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Church Panel OKs Bankruptcy

Dec 5, 2002 | Boston Herald

A key church finance panel yesterday gave Bernard Cardinal Law latitude to send his archdiocese into Chapter 11 bankruptcy in a move likely to intensify settlement talks with lawyers for abuse victims.

The majority decision by the 15-member Archdiocesan Finance Council marked the first time a U.S. archdiocese has taken even a preliminary step toward bankruptcy. The tally was not released, but church sources say Law, his No. 2, Auxiliary Bishop Walter J. Edyvean, and his Chancellor, David W. Smith, were among those in favor.

The vote underscores the intractability of the molestation scandal besieging the church, and reflects Law's anxiety to force an end to legal exposure as reams of incriminating clergy records continue to emerge from church archives.

"We believe a mediated resolution would be preferable to seeking Chapter 11 protection, and remain hopeful that this process currently under way will be successful," Law's chief spokeswoman, Donna M. Morrissey, said in a release approved by Law. "However, we feel it is also necessary to carefully consider the alternative or complementary approach of a Chapter 11 reorganization."

The church statement was careful to add that "no final determination to file Chapter 11 has been made at this time," and that "the (archdiocese) must also seek approval from the Vatican." But two sources close to Law told the Herald the cardinal formally broached the subject with the Holy See during a previous visit to Rome.

"It says 'approval,' not permission," one source said. The other source said "that's all set," and added that Law would never have requested a Finance Council vote without a prior nod from the Pope.

Law's move part of a recent strategy by the cardinal and some key financial strategists to speed an end to the litigation crisis that is consuming the nation's fourth-largest archdiocese prompted a cautious retort from the firm leading the charge against the church.

"If Cardinal Law himself is truly telling us he would prefer settlement to bankruptcy, then we stand committed to being the strong engine behind a fair deal for all victims of abuse," attorneys Roderick MacLeish Jr. and Jeffrey A. Newman of Greenberg Traurig said last night in a joint statement.

"We certainly hope bankruptcy is not truly the direction the cardinal chooses," they added. "But if he does, we look forward to seeing him explain before a judge why he should keep his palatial home while the wounded victims of his priests lie around the battlefield."

MacLeish said his firm has already retained a top bankruptcy lawyer, Daniel C. Cohn, to assist it.

The specter of bankruptcy was not on the Finance Council's pre-set agenda as its members gathered for a quarterly meeting yesterday at the chancery in Brighton.

But aides to Law set the stage earlier this week by floating the idea anonymously in the media.

Some lawyers suing the church on behalf of victims are deriding the threat as a stark trial balloon aimed at lowering damage awards.

"It has become apparent the leaders of the Archdiocese of Boston are using the threat of bankruptcy as leverage in the mediation process," said attorney Mitchell Garabedian, who represents scores of victims of defrocked molester John J. Geoghan, and who made a deal with the church for $10 million in the fall.

But many victims took the threat seriously, and a cloud of uncertainty descended this week over the already halting settlement effort put in motion by church counsel two weeks ago. Newman, who has studied church insurance policies, said negotiations could hardly go forward if at any time a bankruptcy filing might torpedo them.

The church devoted much if its statement to highlighting the virtues of a global settlement and embracing mediation efforts. But the statement made clear Law is for now inclined to use the bankruptcy courts as a vehicle for imposing that end if the talks fall apart.

Newman said church insurers, who have balked at putting $90 million in liability coverage on the table to help settle some 450 lawsuits, appear "ready to enter into real discussions" about the funds.

Whether the insurers have been goaded by the bankruptcy threat is unclear, Newman and other lawyers say, but if so the church would have earned a tactical victory with the Finance Council vote. Insurance firms fare poorly as a rule in bankruptcy courts because judges want as many assets on the table as possible.

Another allure of bankruptcy for the church is that it would create a "bar date," after which old abuse claims could not be filed.

But Fred J. Nafziger, a business law professor at the University of Notre Dame, is among those who think bankruptcy is rash and unwise. "The creditor, including lawyers for abuse victims, play an active role," he wrote in the Jesuit weekly America. "They comb through financial records and can object to many of the debtors' actions."


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