Between lack of cash flows, insurmountable liabilities, an untenable pension funding, even insider fraud, we thought we had seen all the various reasons for filing for Chapter 11 bankruptcy protection. And then along came the Catholic Diocese of Stockton which announced that it would join its host city and seek bankruptcy protection “in the wake of the church’s sexual-abuse scandal.” As WSJ reported, Bishop Stephen E. Blaire said in a news release Monday that the diocese would seek bankruptcy protection Wednesday, explaining that reorganization was the only option for dealing with mounting legal costs related to abuse by priests. The bishop said the diocese has spent $14 million in legal settlements and judgments over the past 20 years dealing with abuse allegations, and doesn’t have funds available to settle pending lawsuits or address future allegations. The punchline: “Very simply, we are in this situation because of those priests in our diocese who perpetrated grave, evil acts of child sexual abuse.”
In the Stockton diocesan bankruptcy, the parties will likely agree on a figure that the diocese would pay, in addition to potentially pulling in funds from insurers. However, the diocese says it holds “relatively little property and assets.” Other holdings, including schools, parishes and several parcels of land, are incorporated separately.
And so the Stockton Catholics became the 10th US Diocese after Milwaukee; San Diego; Spokane, Wash.; Davenport, Iowa; Portland, Ore.; Tucson, Ariz.; Fairbanks, Alaska; Wilmington, Del.; and Gallup, N.M. to file bankruptcy. In addition, the Christian Brothers Institute, which operates Catholic schools and orphanages, also filed because of sexual abuse liabilities.
The Chapter 11 filing would halt pending litigation against the diocese and likely would ultimately allow it to discharge liabilities stemming from sexual-abuse allegations by setting up a trust to compensate victims. The diocese said it hopes to arrive at a resolution with victims and insurers through the process.
Joelle Casteix, western regional director of the Survivors Network of those Abused by Priests, called the bankruptcy “problematic on a lot of different levels,” noting that it would let the diocese avoid future civil cases.
However, while the local catholics’ financial woes may be put on temporary hold, their civil troubles are only starting:
Separately, a grand jury Monday indicted a former priest with the diocese, Michael Eugene Kelly, and a warrant for his arrest has been issued. Calaveras County authorities are seeking Mr. Kelly’s extradition from Ireland to face charges of three counts of lewd and lascivious conduct on a child, and one count of oral copulation with a child. Mr. Kelly faces 14 years in prison if convicted.
Not surprisingly, the Catholic church which itself is embroiled in numerous financial scandals recently, was unable to come to the Diocese’s rescue even though it has already paid out an estimated $2.2 billion to cover settlements, therapy for victims, support for offenders, attorney fees and other costs, according to a report by the U.S. Conference of Catholic Bishops.
And with this filing, we are fairly confident we have seen every possible bankruptcy filing reason.