Diocese Facing Abuse Suits Files for Chapter 11
WILMINGTON, Del. - The Catholic Diocese of Wilmington Inc., which has pastoral charge of 233,000 Roman Catholics, sought protection Sunday night in U.S. Bankruptcy Court in an attempt to manage the potential liability resulting from a flood of clergy sexual abuse lawsuits.
The Chapter 11 filing in U.S. Bankruptcy Court for the District of Delaware lists assets of as much as $100 million and liabilities of as much as $500 million for the nonprofit. The diocese encompasses 58 parishes, 21 missions and 27 schools in Delaware and on Maryland's Eastern Shore. The diocese, founded in 1869 in Wilmington, has 126 diocesan priests.
"This is a painful decision, one that I had hoped and prayed I would never have to make," Bishop W. Francis Malooly said in a statement. "However, after careful consideration and after consultation with my close advisors and counselors, I believe we have no other choice, and that filing for Chapter 11 offers the best opportunity, given finite resources, to provide the fairest possible treatment of all victims of sexual abuse by priests of our Diocese. Our hope is that Chapter 11 proceedings will enable us to fairly compensate all victims through a single process established by the Bankruptcy Court."
With the filing, the diocese becomes the first on the East Coast to file for bankruptcy protection. It joins six other American dioceses, including the Diocese of San Diego, that have sought protection in bankruptcy under the weight of alleged clergy sex abuse claims, bankruptcy experts said. In 2004, the Archdiocese of Portland, Ore., became the first to file for bankruptcy protection. Others that have filed are: the Diocese of Tucson (Arizona); the Diocese of Spokane (Washington); the Diocese of Davenport (Iowa); and the Diocese of Fairbanks (Alaska).
The Wilmington diocese potentially is facing as much as $100 million in liability from lawsuits after the passage in 2007 of the Delaware Child Victim's Act. The pending litigation comes on the heels of payment already made in four sex abuse cases in which the average compensation to victims in those settlements exceeded the $1.3 million average settlement in the sex abuse cases settled by the Archdiocese of Los Angeles, said Thomas Neuberger, a Wilmington lawyer who has been the lead co-counsel on the alleged abuse cases pending against the diocese.
The child victim's law permitted survivors of child sexual abuse, who had been barred from filing suit against their abusers under the statute of limitations, to bring civil cases in Delaware Superior Court during a two-year window that expired in July. More than 175 cases involving at least 190 plaintiffs have been filed with Superior Court, according court documents. Neuberger said the majority of the cases filed in Superior Court are against the diocese. The Diocese of Wilmington and certain parish churches are defendants in 131 cases, according to Superior Court documents and the diocese.
Bankruptcy filing freezes any lawsuits under an automatic stay, bankruptcy lawyers said. The standstill came just hours before the start of Delaware 's first trial involving alleged sex abuse by a Catholic priest. The personal injury suit filed by Neuberger involves a now defrocked priest, Francis G. DeLuca, who served in the Wilmington diocese for 35 years. The trial was scheduled to begin Monday in the Kent County Superior Court. Michael Vai, 57, alleges DeLuca sexually abused him when he was an altar boy at St. Elizabeth's Church in Wilmington. Neuberger has 20 other cases against the diocese related to DeLuca alone.
"I'm confident that the federal courts will protect all the rights of the survivors," said Neuberger, who plans to hold a news conference Monday in Wilmington.
He said at that point victims will discuss the bankruptcy.
But bankruptcy lawyers said the Chapter 11 process, which is designed for ordinary businesses, can be a forum for resolving difficult social issues by providing an orderly and coordinated response to a litigation crisis. Similar to what happened over the past two decades when manufacturers were faced with an avalanche of asbestos-related liability cases, bankruptcy allows an organization to shift from litigation mode to an administrative one in which a mechanism is created for compensating victims, according to David Skeel, a professor of law at the University of Pennsylvania Law School. Despite difficulties, Chapter 11 works surprisingly well for religious organizations facing vast damage claims, Skeel said in scholarly articles.
The bankruptcy filing gives the diocese some breathing room, experts said. It allows the diocese a chance to assess a host of claims and gives the diocese more options, bankruptcy lawyers said.
"It gives defendant a lot of tools to deal with a very difficult set of claims," said David Stratton, co-chair of the bankruptcy practice at Pepper Hamilton in Wilmington.
The bishop said in the statement Sunday that it is only the Catholic Diocese of Wilmington that is seeking reorganization under Chapter 11, not parishes, schools or related church entities, which have their own corporate identities. Parishes in the Diocese of Wilmington are set up civilly and by state statute as separate corporations.
But lawyers for victims can be critical of the process.
"To victims, it's extremely offensive that the diocese pulls this because then it becomes all about the money and it diminishes the human element," said Irwin Zalkin, a San Diego attorney whose firm has represented several hundred victims in alleged abuse cases across the country. "It's a corporate tactic no different than how Enron would act."
Zalkin said the bankruptcy tactic is designed to stop cases from going to trial in state courts and instead "federalize" them. In some cases, the diocese attempts to "cramdown" a reorganization plan that undervalues the claims, he said.
In the case of the Diocese of Wilmington filing, Zalkin expects the diocese to immediately ask for a claim filing procedure under the jurisdiction of the court. Lawyers for the diocese will ask the court to impose a "bar date," which creates a window of time when alleged victims of abuse can file claims "or be forever barred" from making a claim. In San Diego, it was a six-month window, Zalkin said. The creditors will form an official creditors committee that attempts to reach a global settlement in a fair and equitable manner, lawyers said.
In San Diego, the bankruptcy judge warned against other dioceses that might consider Chapter 11 "as an easy vehicle to deal with the claims of abuse victims." Dioceses must ask themselves if their core mission requires them to retain "parking lots, apartment buildings, houses bequeathed to it, parish churches no longer viable, vacant land."
"Before a diocese - any diocese - resorts to a Chapter 11 filing it should be making a good faith honest effort to assess whether that is necessary," said Bankruptcy Judge Louise De Carl Adler of the U.S. Bankruptcy Court for the Southern District of California. "Chapter 11 is not supposed to be a vehicle or a method to hammer down claims of the abused."
As part of the bankruptcy of the Diocese of Davenport, the diocese agreed to a $37 million settlement. What's more, the diocese agreed to identify abusive priests. The plan called for the bishop to visit parishes in which abuses took place.
The March reorganization plan for the Diocese of Fairbanks called for the diocese to mortgage or sell many of its assets including the chancery, a residence and conference center, an airplane hangar and several aircraft. It also committed to fundraising to pay victims who filed sexual abuse claims. It faced about 150 sexual abuse claims.
"We are looking forward towards reconciliation and healing," said Bishop Donald Kettler of the Catholic Bishop of Northern Alaska in a statement. "We recognize the process will continue and the claimants will offer suggestions as we meet in mediation next month. Yet I remain hopeful that we are on the road to closing one chapter on a sad part of our past."
Father Tom Flowers of St. Polycarp Church in Smyrna, Del., said people of faith believe that God's grace will transform this into a blessing despite the difficulty it presents at this time. He said the news will be received with sadness but not surprise because people have been worried what these suits will mean for parishes, schools and laity.
"The Chapter 11 filing is in no way intended to dodge responsibility for past criminal misconduct by clergy - or for mistakes made by Diocesan authorities," Malooly said in the statement. "Nor does the bankruptcy process enable the Diocese to avoid or minimize its responsibility to victims of abuse. Instead, the Chapter 11 filing will enable the Diocese to meet its obligations head-on and fulfill its responsibility to all victims."