Catholic Diocese seeks Chapter 11 relief

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In a long anticipated move as it faced an inevitable tide of claims by individuals seeking compensation for alleged sexual abuse, the Catholic Diocese of Rochester has asked court protection from creditors while it reorganizes.

A rash of sex-abuse claims against the Rochester Diocese began to pour in to local state courts last month when the Child Victims Act took effect. Signed into law by Gov. Andrew Cuomo Feb. 14, the act partially lifts a state statute of limitations that previously required victims claiming abuse to seek compensation before their 23rd birthday. 

The partial lifting of the statute of limitations is temporary. The 2019 act, which extends the claimants’ window to file civil abuse claims to their 55th birthday, sunsets in August 2020. In the time (less than month and a half) that previously barred claims have been allowed, nearly 100 have filed or announced their intention to file civil sex-abuse charges against the Rochester Diocese. 

“The Diocese does not seek Chapter 11 relief to shirk or avoid responsibility for any past misconduct by clergy or for any decisions made by the Diocesan authorities when addressing that misconduct,” states Rev. Daniel Condon, chancellor of the Rochester Diocese, in a court filing. “The Diocese does not seek bankruptcy relief to hide the truth or deny any person a day in court. In fact, the Diocese is committed to pursuing the truth and has never prohibited any person from telling his or her story or speaking his or her truth in public.” 

Still, much remains to be determined as to how the bankruptcy will play out.

Diocese attorney Ingrid Palermo, a bankruptcy lawyer in the Rochester office of Bond, Schoeneck & King, could not immediately be reached for comment.

Filed Sep. 12 in Rochester, the Diocese’s Chapter 11 bankruptcy petition comes as the church organization currently faces 46 lawsuits filed by 61 plaintiffs seeking compensation for alleged past sexual abuse by priests and other diocesan functionaries. A dozen more potential claimants have put the Diocese on notice of their intention to sue but have not yet filed. How many more claims it will face by next August remains to be seen. 

Sex-abuse claims

The 61 pending cases and 12 anticipated additional sex-abuse claims follow 44 claims the Diocese has settled since the mid-1980s, the church’s court papers state. Nearly half of those previously settled claims came in recent months, the Diocese’s court papers indicate.

A filing detailing the Diocese’s largest debts shows that sex-abuse settlements account for almost all of those liabilities. In recent months the Diocese agreed to settle approximately nearly $2 million in claims filed by 19 individuals alleging past sexual abuse, court filings show.  Those claimants, whose names are blacked out in the Diocese’s court papers, are supposed to receive payments of $100,000 each. 

How future claimants will be treated and possibly whether the 19 claimants who have already reached settlements will get the agreed on amount in the end has yet to be determined, says Douglas Lustig, a Rochester bankruptcy attorney with Dibble & Miller.

Lustig is not connected to Rochester Diocese’s bankruptcy.  He previously worked on Chapter 11 filed in 2011 by the Christian Brothers Catholic teaching order, an organization with national operations that ultimately agreed to pay out $16 million. 

Bankruptcy filings automatically halt all other state and federal court actions filed against a debtor. While that could push already filed and future sex abuse claims against the Rochester Diocese into the local Bankruptcy Court to be adjudicated, Lustig sees that as an unlikely outcome. 

Before each individual’s claim can be settled, some process will have to be set up to determine each claim’s validity, he says. Presided over by a single judge, the local Bankruptcy Court would ill-equipped to add that burden to its already full case load. 

A more likely outcome would be for the Diocese or claimants or both to ask Rochester Bankruptcy Judge Paul Warren to lift the stay on other court actions to allow already filed and future cases to proceed in local state courts. 

How matters play out from there will depend on how many claims are filed in coming months and what resources the Diocese has to satisfy them.

The Diocese anticipates that many more claims will be asserted before the (Child Victim Act) window closes, Condon states in court papers.

“It could be 100; it could be 150; it could be 1,000,” Lustig says. 

He suspects the Diocese’s ultimate aim would be to cap payouts to valid claimants at the $100,000 figure it has already agreed to pay in the 19 recent cases it has settled so far. But whether that would be an achievable goal will depend on the final number of claims settled and what the Diocese can afford to pay without endangering ongoing operations of parishes, schools and charitable arms like the Rochester-based Catholic Family Services.

If it agrees to pay 100 claimants $100,000 apiece, the Diocese would owe $10 million. In court papers, it lists an estimate of its assets as falling somewhere between $50 million and $100 million.

Seeking relief

Catholic organizations in Monroe and 11 other area counties, stretching from Rochester’s immediate environs into the Southern Tier fall under the Rochester Diocese’s umbrella. Court filings it has so far made give only partial picture of its finances. Its 2018 revenues were $24.3 million, and income in the first half of 2019 was $21.9 million. Filings do not detail what expenses or outlays the Diocese expects that income to cover, estimate how much it might be able to pay out to settle claims or say whether it would expect to pay lump sums or amortize payments. 

“The Diocese anticipates that over the next month its income will be sufficient to meet its operating expenses,” Condon states in court papers.Liability insurance might cover all or part of whatever amount the Diocese ultimately pays out, he adds. Diocese insurance policy limit for sexual misconduct is $2 million, inclusive of defense costs.

Immediate expenses the Diocese seeks court permission to cover include wages and benefits owed to its 86 regular employees and temporary workers. It states biweekly payroll amounts to some $190,000 plus some $6,100 a week paid to temporary workers. Health insurance for 55 workers covered by the Diocese’s group plan costs some $57,000 a month with the Diocese picking up approximately $43,000 of workers’ premium payments.     

Whatever payments the Diocese ultimately agrees to make to aggrieved sex-abuse claimants, the church will not touch funds raised in charitable drives, Condon assures. 

“Some faithful may believe that, going forward, their charitable gifts to any Catholic entity will be diverted from their intended purpose and used to satisfy the claims of the debtor’s creditors rather than to fund the ongoing ministries of the Church that benefit the faithful and their community,” he states in the filing. “The Debtor will use its best efforts to dispel this misconception by communicating openly and often about the Chapter 11 process. I respectfully submit the best way to alleviate any of these concerns is to emerge from Chapter 11 as soon as possible.” 

Will Astor is Rochester Beacon senior writer.

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