Catholic Diocese of San Diego, CA Weighs Bankruptcy

By Mark Sauer and Sandi Dolbee
UNION-TRIBUNE STAFF WRITERS

February 19, 2007

Catholics got a jolt at Mass this weekend when they opened their church bulletins and found a letter from San Diego Bishop Robert Brom warning that lawsuits alleging sexual abuse by priests could push the diocese into bankruptcy.

"We must consider how best to fairly compensate the victims while at the same time not jeopardizing our overall mission. If this cannot be done through settlement negotiations, the diocese may be forced to file a Chapter 11 reorganization in bankruptcy court." – SAN DIEGO BISHOP ROBERT BROM, in a pastoral statement on sexual abuse cases

Standing in the parking lot after services at St. Patrick's Catholic Church in North Park, several parishioners said they were shocked and surprised.

“I can't believe that it would come to such a horrible thing,” said Kathy Rolls, 61.

At Sacred Heart Church in Ocean Beach, Teofla Rich, 53, said bankruptcy “would certainly be devastating.”

Facing claims that could exceed $200 million, the diocese may choose this route rather than go to trial in about 150 lawsuits alleging sexual abuse by priests.

According to Brom's pastoral statement, if abuse victims cannot be fairly compensated through ongoing settlement negotiations without “jeopardizing our overall mission, . . . the diocese may be forced to file a Chapter 11 reorganization in bankruptcy court.”

If the diocese follows through, it would become the fifth in the nation to seek bankruptcy protection in the sex-abuse scandal, joining Portland, Ore., Spokane, Wash., Tucson and Davenport, Iowa.

The diocese consists of nearly 1 million Catholics in San Diego and Imperial counties.

The bishop's letter expressed concern for the suffering of abuse victims: “I am profoundly sorry for this betrayal of trust in your lives. On behalf of those who caused you pain, and in the name of the church, I beg your forgiveness.”

It also commiserated with the priests in the diocese: “While only a few among us have been guilty of abuse, all of us have suffered the shame.”

An attorney representing many San Diego plaintiffs said the diocese has more than ample assets and insurance to settle the clergy-abuse claims and characterized bankruptcy as “a desperate maneuver.”

“This would be a bad-faith bankruptcy,” attorney Irwin Zalkin said. “They would not file for bankruptcy because they are insolvent, but because it would place an automatic stay on the upcoming trials.

“It is a last, desperate move to stop these cases, to not let the truth get out. But if they think it will cause us to back off, or to reduce what we think these victims are entitled to, that's not going to happen.”

A diocese spokesman could not be reached yesterday to comment beyond what Brom said in his letter.

But asked recently for a comment on the pending trials, Chancellor Rodrigo Valdivia issued this response: “Out of concern for everyone involved, the Diocese of San Diego looks forward to the resolution of the pending sexual-abuse cases and diocesan officials are not willing to make statements at the present time which could be counterproductive to this objective.”

Priests yesterday said they knew little beyond what they read in the letter and were hoping to learn more at a meeting today. Brom is expected to elaborate on settlement negotiations, and an expert on church bankruptcy is expected to speak.

Most of the 150 San Diego lawsuits alleging abuse by priests were filed in 2003 after the state Legislature lifted for one year the legal statute of limitations, allowing the clergy cases to go forward.

The alleged incidents of sexual abuse by priests against children, outlined in graphic detail in legal papers, date back decades.

The first San Diego case set for trial, on Feb. 28, was brought by Nicki Rister of Colorado. Rister accuses the Rev. Patrick O'Keeffe, who now lives in Ireland, of coaxing her into having sex in his parish office in 1972. Rister was 17 at the time.

The prospect of further delay, Rister said yesterday, “really irritates me. This case really needs to go to court.”

Three other trials are set to follow in San Diego Superior Court.

Unlike the Rister case, those lawsuits involve multiple victims and allegations that pedophile priests were systematically moved from parish to parish by diocese officials more concerned with hushing up scandal than protecting children.

“San Diego is one of the richest dioceses in the country,” Zalkin said. “It has more than $600 million in real estate assets based solely on tax assessors' values and not market value.”

The real estate holdings include not only churches, schools, rectories and diocese offices, but also investment property, such as apartment buildings, condominium complexes, commercial developments and undeveloped land.

In addition, Zalkin said, the diocese is part of the Catholic Mutual Group, a pool of 125 dioceses in North America whose Web site states: “Our coverage is backed by recognized financial organizations with assets in excess of $75 billion.”

An estimated 10,000 clergy-abuse lawsuits have been filed nationwide as the priest-abuse scandal rocked dioceses since 2002. More than 800 cases were filed in California.

The U.S. Catholic Church has paid an estimated $1 billion in jury verdicts and settlement agreements in priest-abuse cases since 1950, according to The Associated Press.

Amounts awarded to victims have varied greatly over the years. In California, the baseline in settlements since the current scandal erupted has ranged between $1.1 million and $1.6 million per case.

The Diocese of Orange settled 90 cases for $100 million in 2004, with the church and its insurers sharing the bills. In Los Angeles, 45 of about 530 lawsuits filed against the Roman Catholic archdiocese were settled in December for $60 million.

Attorneys for plaintiffs in San Diego insist the abuse in many cases here was more egregious than elsewhere in the state.

“San Diego for many years was a dumping ground for problem priests,” said Zalkin, who represents about 30 percent of the local plaintiffs. “They'd take the second-or third-tier priests here who were rejected in Los Angeles and other places, often because of abuse issues.”

Zalkin said a “ballpark estimate of what the San Diego cases are worth is around $1.3 million per case, based on the history of settlements in California.”

Fred J. Naffziger, professor of business law at Indiana University South Bend, has studied Catholic bankruptcy filings and is critical of them.

“I think it's a tremendous waste of assets going out in litigation expenses,” Naffziger said.

The Portland archdiocese, for example, has spent $14 million to $16 million in attorney fees, Naffziger said, which “could have gone for much greater needs.”

Naffziger acknowledged that filing for bankruptcy does have its benefits because it immediately stops all other litigation.

“If the bishop is facing a number of lawsuits that are scheduled to go to trial, he might file bankruptcy to bring them to a halt,” he said.

“There might be a particular trial that's got really embarrassing information that's going to come out, and the bishop might fear that he's going to lose a large amount of money. If he files for bankruptcy, that trial can't go forward, and then the bishop then has some negotiation leverage.”

Among the regions that have filed for bankruptcy is Spokane, which is headed by Bishop William Skylstad, president of the U.S. Conference of Catholic Bishops.

A spokeswoman for the conference, Sister Mary Ann Walsh, dismissed questions about whether this may become a national strategy to avert potentially crippling financial judgments over decades-old allegations of priest abuse.

Walshsaid: “It's a last resort.”

Staff writer Greg Moran contributed to this report.