Catholic Diocese of Spokane, Washington



From the

Official News Magazine of the Diocese of Spokane

Deacon Eric Meisfjord, Editor
P.O. Box 48, Spokane WA 99210
(509) 358-7340; FAX: (509) 358-7302


Chapter 11 update:
Filings by Association of Parishes, diocese, support corporation sole status

by Robert P. Hailey, Lay Co-Chair
Father Michael J. Savelesky, Priest Co-Chair
Association of Parishes

(From the June 9, 2005 edition of the Inland Register)

One of the most significant – and perhaps the most far-reaching – issues at stake in the Diocese of Spokane’s Chapter 11 reorganization effort is the determination of the “extent of the bankruptcy estate.”

The key question is: What assets could the Bankruptcy Court potentially require the diocese to liquidate in order to pay claims of creditors?

The diocese argues that its assets are relatively limited, and that those assets were identified fully on Dec. 6, 2004, when the bishop sought protection under Chapter 11 of the Federal Bankruptcy Code. Those assets are valued at approximately $10 million.

Plaintiffs argue, on the other hand, that all the real property (land) as well as personal property (money, buildings and contents) associated with parishes and their ministries – along with the assets of other Catholic institutions in the diocese – fall under the direct control of the bishop and, therefore, are potentially available for liquidation to pay creditors. The value of these assets is estimated to be close to $80 million.

Obviously, not just a great deal of money, but also, the future mission of the Church in the Diocese of Spokane is at stake.

Although this matter will be argued extensively in federal court, key to the argument seems to be divergent perspectives on the nature of a “corporation sole” in the State of Washington.

Bishop Charles D. White, the second bishop of the Diocese of Spokane, incorporated the diocese as a corporation sole in 1915. Court filings by plaintiffs argue that this status gives a bishop ownership rights over all property titled to him, as well as direct control over all the assets of the parishes in his diocese. As Bishop White and his successors have affirmed in a variety of forums, a bishop merely holds property in trust and exercises oversight – not control – over parishes, under the guidance of universal Church law. The purpose of incorporating as a corporation sole, in other words, is to permit a hierarchical church to conduct its “business” according to its own Church Law, which is binding on bishops as well as pastors and the faithful.

Court filings by counsel for the Association of Parishes (AOP), as well as those filed by attorneys for the diocese, anchor their arguments not only in the Canon Law of the Catholic Church, but also in Washington State trust law, which differs somewhat from trust law in other states.

As a corporation sole in the State of Washington, the bishop of a diocese is permitted to hold title to property as a trustee who receives no benefit himself from the holding. Church law also recognizes that parish property and assets ultimately belong to each parish as a separate “juridic person” or “unincorporated association.” As a separate consideration, there are issues of religious freedom and separation of Church and State which would come into play, if the parishes were forced into liquidation or even mortgaged.

Federal Bankruptcy Court Judge Patricia Williams is scheduled to hear arguments regarding these matters on June 27, 2005. The outcome of that hearing will be of critical importance to all parishes and their faithful, but especially to 22 parishes in the Diocese.

On April 7, 2005, the Tort Litigants’ Committee, representing plaintiffs with sexual abuse claims against the diocese, filed for a partial summary judgment regarding this issue, asking the Bankruptcy Court judge to make a decision about real property issues in regard to these specific parishes.

Twenty-two parishes in the greater Spokane area are named specifically in the motion. The basis for the listing seems to be parish size and the fact that property deeds on file with the county indicate that “The Catholic Bishop of Spokane, a corporation sole” holds legal title to the property (a fact which no one disputes). Named parishes in the City of Spokane are Assumption, Mary Queen, Our Lady of Fatima, the Cathedral of Our Lady of Lourdes, St. Aloysius, St. Ann, St. Anthony, St. Augustine, St. Charles, St. Francis of Assisi, St. Francis Xavier, St. Joseph, St. Peter, Sacred Heart, and St. Thomas More. Named parishes outside the City of Spokane are St., Anne (Medical Lake), St. John Vianney (Spokane Valley), St. Joseph (Colbert), St. Joseph (Otis Orchards), St. Mary (Spokane Valley), St. Mary Presentation (Deer Park), and St. Rose of Lima (Cheney).

The AOP, founded in October 2004, is now fully engaged in the Chapter 11 litigation. Counsel for the AOP has been working diligently to prepare for the defense of these 22 parishes. With their assistance, pleadings opposing the motion for summary judgment have been placed before the court by each of the 22 named parishes. Each set of pleadings includes legal arguments, an affidavit from the pastor and at least one parishioner who swear under oath that parish real and personal property was given by and/or belongs to the parish and its parishioners, and a plethora of supporting documentation.

The filings were made for the parishes on or shortly before the court-established deadline of May 27, 2005. The filings have been posted in the Chapter 11 Reorganization section of the diocese’s web site: http://www.dioceseofspokane.org.

Although only these 22 parishes have been named in this particular motion, that does not mean that the rest of the parishes in the diocese are “off the hook.” Should the plaintiffs win this motion, they might very well file similar motions against all the other parishes in the diocese. That means that the defense of each of the 22 parishes is a critical part of the defense of each of the other 60 parishes and missions in the diocese.

In that light, it is important to remember that each and every parish – along with the major Catholic institutions in the diocese – was named as defendants in this case on Feb. 4, 2004.

The AOP remains committed to the two goals identified by Bishop Skylstad when he filed for Chapter 11 Reorganization last December. Like our bishop, we also seek just settlement of legitimate abuse claims. At the same time, we must assure that the mission of the Catholic Church continues in our diocese. Maintaining the physical and fiscal integrity of the assets of parishes is critical to that mission.

Costs for litigation in the diocese’s Chapter 11 case continue to mount – and without reasonable restraint or condition. Monthly attorney fees are running in the realm of $300,000-$400,000 per month. Counsel for the AOP have been pushing for voluntary limitation of payments by the attorneys themselves. If voluntary efforts fail, then the AOP is prepared to ask the Court to intervene.

As reported to the Association of Parishes, the current “burn rate” on legal fees paid by the diocese for its own defense and (as required by bankruptcy law) the legal expenses of the plaintiffs is rapidly depleting diocesan liquid assets, and this cannot be permitted to continue.

The AOP has expressed opposition to any sale of diocesan assets which is effected outside the context of an agreed-upon settlement. Keeping in mind that one of its major goals is the provision of just settlement of legitimate sexual abuse claims, the AOP remains deeply concerned that each day that the Chapter 11 process drags on in the courts, resources that would otherwise be available to fund a Chapter 11 Plan and compensate victims are being depleted.

We must remain mindful that victims of priestly sexual abuse are not the cause of the legal challenge that confronts the diocese and its faithful. The scandalous sinful actions of a few of our priests have created this crisis. Members of our diocesan family have sinned. As a family of faith who support one another in good times and in bad, we must recognize a shared responsibility to help move litigation toward a just settlement. Brushing aside that responsibility with comments like “no amount of money can heal abuse” or “it wasn’t my fault” are neither responsible nor helpful to the much-needed healing process.

Recognizing the seriousness of the matter which confronts every Catholic parishioner in the diocese, the Association of Parishes has asked its member pastors and parish lay representatives to engage their respective finance and pastoral councils, if not their entire parish, in a discussion about ways in which the current litigation can be resolved. The diocese continues to struggle with achieving a final settlement of sexual abuse claims presently under litigation, while at the same time maintaining its mission as Church. This may ultimately involve selling or borrowing against major assets. However, since the parishioners of the diocese are the Church, the bishop likely will have to turn to them for some form of financial collaboration in the settlement of this case.

Parishes have already begun the discussion of these issues, and individual parishioners are encouraged to voice whatever concerns or recommendations they may have in writing to their respective pastor or parish administrator, or to the lay person who represents the parish in the Association of Parishes.

Comments also may be sent to: Association of Parishes, 3624 W. Indian Trail Rd, Spokane, WA 99208. E-mail: abvm@icehouse.net.


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