted because the “plaintiffs liaison committee,” a group of attorneys who were facilitating mediation talks on behalf of the alleged victims, had already disbanded — a decision that came after they had accused the diocese and its insurers of dragging out the settlement process and making offers that the committee at one point described as “insultingly low.”
A source familiar with the matter said the diocese’s first offer, made last summer, had been around $8 million.
It has been common for dioceses across the country to seek bankruptcy protection when they face financial peril from waves of abuse claims. That strategy also allows the church to often avoid public trials or witness depositions, and to handle claims in one court proceeding that potentially will preserve more of their financial assets.
The assets of the Mother Cabrini Health Foundation are not considered the dioceses’ because they are not the legal owner of the not-for-profit, even if there’s overlap among who controls the funds. The charitable organization is governed by a board of health care experts, business leaders and others, and is “dedicated to improving the health and well-being of New York’s poor, disadvantaged and underserved and eliminating health disparities,” according to its website.
Jonathan Rosen, a public relations professional employed by Cabrini, told the Times Union two years ago that the foundation had given grants to charities around the state, including Catholic Charities, which is directly affiliated with the church, and sometimes directly back to the dioceses. The foundation had made $315 million in grants since its formation, including about $31.5 million to the dioceses and $37.4 million to Catholic Charities.
The money was used to build homeless shelters, bolster immigrant legal services, create supportive housing and other nondenominational charitable enterprises.
“Neither the Archdiocese of New York, nor any of the other dioceses of New York, owned Fidelis or controlled its assets, and the decision to sell Fidelis to Centene Corporation was totally and completely unrelated to the (Child Victims Act) in any way,” Joseph Zwilling, a communications director for the Archdiocese of New York, told the Times Union at the time.
Brendan J. Lyons is a managing editor for the Times Union overseeing the Capitol Bureau and investigations. Lyons joined the Times Union in 1998 as a crime reporter before being assigned to the investigations team. He became editor of the investigations team in 2013 and began overseeing the Capitol Bureau in 2017. You can reach him at firstname.lastname@example.org or 518-454-5547.