The Roman Catholic Archdiocese of Baltimore, the oldest in the United States, filed for Chapter 11 bankruptcy on Friday, two days before a new State law goes into effect allowing child sexual abuse victims to sue organizations no matter how long ago the abuse took place.
The new law, which makes it easier for victims of child sexual abuse to to file lawsuits goes into effect Sunday, and the Catholic Archdiocese is already preparing for how to pay survivors.
The Child Victims Act, passed in April on the heels of a State Attorney General’s report that details the history of how Catholic clergy and lay people abused children and how the church covered it up, will likely result in dozens, if not hundreds, of lawsuits against the diocese.
With civil suits looming, America’s oldest Catholic diocese filed for Chapter 11 bankruptcy protections Friday, a move to conserve the church’s assets and limit liability.
That means the diocese’s assets — its cash, investments and, most importantly, its property — will be used to pay off the victims turned creditors. Its bankruptcy petition stated the church has between $100 and $500 million in assets against potential liabilities between $500 million and $1 billion.
It also restricts any further State lawsuits. Anyone who wishes to file a complaint from this point on must do so as part of the bankruptcy case by a date agreed to by the archdiocese and a party representing sexual abuse victims in federal court.
And determining what the diocese actually owns versus what it controls is murky business, mired in corporate filings rooted in long-standing canonical law.
For at least three decades, the Archdiocese of Baltimore has carefully shuffled its assets into a variety of legal entities to protect them in the event of legal troubles.
The proof is in the paperwork. St. Louis Parish in Clarksville, the site of some of the most horrific abuse and torture described in the Maryland attorney general’s report, is owned not by the archdiocese but by an entity known as St. Louis’ Roman Catholic Congregation Inc. Yet a review of public records shows that even though this religious corporation owns the parish, it remains under the control of the diocese.
A 2011 deed for parish lists the Most Rev. Mitchell T. Rozanski as the vice president of the St. Louis corporation.Rozanski was not a priest in the parish at the time, but an auxiliary bishop of the Baltimore archdiocese. He is now the Archbishop of the Roman Catholic Archdiocese of St. Louis, Missouri.
While the name of the corporation suggests the congregation owns the parish, a clause in the deed prohibits parishioners from selling its buildings or the land they’re on, or otherwise alienating the property to the larger Catholic Church, without the diocese’s permission.
And St. Louis parish isn’t the only one. Virtually every parish property in the Baltimore diocese’s jurisdiction — a territory that claims 153 parishes and missions — is owned not by the archdiocese itself but by a corporation that, despite carrying the name of the parish’s congregation, ties back to the larger church. The same is true for the deeds, which cite Catholic canon law as the reason for the stringent control requirements.
“As more and more dioceses move toward bankruptcy protection, it has become obvious that this is a way of controlling risk, of limiting exposure,” said Terry McKiernan, director of the nonprofit BishopAccountability.org, which tracks abuse cases. “There’s a lot of strategizing going on.”
A spokesperson for the Baltimore diocese did not respond to questions before publication.
The maneuvering, done in the Baltimore diocese as it has been in others across the country since at least the early 1990s, has taken the parishes out of direct ownership by the dioceses and placed them into corporations controlled by high-ranking clergy. This distinction, a paperwork formality, means the assets owned directly by the Baltimore diocese are limited, experts said, theoretically shielding the hundreds of parishes, schools, parcels of land and other property the church controls from creditors in the event of bankruptcy or otherlegal troubles.
Sam Handwerger, a certified public accountant and professor at the University of Maryland’s Robert H. Smith School of Business, said the practice of creating corporations to shelter assets is a “typical” strategy in the business world, and is practiced by for-profit and nonprofit companies alike.
There is a difference between control of an asset and ownership of one, Handwerger said. Just because one person controls something doesn’t necessarily mean they own it — even if they have the final say over whether it can be sold.
Like the St. Louis parish, the Catholic Community of South Baltimore, an amalgamation of three parishes, exemplifies this distinction. In 2018, three parishes in Federal Hill and Locust Point had their individual corporations merged into one entity. The business filings for that merger list Archbishop William E. Lori, the diocesean leader, as the president of each of the parish corporations and former Auxiliary Bishop Denis Madden as the vice president. Their roles demonstrate they have control over what happens to the property, even though the larger corporation for the archdiocese does not actually own it.
Such thin degrees of separation are legal, so long as the corporations actually function independently. If there’s commingling of assets, like bank accounts for the parish with the larger archdiocese, then it’s possible a judge could determine the assets aren’t in fact separate.
“It’s unfortunate for the victims,” Handwerger said. “There are corporate formalities in order to keep that shell strong and protect those assets, and my suspicion is [the Baltimore diocese] probably did that.”
Rather than experiencing actual financial peril, Catholic dioceses across the country have used the Chapter 11 bankruptcy process to protect their money, said John C. Manly, a Los Angeles attorneywho has represented abuse victims throughout the country and has been involved in dozens of diocesan bankruptcies.
“For a faith-based institution to engage in the fundamental dishonesty that’s involved in this bankruptcy process and to victimize victims to protect their money, in my view, is despicable,” he said. “The church would have been so much better off had they just been honest from the beginning.”
More than 30 dioceses across the nation have declared bankruptcy while trying to shield their assets from creditors — who are usually abuse victims — as lawsuits were piling up and often as statutes of limitation had been eased or were about to be eased.
A Chapter 11 bankruptcy requires the debtor to list all of its assets, but dioceses rarely reveal the full scope, a review of records shows.
The Archdiocese of Milwaukee provides an example widely cited in legal scholarship and public commentary of how dioceses may muddle the question of what they own.
In March 2007, Milwaukee — already having paid millions in settlements to people abused by priests — established an entity it called the Milwaukee Catholic Cemetery Perpetual Care Trust that was to care for the diocese’s cemeteries.
A year later, the diocese transferred $57 million into the trust’s bank account. After it declared Chapter 11 bankruptcy in January 2011, it sought to exclude that amount from the assets available to creditors, citing religious freedom laws.
The creditors committee in the bankruptcy case — the panel representing abuse victims — challenged that assertion in court, and the matter ended up before the U.S. Supreme Court, which ultimately ruled the Religious Freedom Reform Act did not apply. The diocese ended up listing a small portion of the $57 million as assets.
The case of the Catholic Diocese of Wilmington is also instructive. When the diocese, which covers all of Delaware and Maryland’s Eastern Shore, filed for bankruptcy in October 2009, its then-bishop, the Most Rev. W. Francis Malooly, asserted the familiar principle that its “parishes, schools and related church entities … have their own corporate identities” and should thus not be counted among the assets available to creditors in bankruptcy.
Malooly is among the Baltimore archdiocese officials cited but not publicly named in the attorney general’s report as having helped cover up abuse.
Marie Reilly, a law professor at Penn State University who focuses on diocesan bankruptcies, said dioceses operate as much as they feasiblycan within the bounds of church canon law, which holds that dioceses and parishes are separate entities. Because secular law does not necessarily honor that principle, though, abuse victims and their attorneys regularly make the argument in bankruptcy court that parish properties should be included as assets available to creditors.
After an attorney for the Wilmington victims challenged the separation principle, the federal bankruptcy judge in the case, Christopher S. Sontchi, ruled that the funds of some “nondebtor” entities — including certain parishes and other charitable institutions — must be made available to claimants.
The idea that parishes and schools are separate entities from the diocese that controls them is a nefarious one, said Manly, who also was involved in the Wilmington bankruptcy.
“The question you have to ask is, ‘Oh, the parishes are independent? OK, your excellency, can they leave the church?’ and the answer is no,” Manly said. “It’s a complete legal fiction and it’s designed to minimize the recovery that victims can get.”
Also at issue is how the Baltimore diocese values its own assets. According to its most recent audited financial statement, which is posted online, the church values all buildings and land under its control at about $48.5 million. What’s not clear from the audit is how much of that valuation includes buildings and lands owned by the corporations diocesan leaders set up over the years.
What is clear is that the Baltimore diocese has a record of undervaluingits assets compared with what they’re potentially worth on the open market. In 2021, for example, the diocese sold the former Seton Keough school property in Southwest Baltimore for a gain of almost $8.9 million. Its accountants valued the property at just $238,082, according to the audit.
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Such accounting practices are commonplace, and businesses regularly value their properties at the cost at which they were originally constructed or purchased, said Handwerger, the accounting professor.
“We don’t try to guess what the fair value is year by year, because it’s just a guess,” Handwerger said.
Survivor advocates often cite the case of the Diocese of San Diego as an example of how the church undervalues its assets.
After four years of failed settlement talks with abuse victims, the diocese filed for Chapter 11 bankruptcy Feb. 2, 2007, valuing its assets at “more than $100 million.”
As the case unfolded, according to reporting in The San Diego Union-Tribune, bankruptcy judge Louise DeCarl Adler was unusually outspoken in her comments and written orders. She called the diocese’s accounting style “Byzantine” and its disclosures “disingenuous,” threatened to hold diocesan officials, including Bishop Robert Brom, in contempt of court, and approved a forensic accounting expert to review hundreds of bank accounts held by the diocese and its parishes.
The accountant’s findings showed that the diocese was using original purchase prices of its properties in determining their value when their market values had in fact skyrocketed thanks to explosions in the Southern California real estate market.
The diocese withdrew its bankruptcy filing that September, then agreed to pay the 144 claimants in the case nearly $200 million in settlement fees — an average of more than $1.3 million per victim.
One recent bankruptcy filing shows that critics continue to believe dioceses deliberately undervalue their assets — and file for Chapter 11 as a maneuver to protect those assets, not because they have to.
When the Diocese of Oakland filed its bankruptcy petition in May, it checked a box on the form indicating its assets are worth $100 million to $500 million.
Local officials with the Survivors Network of those Abused by Priests begged to differ. In a statement, they demanded that the diocese withdraw its filing, arguing before it had even filed a disclosure statement that they believe it has a real estate portfolio worth more than $3.3 billion. More than $600 million, they say, has nothing to do with its charitable ministries.
“Based on our assessment we believe that the diocese has the resources needed without having to resort to bankruptcy,” the letter read.
The case is ongoing.
@Baltimore Sun
