CATHOLIC DIOCESE: WILL FILE CHAPTER 11 IN NOV.
To seek bankruptcy protection; 438 join clergy sex abuse suit
The Roman Catholic Diocese of San Diego, under a siege of lawsuits from 438 people who say they were sexually abused by its clergy in past decades, said it plans to file for bankruptcy protection in November.
Such a move, spelled out in court papers filed this week and in a hearing in San Diego Superior Court Thursday, would halt all lawsuits against the diocese until the bankruptcy is complete and a universal settlement of all the claims is reached through the bankruptcy process.
The diocese, which includes 96 parishes and serves some 1.3 million Roman Catholics in San Diego and Imperial counties, had said in February it was pondering filing for bankruptcy and would likely make a decision by late spring. It would mark the diocese’s second time filing for bankruptcy. It did so in 2007, eventually settling 148 claims of sexual abuse for $198 million.
The statements this week left no doubt that the diocese will seek protection under Chapter 11 of the bankruptcy code, which gives debtors time to reorganize their businesses, resolve debts and then restart their operation.
It would join two other dioceses in California that have also recently filed for bankruptcy — Santa Rosa, which filed in March, and Oakland, which filed on Monday.
The church organizations are seeking court protection in the wake of AB 218. That state law, signed by Gov. Gavin Newsom in October 2019, reopened for three years a window for filing claims over sexual abuse that happened years ago, which would otherwise be barred by legal deadlines for filing a suit. That window closed at the end of 2022.
The law also contains a provision allowing a tripling of any monetary damages awarded if the organization was proved to have engaged in a cover-up. The dioceses say the potential payouts for the hundreds of claims they are facing would overwhelm them financially, and they need the sanctuary of the courts to work out resolutions.
When the San Diego diocese will file, though, is unknown, and will largely de
pend on the ruling of San Diego Superior Court Judge Eddie Sturgeon. He is presiding over 361 individual cases filed against the diocese by 438 total plaintiffs that have been consolidated into one massive combined action.
Currently there are two cases of alleged sexual abuse by clergy members set for trial, one in July and the second in September.
In court papers filed for a hearing Thursday, Marcia Roberts, the lawyer for the diocese, said the organization “has made the final decision to file a petition for Chapter 11” in San Diego federal bankruptcy court and expected to do so the first week of November.
She cited several factors for the extended time frame, including the availability of Cardinal Robert McElroy, leader of the diocese, and the possibility that a settlement of the sex abuse claims could be worked out under a courtordered mediation process in the next few months.
Going to trial before then, when the diocese has already decided to go the bankruptcy route and seek a settlement there, would be unnecessary, she said.
Lawyers for the plaintiffs, however, objected to that timetable.
Irwin Zalkin, whose firm represents hundreds of the plaintiffs, told Sturgeon that allowing a November filing would mean both of those cases would be postponed and said the diocese was trying to delay the two impending trials.
Those cases, he argued, could serve as bellwether cases for the rest, setting a financial valuation that could be used to determine an overall settlement.
Zalkin also said the mediation talks have not been fruitful and there is little reason to believe progress could be made in the next few months. He said the diocese should begin the bankruptcy process before November, or go to trial on the cases.
Sturgeon did not make an immediate decision after nearly 90 minutes of sometime heated exchanges among the lawyers.
In addition to the pending trials and the bankruptcy proceedings, the diocese is facing legal woes on two other fronts.
A lawsuit filed in March contends the diocese fraudulently transferred nearly 300 properties from its control to individual parish corporations in 2019, when Newsom signed the new law.
The transfers were done, the suit contends, so the diocese could divest itself of assets and thereby lower its potential payout in a final settlement. The plaintiffs’ lawyers want those transfers reversed.
The diocese said that there was no fraud involved but had long planned to transfer the properties — which for years were held in trust for the parishes by the diocese. The timing was coincidental, the diocese has said.
The diocese is also facing a lawsuit from its own insurer, Catholic Mutual Relief Society of America. The insurance company, which would be on the hook for part of any settlement, said it should not have to pay out anything.
The company is arguing that insurance policies in place years ago effectively capped how much could be paid out, and that the diocese knew some clergy “had proclivities toward sexual abuse of children such that coverage is precluded” under the policies in effect then.
Catholic Mutual provides insurance coverage for Roman Catholic church entities, including dioceses and religious institutions, throughout North America. McElroy is one of 25 cardinals, archbishops and bishops who are the company’s trustees.