Spokane diocese files for bankruptcy, opens door to daunting legal issues

Spokane, Wash., Dec 6, 2004 / 22:00 pm

Hoping to receive a clearer picture of its financial liability in sex abuses lawsuits and that its insurers will pay some of the claims, the diocese of Spokane, which yesterday became only the third in the U.S. to file for bankruptcy, is heading into relatively uncharted and unpredictable legal issues, the costs of which may be very much higher than expected.

The Spokane diocese has filed for bankruptcy citing total liabilities of $81 million, $76 million of which are in sex-abuse claims. The diocese has only $11 million dollars in assets, the Seattle Times reports.

Acknowledging the risk entailed, the diocese’ attorney, Shaun Cross said that "the diocese chose the option that it believes has the greatest chance of paying the most to claimants" while still allowing the Church to continue its work.

He explained that once the diocese has filed for bankruptcy the court will set a deadline on claims coming forward and the extent of the diocsese’ financial liablity can then be determined by the diocese and its insurers.

However, Janet Tu of the Seattle Times points out that the cases of the other two dioceses to file for bankruptcy – Portland  and Tucson, Arizona – tell us that the hoped for outcome is not guaranteed by any means, and may only increase the uncertainty that the diocese is hoping to resolve.

Rulings made in the two prior cases by bankruptcy judges have left the dioceses with a decided lack of finality on the issue of financial liability: first, in the Portland case, bankruptcy judge Elizabeth Perris ruled a month ago that victims with repressed memories of sexual abuse, or those who have not yet linked the abuse in their childhood to problems they suffer in their lives today, can come forward even after the deadline once they are conscious of what happened to them, thus precluding a quick evaluation of the amount the diocese needs to pay out.

Marti Kopacz, a bankruptcy expert, said that bankruptcy lawyers "were kind of surprised at [Perris'] decision," because it doesn’t allow the diocese to "know who is a victim and over what population it has to spread its remuneration."

The second ruling regards the diocese’ assets: whether or not parish churches and schools of the diocese can be considered as among the diocese’ financial assets and whether or not they can be sold to pay off the claims.

In Church law, parish assets belong to the parish and not the diocese, but victims’ attorneys have argued that the sex abuse cases are subject to civil law which may conflict with Church law. Attorney David Slader who represents victims in the case against the Portland diocese, includes parish assets in his estimate of Portlands assets at $500 million – ten times more than the diocese’ estimate of $50 million.

In the face of huge settlement payouts, five insurers of the Spokane diocese have filed a lawsuit saying they should not have to pay because of the fact that Church officials did not stop the abuse from happening even when they were aware it.

"I think one of the challenges, if more and more dioceses have to file, is that it's going to be awhile before you get a consistent body of law," said bankruptcy expert Kopacz, commenting on the unpredictablity of diocese bankruptcy cases. "Bankruptcy Court knows how to deal with corporate law," he said. "This is kind of a new world."