Judge: Parishes, other Catholic entities will not be forced to merge assets with archdiocese in bankruptcy proceedings

| July 28, 2016 | 1 Comment

A U.S. Bankruptcy Court judge ruled July 28 that the estates of parishes and other Catholic entities should not be consolidated with those of the Archdiocese of St. Paul and Minneapolis as it seeks to compensate clergy sexual abuse victims as part of its bankruptcy resolution.

“Even if I had the authority to substantively consolidate the debtor with non-consenting, eleemosynary [nonprofit] non-debtors, the committee failed to allege sufficient facts to support substantive consolidation,” Judge Robert Kressel wrote in a 10-page decision.

The ruling responded to a motion filed May 23 by attorney Robert Kugler, who in the Reorganization process represents the unsecured creditors committee, which includes sexual abuse claimants. Kugler asked the judge to substantively consolidate the archdiocese’s assets with those of other Catholic institutions with ties to the archdiocese, such as Catholic Cemeteries, the Catholic Community Foundation and several Catholic high schools.

The motion argued that the organizational relationships between the archdiocese and the institutions — some of which are mandated by civil and canon law — mean that the archbishop or archdiocese has control over important aspects of their governance and finances, thereby linking their assets.

In his ruling, Kressel outlined and then refuted the reasons the unsecured creditors committee gave for consolidating the assets of parishes and Catholic organizations with those of the archdiocese.

Joseph Kueppers, the archdiocese’s chancellor for civil affairs, said he was thankful Kressel took his time in analyzing the motion, and that the judge came “to a legally correct conclusion.”

“It means that now we can start to move ahead to work with the other parties to get a consensus on a plan of Reorganization,” he said. “We hope that now that this sub-con legal issue is behind us, we can all work together. It’s our hope and desire to work collaboratively with all parties to get a resolution in the near future.”

During a July 7 court hearing, attorneys representing parishes and the archdiocese argued that the archdiocese and the other institutions were separate legal entities. They also said the court didn’t have standing to rule on a matter based on the entities’ relationship under Church law, only civil law, and to cross the line between the two was government encroachment into religious affairs.

Confidence going forward

In the ruling, Kressel stated that the creditors committee’s motion for substantive consolidation “fails to show how the interrelationship [between the archdiocese and other Catholic entities] requires consolidation.”

“There is no doubt that the Catholic Church is hierarchical in its organization and authorization in doctrinal matters. But those characteristics are insufficient for a court to ignore its corporate legal structure,” he wrote. “The typical substantive consolidation is reserved for situations where the finances of two or more debtors are so confusingly intertwined that it is impossible to separate them. Nothing of the sort is alleged here.”

He also determined that despite financial transactions between the archdiocese and some other Catholic entities, “their finances are distinct and not tangled or intertwined.”

Because other factors compelled him to deny the motion, Kressel declined to rule on whether he had constitutional standing to authorize a substantive consolidation of the entities in this case.

Kueppers said the ruling should give Catholics in the archdiocese confidence that the archdiocese has acted “absolutely properly in all respects related to its finances” and disclosed all of its assets in its plan for Reorganization.

Asset-hiding allegations false

The motion was filed four days before the archdiocese filed its plan for Reorganization, which listed an initial $65 million in cash to be used primarily for sexual abuse victim compensation. The archdiocese expects additional funds to be obtained from insurance carriers.

Attorney Jeff Anderson, who represents more than 350 people with sexual abuse claims against the archdiocese, accused the archdiocese of “hiding” as much as $1.7 billion in assets by not including the assets of other Catholic organizations. At a June 2 hearing, Kressel challenged this characterization.

“The motion that the committee made nowhere mentions anything about hiding assets or misleading the court,” Kressel said. “Of course, the whole premise of the motion made is that these aren’t the archdiocese’s assets. They’re someone else’s, and you want them consolidated. Making accusations like that in public are not supported by the motion and are not helpful to proceeding forward.”

Despite the judge’s admonition, Anderson reasserted in a statement following the July 28 ruling that the archdiocese’s actions were “deceptive” and promised to “continue to fight this injustice.”

In a July 28 statement, Archbishop Bernard Hebda said he was thankful Kressel “was not swayed by the allegations that the archdiocese had hidden assets and engaged in deceptive practices or by the other arguments that had been submitted in support of the motion.”

“The archdiocese has fully and appropriately disclosed its assets,” he said. “We certainly concur with Judge Kressel’s earlier comments that inflammatory allegations to the contrary are not helpful as the case moves forward. Further litigation could needlessly prolong the process and take away funds from claimants.”

He added: “The archdiocese nonetheless continues to stand ready to work with counsel for sexual abuse claimants to provide fair compensation as part of our plan for Reorganization.”

The archdiocese entered Reorganization under Chapter 11 of the U.S. Bankruptcy Code in January 2015 in response to mounting claims of child sexual abuse by clergy.


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