Tag: Financial Improprieties

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Another California Catholic diocese will seek bankruptcy protection from hundreds of sex-abuse claims

— The San Diego diocese’s Chapter 11 petition will be filed Monday, Cardinal Robert McElroy says

Bishop Charles Francis Buddy Pastoral Center, Diocese of San Diego in Clairemont on Thursday, June 13, 2024 in San Diego, California.

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The Roman Catholic Diocese of San Diego announced Thursday that it plans to return to U.S. bankruptcy court to help manage its response to hundreds of lawsuits filed by people who say they were sexually assaulted by Catholic priests when they were young.

It is the second time San Diego church officials have gone to bankruptcy court to limit damage from claims from child sex-abuse victims.

Cardinal Robert McElroy, who serves as bishop to the 1.4 million Catholics in San Diego and Imperial counties, alerted parishioners to the decision in an open letter that was publicly released by the diocese on Thursday.

The legal action, which is expected to be filed Monday, comes after church officials acknowledged last year that they were considering a return to bankruptcy court and began mediation with survivors.

“For the past year, the Diocese has held substantive and helpful negotiations with the attorneys representing the victims of abuse, and I, in collaboration with the leadership of the Diocese, have come to the conclusion that this is the moment to enter formally into bankruptcy and continue negotiations as part of the bankruptcy process,” McElroy wrote.

Lawyers representing the 400-plus plaintiffs in San Diego Superior Court lawsuits said the decision shows the diocese is more interested in protecting its assets than protecting the people who attended its schools and services.

“After nearly a year of mediation, we were hoping that child sexual abuse survivors, the Diocese and its insurer would have been able to reach a settlement and an agreed-to plan for compensating victims through the inevitable bankruptcy announced by the Diocese about a year ago,” plaintiffs’ attorney Irwin Zalkin said.

“Unfortunately, that hasn’t happened.”

Plaintiffs’ lawyers said the Catholic Diocese of San Diego is the 13th diocese across the country to seek bankruptcy protection from sexual-abuse survivors.

“It has become very clear that these Catholic Diocese and their insurers have adopted a national strategy to use Chapter 11 bankruptcies to resolve child sexual abuse cases in a way that reduces the compensation paid to survivors,” said attorney Devin Storey, a Zalkin law partner who also represents victims.

McElroy said the Diocese was facing two moral claims: the need for just compensation for victims and the need to further the church’s mission of education, service and outreach to the poor and neglected.

“Bankruptcy offers the best pathway to achieve both,” he said.

In 2007, the Diocese of San Diego agreed to pay almost $200 million to 144 people who reported sexual abuse by priests — a settlement that was reached after the church filed for bankruptcy protection.

The Chapter 11 proceeding more than 15 years ago was marred by accusations from victims’ lawyers that church officials deliberately hid assets from the bankruptcy court in order to limit damages.

Zalkin on Thursday circulated quotes from the judge who oversaw the 2007 case.

“The term ‘disingenuous’ as applied to the Diocese description of assets available to fund the settlement is completely accurate,” then-U.S. Bankruptcy Court Judge Louise De Carl Adler said in a ruling.

“The church needs to look within itself,” she added. “Chapter 11 is not supposed to be a vehicle or a method to hammer down on the claims of the abused.”

A state law passed in 2019 opened a new window for victims of clergy sex abuse to file claims against the church for three years ending in 2022 — and ultimately resulted in 457 new claims against the San Diego diocese.

That same year, in the weeks leading up to the bill being signed into law, the diocese systematically transferred ownership of hundreds of its properties.

According to an analysis by The San Diego Union-Tribune published last year, the diocese owned 376 properties at the start of 2019 but just 76 by that year’s end — an 80 percent drop. None of the property transfers involved money changing hands or other monetary consideration.

Church officials said the changes were not aimed at reducing assets in response to the 2019 legislation. Rather, a spokesperson told the Union-Tribune that process of transferring church assets had begun in 2010 and simply took years to complete.

The bankruptcy filing expected to be filed Monday will involve only the diocese itself, church officials said — not the 96 individual parishes, 49 elementary and secondary schools or the charitable or other programs that operate under the church’s guidance.

Even so, schools and parishes may have to help pay off any eventual settlement, McElroy said.

“It is clear that as part of providing appropriate compensation to past victims of the sexual abuse of minors, both the parishes and high schools will have to contribute substantially to the ultimate settlement in order to bring finality to the liability they face,” he wrote.

In his message to parishioners, McElroy said almost 60 percent of the allegations brought forward in the current litigation are more than 50 years old. He also said the church has taken steps to prevent such abuse but that those reforms do not excuse past behavior.

“The tremendous strides we have made in the past 20 years to protect minors in the church and beyond cannot begin to mitigate the enormous moral responsibility that I, as your bishop, and the entire Catholic community continue to bear,” he wrote.

“May God never let this shame pass from our sight, and may God’s tenderness envelop the innocent children and teenagers who were victimized.”

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Diocese of Fresno files for bankruptcy as it faces sexual abuse claims

By Ryan Foley

Another Catholic diocese in California has filed for bankruptcy as it seeks to adjudicate several claims of sexual abuse committed at the hands of clergy members.

The Roman Catholic Diocese of Fresno announced in a statement Tuesday that “the Diocese will file a petition for Chapter 11 Bankruptcy with the United States Bankruptcy Court in 2024.”

Bishop Joseph Brennan noted in an open letter to parishioners that a California state law “opened a three-year window for individuals to bring forward otherwise barred or expired claims for sexual abuse suffered as a child.”

“Since the closing of the filing window on December 31, 2022, we have been informed of 154 cases filed against our Diocese,” he stated.

Brennan outlined his two “definitive goals” of how to “continue to atone for the sin of clergy abuse” as “to make sure we are handling claims of abuse with equitable compassion and resolving those claims as fairly as possible” as well as “to ensure the continuation of ministry within our Diocese.”

Brennan cited a declaration of bankruptcy, which he expects to file in August, as a way to “address the substantial number of claims brought forth by victims collectively” that “will allow us to address those claims honestly, compassionately, and equitably.”

“Requesting a court-supervised reorganization is the only path that allows us to meet the goals stated above,” he said.

“The reorganization ensures all victims are compensated fairly and funds are not depleted by the first few cases addressed,” he added. “The process also allows the operation of our schools, parishes, and organizations to continue uninterrupted, since the only entity filing for bankruptcy protection is the corporate sole, known legally as The Roman Catholic Bishop of Fresno.”

Brennan insisted that “Catholic Charities and the Fresno Diocese Education Corporation, which operates the schools are separate legal or ecclesial entities and will not be filing for bankruptcy protection.”

A frequently-asked-questions page elaborating on the impacts of the bankruptcy declaration indicates that “it will pay for the claims from funds that are available to be used for such purposes,” adding “there is some insurance to cover abuse that occurred in past decades.”

The Diocese of Fresno is not the first diocese in California to file for bankruptcy amid a wave of sexual misconduct allegations directed at priests.

Earlier this year, the Diocese of Sacramento filed for bankruptcy as it seeks to resolve an even larger number of claims of sexual abuse committed by clergy.

The California state law that led to an increased volume of sexual assault allegations directed at clergy, Assembly Bill 118, declares: “In an action for recovery of damages suffered as a result of childhood sexual assault, the time for commencement of the action shall be within 22 years of the date the plaintiff attains the age of majority or within five years of the date the plaintiff discovers or reasonably should have discovered that psychological injury or illness occurring after the age of majority was caused by the sexual assault, whichever period expires later.”

The legislation, passed in 2019, allows “action for liability against any person or entity who owed a duty of care to the plaintiff if a wrongful or negligent act by that person or entity was a legal cause of the childhood sexual assault that resulted in the injury to the plaintiff.”

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These Clergy Abuse Survivors Had a Chance to Find Justice.

— Then Their Diocese Filed for Bankruptcy.

Baltimore Catholic Archbishop William Lori greets parishioners after delivering Sunday Mass at Holy Family Catholic Church in July 2019, in Randallstown, Md.

As more states extend the statute of limitations for child sexual abuse, churches are finding a legal workaround.

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When Teresa Lancaster was a teenager in the 1970s, she was raped by a chaplain at her Catholic high school in Baltimore. But when she and another survivor, Jean Wehner, sued the chaplain and the diocese decades later, the court rejected their case, saying too much time had passed under Maryland law. Lancaster, by then in her mid-40s, enrolled in law school with one goal: to lift the statute of limitations for child sexual abuse lawsuits.

“It was crushing,” she said about losing the lawsuit. “I had to pick myself up and decide what I was going to do. I knew if I became a lawyer, people would have to listen to me, and I could gain some respect back.”

Lancaster went on to become an attorney for victims of sexual abuse, and she eventually testified in front of the Maryland state legislature in favor of statute of limitations reform. Last April, Lancaster finally saw her goal achieved when Governor Wes Moore signed the Child Victims Act into law. It was one of 26 similar laws passed in the wake of the MeToo movement and high-profile sexual assault scandals involving the Boy Scouts and USA Gymnastics. 

But even in victory, Lancaster was not fully at ease. “I told everybody, this is a win,” she said. “But I was ready for them to attack back.”

And they did. In September, just two days before the law went into effect, the Archdiocese of Baltimore filed for chapter 11 bankruptcy—meaning all lawsuits against the Archdiocese would be paused, and any sexual abuse claims against a church would have to go through the bankruptcy court. Now, Lancaster is working hard to finish filing claims for herself and 20 clients by a court-imposed May 31 deadline, or else risk losing their one shot to find justice.

In recent years, bankruptcy has become increasingly popular among Catholic dioceses as a tool to avoid bad press and prevent future litigation. After an organization files for bankruptcy, all civil litigation against it stops. Instead, the bankruptcy court sets a deadline for victims or other creditors to submit a claim against the organization. That deadline essentially overrides any statute of limitations reform passed by the state legislature—if victims don’t meet it, they likely can’t sue in the future. Then, claims are resolved with a batch settlement—which makes bankruptcy an appealing option to dioceses, because it allows them to settle hundreds of lawsuits via a single process rather than litigating them individually. In a statement, Baltimore Archbishop William E. Lori claimed that bankruptcy would “best allow the Archdiocese both to equitably compensate victim-survivors of child sexual abuse and ensure the local Church can continue its mission and ministries.”

But victims like Lancaster are skeptical. Many survivors and advocates argue that the bankruptcy process protects churches’ interests at the expense of victims. Unlike a civil trial, bankruptcy has no discovery process that would allow further information about abusers’ crimes to come to light—which means victims may be left with lingering questions about how much their churches knew about their abuse, or whether other people were victimized. In addition, because bankruptcy sets a deadline for claims, it can force victims to come forward before they’re ready, or risk losing their pathway to justice forever. Since many victims of childhood sexual abuse often don’t disclose their abuse for decades, the public may never know the full extent of clerical abuse.

“Survivors have a right to say, ‘This happened to me,’” said Wehner, who is also a claimant in the Baltimore bankruptcy case. “Because after this is done, we don’t get to do that anymore. What this bankruptcy does is shortens our time. It puts a pressure on us.”

Bankruptcy has long been common as a tool for corporations like Johnson & Johnson and Purdue Pharma to respond to mass lawsuits. According to Marie Reilly, a Penn State law professor and bankruptcy expert, the Archdiocese of Portland was the first diocese to use this legal maneuver back in 2004, when it declared bankruptcy amid child sexual abuse claims. Since then, Reilly said, 35 other dioceses have filed for bankruptcy, with 16 of those cases coming in the past four years.

Reilly attributes the recent acceleration in the trend to the wave of legislation like Maryland’s Child Victims Act. Thirteen of the recent bankruptcies have been concentrated in states like New York and California, which recently passed look-back windows—periods of time in which victims can bring forth child sexual abuse claims previously blocked by the statute of limitations.

There are some potential solutions to the problem. In April, Representative Deborah Ross (D-NC) introduced legislation to amend bankruptcy proceedings in cases of child sex abuse. The bill would give victims the opportunity to submit impact statements and mandate a discovery hearing where information about individual cases and institutional negligence could come to light. It would also require an independent forensic accountant to examine the bankrupt organization’s estate, along with the holdings of any third parties involved in the proceedings, to ensure victims receive a settlement commensurate with the organization’s worth.

Lancaster supports the bill, though she acknowledges that no amount of money will heal the emotional scars of abuse. Ideally, she’d like to see prosecutions of attackers and a memorial for survivors. But she knows that, at the moment, money is the most important tool survivors have at their disposal to hold the diocese to account. “That is the only thing that the church as a corporation is going to understand,” she said. “If we hit them hard enough, maybe they’ll really do something about the abuse situation.”

When I spoke to Lancaster this spring, she was simultaneously counseling her clients on how to file their claims—which often means recounting abuse in excruciating detail—while working on her own claim. It’s a frustrating, emotionally draining process. But Lancaster’s life has been a lesson in moving forward, even at high emotional cost. “It’s upsetting, but I pushed that into the back so that I can be a fighter in the front, you know?” she said.

After the Child Victims Act passed and victims were looking for representation, another lawyer cautioned Lancaster against disclosing her abuse to her clients because, as Lancaster recalled, “They can’t see a weak person standing before them to fight for them.” She disagreed.

“One of the reasons people will come and talk to me is because they know I’ve been there,” she told me. “I say, ‘I’m a survivor, and I understand.’”

Complete Article ↪HERE↩!

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8 survivors speak during special hearing in Archdiocese of Baltimore bankruptcy case

Frank Schindler, a member of the Maryland chapter of Survivors Network of those Abused by Priests, speaks to reporters on Monday outside the Edward A. Garmatz U.S. Courthouse in Baltimore following a hearing in the Archdiocese of Baltimore bankruptcy case.

By Dylan Segelbaum

From the witness stand in a small, packed courtroom, Cathy Roland held up two photos, one of herself and one of her late twin sister, Terri, as children.

Inside the Edward A. Garmatz U.S. Courthouse in Baltimore, Roland then showed a picture of the two of them together, which she said was taken after the Rev. Eugene Ambrose McGuire had sexually abused them at St. Joseph’s Monastery Parish.

“It’s just different,” she said Monday. “It’s just sadness.”

After presenting her statement, Roland told other survivors in the courtroom that her heart goes out to them. “We will get through it,” she added.

For a second time, survivors of childhood sexual abuse presented statements during a hearing in the Archdiocese of Baltimore bankruptcy case. Eight people shared their stories. Many spoke about how being sexually abused stole their childhood, drove them to alcoholism and drug addiction, and ruined their ability to develop relationships and trust others.

“I hate God,” one woman testified. “Because he let this happen to me. And all these other people here.”

Archbishop William Lori said he was moved by the powerful testimony of the eight survivors who spoke on Monday during a hearing in the Archdiocese of Baltimore bankruptcy.

Archbishop William Lori again attended the court proceedings and listened to their statements. He later said the testimony moved him and commented about the courage of the survivors.

U.S. Bankruptcy Judge Michelle M. Harner set aside time for the statements at the request of the Official Committee of Unsecured Creditors, which represents survivors in the case. The Archdiocese of Baltimore supported the effort. Six people spoke on April 8 during the first specially set hearing, which was designed to increase transparency and understanding in the process.

“From the court’s perspective, this is a listening session: an opportunity for individuals to be heard,” said Harner, who largely echoed her remarks at the first hearing. “Today, the court will provide time and space for listening.”

As a lifelong Baltimorean, Mark Easley said he went to church every Sunday at St. Vincent de Paul.

His family members, he said, were devout Catholics. He said he trusted everyone in that environment. It seemed like a haven during the political and racial turmoil of the 1960s.

The Rev. Edmund Stroup, he said, would have some people stay with him overnight, which was considered an honor. Easley said he was excited for his opportunity to do the same.

“I viewed this man as one of God’s messengers,” Easley said.

Stroup, he said, sexually abused him during that visit as well as a subsequent overnight stay.

Easley said he was mortified and kept what happened to himself, sinking into music as a coping mechanism. The abuse, he said, “turned me and my life upside down.”

Joe Martin spoke about the sexual abuse that he experienced at the hands of the Rev. Francis LeFevre, whom he met in fifth grade as an altar boy at St. Anthony of Padua.

LeFevre, he said, was outgoing, energetic and likeable. In retrospect, Martin said, the priest “ingratiated himself in all aspects of my life.”

Martin said LeFevre abused him during trips to places including Sea Isle City, New Jersey, and stated that the victimization continued after he started attending Calvert Hall.

He said he felt ashamed and embarrassed. Martin said he hated everyone and everything, with destructive thoughts turning into destructive behaviors.

Eventually, Martin said, he moved back home and returned to church. Elders prayed over him and stated that Jesus loved him, an instance he described as the most peaceful moment in his life. Finally, Martin said, he knew that somebody loved him.

Often, Martin said, he has anger. But he said he has also learned to let go and noted that he joined the creditors’ committee.

Following the hearing, Frank Schindler, a member of the Maryland chapter of Survivors Network of those Abused by Priests, and Teresa Lancaster, a survivor, activist and attorney in Maryland who testified at the first hearing, criticized the Archdiocese of Baltimore for filing for bankruptcy. They also spoke out against the Catholic Church for challenging the Child Victims Act of 2023, which eliminated the statute of limitations for survivors to file lawsuits and allowed more people to sue institutions that enabled their victimization.

Right before the law was set to take effect on Oct. 1, 2023, and open up the church to a flood of lawsuits, the Archdiocese of Baltimore filed for bankruptcy.

Teresa Lancaster, a survivor, activist, and attorney in Maryland, speaks outside the courthouse following a bankruptcy hearing for the Archdiocese of Baltimore on 5/20/24 in Baltimore, MD.
Teresa Lancaster, a survivor, activist, and attorney in Maryland, criticizes the Archdiocese of Baltimore for filing for bankruptcy as well as the Catholic Church for challenging the Child Victims Act of 2023 during a news conference outside the Edward A. Garmatz U.S. Courthouse in Baltimore.

The Maryland Supreme Court has agreed to decide the constitutionality of the law.

The chair of the creditors’ committee, Paul Jan Zdunek, said it was gut-wrenching listening to survivors recount what happened to them.

Zdunek said the deadline to submit a claim in the case is May 31 and emphasized that survivors can do so anonymously. The committee also has a website that contains up-to-date information about the court proceedings as well as resources.

He said the committee has been meeting with the archbishop and his team.

“They’re saying the right things. Now, we just hope they will continue to do the right things as we move forward,” Zdunek said. “We’re all stuck in this together — and are trying to do what we can for those who have been abused.”

Complete Article ↪HERE↩!

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New York appeals court rules insurer doesn’t have to pay out for Archdiocese of New York abuse claims

The exterior of St. Patrick’s Cathedral in New York City is seen in a nighttime file photo. A New York state appeals court ruled unanimously April 23, 2024, in favor of insurers against the New York Archdiocese, arguing they should not be held liable for the church’s systemic failures on abuse.

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A New York state appeals court has found that an insurer for the Archdiocese of New York is not required to cover costs for settling hundreds of sex abuse claims — a ruling the archdiocese has called “extremely disappointing” and “wrongly decided.”

On April 23, five justices of the First Judicial Department of the New York Supreme Court’s Appellate Division unanimously overturned a December 2023 order from a lower court that would have compelled a group of Chubb insurance entities — who had issued more than 30 liability policies to the archdiocese and several of its parishes, schools and entities between 1956 and 2003 — to pay out money for more than 1,500 abuse cases.

Those claims against the archdiocese were brought under the state’s Child Victims Act of 2019 and Adult Survivors Act of 2022, both of which opened the door to hundreds of previously time-barred suits.

According to court documents, some of the approximately 1,500 cases dated “as far back as the 1930s” and alleged childhood sexual abuse “by various individuals including (archdiocesan) clergy and religious, clergy from religious orders and other dioceses, and lay people such as foster families, childcare staff, parish volunteers, and teachers and other school staff.”

The documents said that “about 86%” of the cases fell under policies the archdiocese had purchased from Chubb, named in the suit as Century Indemnity Company.

The appellate court said the lower court “should not have dismissed the complaint on the finding that it only raised bare legal conclusions.

“The complaint adequately sets forth factual bases for the declaratory judgments it seeks,” the justices said. “The complaint alleges that issues surrounding child sexual abuse in the Archdiocese ‘reached the Church’s highest levels’ and that ‘senior (church) officials had known for decades that members of the clergy had and were committing sexual abuse,’ as reflected in newly public sources.”

Chubb holds that the archdiocese had known about the abuse and had failed to act accordingly — a tactic the company said had violated the state’s “known loss doctrine,” by which an insured party cannot secure insurance to cover a loss that is known prior to the date the policy takes effect.

However, the principle does not apply in cases where the insured is aware of a risk of loss, and the appellate court dismissed that aspect of Chubb’s argument as “not viable.”

“If allowed to stand, the decision will permit insurance companies to evade the contractual obligations of the policies they issued,” Joseph Zwilling, director of communications for the archdiocese, told OSV News in an April 23 statement.

Zwilling indicated the appellate court’s decision “demands appeal” to New York’s highest court, but said the Archdiocese would “consider and determine what is the best way to further policyholders and plaintiffs interests.”

“To suggest, as the court does in today’s decision, that Chubb can avoid paying claims to victim-survivors of sexual abuse simply by claiming that the abuse was ‘expected or intended’ without offering any proof, opens the door to years of litigation and courtroom battles and closes the door on prompt and just resolution to meritorious claims,” he said.

Zwilling added that Chubb was “demonstrating that they would rather pay attorneys to litigate against the Archdiocese of New York and others to whom it issued policies rather than settle legitimate claims made by the victim-survivors of abuse.

“It is a cold, cynical, calculating decision by Chubb which is clearly more interested in protecting its bottom line than in honoring the policies they issued,” he said. “These bullying legal tactics violate the spirit of the Child Victims Act and the intention of the legislators who passed it, and defy the guidance given to all insurance companies by the Department of Financial Services of the State of New York to settle these cases expeditiously.”

In a statement emailed to OSV News, Chubb said the ruling meant that the archdiocese “must now disclose what it knew and when it knew about child abuse perpetrated by priests and employees.

“That disclosure is critical to determining whether the (archdiocese’s) knowledge and cover-up precludes coverage,” said the statement, which also noted that as the litigation continues, “there is nothing to prevent the Archdiocese from paying claims to victims of horrific sexual abuse.

“The (archdiocese) has substantial financial resources to pay just compensation to victims today and Chubb continues to fund the legal defense of the Archdiocese under a reservation of rights,” said Chubb in its statement. “The principal obstacle to victims receiving compensation is the Archdiocese itself.”

In recent years, insurance coverage has become a critical factor in diocesan bankruptcies and settlements. Marie Reilly, a professor at Penn State Law and an expert in bankruptcy and commercial law, previously told OSV News that insurers have significantly restricted the terms of their general comprehensive liability policies, excluding coverage for incidents that took place decades earlier and challenging current claims as well.

“Insurers in the last five to 10 years have really been raising a lot of legal defenses, and uncertainty about their liability on these policies has made it much more complicated to settle cases,” said Reilly, who catalogs and studies U.S. Catholic diocesan bankruptcies in depth.

In 2021, Chubb agreed to pay $800 million towards a $2.7 billion fund that settled some 82,500 claims against the Boy Scouts of America.

This past February, a Chubb insurer, Century Indemnity Company, filed suit against the Diocese of Trenton, New Jersey, and other entities, asserting it has no obligation to cover hundreds of claims of child sexual abuse brought against the defendants.

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