Fast track bankruptcy urged

The Roman Catholic Diocese of Spokane is spending in excess of $325,000 a month to pay bankruptcy lawyers and fund operating costs, a burn rate so taxing that it has prompted calls to hurry up – or else.

The 58 creditors in the lawsuits that prompted the bankruptcy who allege they were sexually abused by priests, want the bankruptcy case put on a fast track to preserve the cash for settlement payouts.

If the diocese can’t file a Chapter 11 reorganization plan that outlines how it can pay its debts and come to terms with more than four dozen victims alleging millions of dollars in damages within two months, then it should allow creditors to submit their own proposal, the plaintiffs say.

Diocese attorney Shaun Cross said such complaints are not surprising. Any move to strip the diocese of its exclusive right to file a reorganization plan by the end of the year should be rejected, he said.

The challenge to the diocese is the latest motion filed by attorney Jim Stang. Representing the creditors’ committee of abuse victims that have filed lawsuits, he charged that the diocese, headed by Bishop William Skylstad, is making little progress in the bankruptcy. Specifically, he said, the bishop has not hired a financial adviser or met with creditors to discuss the drafting of a plan.

Instead, he accused the diocese of stalling, making excuses that the case is overly complex and not aggressively pursuing parish assets that can be used to pay claims.

“Such conduct evidences the debtors’ intent to slow play this bankruptcy matter by raising red herring arguments and setting up paper tigers to impede administrative progress,” Stang wrote. He could not be reached for comment Friday.

Though Cross said the costs are high, they aren’t unexpected. He said the diocese has about $2.6 million on hand to pay bills. Another $900,000 in cash sits in a restricted account.

While it seems that the monthly expenses – lawyers are charging an estimated $325,000 per month and the diocese is paying another $325,000 to fund operations – could drain the diocese cash fund by summer’s end, Cross said there are plenty of options to ensure enough money is available to pay bills.

He had a meeting with the bishop at the outset of the bankruptcy in which they anticipated how much it would cost to complete a Chapter 11 reorganization by the fall of 2006.

Among the options to raise or save money is to defray some legal fees until a plan is confirmed, sell or mortgage properties clearly owned by the diocese – such as the chancery and the bishop’s house – and use new revenues.

Selling property to pay legal bills is not palatable. The diocese said it would rather sell holdings, if it must, to pay creditors.

“I can tell you that the diocese doesn’t want to keep this thing in Chapter 11 any longer than it has to, but this case raises significant issues that are important and must be handled with care,” he said.

He acknowledged that the case was off to a slow start but said issues are now on pace to be resolved.

Also, Cross again disputed Stang’s assertions that the diocese owns the parishes and schools and should therefore include the value of those properties on its financial books.

“We don’t believe that’s legal,” Cross said. “It’s a line the bishop won’t step over.”

The fate of parish assets such as churches, schools, land and furnishings is one of the issues at the heart of the bankruptcy. The diocese claims the bishop holds those assets in trust.

The creditors disagree and have asked Judge Williams to grant a summary judgment dismissing the argument and quickly boost the value of the diocese, estimated at $11.1 million without the disputed properties at the time of the Dec. 6, 2004 bankruptcy filing.

Similar legal proceedings are under way in the bankruptcy of the Archdiocese of Portland, and the Diocese of Tucson, Ariz.

In the summary judgment motion, Stang and the creditors seek the inclusion of 59 properties from 22 parishes. His motion excludes Catholic schools, colleges, hospitals and other institutions that serve the greater region, including the 97,000 Catholics in Eastern Washington.

The motion includes the following parishes in Spokane: Assumption, Mary Queen of Heaven, Our Lady of Fatima, Our Lady of Lourdes, St. Aloysius, St. Anne, St. Anthony, St. Augustine, St. Charles, St. Francis Assisi, St. Francis Xavier, St. Joseph, St. Peter, St. Thomas More and Sacred Heart. Others are St. John Vianney and St. Mary, both in Spokane Valley; St. Ann, in Medical Lake; St. Joseph, in Otis Orchards; St. Mary Presentation, in Deer Park; St. Joseph, in Colbert; and St. Rose of Lima, in Cheney.