Ruling puts parishes at risk of foreclosure

The Spokane Catholic Diocese must raise more than $800,000 this fall, some of it due in two weeks, to pay sex abuse claims or risk defaulting on its bankruptcy obligations and losing parishes to foreclosure.

The diocese lost a legal fight Tuesday that could have forestalled such a drastic step. Diocese officials did not respond to messages left Tuesday after U.S. Bankruptcy Court Judge Patricia Williams cleared the way for collection efforts.

In such a worst-case scenario, the diocese has the right to designate among certain parishes the order of the first six foreclosed upon, as long as they are within Spokane County, according to court records.

To prevent foreclosure, the diocese needs to deposit more than $43,000 into the bankruptcy trust by Sept. 30, followed by another $800,000 by a deadline that hasn’t been set but is likely to come this fall.

The diocese has not begun a campaign to raise money, nor has it announced an alternative plan such as borrowing money or soliciting cash from benefactors or other sources.

On Aug. 24, bankruptcy trustee Gloria Nagler wrote to the diocese outlining the depletion of cash that had been set aside in a fund to pay people who claim they were sexually abused by diocese clergy or employees, but who didn’t file a claim during the 2 ½ year bankruptcy case that ended in May 2007.

“Failure by the Diocese to replenish the Plan Trust … will leave me with no alternative but to declare the Diocese to be in default of its duties under the Plan,” she wrote.

More than 180 claims of sex abuse were filed in the aftermath of the December 2004 bankruptcy filing.

The case ended with a complex settlement that paid millions to victims and lawyers working all sides of the case.

Parishioners contributed $10 million of the initial $48 million settlement three years ago.

The settlement also provided what the diocese assured parishioners was a narrow opening that would, in rare instances, allow new claims by legitimate victims.

However, that opening has been used by more than a dozen people who claim they were abused decades ago.

Many of these latest claims have been filed by men alleging they were abused by priests and counselors at the Morning Star Boys’ Ranch. And most have filed civil lawsuits against the ranch. Only one has gone to trial and his claim was rejected by a jury.

Church leaders have been mum on how they plan to deal with this development; it’s possible that the $800,000 needed to replenish the bankruptcy trust may be an installment payment.

In the bankruptcy matter, the latest twist centered on whether trustee Nagler had access to a reserve account to pay for her work.

The diocese argued that Nagler could bill the trust for her work but shouldn’t get paid for another six years.

Most bankruptcy cases are pay-as-you-go. It ensures that the lawyers and trustees are among the first ones paid.

Nagler argued that if the diocese were allowed to defer payments, the plan would be unfunded and rendered unenforceable.

“I don’t think the drafters intended for that to happen,” said Nagler’s attorney, David Kerruish.