Catholic Church Shields $2 Billion in Assets to Limit Abuse Payouts

For most of the 20th century, the Catholic Church in the U.S. minimized the damage wrought by pedophile priests by covering up the abuse. When the bishop of the Davenport, Iowa, diocese was told in the mid-1950s that one of his priests was sexually abusing boys at a local YMCA, he kept it secret. “It is consoling to know that no general notoriety has arisen, and I pray none may result,” he wrote to a priest, capturing the strategy of the era.

Cover-ups worked when victims and their families could be intimidated or shamed into silence. But in the 1980s and ’90s, victims started filing civil lawsuits against the dioceses where the alleged incidents took place. Church leaders across the country kept these suits quiet by settling out of court and demanding nondisclosure agreements in return. Church leaders paid out about $750 million from the early ’80s through 2002, according to BishopAccountability.org, a nonprofit that tracks clergy sex abuse.

The veil of secrecy on these transactions was pierced when the Boston Globe published its investigations into church sex abuse in 2002, sparking public outrage at how clergy had protected their own. From 1950 to 2002, 4,392 priests were accused of abuse, according to a study by John Jay College of Criminal Justice.

The pace of lawsuits escalated as public awareness grew, and besieged church leaders looked to a new option: bankruptcy. When a church district that’s been sued files for Chapter 11 and then reaches a bankruptcy settlement, a percentage of its assets are divvied up by victims. Like Fortune 500 executives—and more recently the Sacklers, the family that owns OxyContin maker Purdue Pharma LP—church leaders see bankruptcy as an attractive solution because it provides a controlled process for settling a large number of lawsuits while holding on to as many assets as possible.

Another benefit is secrecy. Lawsuits and trials lead to testimony and publicity. Bankruptcy ensures a quieter mass settlement that forces an end to existing lawsuits and blocks new ones. “It provides a clean slate,” says Robert Kugler, a lawyer who represented abuse victims in the St. Paul and Minneapolis archdiocese. Dioceses have gone this route more than 20 times since 2004, when the Archdiocese of Portland, Ore., declared itself insolvent.

More dioceses are filing for bankruptcy now that rules are changing about how much time a victim has to sue over abuse. Seven states and the District of Columbia passed laws in 2019 that suspend the statute of limitations on civil sex abuse suits, and at least three other states are considering them. Known as “window statutes,” they’ve become popular in the wake of the #MeToo movement and public outcry over abuse by men in power. Until recently, only a half-dozen states had them. Window statutes caused churches to declare bankruptcy in San Diego, Wilmington, Del., and cities throughout Minnesota.

After New York state’s law went into effect in August, almost 430 sex abuse victims immediately filed lawsuits, most of them against dioceses. The dioc...

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