Judge green lights lawsuits against church
Three claims against archdiocese for shielding assets can proceed
A federal bankruptcy judge shot down a request by the Archdiocese of Santa Fe and its parishes to derail three lawsuits claiming church officials are shielding millions of dollars in assets to limit payouts to clergy sex abuse victims.
The “green light” by U.S. Bankruptcy Judge David T. Thuma will allow the three lawsuits filed by attorneys for nearly 400 victims to proceed while church lawyers appeal directly to the 10th Circuit — a protracted process that could take a year or two and cost an estimated $5 million. But it may not come to that. “The mediation process is continuing and we hope this ruling will result in getting a consensual deal done (on a settlement of the case),” said James Stang, a Los Angeles attorney representing the nearly 400 claimants who say they were abused as children by priests and other clergy in the archdiocese.
Archdiocese attorney Ford Elsaesser could not be reached for comment Friday.
But, at a hearing last week, Elsaesser told Thuma that four settlement offers had been exchanged in
the past 60 days and “we’re at the narrowest gap we’ve ever been between the settlement discussions that began approximately 14 months ago.”
About two-thirds of the claims are fully or partially covered by insurance, he said, but there is no such coverage for the remaining 120 or so filed in the case.
Thuma’s ruling came more than two years after the archdiocese, the state’s largest, filed for Chapter 11 reorganization, citing financial losses from clergy sexual abuse cases and the prospect of more being filed.
Victims’ attorneys contend that, before the filing, the archdiocese transferred most of its property to its 94 parishes, with the intent “to hinder, delay, or defraud its creditors (almost entirely sex abuse claimants),” Thuma wrote in his ruling. Some of the assets were transferred to trusts or a savings and loan fund.
The victims in their lawsuits also are seeking determination that property to which the archdiocese still holds title, ostensibly for the benefit of the parishes, was in fact estate property subject to the bankruptcy action.
The archdiocese denies any fraud or ill intent in the transfers, which it contends was part of a reorganization effort. Last fall, an attorney for the parishes said the lawsuits had the potential, “in many ways,” to eliminate the Catholic church in northern New Mexico — a claim that victims’ attorneys deny.
But Thuma said in his ruling, the “Debtor and the parishes have not carried their ‘heavy’ burden of showing that they are entitled to a stay pending appeal.”
He wrote that it didn’t appear likely that the archdiocese would prevail at the appeals court in its attempt to reverse his decision last October that originally permitted the lawsuits to be filed.
“Debtor and the parishes point to the expense of litigation as the irreparable harm they would suffer if the Court does not stay the litigation pending appeal,” Thuma wrote. “While the Court recognizes that the looming litigation expense is a real harm, the law is clear that litigation expense is not the kind of ‘irreparable harm’ that justifies a stay pending appeal.”
If the claims in the lawsuits have merit, they could be worth more than $150 million, making them by far the most valuable estate assets. If the claims lack merit, on the other hand, it would be an enormous waste of time and money to pursue them, Thuma wrote.
At last week’s hearing, Elsaesser said the parties agreed that Debtor has the cash needed to fund the litigation.
“Thus, while litigation may diminish the value of the bankruptcy estate, it does not, at this point, threaten the assets of the estate,” Thuma wrote.
At the hearing on whether the three lawsuits should be put on “hold,” Elsaesser said the sale of archdiocese assets have been slow, but that’s not because the archdiocese is dragging its feet, as alleged by victims’ attorneys.
“We understand that, in order to reach a settlement with the survivors, it will be necessary to sell virtually all Archdiocese real estate assets and virtually all of the non-essential assets of the parishes,” Elsaesser said.
He added that there are properties “that are not technically essential, in that they are not churches or schools, but they are properties upon which parishes depend for part of their income, and we recognize that in a resolution of this matter virtually all those properties must be sold.”
Archbishop John C. Wester sent a letter last month to members of the St. Pius X High School community on Albuquerque’s West Side that the high school and nearby buildings used by archdiocesan staff may be sold to add to the amount available to victims in the bankruptcy case.
In its 2018 bankruptcy filing, the archdiocese said the ailing decades-old boiler system that heats the school and other buildings “could collapse at any time,” likely costing more than $3M to replace.