Sunday, August 4, 2013

Archdiocese creditors seek order to review whether judge has conflict

Just days after U.S. District Judge Rudolph T. Randa issued a key ruling in favor of the Archdiocese of Milwaukee in its bankruptcy, the church's creditors are seeking an emergency order to determine whether Randa has a conflict of interest that should have been disclosed.

Randa ruled last week that forcing the archdiocese to tap the $50 million-plus it holds in a trust for the perpetual care of cemeteries would substantially burden its free expression of religion under the First Amendment and a 1993 federal law aimed at protecting religious liberty.

In a highly unusual move late Friday, lawyers representing the archdiocese's creditors — primarily sex abuse victims — filed a motion asking U.S. Bankruptcy Judge Susan V. Kelley to compel the release of any records showing whether Randa and his wife, Melinda, have purchased any plots or crypts in one of the archdiocese's cemeteries, or whether they have any interest as heirs or beneficiaries of several relatives known to be buried in them.

Depending on what they find, the motion says, the lawyers say they may seek to vacate Randa's order and ask him to recuse himself from the case.

"Judge Randa's decision was so indefensible in so many ways that we suspected there was reason to investigate any involvement he might have with the cemeteries," said Marci Hamilton, a First Amendment scholar who is representing the creditors committee on the issue.

Timothy Nixon, an attorney for the cemetery trust and its sole trustee, Milwaukee Archbishop Jerome Listecki, called the motion a desperate tactic and an "attack on a federal judge."

"It's sad that the committee's lawyers now ... in the face of a single, adverse decision, take the extraordinary step of impugning the integrity of a respected federal judge," Nixon said.

Both sides called the motion highly unusual. If Randa is asked to recuse himself, Hamilton said it would be a first among the several Catholic Church bankruptcies around the country.

At issue, the creditors' lawyers say, is not Randa's religion — Kelley and at least one other judge in a Catholic church bankruptcy have noted that they are Catholic — but whether he has a vested interest in the cemetery litigation. As part of the bankruptcy, Listecki filed a claim on behalf of all individuals who own burial sites in the archdiocese's cemeteries or have an interest as an heir or beneficiary of others buried there. According to the motion filed Friday, the Randas have several relatives buried in the archdiocese's cemeteries including their parents.

The cemetery decision was a key victory for the archdiocese in that it eliminates one of the last major assets available for a settlement with sex abuse victims who filed claims in the bankruptcy. If it stands, the ruling could have far-reaching implications for other religious institutions considering bankruptcy.

Friday, June 28, 2013

Chaput warns: 'Serious' financial news looming in Philadelphia

Archbishop Charles Chaput warned his flock Friday that some mixed financial news will be coming their way next week. In his weekly column on the Archdiocese of Philadelphia website, Chaput wrote that although efforts to shore up church finances are working, the report for the fiscal year July 1, 2011-June 30, 2012, "will reflect almost none of the progress." The report is due out Wednesday. "While the results are serious - and that's an understatement - they have the virtue of being honest and accurate," the archbishop wrote. Chaput has struggled since his arrival in September 2011 to clean up a financial mess that had been building for decades. Last year, facing an operating deficit of more than $17 million, the archbishop laid off 45 employees at archdiocesan headquarters - 18 percent of the staff - closed the youth office and Hispanic evangelization center, and ended publication of the monthly archdiocesan newspaper. He also sold a Shore house owned by the archdiocese and the archbishop's residence at City and Cardinal Avenues. While the archdiocese has paid out more than $11.6 million responding to the 2011 Philadelphia grand jury report on clergy sex abuse and weathered the embezzlement of $900,000 by its former chief financial officer, Chaput wrote that the current financial situation "has nothing to do with fraud or the abuse crisis." "Most of the financial pain we now face as a local Church is inherited and due to chronic patterns of behavior . . . ," he wrote. It "flows out of well-intentioned but poor management decisions made over a period of nearly two decades at every level of archdiocesan and parish leadership." An archdiocesan representative said nobody was available Friday to discuss Chaput's column. The archdiocese is just one among many Catholic jurisdictions facing tough times. Declining Mass attendance; aging church facilities, especially in the northeastern United States; and increased labor costs for schools because of the decline in priests, nuns, and brothers have all taken a toll, said Charles Zech, professor of economics and director of the Center for the Study of Church Management at Villanova University. But Chaput "inherited a mess," Zech said. " Rigali and Bevilacqua didn't make the kind of hard decisions that need to be made." The Rev. Thomas Reese, a Jesuit priest who has written extensively about the U.S. Catholic hierarchy, said in a phone interview that Chaput "is willing to make decisions." He sets up committees, listens to their findings, and makes up his mind, said Reese, senior analyst for the National Catholic Reporter.

Tuesday, June 25, 2013

Bankruptcy court blocks alleged abuse survivors from pursuing $35 million archdiocese transfers in Milwaukee


In 2005, as the Archdiocese of Milwaukee (the “Archdiocese” or “Debtor”) faced numerous lawsuits by alleged abuse survivors, it transferred in excess of $35 million from its “Parish Deposit Fund” to its parishes and a newly created Southeastern Wisconsin Catholic Parishes Invest ment Management Trust (the “Trust”).

After the Archdiocese filed for bank - ruptcy protection on January 4, 2011 following its failure to settle more than twenty-three abuse lawsuits, the official Committee of Unsecured Creditors (the “Committee”) of the Archdiocese, which five-member com mit tee was comprised of four personal injury plaintiffs and alleged abuse survivors, investigated those transfers and alleged that they were recoverable as fraudulent conveyances.

Notwithstanding, on December 10, 2012, the United States Bankruptcy Court for the Eastern District of Wisconsin (the “Court”) held that the Committee did not have the derivative standing necessary to commence litigation seeking the avoidance and recovery of the $35 million. See In re Archdiocese of Milwaukee, 483 B.r. 855 (Bankr. E.D. Wis. 2012).


According to the Debtor, the Parish Deposit Fund was formed by the Archdiocese in 1969 to allow local Catholic entities (primarily parishes) the option of investing into one pooled fund that provided favorable interest rates and permitted investments to be redeemed upon request.

The Committee alleged that in March 2003, in the face of mounting abuse litigation, the Archdiocese’s Finance Council met and discussed paying claims of “legitimate victims” of abuse from insurance and/or borrowed funds and setting up the Trust to shelter the Parish Deposit Fund from further abuse claims. Two years later, on June 30, 2005, the Archdiocese closed the Parish Deposit Fund and investors were given the option of having their investments returned to them or transferred to the new Trust. Accordingly, the Committee asserted that the Archdiocese trans - ferred in excess of $35 million from the Parish Deposit Fund to the Trust and/or directly to parishes and other affiliates of the Debtor (collectively, the “Parishes”) with actual intent to hinder, delay, or defraud creditors in 2005.

In light of the Debtor’s refusal of the Committee’s demand that it attempt to recover the $35 million for the benefit of the estate, on May 25, 2012, the Committee filed a motion for authority to file adversary complaints to avoid and recover the alleged fraudulent transfers pursuant to Wisconsin state law and the Bankruptcy Code’s fraud - ulent transfer provisions.

The Court’s Decision

Before getting to the merits of the Committee’s motion, the Court held that despite the fact that four years had passed since the transfers were made, the Committee’s claims may satisfy the relevant statute of limitations because it was plausible that a creditor could not have reasonably discovered the trans - fers before January 5, 2010 (within one year of the Debtor’s petition), even though the Archdiocese’s financial state ments were published each year online and disclosed the existence of the Parish Deposit Fund and its “fishy” closing in 2005 when the alleged abuse survivors were involved in a mediation program with the Debtor. Id. at 865-66.

Nevertheless, the Court denied the Committee’s motion as failing to satisfy the relevant standard for derivative standing because (i) the Committee's claims were not “colorable” and (ii) the Debtor did not “unjustifiably” refuse to bring those claims. “Colorable” claims, as the Court explained, are claims that would survive a motion to dismiss, are plausible on their face, contain “more than a sheer possibility” of unlawfulness, and are not subject to affirmative defenses. Id. at 858-59. (citations omitted).

First, the Court held that the Parishes likely had a defense to the litigation because they received funds "in good faith." Id. at 866-67. on this point, the Court held that, despite being an officer and board member of each parish corporation, the Archbishop's knowledge of the allegedly fraudulent transfers could not be imputed to the Parishes because the Archbishop did not exercise his authority or control over the Parishes with respect to the transfers. Instead, the Archbishop gave each of the Parishes the opportunity to either withdraw their funds or invest in the new Trust. Id.

Second, the Court held that the Committee had not stated a plausible claim that the transfers were made with the Debtor’s property. Id. at 869. Instead, the Court held that the Parish Deposit Fund belonged to the Parishes because, unlike similar funds present in some of the seven other diocesan cases prompted by the ongoing abuse crisis, (i) the Archdiocese did not hold title to the Parishes’ property because Parishes are considered separate corporations under Wisconsin law, (ii) the Parishes’ funds were not com - mingled in the Archdiocese’s operating account, but were deposited into one segregated bank account and easily traceable, (iii) participation in the Parish Deposit Fund was voluntary, and (iv) the Parishes could withdraw their funds on request. Id. at 867-69.

Finally, despite its conclusion that the claims were not colorable, the Court went on to state that the Archdiocese justifiably refused to attempt to recover the funds given (i) the significant cost and delay associated with pursuing such claims, (ii) the dubious merit of the claims, (iii) the likely difficulty in collecting any judgment, and (iv) the adverse effects on the reorganization effort of the Debtor, which relies upon its Parishes for support. Id. at 869-71.

In sum, the Court held that the Committee’s claims were not colorable, and even assuming that they were, the Debtor did not unjustifiably refuse to bring such claims given that the cost outweighed any apparent benefit.


Dioceses and parishes facing financial distress or potential catastrophic liability events should take note. Although the Archdiocese was suc - cess ful in opposing the Committee’s actions in this instance, pooled invest - ment vehicles are subject to scrutiny during a bankruptcy case. The opera - tion and structure of such funds, the level of disclosure of any related transfers, and governing state law will likely dictate the outcome of future similar cases.

Monday, June 24, 2013

5 Things to Know about Milwaukee clergy abuse


The Archdiocese of Milwaukee has verified claims of sexual abuse by 45 priests, including 23 who are still alive. None is allowed to work as a priest, and 15 have been officially defrocked. Most of them are accused of abuse that took place before 1990.


It's hard to say because some victims may not have come forward. But one former priest, Lawrence Murphy, has been accused of sexually abusing some 200 boys at a school for the deaf from 1950 to 1974. Other priests have been accused by only one person thus far. There are more than 570 sexual abuse claims pending in bankruptcy court, but some of those involve lay people or priests assigned to religious orders, not the archdiocese. Attorneys have not said specifically how many of the 570 claims relate to the 45 priests on the archdiocese's restricted list.


Abuse victims had long sought to hold the archdiocese accountable, but most didn't come forward until well into adulthood, when it was too late under Wisconsin law to sue the church for negligence in supervising its priests. A 2007 Wisconsin Supreme Court decision gave them a window, saying the six-year limit in fraud cases didn't start until the deception was uncovered. The archdiocese filed for bankruptcy in 2011, once it became clear that it could face a slew of lawsuits. It said it wouldn't have the money to pay if those cases went against it.


It's hard to say for certain because no one has seen the collection yet except attorneys and certain church leaders. Jerry Topczewski, chief of staff for Archbishop Jerome Listecki, has said it will include the personnel files of 42 priests, depositions of church leaders including New York Cardinal Timothy Dolan, who previously led the Milwaukee archdiocese, and records from the files of bishops and other key figures.


The release of the documents has been important to sexual abuse victims, but it does not affect resolution of the bankruptcy case. Topczewski says the next step in that will be for the archdiocese to come up with a reorganization plan detailing how it will provide for victims and pay its expenses in the future. Mike Finnegan, an attorney representing many victims, says one focus for his legal team will be trying to get the archdiocese's former insurers to cover abuse claims.

Saturday, June 15, 2013

Stockton Diocese finances strained in the wake of abuse lawsuits, bishop says

It will be 20 years next month since Oliver O'Grady last served as a priest in the Stockton Diocese. Yet the impact of the notorious pedophile's 22 years at five parishes remains huge — on his victims and on the diocese's finances.
To date, more than two dozen of O'Grady's victims have collected nearly $25 million in damages from the diocese and its insurance providers, including a $1.75 million settlement announced last week. That does not include an additional $500,000 scheduled to be paid over the next several years in one case, and there are two additional O'Grady lawsuits pending.
Compare that with about $7 million awarded for all other clergy abuse lawsuits against six priests and one Catholic brother, including the largest, a $3.75 million award against the Rev. Michael Kelly last year. Two more lawsuits are pending against him.
Sunday, a letter from Bishop Stephen Blaire was read in all of the diocese's 35 parishes and 14 missions, or small churches, from Lodi to Turlock and from Tracy to Mammoth. It referred to the "evil of sexual abuse" and stated: "The cash reserves from which these payments are made are all but gone. The money that remains for handling these cases is a small fraction of what is needed to face pending lawsuits as well as any new claims."
Blaire said that although protection through bankruptcy has been mentioned as a possible solution, "no decision has been made."
He pointed out that each parish is set up as a separate corporation and so would not be affected by the diocese's decision on the matter.
Thursday, the bishop provided detailed diocesan financial information. He said the reserve account was established in 1962, when the diocese was created out of the archdiocese of San Francisco. The archdiocese gave the fledgling diocese "around $6 million to get them started," Blaire said.
When he arrived as the fifth bishop in 1999, the account held about $10 million and was used mainly for emergency purposes, "like replacing a roof," Blaire said. But since then, most of the money has gone to pay the diocese's share of clergy sexual abuse lawsuits. There's now "less than a million" dollars left in that account, he said.
With four remaining lawsuits against the diocese and an unknown number in the future, diocese officials are discussing several options.
"We have enough money to run the diocese," Blaire said. "We don't have money for these four cases or any other. We have to figure out how to meet the needs to provide compensation for anyone who has been victimized or hurt. These victims … deserve compensation. We've paid out over $15 million of diocesan money, plus all the insurance money, plus the attorney fees. The point is, we've reached the end of our ability to provide that compensation."

O'Grady root of problem

O'Grady, he said, is the root of much of the problem.
Before he was deported to his native Ireland in 2000, O'Grady agreed to be defrocked in exchange for a diocese-provided annuity that began paying out in June 2010 when he turned 65. The 10-year plan, which cost the diocese about $77,000, pays O'Grady $788 a month. He is in a Dublin prison, sentenced last year to three years for possession of thousands of images of child pornography.
"He violated the trust of the people in all of the (Stockton) parishes he was in," Blaire said. "What he did was an enormous harm to the people he abused, as well as the diocese he was serving. The consequences will be with us for a long, long time.
"I know personally many of those who have been hurt by him. I just cry when I speak to them. It should never have happened."
Besides the human toll, he added, there is the financial cost.
"There is no easy answer," he said. "I don't know a diocese that runs as slim an operation as we do. You can't cut back any further."
Nancy Sloan, one of O'Grady's first victims, said Friday: "I am saddened to hear the Stockton Diocese has jumped on board to hide behind loopholes in a blatant act of irresponsibility. If appropriate actions by decades of bishops had been taken immediately against the pedophile priests such as Oliver O'Grady, there would not be the necessity of civil actions."
Victims don't look forward to lawsuits, she said.
"No victim cherishes the act of going to court. We have been through enough for many lifetimes, but for the Stockton Diocese to hide behind a bankruptcy claim is one slap too many. The diocese is not poor, except in judgment. Sell properties, get rid of ornate possessions, live in action as Jesus did."
The diocese, which runs on about $5 million a year in operational expenses, will decide on a course of action "in a few months," Blaire said.
John Manly, a Southern California attorney who has represented several of the victims, said the diocese has plenty of money and is basically playing a shell game.
"The fact is the Stockton Diocese has about $40 million in liquid assets," he said. "Our estimation is they have between $75 million and $100 million in diocese and parish accounts.
"Essentially, what the Stockton Diocese has done is put it in various accounts, not putting it in the reserve fund, and pretending they don't have any money. It's like Google taking all of their billions and putting it in a Swiss bank account and leaving half a million in a U.S. bank account and saying that's all they have. I can't prevent them from filing bankruptcy, but they'll have to explain (all those accounts) to the court."
Blaire acknowledged there are additional accounts, such as 35 incorporated parish funds and others, for example, for Catholic Charities, St. Mary's High School, Central Catholic High School and Catholic Cemeteries. There also is the capital campaign fund set up in 2008 as a corporation and governed by its own board. But he said all of that money is designated for things such as scholarships and construction costs in poor parishes and doesn't go for diocesan operating expenses.

Accusation rejected

He rejects Manly's charge that filing for bankruptcy would be a strategic move to prevent turning over material in the Michael Kelly cases or to eliminate settlements.
A bankruptcy filing has helped a handful of other dioceses around the country, Blaire said, but only where there has been plenty of communication and thoughtful discussions among all parties, including attorneys and clergy abuse victims.
"We are looking at some serious steps," he said. "My hope is to take every step carefully, keeping everyone informed, as we try to work out this situation."
Bee staff writer Sue Nowicki can be reached at or (209) 578-2012.

• 27: Number of clergy sexual abuse lawsuits filed naming Oliver O'Grady; two pending
• $24.8 million: Amount of money paid to date in those lawsuits; $500,000 more is to be paid over the next 10 years for one victim
• $10.8 million: Amount paid by diocese; rest paid from insurance proceeds
• $2.775 million: O'Grady settlements paid out in past two years
• 11: Lawsuits against all other priests; two were referred to the Archdiocese of San Francisco for abuse that happened there and one was dropped; two lawsuits against the Rev. Michael Kelly are pending
• $7 million: Amount paid in these lawsuits; $3.75 million for first Kelly lawsuit
• $31.9 million: Total damages paid by Stockton Diocese for clergy sexual abuse
• $13.7 million: Amount paid by diocese (does not include litigation fees)

Friday, June 7, 2013

Diocese pays millions to sex-abuse victims; may file for bankruptcy Stockton Diocese reaches $1.75M settlement

Leaders of the Catholic Diocese of Stockton said they may have to file for bankruptcy, due to years of lawsuits and multimillion-dollar settlements with sexual-abuse victims -- which are depleting the diocese’s reserves.

Bishop Stephen Blaire told KCRA 3 on Thursday that diocese officials haven’t made any final decisions about bankruptcy, but are seriously considering the option as they assess the organization’s future.

“I think we’ve paid out over $15 million, and so, our reserves now are virtually depleted,” Blaire said. “We just don’t have much left. And we face four lawsuits coming up, and so we’re going to have to financially figure out a way to meet our obligations -- and all of our obligations, not just in these particular cases.”

The diocese would not be the first in the U.S. to file for bankruptcy or consider bankruptcy following settlements in sexual-abuse cases against priests.

Blaire said there are several other dioceses in the country that have done so.

Victims of sexual abuse and their attorneys said the possibility of bankruptcy is only a way for the church to avoid its obligations.

“It’s a selfish cop-out when Catholic institutions misuse the Chapter 11 process to protect their secrets and deny child sex abuse victims a chance to expose predators in court,” read a statement from a group called SNAP, the Survivors Network of those Abused by Priests. “When bishops seek bankruptcy protection, all lawsuits, depositions, discovery and trials come to a screeching halt.”

Blaire said the diocese has paid settlements in about 20 cases and has four lawsuits pending against it, which will further deplete its reserves.

He said a bankruptcy filing would not affect day-to-day operations at Stockton’s 35 Catholic parishes, 13 schools or Catholic Charities.

Parishes operate as a separate corporation, he said.