Thursday, October 11, 2012

Spokane Diocese claims lawyers mishandled bankruptcy

The Catholic Diocese of Spokane has accused its own lawyers of mishandling its historic bankruptcy, which exposed decades of clergy sex abuse and cost parishioners and insurers $50 million.
A malpractice lawsuit filed this week by the diocese seeks more than $12 million from the venerable Spokane law firm Paine Hamblen Coffin Brooke and Miller.
The claim is the latest bombshell in a bankruptcy that staggered along from December 2004 until May. The diocese settled with 180 people who claimed they were sexually abused by priests and other Catholic clergy.
The diocese, now under the leadership of Bishop Blase Cupich, says in court documents that bankruptcy lawyers Shaun Cross and Greg Arpin failed to explore other means of ending the abuse scandal.
Cupich also blames the lawyers for writing a bankruptcy plan that failed to assess and adequately fund the risk of new claims, which nearly forced the foreclosure of churches.
The lawsuit also accuses the attorneys of a conflict of interest, in shielding former Bishop William Skylstad from testifying in the first civil trial alleging sex abuse by filing for bankruptcy on the eve of that suit. The accusation echoes concerns voiced during the bankruptcy by some lawyers and wealthy Catholics who opposed that strategy. At one point, several prominent Catholics urged Skylstad to resign.
The lawsuit stunned Paine Hamblen.
“We believe we worked very hard and very diligently for them and did extraordinary work,” Jane Brown, managing partner of the firm, said Tuesday. “We stand by our work.”
Cross, who has since left Paine Hamblen, did not return messages seeking comment. Brown spoke on behalf of Arpin.
Paine Hamblen – one of Spokane’s oldest law firms, with 50 attorneys and a storied, 119-year history – defended the legal advice it provided the diocese in the years leading up to bankruptcy.
“We kind of feel like the new bishop is not fully informed and doesn’t really understand under what circumstances any judgment calls were made,” Brown said. “They were facing hundreds of millions of dollars in claims that dwarfed the church’s financial resources, and the diocese and parishes have been able to continue.”
A decade ago, as the child sex abuse scandal deepened and lawsuits mounted, questions arose surrounding Skylstad’s ties to notorious pedophile priest Patrick O’Donnell. The two priests had both served in north Spokane’s Assumption Parish in the 1970s.
The Paine Hamblen lawyers undertook the role of representing Skylstad as an individual named in the lawsuits against the diocese, at the same time representing the diocese.
Cross contended that the bishop and the diocese were legally inseparable. It was a tactic designed to define the diocese as a one-man “corporation sole” that did not own parish property – thus shielding the assets of parishes and checkbooks of parishioners.
Cupich, appointed bishop of the Spokane Diocese two years ago, said such dual representation posed a conflict of interest.
O’Donnell – one of 27 Catholic clergy in Eastern Washington who the diocese acknowledges molested children – admitted to abusing boys in the Assumption Parish rectory.
Victims alleged that Skylstad knew O’Donnell had hosted boys at his room in the rectory and, according to multiple lawsuits, “announced his presence before entering; the implication being that he was at least suspicious of unwarranted behavior and didn’t want to witness it.”
At least one parishioner testified that she alerted Skylstad that O’Donnell was molesting boys.
Skylstad left Assumption in 1976, and shortly thereafter his replacement at Assumption learned of O’Donnell’s actions. Within months diocese officials sent O’Donnell to Seattle for treatment rather than report his activities to police.
O’Donnell later returned to Spokane and began molesting more boys. He was removed from ministry in 1986.
The first lawsuits against the diocese were filed more than a decade later.
Skylstad became bishop of the Spokane diocese in 1990 and stepped down in 2010.
In the two years since Cupich took over, the diocese has settled its remaining bankruptcy issues.
In a statement Tuesday, Cupich said he attempted to resolve the dispute with Paine Hamblen in private meetings.
“Unfortunately, overtures to resolve this on a confidential, mediation-based approach were rejected,” he said.
The lawsuit seeks repayment of millions in legal fees paid by the diocese to Paine Hamblen, along with millions more for negligence and malpractice.
Sandpoint attorney Ford Elsaesser, who represented parishes during the bankruptcy, is now advising Cupich.
Seattle attorney Robert Gould is handling the malpractice suit for the diocese.
Paine Hamblen no longer has an active bankruptcy practice. Cross and at least two other attorneys associated with the diocese bankruptcy, but not named in the suit, have left the firm.

Thursday, September 6, 2012

The Philadelphia Archdiocese's $11.6 Million Mystery


With the trial against ex-priest Father Charles Engelhardt and former schoolteacher Bernard Shero beginning yesterday, the Philadelphia Archdiocese is making headlines yet again. The archdiocese has been in the news constantly lately, between the landmark conviction of Msgr. William J. Lynn; the battle over statute of limitations on child-sex abuse; the closing of many Catholic schools; and all the brouhaha surrounding the incipient sale of a few lavish real-estate holdings—including Villa St. Joseph, a 19-room, 9,800-square-foot house on the Jersey shore featuring two elevators and assessed at $6.2 million.
And in article after article, the figure $11.6 million pops up.
The $11.6 million—you may have seen it in the news as $11 million, $10.6 million or $10 million—is, reporters inform us, the price the church has paid so far responding to “the current clergy sex-abuse scandal” or, to use ever-so-slightly clearer language, “the latest grand jury investigation into clergy sex-abuse and the criminal prosecution of Msgr. William J. Lynn.” 
The figure is never attributed. It just hangs there, as if it is confirmed fact. Trouble is, it’s not. So where’s it from? 
This past June, amid international headlines about the case against Lynn, the Archdiocese published a document titled the “Financial Report of the Archdiocese of Philadelphia.”
The introduction to the report was written by Archbishop Charles Chaput: “The cost of responding to the grand jury report, the investigations related to priests on administrative leave, the subsequent criminal and civil legal proceedings and the investigation into the embezzlement has been heavy.” Chaput states that “roughly $1.6 million” of these “extraordinary costs” occurred fiscal 2011, with the remaining $10 million or so accruing in the time period ending March 31, 2012. 
“The embezzlement” refers to the recent conviction of former Archdiocese CFO Anita Guzzardi, sentenced last week to two to seven years for stealing $906,000. So how much did it cost the Archdiocese to investigate Guzzardi? The report doesn’t say. So why are reporters rolling that unspecified cost into this catchall price tag related to the sex-abuse scandal—and not pointing out that the figure came from the church itself? 
Financial figures coming from the Archdiocese, a notoriously secretive organization, should be not published without skepticism, nevermind lacking attribution. We’re talking about an organization that had a room full of secret documents—called “Secret Archives,” right out of a Scooby-Doo episode—that contained information detailing priests sex-abuse histories; memos outlining clandestine lobbying efforts to ensure that Pennsylvania’s statute of limitation on child sex abuse would not be extended; and a memo strategizing how to keep all of it out of the hands of attorneys for civil lawsuits, should the day come.
Well, that day has come. After the criminal trials end, at least nine civil lawsuits are next. 
Which brings us to a much bigger problem than the mystery sum: The report itself, the supposedly “candid” snapshot of the church’s financials, is—in the words of an accounting expert who has spent the last eight years reviewing financial reports from the almost 200 dioceses and archdioceses in the U.S.—“virtually worthless” for anyone who wants to really know what’s going on. 
Jack Ruhl is a professor of accounting at Western Michigan University who started researching the financial reporting habits of the Roman Catholic Church in the United States in 2004 after learning, 20 years into marriage, that his wife was sexually assaulted by a priest while growing up.
Ruhl says his family doesn’t not want  financial compensation from their church; all they want is transparency. They haven’t found it in general, and certainly not in Philadelphia.
“I’ve been trying … to get financial statements [from the Philadelphia Archdiocese] and I can’t get anything,” Ruhl told PW on a recent call. “They just will not provide audited financial statements.”
Ruhl graciously and eagerly reviewed the June report. “There’s no auditor’s report, and that’s the gold standard for financial reporting,” he says. “[The lack of an auditor] is not a surprise because an auditor is prohibited from putting his name on a piece of work like this … it’s incomplete.”
Ruhl noted that the report doesn’t include any money from parishes and lacks a statement of cash flow and financial notes.
“There is so much that is not included that you don’t know. Is $11 million a big piece of the whole puzzle or a tiny piece of the whole puzzle?” asks Ruhl. “It’s just very frustrating to try to make sense out this.”
“In my opinion, [unaudited reports] are misleading attempts to show that everything is transparent.”
Ralph Cipriano, a local journalist who has been reporting on the Philadelphia Archdiocese since the 1990s, says, “It’s a shell game, what they do. They always have a purpose for what they do and they never tell the truth. They certainly don’t level with people about what’s going on financially. I wouldn’t put much stock in [the report.]”
Donna Farrell, spokeswoman for the Philadelphia Archdiocese, says that “audits were conducted for the entities for which disclosure was made,” and confirms the lack of cash-flow statements and accompanying notes. “We believe [the report does] provide a transparent view of the financial condition and changes in net assets for the entities included in our disclosure.” Farrell notes that the 257 parishes all have separate budgets and reporting methods.
The fact of the matter is that despite several local attempts, no one has yet been able to access the true wealth of the Philadelphia Archdiocese, let alone the Roman Catholic Church at large. Not even The Economist, which published a story about attempting to do just that last month, has been able to uncover the true wealth of the Roman Catholic Church’s finances.
Due to “the overall lack of openness,” The Economist’s investigators were left to extrapolate estimates from records discovered during formal bankruptcy proceedings, pretty much the only window into the Church’s financial affairs in the U.S.
It’s an interesting read with a stark three-word conclusion about the church’s money: An unholy mess.