MILWAUKEE (CNS) — Two decisions by a U.S. Bankruptcy Court judge have kept the assets of Catholic parishes in southeastern Wisconsin out of reach of the Official Committee of Unsecured Creditors seeking compensation for victims/survivors of clergy sexual abuse in the Archdiocese of Milwaukee’s Chapter 11 reorganization.
Judge Susan V. Kelley denied a motion filed in October by the creditors’ committee in which it maintained parishes were “alter egos” of the archdiocese, and in which it sought a “substantive consolidation of the parishes and the debtor,” which is the archdiocese.
Approval of the creditors’ committee motion would have made the parishes’ assets available for potential settlements with victims/survivors of clergy sexual abuse.
In a second decision, she ruled against the creditors’ claim that the archbishop of Milwaukee had management of millions of dollars from a deposit fund that was closed more than seven years ago. At the time parishes could get their funds back or put the money in a newly established trust; Kelly said the money never belonged to the archdiocese as the creditors asserted.
“If the bishop was really in control of it, he would just have made the decision for them,” the judge said.
With regard to parishes’ relationship to the archdiocese, parish corporations in Wisconsin have been incorporated separately since 1883.
In denying the creditors’ motion claiming they are “alter egos” of the archdiocese, Kelley in her Dec. 7 decision referred to that state statute, quoting twice from a Jan. 4, 2011, affidavit of John Marek, chief financial officer of the archdiocese: “Parish corporations own their own property, finance their own activities, manage their own assets and are responsible for their own corporate activities.”
The judge wrote: “It is apparent that the parishes and their creditors would suffer immense harm if they were forced to participate in this bankruptcy case. Moreover, the court cannot ignore the outrageous expense and extreme delay that would no doubt accompany substantive consolidation in this case.”
The creditors’ committee had requested derivative standing, which would allow the creditors’ committee to sue in the name of the archdiocese.
“The committee failed to show facts suggesting that consolidation of the debtor with 210 nondebtor entities would offset the significant harm caused to these nondebtor entities,” Kelley wrote, adding that such a consolidation would be “wholly improper.”
The committee “has not stated a plausible claim of a substantial identity of the parties to be consolidated; it has not demonstrated a sufficient entanglement of affairs warranting consolidation,” she said, nor has it “plausibly stated that creditors did not rely on the separate identity between the debtor and the parishes in extending credit.”
In the second decision, Kelley ruled Dec. 10 that $35 million in parish investment funds, which were returned to the parishes and other Catholic entities, never belonged to the archdiocese.
When the Parish Deposit Fund was closed in June 2005, parishes were given the option of having their funds returned or putting them in the newly established trust.
In her 23-page memorandum decision on the creditors committee’s motion for standing on fraudulent transfer claims, she wrote: “There is no fact alleged that the archbishop controlled the receipt of the transfer by the parishes — in fact, as shown by the debtor’s (archbishop’s) letter, the parishes, independently of the archbishop, had the option of return of their funds (from the Parish Deposit Fund) or participation in the new Southeastern Parish Trust.
“To impute allegedly fraudulent intent under these circumstances goes too far,” she said.
In court Dec. 6, Jim Stang of Pachulski, Stang, Ziehl & Jones and an attorney for the creditors’ committee, had argued that the archbishop controlled the money.
Daryl Diesing of Whyte Hirschboeck Dudek, who along with Frank Lococo represented the archdiocese, replied: “It (control of parish funds) rests under canon law absolutely with the parish priest. The archbishop could never have had management or control of these funds or make investment decisions or receipt of these funds.”
A major point of discussion on Dec. 6 was the cost of litigation, if the parishes were to be sued, versus the benefit to the unsecured creditors.
“What we don’t think the committee has done is they haven’t done cost/benefit analysis. They have not given the court any reason why this makes sense,” said Diesing. “They have not shown the massive cost of litigation, they have not considered the unlikelihood of recovering significant amounts of money from nonprofit schools, parishes, who are generally short of money or insolvent. Nothing on collectability.”
He added that the creditors’ committee had “not assessed whether the archdiocese is going to have the sufficient funds feasible to fund the things it needs to do, to fund the plan, to fund the food pantries, the charitable or missions or the victims’ (claims).”
“If the committee is successful, the parishes’ ability to worship, to provide religious outreach and to continue operations will be severely impacted and burdened,” Diesing said.
Stang said, “This litigation is not going to be cheap. Would it run more than a million dollars? Yes, it would run more than a million dollars.”
“All these parishes live on the margins, Lococo said, adding that if they are made to help pay for the litigation, “that will end many of these places or severely cut back on what they are able to do.”
Olszewski is executive editor and general manager of the Catholic Herald, a publication that serves the Catholic community in southeastern Wisconsin.