Diocese ponders bankruptcy amid sex-abuse suits
Lawyers for accusers say the San Diego district is trying to lessen its liability.
SAN DIEGO — The Roman Catholic Diocese of San Diego says it may have to file bankruptcy because of the potential fallout from hundreds of pending lawsuits alleging sexual abuse by clergy over the last 75 years.
The warning comes nearly 15 years after the diocese last sought the sanctuary of the bankruptcy code, filing for Chapter 11 reorganization in the face of 144 claims of sexual abuse by clergy.
That bankruptcy was dismissed eight months later, after the diocese reached a settlement with the victims for $198 million.
Now the diocese — which encompasses 1.3 million Roman Catholics in San Diego and Imperial counties — may file for bankruptcy again, according to spokesman Kevin Eckery.
At a meeting Thursday night, Cardinal Robert McElroy informed priests from the 96 diocesan parishes of the possibility of filing for reorganization under Chapter 11 of the U.S. bankruptcy code.
Lawyers representing accusers criticized the move and said the diocese is trying to avoid or lessen its liability for clergy misconduct and pressure plaintiffs into seeking a settlement.
Irwin Zalkin, who represents about 120 of the 400 who have filed suits in San Diego Superior Court, said the diocese has enough assets to pay settlements.
Zalkin represented hundreds of claimants in the 2007 cases and was instrumental in negotiating the final settlement.
He said in an interview that the announcement of potential bankruptcy took him by surprise. Lawyers have been in mediation on the cases for two years, he said.
“For them to pull this stunt without warning us and allowing us to give our clients a warning is outrageous,” he said.
The lawsuits have all been coordinated in front of San Diego Superior Court Judge Eddie Sturgeon. The first case, one filed by Zalkin, is set to go to trial in July, he said.
At a briefing, Eckery could not say when or if the diocese would file for bankruptcy. He said such filing was not imminent and gave a time frame of late spring or summer — just before the first trial — for any possible decision by McElroy.
Filing for bankruptcy prompts an immediate halt to any lawsuits against the person or entity seeking bankruptcy protection. That stay remains in effect for the duration of the bankruptcy.
If the diocese were to file in late spring or early summer, it would be similar to what happened in February 2007, when it went into Bankruptcy Court just hours before a trial in the first of the 144 cases. The trial never took place because the settlement resolved all cases.
Eckery said the driver behind a possible bankruptcy filing was the 2019 passage by the state Legislature of AB 218, a law that reopened for three years a window for filing claims of sexual abuse that allegedly occurred long ago and would otherwise be barred by legal deadlines. That window closed at the end of 2022. The law applied not only to churches but to any organization.
The law also contains a provision allowing a tripling of any monetary damages awarded if the organization was proved to have engaged in a coverup.
Eckery said the majority of the claims against the diocese date from 50 to 75 years ago, and no cases have been filed alleging abuse by a clergy member this century. No current priests are named in the suits, he said.
Still, he said, if the diocese settles for the same amount as the average case in 2007 — a figure he gave as $1.4 million — the total would be in excess of $550 million.
“And frankly, we don’t have that kind of money,” he said.
Lawyers for the plaintiffs disagree, saying the diocese has ample assets in property and other holdings — an issue that could be hashed out in a separate lawsuit Zalkin said he will file this week alleging that the diocese has engaged in a fraudulent effort to hide assets over the past several years.
In 2010, he said, the diocese formed individual corporations for each parish, then formed real estate holding companies. (Previously, the assets were held in trust by the diocese and under control of the bishop.) But nothing was transferred into those entities until 2019, after AB 218 was signed, he said.
“Why didn’t they transfer those assets in 2010?” Zalkin asked.
The suit will argue that the diocese was trying to divest itself of assets, thereby reducing the amount of money available to plaintiffs, he said.
John Manly, another lawyer for claimants, said he would oppose any bankruptcy filing by the diocese.
“The Diocese of San Diego has a well-documented history of lying about its financial assets in order to dodge liability for their knowing concealment of child-molesting priests,” he said in a statement.
Manly was referencing the 2007 bankruptcy case, in which the judge appointed a forensic accounting expert to review 1,000 diocesan accounts and other aspects of its finances. The review found that the diocese had made conflicting statements about its assets and highlighted “purposeful attempts” to circumvent federal law and “openly questionable activities” relating to the bankruptcy filings.
When Judge Louise De Carl Adler dismissed the bankruptcy after the settlement was reached, she said the diocese had enough assets to settle all claims without filing for bankruptcy.
“Chapter 11 is not supposed to be a vehicle, a method, to hammer down the claims of those abused,” she said at the time.
Eckery said the diocese is not trying to leverage or pressure claimants, but any bankruptcy filing would be for the fair treatment of all accusers.
“We have 400 claims,” he said. “How do you equitably make sure everyone who has a claim gets it treated correctly, and you have provided all the assets you can?” he said.
He said parishioners in the diocese would be told of the possibility of a bankruptcy filing at Mass on Sunday.