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Spokane diocese reaches settlement

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Following the collapse of one joint plan, dramatic judicial rulings on the nature of church property holdings and months of mediation, the bankrupt Catholic diocese of Spokane, Wash., and its abuse victim creditors reached agreement on a settlement. They filed jointly for reorganization Thursday, Jan. 4.

The consensual plan calls for payment of at least $48 million to abuse victims and a "mechanism for the payment of future claims," according to a statement released by Judge Gregg Zive of the U.S. Bankruptcy Court, who has overseen mediation. Zive is chief judge of the bankruptcy court in Reno, Nev.

The reorganization plan indicates the debtor will seed the pool for future claims with $1 million. Under the plan, $37 million must be paid by Oct. 1, 2007, while $10 million will be due the end of this year. The remainder will be due Oct. 1, 2009.

To bankroll the settlement, six insurance carriers will pay $20 million plus interest, the plan details. Diocese-owned assets will be sold, the judge said in his statement. Various Catholic entities within the diocese also will contribute, including Catholic Cemeteries of Spokane and Catholic Charities of Spokane.

Significantly, parishes "will be responsible for raising $10 million," the judge wrote. In fact, according to the plan, parishes jointly will issue a $10 million note, "payable from time to time" when any parish sells property, but due in full by the end of this year. In addition, a single parish, Our Lady of Lourdes, will issue its own $1 million note due Oct. 1, 2009. Collateral for these notes are first liens on parish property.

It isn't totally clear how the diocese, the court or the claimants can enforce this, whether, for example, they can force sales if parishes can't or won't come up with the funds. The whole mechanism appears tied to the 82 parishes being incorporated separately. Under the plan, the diocese will transfer property to individual parishes. Each parish may form a legal entity that holds its own assets. In return, it is bound to repay a share of the loan.

No individual parishioner, however, has legal liability.

The debtor has yet to file a disclosure statement that should explain more fully the quid pro quo between the diocese, the claimants and the parishes. The judge prohibited lawyers from commenting publicly on the plan, one attorney in the case said.

In the past, bankrupt dioceses have appeared loath to saddle parishes with settlement costs. In part, that's because the dioceses have steadfastly maintained parishes are independent entities, even though the dioceses hold all parish property under a unique corporate arrangement called a "corporation sole," in which the office of the bishop is the only shareholder. That will change under the Spokane diocese reorganization plan. But in part, by drawing in parishes, the dioceses could well fear legal challenges. Individual parishes could argue they shouldn't be responsible for the actions of the dioceses.

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The settlement covers 76 sex abuse victims. While the list of what each victim will receive is incomplete and the criteria complex, those settlements detailed in the reorganization plan range widely, from $4,000 to $300,000.

In dollar terms, the current plan is only slightly more than the $45.75 million settlement hammered out in June 2006. U.S. Bankruptcy Court Judge Patricia Williams, who has been hearing the case in the Eastern District of Washington and must approve the new plan, rejected the first settlement on technical grounds, principally that it didn't cover all potential victims. This settlement rejection came as courts weighed in on the much thornier issue of parish property ownership.

Williams in August 2005 had ruled in favor of the tort victims, who maintained the diocese owned all the property. In June 2006, a district court judge reversed that decision. The consensual plan, with its transfer of property to individual parishes, should render that fight moot.

Mediation began in July 2006.

In the current reorganization plan, the diocese is tasked with several "non-monetary undertakings." These include the posting on the diocese's Web site for at least nine years all clergy in the area who are "admitted, proven or credibly accused perpetrators." The bishop, William Skylstad, must apologize in writing to victims, publicly support elimination of all criminal statutes of limitation for child sex abuse and visit every parish in which children were abused, reading a statement from the pulpit identifying the abusers. Victims must be allowed to speak publicly at their church.

"It is hoped that the resolution of this case will provide the survivors with some measure of closure," Zive wrote. "At the same time, the settlement will allow the Catholic Diocese of Spokane to continue its ministry and to begin its own journey of renewal, healing and hope."

The Spokane plan comes less than a month after the bankrupt archdiocese of Portland, Ore., and its creditors filed their consensual plan. With resolution of Portland and Spokane, only the bankrupt diocese of Davenport, Iowa, which filed last October, lacks a reorganization plan. Tucson, Ariz., the fourth diocese to file for Chapter 11 as a way to stem potentially crippling sex abuse lawsuits, came out of bankruptcy in 2005. Portland, Spokane and Tucson all filed for Chapter 11 in 2004.


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