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Bankruptcy creates uncertainty

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Posted: Monday, October 18, 2004 11:00 pm | Updated: 7:48 am, Thu Mar 24, 2011.

Oct. 13, 2004 - Some 10,000 Catholics who attend Northwest churches in the Roman Catholic Diocese of Tucson will likely be called on to help pay for sex abuse lawsuits, but it will take months before anyone knows the true impact.

The diocese filed for federal Chapter 11 bankruptcy protection Sept. 20. Last week, a bankruptcy judge set a deadline of April 15 - six months from now - as the cutoff for any new claimants alleging sexual abuse by priests who worked in the diocese.

A key issue in the diocese's filing for Chapter 11 bankruptcy protection is whether parish assets are independent or whether they belong to the diocese.

"The problem that I see here is that we're dealing with canon law and public law," said Joe Botsko, a founding parishioner of St. Mark the Evangelist Catholic Church in Oro Valley. "Under canon law, each parish is its own entity even though we are restricted in some things. For example, if we need to borrow money to build a new church, we have to go through the diocese.

"It comes down to what the diocese is forced to do in secular court. It's going to be a tough choice. In most cases, claims are brought through the parishes whose children were abused. Under canon law, the parishes are individual entities and cannot be touched.

"If canon law prevails, the diocese won't be able to use the assets of the parishes. That's the big question, whether secular courts will go along with that. If the secular court rules that assets of the parish are assets of the diocese, we're all going to be tapped," he said. "I could see contributions fall off considerably," if the diocese increased parish assessments to pay for a settlement of the sex abuse cases.

St. Marks started in 1999 with 20 families. It now has more than 400. "We built the church on property purchased by the diocese," Botsko said. The parish recently considered building a new church with more space for offices and religion education to accommodate its rapid growth, but those plans have now been shelved. "We have considerable debt right now. We still owe the diocese for the purchase of the property and the house."

If growth continues, but the church can't afford to purchase land or build without the backing of the diocese, Botsko wonders if the church will have to hold more masses on the weekend.

"The difficulty there is in finding available priests. Worldwide, the church is already making great use of retired priests. Three priests have been assigned to our diocese from Africa. Ireland used to export many priests and seminarians, but there aren't that many vocations to the priesthood in Ireland anymore," he said.

"Ultimately, it's going to have to come from the pockets of the parishioners. Will they have special collection to handle this? Curtail our services? We don't know how it's going to play out."

Sister Carole Ruland, pastoral administrator for Santa Catalina Mission in Catalina, which serves 1,100 families from SaddleBrooke, Sun City and the surrounding area, sees no immediate cause for concern, but said no one knows what the courts will decide. "At this point we're at the mercy of the courts," she said. "But the people have great trust in the bishop and we're trusting in him at this point to guide us, direct us and lead us."

Karen McEwen, parish administrator for St. Elizabeth Ann Seton, one of the largest parishes in the diocese serving 4,500 families, said the parish has been instructed to continue business as usual. Like all parishes, St. Elizabeth has money on deposit at the diocese, but most of those are restricted funds, earmarked by donors for specific purposes. She said the church did recently remove construction funds from the diocese with its approval, but again, those are restricted funds that can only be used for building purposes.

The fifth largest diocese in the United States, the Tucson diocese serves more than 300,000 Roman Catholics in 75 parishes, dozens of missions and 28 Catholic schools.

Thirty-three plaintiffs have alleged sexual abuse by priests in 22 pending lawsuits, now stayed by the diocese's bankruptcy proceedings.

"Chapter 11 puts a stop to the litigation and puts the parties together to construct a consensual settlement," said Michael McGrath, of the Tucson firm of Mesch, Clark and Rothschild, who, with attorney Lowell Rothschild, separately represents the parishes. The diocese has its own legal counsel.

In its U.S. Bankruptcy Court for the District of Arizona filing, the diocese declared assets of $16.6 million - $3.4 million in real estate and $13.2 million in personal property. It lists liabilities, mostly unsecured claims, of $20.7 million.

Half a dozen insurance companies are also involved, he said.

Attorneys for the plaintiffs maintain the true wealth of the diocese, including parish property values, is more than $100 million.

"Plaintiffs lawyers are claiming $110 million in assets, that's not accurate," McGrath said. "The diocese has described $16.6 million in assets under its control."

Some of those assets belong to parishes.

"Roughly $4.5 million of parish-restricted assets are put in a pool administered by the diocese for the parishes," McGrath said. As in the case of St. Elizabeth Ann Seton, if a parish wanted to build a school, it would raise the money and send it to the diocese to invest. When the parish is ready to build, it withdraws its money.

Of the 75 parishes, only 20 have money for those kinds of projects, he said. Half the parishes have operating budgets of less than $150,000 a year.

"The parishes are pretty well satisfied that their money on deposit is their own money to be used legally only for the parishes," McGrath said. "Both canon law and Arizona property law are consistent on that level."

McGrath said part of the diocesan reorganization proposed plan is to sell off its $3.4 million in real estate held for future parish development.

"Where new parishes are needed, those are likely to be delayed," he said. "Parishes will now have to buy their own land.

"All parishes will also be asked to contribute because there will be a fund for existing and future claimants," McGrath said. He said the diocese has proposed a total of $1 million be collected from all parishes combined, but particularly those parishes named as defendants.

There are credible allegations against two priests who worked in Northwest parishes in the 1980s. Kevin Barmasse, a priest with the Archdiocese of Los Angeles was assigned to the diocese in the late 1980s, working at St. Elizabeth Ann Seton. Thomas P. Purcell was convicted in 2003 of sexually abusing a South Tucson boy while working at St. Odilia Parish in the early 1980s. He is now in jail.

"We want to take care of the victims," St. Odilia Pastor Father Richard Troutman said. "All our banking is pooled. We need to protect the money that's on deposit.

"The bankruptcy judge could say, 'No, this is diocesan money.' There's a lot of legal jockeying going on right now."

Troutman, whose parish serves 1,700 familes, said it concerns him that the diocese paid millions to 10 sex abuse claimants in 2002 and there's still no end in sight. "In 2002, we thought we were all done. We were probably more generous than we should have been. That weakened us," he said. "We're all trying to do the best we can, in that sense we feel hopeful. The diocese has been working on this a long time. I felt we did justice in 2002 and will try to do it in 2004."

Tucson attorney Lynne Cadigan, of Cadigan & Williamson, who represents 24 plaintiffs with sex abuse claims against the diocese, said that even if parishes were found to constitute part of the diocese's assets, the parishes wouldn't be liquidated. "They would just have to mortgage them a little," she said. "You borrow money and leverage it and then have a slow, 30-year payment."

Cadigan and her law partner attorney Kim Williamson filed a complaint in Pima County Superior Court just before the diocese declared bankruptcy, charging it fraudulently transferred more than $10 million in assets in order to hide its real worth. That case is now stayed, but the federal bankruptcy court will have to look at the issue just the same. The Diocese has called the fraud accusations outrageous.

"Some of these transfers made last year that we allege are fraudulent were to unsecured creditors, corporations associated with them like the Catholic Foundation," Williamson said. "Often when people go to file bankruptcy they transfer property before they do it. If any seem suspect, if they're transferred to a related entity or go for less than fair market value, you really scrutinize it. If our estimates are correct, then the bankruptcy judge may want to rescind those transfers and bring that property back in, unless creditors and debtors can come to an agreement."

Williamson said the court may never get to the separate issue of whether to include parish properties as part of diocese holdings. "There are a lot of other things that could happen. The diocese thinks insurance companies should cover a lot more. If it is successful, depending on how much it gets, we may or may not need to get to that issue," she said. "Those are big questions because we know about the complaints filed but we don't know who's going to come forward with valid legal claims in the next few months."

Back in August, the parishes formed a Steering Committee of Parish Pastors to explore the implications of Chapter 11 for parishes.

Committee member Msgr. Robert Fuller, said he thought the bankruptcy re-organization would not unduly affect parishes.

"The money given to the parish is given to the parish, it cannot be garnished from the parishes to pay for lawsuits," he said. "There's no thought right now of getting into parish income. Does parish property belong to the bishop? Under state law, it does. Under church law, it does not."

He noted that parishes have their own tax identification numbers and bank accounts. "The bishop operates in accord with church law and respects parish funds as parish funds.

"At this point, they're looking at diocesan assets apart from the parishes," Fuller said. "If they can get various sides to agree, they won't raise the other question. The court wants the lawyers to come to an agreement before the question is ever raised."

Poorer parishes will continue to receive help from the Annual Catholic Appeal, he said. "That help should still be there. We'll have to wait and see if there's any lessening of support."

Retiree Frank Douglas, who lives in Marana's Continental Ranch and attends services at Sts. Peter and Paul in midtown, said he's stopped giving money to the diocese. "I don't trust the hierarchy. I don't think they've been straight with us. I now give money to Survivors Network of those Abused by Priests and a couple other Catholic reform groups, like Voice of the Faithful and Call to Action," which advocate the liberalization of the Catholic Church.

"There are rumblings of tremendous discontent among a lot of Catholic people with their leaders. The sex abuse crisis, the bankruptcy, are getting people up in arms," Douglas said. "Being a practicing Catholic is very difficult to do in this day and age."

In all fairness, he said, the conventional wisdom among Catholics is that Bishop Gerald Kicanas was presented with a pretty big mess when he took over the diocese a few years ago. "But the bishop's statement in the Catholic newspaper, that he believes parish assets will not come into play, my sense of it is they certainly can, this is virgin territory, this is an historic thing going on here in Tucson."

Catalina resident Mary Richey, an active Catholic all her life who now attends St. Helen's Mission Church in Oracle, which serves 200 families, said she trusts the bishop completely. "We have a fine bishop now. He's a good man and a holy man and above all he's a good priest. Whatever happened in the past should never be repeated. It should not happen to anyone. Those pedophiles were hiding under the cloth," she said. "But I'm not worried about the finances. The church is going to prevail no matter what."

© 2014 The Explorer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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