Judge Orders Outside
Expert to Assess
Diocese Accounts
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Photographs by Sandy Huffaker for The New York Times
The Rev. Michael Gallagher, left, a Roman Catholic
priest, and Susan Boswell, right, the lead lawyer for the San Diego
Diocese, headed to court Wednesday. The diocese filed for
bankruptcy protection in February. |
By JENNIFER
STEINHAUER and LAURIE GOODSTEIN, NYTimes on the Web, April 12, 2007
SAN DIEGO, April 11 — In a
move filled with admonishments and anger, a federal judge overseeing the
bankruptcy proceedings of the Roman Catholic Diocese here on Wednesday ordered
an outside accounting expert to sort through what she called “the most Byzantine
accounting system I have ever seen,” and to report directly to her.
The order was issued in a contempt hearing in which diocese lawyers and priests
were ordered to explain why they should not be sanctioned for trying to move
church money without court authorization.
The judge, Louise DeCarl Adler of Federal Bankruptcy Court, also said that she
had not “foreclosed” on the idea of appointing a trustee in the case, an
extraordinary move if executed. Judge Adler said that the diocese would
have to resubmit documents describing its assets, and have them signed by Bishop
Robert H. Brom under penalty of perjury.
“I don’t want any claims of insularity,” the judge said.
The diocese, which filed for bankruptcy protection in late February, is facing
lawsuits from roughly 150 people who say they were abused by priests over
several decades. It is the fifth diocese in the nation to file for
bankruptcy protection.
Judge Adler called the contempt hearing Wednesday as a result of a letter
written by the Rev. Bruce Osborn, on behalf of the newly formed Organization of
Parishes, a consortium created after the diocese’s bankruptcy filing. The
letter, citing a court order, laid out what Judge Adler described as a five-step
plan to create new parish bank accounts and transfer church money into them,
with new identification numbers.
Judge Adler said no such order had been given. The diocese lawyers
attributed the move as an honest misinterpretation of what the judge wanted the
diocese to do.
Many plaintiffs who say they were sexually abused have long accused the San
Diego Diocese of moving money into parish accounts for use in building schools
and other purposes as a way to shield money from potential lawsuit awards.
The lead lawyer for the diocese, Susan Boswell, was not held in contempt, but
Judge Adler chastised her and two other lawyers, Jeffrey Davis and Victor
Vilaplana, as misinterpreting her questions about church accounts as a “mandate
or mandatory order” to change taxpayer identification numbers of accounts.
Also appearing before the judge were Father Osborn and the Rev. Michael
Gallagher, who leads a congregation in El Cajon and seemed confused about at
least some of what the judge was asking him. The pastors’ directives to
churches about how to manage their accounts — based, they testified, on lawyers’
advice — were “reckless but I do not feel they were malicious,” Judge Adler
said.
The judge added: “I have to say I think the court has not been well served
by the information provided to date by the debtor. I do not feel I am
getting the kind of independent information I need.”
The other dioceses that have filed for bankruptcy protection are Tucson —
represented by Ms. Boswell — Davenport, Iowa; Portland, Ore.; and Spokane, Wash.
Tucson has emerged from bankruptcy protection, and in Portland and Spokane the
settlements are almost completed.
Some of these dioceses in the course of their bankruptcy proceedings have argued
that the assets of individual parishes do not belong to the diocese and so
should be shielded from sexual abuse claims. But experts in bankruptcy law
said it would be egregious for a diocese that had already declared bankruptcy to
then transfer money secretly into parish accounts.
Lynn M. LoPucki, a law professor at the University of California, Los Angeles,
and a bankruptcy expert, said: “It’s very unusual to have somebody in a
bankruptcy case making transfers of property without alerting the court to these
transfers. Even if you assume that there’s nothing wrong with these
transfers, a judge would be expected to be told about them and approve them.”
Mr. LoPucki said that even if the San Diego Diocese had an honest explanation
for these transfers, it had a troubling history of transferring other assets in
the months before it filed for bankruptcy, while it was negotiating settlements
with abuse victims. He said he saw this as a larger pattern in which the
Catholic Church was sidestepping its responsibilities by claiming that parishes,
schools and other entities were separate.
“Suddenly this church with billions and billions of dollars and millions in
artwork doesn’t have any money for the people who, by law, are supposed to be
paid,” Mr. LoPucki said. “They are reordering their affairs so that future
plaintiffs will never be able to recover anything.”
The San Diego Diocese, like many others in California, has been hit with a large
number of lawsuits because laws in that state lifted the statute of limitations
on sexual abuse cases.
Jennifer Steinhauer reported from San Diego, and Laurie
Goodstein from New York.
(Emphasis Added)
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