Catholic Archdiocese of Milwaukee, faced with numerous sex abuse cases, some involving deaf boys, files for bankruptcy

From The Milwaukee Journal-Sentinel:

The Catholic Archdiocese of Milwaukee, which faces more than a dozen civil fraud lawsuits over its handling of clergy sex abuse cases, filed for Chapter 11 bankruptcy protection on Jan. 5.

Archbishop Jerome Listecki (pictured), speaking on the first anniversary of his installation, said the move was necessary to fairly compensate victims and to continue the "essential ministries" of the church.

"As a result of the horrific actions of a few, there are financial claims pending against the archdiocese that exceed our means," Listecki said at a news conference at the Cousins Center in St. Francis, which houses the archdiocese headquarters.

He said the recent failure to reach a mediated settlement with victims and a court decision absolving its insurance companies of liability in the cases "made it quite clear that reorganization is the best way to fairly and equitably fulfill our obligations."

Victims' advocates and plaintiffs attorney Jeff Anderson characterized the filing as a ploy to protect the church and delay justice. They note that the move puts the civil fraud cases on hold, including the scheduled deposition of retired Auxiliary Bishop Richard Sklba, who has been called the "go-to-guy" for then-Archbishop Rembert Weakland in the handling of sex abuse cases.

"This is about protecting church secrets, not church assets," said David Clohessy, national director of SNAP, the Survivors Network of those Abused by Priests. "The goal here is to prevent top church managers from being questioned under oath about their complicity, not 'compensating victims fairly.'"

Milwaukee, with an annual operating budget of about $24 million, is believed to be the eighth Catholic diocese in the United States to declare bankruptcy in response to the clergy sex abuse scandal. The others are: Tucson, Ariz.; Portland, Ore.; Spokane, Wash.; Fairbanks, Alaska; Wilmington, Del.; San Diego; and Davenport, Iowa.

Some of those cases have concluded; others are still pending. Legal experts say it is difficult to make generalities about them, because the facts and financial circumstances differ from diocese to diocese. The effects on parishioners also have differed. In Tucson and Spokane, for example, parishes were asked to pay a portion of the settlements - almost like a tax, said Charles Zech, director of Villanova University's Center for the Study of Church Management.

Listecki said Jan. 5 that the filing would serve as a kind of final call for all sex abuse claims, allowing the archdiocese to determine its current and future financial obligations to victims. He said it would have no effect on schools and parishes, which are separately incorporated, although that would ultimately be decided by the bankruptcy judge.

The archdiocese created a special e-mail, reorg@archmil.org, where parishioners can send questions about the process, and said they would be answered periodically on its website, www.archmil.org.

Chapter 11 bankruptcy typically is filed to give a company or organization time to restructure its debts and work with creditors, with the expectation that it will continue to operate and emerge stronger in the end.

During the bankruptcy, the entity operates under the supervision of the court, and a committee usually is appointed to represent the interests of unsecured creditors.

As part of the process, the archdiocese will come up with a dollar figure it believes can be allocated to an account to compensate sex abuse claimants, said Marquette University law professor Ralph Anzivino, an expert on Chapter 11 bankruptcies. The amount of the fund is likely to be challenged by claimants, but eventually it will be established by the court.

"Let's assume they put $10 million in that account, but the claims are $100 million," Anzivino said, speaking hypothetically. "That means everybody is going to get 10 cents on the dollar. That's how it's going to work."

In the recently failed settlement talks, the archdiocese argued that its resources were limited to unrestricted operating assets - which totaled $1.6 million in the 2009-'10 fiscal year - and a portfolio of seven properties worth $5.5 million.

In interviews and documents released Tuesday, the archdiocese detailed its assets and explained why some resources could not be used to pay creditors - although at least some of those may be challenged by creditors in bankruptcy court.

According to its most recent financial statements, the archdiocese had $98.4 million in assets and $12 million in liabilities in 2010; however, almost all its assets are in restricted and dedicated accounts, it said.

The archdiocese said schools and parishes should not be affected because they are separately incorporated under Wisconsin law. However, that defense is being challenged in at least one other church bankruptcy, in Wilmington, where some parish funds were included in the pool of money available to creditors.

Restricted funds, endowments and trusts - including the newly formed Faith in Our Future Trust created to hold the proceeds of a $105 million capital campaign - are protected under the legal language that established them, it said.

"There's not a lot of precedent on this, but I think the courts will respect trusts and donor intentions," said Listecki.

Anderson, who has argued that the archdiocese's assets are "vast and unknown," declined to speculate Tuesday on how a bankruptcy court might view the archdiocese's ability to pay creditors, including victims.

The archbishop said it was too early to know how the operations of the archdiocese would be affected, or how that might trickle down to parishes, schools and others entities it supports.

Tuesday's filing comes almost three weeks after the archdiocese announced a breakdown in settlement talks with 24 men and women who were molested as children, 16 of whom have pending lawsuits against the archdiocese in Milwaukee County Circuit Court. They accuse the archdiocese of defrauding them by moving priests with known histories of sexual abuse from parish to parish without telling families of their background.

The archdiocese said the talks collapsed after the plaintiffs' attorney rejected a $4.6 million settlement offer. The victims denied that assertion, saying they refused to discuss financial terms until the archdiocese agreed to their non-monetary demands, including the release of all documents pertaining to abuse in the archdiocese.