Spokane churches can be sold to pay debt, judge rules

A federal bankruptcy judge yesterday ruled that churches and schools in the Catholic Diocese of Spokane are owned by the diocese and can be sold to pay settlements to sex-abuse victims, a decision that evoked both triumph and disappointment.

The decision — the first of its kind in the nation — is considered a victory for victims and a loss for the diocese and its 80-plus parishes, which had argued that the properties belong to individual parishes, not to the diocese, and therefore were not subject to liquidation.

The ruling likely will be watched closely by other dioceses around the country as they, too, resolve claims of people who were sexually abused by priests.

"This is a big victory," said attorney Michael Pfau, who represents many of the plaintiffs in Spokane, where one in five residents is Catholic. "It's simply a devastating ruling for the diocese."

The diocese plans to appeal by the end of next week.

"I'm obviously disappointed," said Shaun Cross, bankruptcy attorney for the diocese.

Ford Elsaesser, attorney for an association of Spokane parishes, said they, too, likely will appeal.

Plaintiff Mark Mains of Edmonds, who said he was abused by a Spokane priest when he was young, said trying to omit parish property from a list of diocesan assets was an attempt by Bishop William Skylstad to avoid responsibility.

"I feel for [the parishioners]. I really do. But we never asked for this," he said, referring to himself and other victims. Skylstad "voluntarily put ... this stuff at risk. It's not our doing. It's the bishop's doing.

"I didn't ask to be raped, or my wife to be deposed about our sex life, or my old girlfriends to be hunted down, harassed," Mains said. "I didn't ask for any of that."

Although yesterday's ruling by U.S. Bankruptcy Court Judge Patricia Williams technically involves only about 20 Spokane parishes and their affiliated schools, the decision essentially makes it easier for attorneys to push for the other diocesan parishes and properties to be made available for claims.

"In theory, all the property of the diocese could be liquidated," Pfau said.

The diocese faces 19 pending lawsuits from 63 plaintiffs seeking about $75 million, and other plaintiffs may yet come forward, Cross said.

In its initial bankruptcy filings, the diocese said it owned $11 million in assets. Cross said diocesan officials don't know how much the parishes are worth.

In her ruling, Williams tackled thorny church-state issues that are being closely watched nationwide. Among the most important: whether civil law would trump church law on the issue of who owns parish property.

Under Catholic Church law, individual parishes own their property. And while the bishop holds legal title to parish property and schools, the church considers such property to be held in trust for the benefit of parishioners. The diocese argued that any decision to the contrary would violate the church's First Amendment rights in that the state essentially would be forcing the bishop to violate church law.

In her ruling, though, the bankruptcy judge said Skylstad had voluntarily entered into bankruptcy court. She said that though the dispute did involve a church, the case was not an internal church dispute and therefore civil law took precedence.

Further, she said it was not a violation of the First Amendment to apply federal bankruptcy law or state law to determine what property the diocese owns.

Skylstad, in a statement yesterday, said he would appeal the ruling, in part because "the court's decision has national consequences. Its impact will be felt not just by Catholic communities, but by many other church communities, of any denomination, of any faith expression."

By entering into bankruptcy, Skylstad gambled big and lost, said Fred Naffziger, a professor of business law at Indiana University South Bend and an authority on Catholic Church finances.

"If I were a bishop and I was at risk of losing all of the real property to the creditors, I would not want to go into bankruptcy," Naffziger said.

Since the sex-abuse scandal broke nearly four years ago, Williams' ruling is the first to speak to the complex issue of whether parish property belongs to dioceses.

Two other dioceses declared bankruptcy before Spokane did so last December — Portland in July 2004 and Tucson in September 2004.

In Portland, other issues have had to be resolved first; the question of whether the diocese owns parish property has not been decided.

"I think [Williams'] decision will be very persuasive to the Portland bankruptcy court," Naffziger said. "It's not binding on them. But they're going to be looking at many of the same issues."

Portland Archdiocese spokesman Bud Bunce said he couldn't comment on the Spokane decision until attorneys for the Portland archdiocese had time to study it.

In Tucson, the Spokane decision won't have much effect. There, parties agreed this summer to a reorganization plan that will make $22.2 million available to settle sex-abuse claims. Parishes are paying $2 million into that fund; the diocese's insurance companies about $14 million; and the diocese itself the remaining amount.

The Tucson diocese will put the plan into effect Sept. 25, making it the first diocese to emerge from bankruptcy.

Catholicism has an especially strong hold in Spokane, where the Jesuit-run Gonzaga University and its law school count among their alumni many of the city's lawyers and political leaders, and one of the city's largest employers, Sacred Heart Medical Center, is governed by nuns.

The Rev. Ignatius Ohno, pastor of the twin-steepled St. Aloysius parish on the banks of the Spokane River, said he expected to be met by anxious parishioners at Sunday services, but that it was too early to understand the implications of the ruling.

"I think we're going to call for more prayer on all sides — the victims and the diocese," said Ohno, a Jesuit. "We've been praying all along for a just and equitable settlement."

He described the ruling — and its potential to force closure of schools and parishes — as a car accident that provokes finger-pointing. Parishioners have criticized both Skylstad and the victims for the crash.

Barbara Hutchison, chairwoman of Spokane's chapter of the Voice of the Faithful, a national lay Catholic group that sprang up in reaction to the sex-abuse crisis, expects a backlash. Victims who have sued "are being seen as the whole cause of the diocese bankruptcy," Hutchison said. "I really fear the victims will be victimized even more."

Bob Hailey, lay chairman of the Association of Parishes in Spokane, said he believes the victims should be helped and the abusers punished.

But, he said, "it's just as wrong to try to take churches and schools from these innocent [parishioners] as it would be to take buildings and money from people who operate Catholic charities."

In any case, Hailey said, "the litigation has a long way to go before all the issues of ownership of property are determined."

Janet I. Tu: 206-464-2272 or jtu@seattletimes.com