Boston Archdiocese weighs bankruptcy
Facing lawsuits, cardinal's aides
urge Chapter 11
By Walter V. Robinson and Stephen Kurkjian, Globe Staff,
The Archdiocese of Boston is preparing to take the extraordinary
step of filing for bankruptcy, as hopes fade for a settlement
with an estimated 450 alleged victims of clergy sexual abuse,
according to a senior church official and two sources close
to the archdiocese.
Cardinal Bernard F. Law, who has been involved in discussions
about the prospect, has yet to give his approval. But his
senior advisers are united in the view that seeking protection
in US Bankruptcy Court is preferable to a damaging and costly
battle in state courts that might drag on for years, according
to the official and the sources.
Seeking Chapter 11 bankruptcy protection would be an unprecedented
and risk-laden step for the US Catholic church. It would suspend
action in civil lawsuits and bar the filing of new suits while
the church reorganizes its finances.
Legal specialists noted other advantages: It would force
the 450 claimants into a single group in the federal court
and set a time limit for the filing of new claims. And it
would give the federal bankruptcy court wide latitude in overseeing
a global settlement.
Moving the church's troubles into bankruptcy court - if negotiations
fail - would amount to an admission by the archdiocese that
it is liable for the claims because of its negligence, according
to one of the church sources. It would also mean that Law
would no longer have to answer embarrassing questions in pretrial
depositions about his oversight of abusive priests, and his
lawyers could stop providing plaintiffs' lawyers with damaging
files about priests.
But much of the damage from court-ordered disclosures has
already been done. This week, for instance, lawyers for victims
will start making public the church's records on 65 priests
who allegedly abused minors.
With many Catholics eager to have the victims compensated
but others upset that lawyers will receive one-third or more
of any settlement, bankruptcy may be an attractive option,
since there is recent precedent in bankruptcy court for judges
to limit the fees paid to lawyers.
One of the cardinal's advisers, who like the others spoke
on condition that they not be identified, said church lawyers
remain hopeful there will be an equitable settlement, overseen
by mediator Paul R. Sugarman, with about 40 attorneys who
represent a list of victims that continues to grow.
The attorneys for the victims have until Dec. 16 to provide
Sugarman with the size of the damage award that each sexual
abuse victim is claiming. Based on recent settlements, according
to the estimates of lawyers on both sides, the total of all
the claims could exceed $100 million.
Robert A. Sherman, an attorney at Greenberg Traurig, which
represents about half of the victims, said that it is premature
for the church to consider bankruptcy. Before abandoning the
mediation process, Sherman said, the archdiocese needs to
determine the potential damages it faces, the amount of insurance
coverage it has, and its prospects for raising the difference
by tapping its own assets.
''There is a stigma to bankruptcy,'' Sherman said. Besides,
he said, ''Cardinal Law has made a commitment to resolving
these claims so the victims can obtain closure. For the church
to file for bankruptcy would be inconsistent with his posture
and would keep those wounds open.''
If it opts for Chapter 11 protection, the archdiocese is
unlikely to take that step until next month at the earliest,
according to the sources. But the church may not find the
environment much more to its liking than Suffolk Superior
Court, in the view of some bankruptcy specialists.
''Bankruptcy court ought to be the last resort for any debtor,''
said Walter W. Miller Jr., a bankruptcy law specialist at
Boston University School of Law. ''When you bring in a bankruptcy
judge, it may not turn out the way you want.''
Janet E. Bostwick, a Boston bankruptcy attorney, said the
process is designed to promote compromise. ''In disputes in
civil courts, it's one side takes all,'' Bostwick said. ''But
in bankruptcy court, both sides know that they're going to
have to make compromises.''
Miller, Bostwick, and other bankruptcy specialists said that
if the church's proposed settlement is not acceptable, there
is a danger for the archdiocese that the judge might accept
a later and more costly proposal put forward by the claimants.
Moreover, Bostwick cited claims of serious illness in bankruptcy
cases involving asbestos manufacturers as evidence that it
is difficult to achieve resolution when the two sides are
haggling over placing a monetary value on emotional and physical
There is also a perceptual problem. One attorney, who is
familiar with the church's case but uninvolved, said there
will be ''irretrievable damage'' to the church's reputation
if it has to seek protection in bankruptcy court. And it may
seriously undercut fund-raising, which has already been severely
hurt by the disclosures of clergy sexual abuse of minors.
Bankruptcy court would also introduce another requirement
that the church may find onerous: Its closely held financial
records would be available for public inspection for the first
Law firm said to be gathering data for filing
If the archdiocese does elect bankruptcy, the filing would
be restricted to its principal corporate entity, according
to the archdiocesan sources. It would not involve related
organizations such as Caritas Christi, which runs the archdiocese's
health-care system, or Catholic Charities, one of the state's
largest providers of social services.
Last August, the Globe reported that church lawyers had consulted
with one of Boston's most respected bankruptcy attorneys,
Daniel M. Glosband of the law firm Goodwin Procter. At the
time, Glosband was eyeing a bankruptcy filing as a ''worst
Now, however, that prospect is immediate enough that Glosband
and a team of lawyers are far along in their legal analysis
of the issues and immersed in gathering the facts and the
documents the archdiocese would need to file a Chapter 11
petition for bankruptcy protection, according to the sources.
Underscoring the seriousness of the preparations, Goodwin
Procter has retained the Rasky-Baerlein Group, a Boston public
relations firm, to advise the firm on communicating the complexities
of a bankruptcy filing to several audiences, including priests,
parishioners, and the wider public, according to the sources.
Separately, the firm has a longstanding relationship with
the archdiocese: It has contracts with both Catholic Charities
and Caritas Christi.
Under federal law, Chapter 11 filings are intended to gather
all of the debtor's creditors under one roof with an equal
chance at recovering what is due them, while also allowing
the debtor to make a new, and unencumbered, start after the
bankruptcy case is settled. During the Chapter 11 process,
the church would continue to administer its own affairs, though
not without possible oversight by the court.
According to the sources, and one of the cardinal's advisers,
church officials have become more pessimistic about the prospects
for resolving the claims through mediation. According to the
adviser, the archdiocese's rancorous relationship with the
Greenberg Traurig law firm is one factor in the gloomy outlook.
In addition, the prospect of having a US bankruptcy judge
take charge became more attractive last week when Suffolk
Superior Court Judge Constance M. Sweeney, who has oversight
of all the cases, issued an opinion that the archdiocese believes
shows she is biased against the church, an adviser to the
In a ruling on a subsidiary issue, Sweeney wrote that, contrary
to Law's sworn testimony, the church's records contain evidence
that some abusive priests were sent to new parishes despite
suspicions that they were continuing to molest children.
The cardinal's adviser said he and others were troubled by
what they perceive as Sweeney's animus, noting that she has
said she will preside at any of the cases that may go to trial.
The conclusion she reached in last week's opinion, the adviser
said, is one that should be reached only by a jury.
Sources say church feels as if it has no choice
The events that brought Glosband into the case began last
spring. At the time, the archdiocese was surprised by an avalanche
of new claims against priests prompted by public disclosures
that began in January. With the number of fresh claims at
that time approaching 200, the archdiocese backed out of a
tentative agreement that would have paid $20 million to $30
million to 86 people with existing claims involving abuse
by defrocked priest John J. Geoghan.
In August, those 86 people settled for $10 million.
Now that the number of new claims has doubled again, even
as hopes for a settlement have lessened, the archdiocese felt
it had no choice but to prepare a bankruptcy filing, according
to the archdiocesan sources.
Bankruptcy filings by charitable organizations are rare.
And such a step by the church is without precedent. In 1997,
the Dallas diocese received permission from the Vatican to
file for bankruptcy after a jury awarded $119.6 million to
several victims of one priest. The diocese never filed, but
the threat alone prompted the victims to settle for $31 million.
Law, according to the sources, has not yet asked for the
Vatican's permission, but expects that the Vatican would rule
Without a settlement, and without a bankruptcy filing, the
archdiocese faces protracted litigation. And much of its substantial
legal costs would drain funds from insurance coverage that
might otherwise go to victims, according to one of the sources.
The same source also expressed concern that a jury trial might
prompt a judgment so large that other victims would be left
with little chance to receive settlements of any size.
Vulnerability of property in bankruptcy at issue
The archdiocese is so cash poor that it recently mortgaged
its offices and Law's residence to raise funds for operating
costs, but it owns real estate with an assessed value of more
than $1.3 billion, according to a Globe review of real estate
records. The actual value is believed to be much higher.
Several bankruptcy specialists said there is no legal protection
for those assets in bankruptcy court. The church sources,
however, said the overwhelming majority of the real estate
is operated by the 362 parishes in the archdiocese. They said
Glosband has a strong legal argument that those properties
are owned by the archdiocese in trust for the parishes and,
therefore, cannot be sold to satisfy claims.
But the bankruptcy process, with its emphasis on negotiation,
would give the archdiocese the incentive to make an offer
that is acceptable to the pool of claimants. For the judge
to accept a resolution, it must be approved by a majority
of the claimants, and those voting in approval must represent
at least two-thirds of the amount claimed.
If the archdiocese does file for bankruptcy, it would have
120 days to submit a plan. But as a practical matter, according
to bankruptcy lawyers and the church sources, the filing itself
would probably push both sides to the negotiating table right
By all accounts, including those of the archdiocesan sources,
the church will have to come up with substantial funds of
its own if the claims are to be resolved - in mediation or,
if it comes to it, bankruptcy court. The issue is: How much
will the church pay, and how much will its insurers contribute?
Right now, Kemper and Travelers, the two insurance companies
that provided liability coverage from 1977 to 1989, are arguing
that their liability for acts of abuse that occurred during
those years is limited to little more than $20 million for
both companies, according to attorneys for both sides. The
archdiocese, however, insists that there is more than $60
million in remaining coverage.
Herbert Weinberg, a bankruptcy attorney, said any insurance
dispute would probably be resolved by the bankruptcy judge.
In Chapter 11 proceedings, Weinberg said, judges ''are loath
to let insurance companies walk away with potential assets''
without evidence that the debtor engaged in fraud.
However that issue is resolved, the archdiocese will have
to contribute a large amount to any settlement. Officials
familiar with the church's finances say that in the most likely
scenario, the archdiocese will have to sell property. The
most likely parcel: the 16-acre site in Brighton of the chancery
and Law's mansion - which Boston College wants to buy.
By the reckoning of the archdiocesan attorneys, there is
the possibility that a bankruptcy judge might limit the fees
of the plaintiff attorneys. For instance, if the cases were
to be settled through mediation for $90 million, lawyers for
the victims would receive at least $30 million of that.
In three corporate bankruptcies prompted by personal injury
claims, according to the archdiocesan sources, judges held
legal fees well below the one-third or more that is typical
in contingency fee arrangements. Those cases involved breast
implants manufactured by Dow Corning, Dalkon Shield claims
against A. H. Robins Co., and a Vermont asbestos manufacturer.
Bankruptcy law specialists said there would be another incentive
for the parties to reach agreement in bankruptcy court. Without
an agreement, both sides would be back where they started,
with Judge Sweeney regaining jurisdiction over the claims.
Walter Robinson's e-mail address is email@example.com.
Stephen Kurkjian can be reached at firstname.lastname@example.org.
This story ran on page A1 of the Boston Globe on 12/1/2002.
© Copyright 2002 Globe Newspaper Company.