Buffalo Catholic Diocese Files For Bankruptcy Reorganization

The Catholic Diocese of Buffalo (NY) announced last week that it has filed for bankruptcy reorganization, saying in part that the petition has:

a primary aim of enabling financial resolution for the most number of individuals who have filed claims under the Child Victims Act - a year-long window that opened on August 14, 2019 that suspends the statute of limitations related to allegations of past sexual abuse.  A further objective of reorganization is that it allows the Diocese to continue uninterrupted its mission throughout Western New York, while working to settle claims with existing Diocesan assets and insurance coverages....

Parishes of the Diocese are separately incorporated under New York State's Religious Corporation Law and not included in today's filing. Similarly, Catholic elementary and secondary schools are also not part of the Chapter 11 case, given that they are owned by parishes or are separately incorporated entities. Catholic Charities of Buffalo, with its extensive ministries that serve residents throughout Western New York, providing critical social services, is also separately incorporated under New York's Not for Profit Corporation Law and will not be part of the filing. This is also true for the Diocese's capital and endowment Campaign - Upon This Rock.

The Bradford Era reports on the filing.

Supreme Court GVRs Puerto Rico Decision On Pension Liability of Catholic Church

Th U.S. Supreme Court today issued opinions granting certiorari, vacating the judgment of the Puerto Rico Supreme Court and remanding for further proceedings the case of Roman Catholic Archdiocese of San Juan v. Feliciano, (US Sup. Ct., Feb. 24, 2020). At issue was whether the Roman Catholic and Apostolic Church in Puerto Rico was liable for pension benefits of Catholic School employees in Puerto Rico.  The petition for certiorari argued that civil courts must respect the Church's own views on its internal structure. The Supreme Court in a per curiam opinion concluded, however, that it need not reach that issue because Puerto Rican courts lost jurisdiction over the case when it was removed to federal court and had not yet been remanded. Justice Alito, joined by Justice Thomas, wrote to note important issues that may arise on remand. They said in part:

[T]he Free Exercise Clause of the First Amendment at a minimum demands that all jurisdictions use neutral rules in determining whether particular entities that are associated in some way with a religious body may be held responsible for debts incurred by other associated entities....

Beyond this lurk more difficult questions, including (1) the degree to which the First Amendment permits civil authorities to question a religious body’s own understanding of its structure and the relationship between associated entities and (2) whether, and if so to what degree, the First Amendment places limits on rules on civil liability that seriously threaten the right of Americans to the free exercise of religion as members of a religious body.

Harrisburg Catholic Diocese Files For Bankruptcy Reorganization

Yesterday, the Catholic Diocese of Harrisburg (PA) filed for bankruptcy reorganization in federal bankruptcy court. In announcing the move, Bishop Robert Gainer said in part:

Over the past few years, our Diocese has been forced to confront our horrific past regarding clergy sexual abuse. Today, we are facing some difficult financial realities. Despite making every attempt to scale back operations and reduce overhead, we are currently unable to meet our financial obligations.

... Our current financial situation, coupled with changes in the law both here and in New Jersey, where we are already named in one lawsuit and where we anticipate more to follow, left us with no other path forward to ensure the future of our Diocese. Despite the success of the Survivor Compensation Program, which helped 111 survivors of clergy child sexual abuse, or 96% of those who participated in the Program, we already are in receipt of half a dozen new lawsuits, any one of which could severely cripple the Diocese.

As Bishop, I must ensure the Diocese’s core mission is upheld, which is to remain focused on Christ’s mandate to preach, teach, sanctify, and to serve those in need. We must work to bring the Chapter 11 process to a conclusion, as soon as is reasonably possible and in a way that allows us to be present to the community, as we have been for the past 152 years.

Links to all the pleadings and other documents in the case are available here.  Reporting on the filling, AP says that the diocese joins at least 20 others across the country that have filed for bankruptcy. The diocese says it has assets of less than $10 million with liabilities between $50 and $100 million.

Bankruptcy Court Upholds Order To Sell Church Property

In In re: Sindesmos Hellinikes-Kinotitos of Chicago, (ED IL Bkrpt., Oct. 25, 2019), an Illinois federal bankruptcy court refused to vacate a prior order for the sale of the Greek Orthodox Holy Trinity Church in Chicago which was $8.2 million in debt to a bank lender. A group of parishioners sought to have the order vacated, claiming that the local church lacked authority to sell the property because the sale had not been approved by a Parish Assembly vote.  The court said in part:

Here, the parties do not contest that the Debtor is subject to the hierarchy of the Greek Orthodox Diocese of America and is so bound by its Uniform Parish Regulations..... Those Uniform Regulations provide that a

Parish may purchase real and person property, or sell, mortgage, or otherwise encumber its real property . . . upon approval of two-thirds (2/3) of the parishioners in good standing present at a Parish Assembly duly called (with at least ten (10) days prior written notice) for that purpose, provided that approval from the respective Hierarch is received . . . .

The crux of the Concerned Parishioners' argument is, however, that while such approval may have been obtained, as the approval of two-thirds of the parishioners was not, the sale is unauthorized.... According to the Opposing Parties, such procedure is one of convenience for the Hierarch but is not an actual vested right of the parishioners....

[F]or the court to conclude that the church intended to vest in its parishioners a property right sufficient to require service under Bankruptcy Rule 6004(c) and sufficient to create a pecuniary interest in the outcome of the sale, the court must attempt to answer fundamental questions of the church's treatment of its parishioners.

Interpreting that ambiguity and resolving those fundamental questions would require this court to probe into the allocation of power within the church, to attempt to posit the church's intent and polity regarding the rights of its parishioners. That, quite simply, cannot happen.

Minnesota Diocese Settles With Abuse Victims In Bankruptcy Proceeding

The Diocese of New Ulm, Minnesota announced yesterday that along with area parishes it has reached a settlement in its bankruptcy proceeding with victims and survivors of sexual abuse.  The Diocese and area parishes, along with their insurance companies, will pay $34 million which will be distributed to claimants. The Diocese has also agreed to disclose the names of all clergy with credible claims of abuse against them. The eventual bankruptcy court order will bar all other claims that arose before confirmation of the plan of reorganization. AP reports on the settlement.

Supreme Court Asks SG For Views On Catholic Diocese Pension Case

The U.S. Supreme Court today called for the Solicitor General to file a brief expressing the views of the United States in Archdiocese of San Juan v. Feliciano, (Docket No. 18-921). (Order List.)   The case poses the question of whether Puerto Rico courts can get to the assets of numerous related Catholic entities in Puerto Rico to satisfy pension obligations to Catholic school employees. The petition describes the question presented as: "Whether the First Amendment empowers courts to override the chosen legal structure of a religious organization and declare all of its constituent parts a single legal entity subject to joint and several liability." Here is the SCOTUSblog case page for the case linking to all the filings in the case.

Santa Fe Archdiocese Files Under Chapter 11

In a letter from Archbishop John Wester (full text) dated Nov. 29, the Catholic Archdiocese of Santa Fe (NM) announced that it is filing for Chapter 11 Reorganization order the federal Bankruptcy Code in order to deal with the growing number of clergy sexual abuse claims.  The letter says in part:

Given our desire to care for all victim survivors, and given the fact that we have settled over 300 claims, but that such claims continue to be filed, I see this as the wisest and most prudent course to take. It is very important that everyone understand that we have not taken this step to avoid responsibility. On the contrary, we firmly believe that Chapter 11 is the most merciful and equitable way for the Archdiocese to address its responsibility to the victim survivors, to continue to meet its commitment to prevent abuse, and to continue its mission to all those who depend on the outreach of the Church. 

The cost of settlement of the over 300 cases which included insurance funds totaled approximately $52 million dollars of which the Archdiocese paid a substantial amount. Currently we have approximately 40 pending cases, which we need to address in a caring and Christ-like manner.

AP has additional background.

Guam Archdiocese Plans Chapter XI Filing

Guam's Archdiocese of Agana announced yesterday that it plans to file for bankruptcy reorganization within the next 90 days. The Archdiocese said that this is the most expeditious way to handle sexual abuse claims. Guam Daily Post, reporting on the Archdiocese's announcement, says that more than 180 sexual abuse claims against the Archdiocese are pending.

Settlement Reached In Minnesota Catholic Diocese Bankruptcy

The National Catholic Reporter last week detailed a $210 million settlement with over 400 sexual abuse victims reached by the Diocese of St. Paul- Minneapolis in its bankruptcy reorganization.  $170 million will come from insurers, and $40 million will be paid by the archdiocese and parishes.  It is the largest settlement reached so far in any of the Catholic diocese bankruptcy cases around the country. [Thanks to Steven H. Sholk and Tom Rutledge for the lead.]

St. Cloud Diocese To File For Bankruptcy

The Diocese of St. Cloud, Minnesota announced this week that it is planning to file for Chapter 11 bankruptcy reorganization in response to 74 claims filed against it for past sexual abuse of minors.  The claims came after the state legislature in 2013 created a 3-year window for abuse suits from past years.  According to the Star-Tribune, this will be the fourth Minnesota Catholic institution to file for bankruptcy.

2nd Circuit: Religious Court Lacks Standing To Challenge Stay of Its Proceedings

In Bais Din of Mechon L’Hoyroa v. Congregation Birchos Yosef, (2d Cir., Nov. 1, 2017), the U.S. 2nd Circuit Court of Appeals affirmed a  district court's conclusion that a Jewish religious court lacked standing to challenge the application of the Bankruptcy Code's automatic stay provisions to proceedings in the religious court.  The 2nd Circuit said in part:

As the district court correctly concluded, the Bais Din failed to demonstrate that it suffered a pecuniary harm. Quite the opposite, the Bais Din did not even allege a pecuniary harm before the district court, claiming instead that the automatic stay inhibited the free exercise of religion by “preventing the Bais Din from issuing notices to or against” individuals who violate Jewish law’s prohibition on initiating proceedings in secular courts without prior permission from a rabbinical court. Whatever the merits of that claim, it does not reflect a pecuniary injury. Moreover, to the extent that the Bais Din seeks to vindicate a non-pecuniary injury, nothing in this or the district court’s opinion prevents it from filing a civil action.

Catholic Order Files For Bankruptcy In Settlement of Sex Abuse Claims

The Minneapolis Star Tribune and Premier report that yesterday the Crosier Fathers and Brothers, a Roman Catholic order, filed for bankruptcy in a Minnesota federal Bankruptcy Court. Along with the filing, the Order agreed to a $25.5 million settlement with 43 plaintiffs who have filed sex abuse lawsuits against the Order.  The sex abuse by 19 members of the Order occurred from the 1960's to the mid-1980's. The settlement is one of the largest per victim payments among the 14 Catholic Church bankruptcies around the country so far.

Montana Diocese Files for Bankruptcy

As reported by the Great Falls Tribune, the Diocese of Great Falls-Billings (Montana) yesterday filed for Chapter 11 bankruptcy.  The filing grows out of settlement negotiations in a suit that was filed in 2012 by 72 survivors who suffered sexual abuse as minors from priests over the course of several decades. A press release from the Diocese says in part:

On March 31, 2017, the Diocese is filing a chapter 11 reorganization case before the United States Bankruptcy Court for the District of Montana to fulfill a pre-bankruptcy mediated negotiated agreement with known abuse survivors and the Diocese’s liability insurance carrier.

Bishop Michael W. Warfel and the Diocese have chosen a pastoral approach which provided the basis for its having entered this confidential mediation process. The recent mediation resulted in the beginning stages of general parameters of proposed settlements with the victims and the insurance carrier. The details of that comprehensive agreement are still being worked on by the parties. Under the supervision and ultimate approval of the Bankruptcy Court, the diocese and its insurance carrier would both contribute to that comprehensive settlement, which would compensate the currently identified victims. There will be additional settlement funds for additional and unknown victims. The process of obtaining Bankruptcy Court approval included the opportunity for victims and creditors to vote on the proposed settlement. The Diocese expects that its reorganization will be expedited by the pre-bankruptcy negotiations with all the affected parties.

Developments In Two Diocese Bankruptcies

There have been developments this week in bankruptcy proceedings of two different Catholic dioceses.  RNS reports that the Archdiocese of St. Paul and Minneapolis has filed a revised plan under Chapter 11 offering to pay $132 million to settle nearly 450 child sex abuse claims asserted against its clergy.  Lawyers for the claimants, however, say that the offer is far too small.

Meanwhile in New Mexico, the Diocese of Gallup has been prevented from finalizing its exit from bankruptcy because of a new suit filed against it by Sisters of the Blessed Sacrament, a religious order that founded St. Michael Indian School in Arizona.  According to Tuesday's Alamogordo Daily News, a new suit against the Sisters of Blessed Sacrament claims a woman was sexually abused at the school by a Franciscan friar. The Sisters have in turn filed suit against the Diocese of Gallup.

Judgment For Return of Pastor's Salary Is Not Dischargeable in Bankruptcy

In In re Andrews, 2016 Bankr. LEXIS 3786 (SD MI Bankr., Oct 20, 2016), a Mississippi federal bankruptcy judge held that amounts the former pastor of a break-away church owed to the parent body of the denomination are not dischargeable in a Chapter 13 bankruptcy proceeding.  Robert Andrews was the long-time pastor of Cross Point Church, a church under the ecclesiastical jurisdiction of the Mississippi Conference of the Methodist Protestant Church.  While pastors are paid by local congregations, they are appointed and removed by the parent Conference. Andrews and the Board  of Cross Point Church voted to break away from its parent Conference. The district president of the Conference in response removed Andrews as Cross Point's pastor. The Board of Cross Point nevertheless entered a one-year employment contract with Andrews, including a provision that if the Conference removed Andrews, the pastor would be entitled to his full year's salary.

When the Conference then voted to reject Cross Point's attempted withdrawal, Cross Point's treasurer gave Andrews a check for his remaining yearly salary of $69,505. Andrews and his backers on the Board also locked the church building, took the keys and church records with them and formed a new congregation. In a suit by the remaining members of Cross Point, a state court issued a preliminary injunction requiring Andrews and his backers to return the keys and records. In a subsequent jury trial, the state court awarded Cross Point a judgment of $69,505 against Andrews, finding that Andrews had converted funds belonging to the Church. When Cross Point attempted to garnish Andrew's checking account to recover the funds, Andrews filed for Chapter 13 bankruptcy protection.

Cross Point claimed that the debt owed to it is not dischargeable.  The bankruptcy court agreed.  It first held that the ecclesiastical abstention doctrine precludes it from revisiting the question of Andrews' removal as pastor of Cross Point. It held that under Sec. 523(a)(4) of the Bankruptcy Code, the debt is not dischargeable because it involved "defalcation while acting in a fiduciary capacity" and "embezzlement."  The court said in part:

Andrews admitted at Trial that as pastor, officer, and Board member, he owed a fiduciary duty to Cross Point Church to safeguard its funds.

Jewish Religious Court Lacks Standing To Appeal Bankruptcy Stay of Its Proceedings

As previously reported, last year a New York federal bankruptcy court held that the statutory automatic stay of proceedings against a debtor that is triggered by the filing of a petition in a bankruptcy reorganization applies to invalidate proceedings against a debtor and its principals brought in a Jewish religious court (bais din). In In re Congregation Birdchos Yosef, (SD NY, Sept. 27, 2016), a New York federal district court dismissed for lack of standing an appeal of the bankruptcy court's decision brought by the Jewish religious court involved:

 Any effect on the Bais Din from that decision is indirect, seeks to challenge orders directed at third parties, and is insufficient to confer standing.....

Appellant argues that “[t]he Bais Din is a gatekeeper who ensure [sic] that community members can seek to enforce community standards and Jewish law,” and that the Bankruptcy Court’s Order enforcing the automatic stay “interferes with this function.”... This contention underscores the lack of any direct, financial impact the Bankruptcy Court’s Order has had – or could have – on the Bais Din....

That the Bais Din claims that its or its constituents’ constitutional right to the free exercise of religion was impaired by the Bankruptcy Court’s ruling does not give it standing.

New Guam Law Lifting Abuse Limitation Period Will Likely Force Archdiocese Into Bankruptcy

AP reports that Guam Governor Eddie Calvo on Friday signed Substitute Bill No. 326-33 (full text) which retroactively eliminates the statute of limitations for civil suits alleging child sexual abuse. Passage came after abuse allegations were leveled against Guam's Catholic Archbishop Anthony Apuron.  A letter (full text) from the Apostolic Administrator of the Archdiocese of Agana read at mass on Sept. 18 says that he is urging the Vatican to remove Apuron and appoint a successor.  He apologizes to victims, but says that retroactive lifting of the statute of limitations will likely force the Archdiocese to file for bankruptcy.

RFRA Does Not Impact Bankruptcy Code's Denial of Discharge

The Bankruptcy Code, Sec. 727(a)(2)(A) provides that a bankruptcy court should deny a discharge if the debtor has within one year of filing for bankruptcy transferred property with the intent to hinder, defraud or delay a creditor.  In In re Crabtree, 2016 Bankr. LEXIS 2922 (MN Bkr., Aug. 8, 2016), a Minnesota federal bankruptcy judge held that the Religious Freedom Restoration Act does not prevent applying this provision to a family's donation of a box of 500 silver coins, valued at $12,000.00, to their church, Firestarters Worship Center.

Parish Assets Not Includable In Archdiocese Bankruptcy

As reported by the Minneapolis Star Tribune, a Minnesota federal bankruptcy court yesterday refused to include the assets of 200 parishes, schools and other entities as part of the assets of the Archdiocese of St. Paul and Minneapolis in its Chapter 11 bankruptcy proceedings.  In In re: The Archdiocese of Saint Paul and Minneapolis, (MN Bkruptcy., July 28, 2016), the court said in part:

The typical substantive consolidation is reserved for situations where the finances of two or more debtors are so confusingly intertwined that it is impossible to separate them. Nothing of the sort is alleged here. There were insufficient facts demonstrating a complete abuse of the non-debtors’ corporate form under Minnesota law governing religious corporations and organizations.

Reacting to the ruling,  Archbishop Bernard Hebda in a statement (full text) said that he is "particularly thankful that [the judge] was not swayed by the allegations that the Archdiocese had hidden assets and engaged in deceptive practices...." He added: "The Archdiocese nonetheless continues to stand ready to work with counsel for sexual abuse claimants to provide fair compensation as part of our Plan of Reorganization.." [Thanks to Tom Rutledge for the lead.]

Diocese of Gallup Files Chapter 11 Reorganization Plan

As previously reported, in late 2013 the Catholic Diocese of Gallup, which encompasses parts of New Mexico and Arizona, filed for Chapter 11 bankruptcy reorganization in order to deal with mounting sex abuse claims against the diocese.  Yesterday the Diocese finally filed its proposed Plan of Reorganization. (Full text of Disclosure Statement describing the Plan.)  The Disclosure Statement begins by admitting:

It is impossible to overstate the tragedy of the Abuse that was inflicted on the children and teenagers of the Diocese. Such Abuse was perpetrated by priests or others purporting to do the missionary work of the Roman Catholic Church. Instead of fulfilling their missions, such perpetrators inflicted harm and suffering on the children and teenagers of the Diocese. Much of this harm was inflicted at a time when the Debtors did not have insurance that covered such claims, or had insurance with an insurer that is now insolvent. 

The Plan, which must receive judicial approval and then be voted on by creditors, ultimately was the product of court-ordered mediation. As reported by the Wall Street Journal:

The plan relies on at least $22 million to repay victims as well as lawyers and other creditors. Of that amount, $11.55 million would come from a settlement in which diocesan insurer Catholic Mutual will buy back its policies. The diocese itself is slated to contribute just over $3 million to the plan....

Other insurance carriers, the Diocese of Phoenix, some of the Diocese of Gallup’s parishes, two Franciscan religious orders and two foundations that support the diocese will also contribute to the restructuring plan....