Say what?

02/09/2015

 
Since I posted the letter from the mediator last Friday, I have gotten a number of telephone calls and emails from people asking what the letter means. For those of you who are pastors or parish staff, it means you need to discuss the situation with your parish leadership and an informed attorney. For anyone else, let me give you some suggestions as to what it might mean. But first, a caveat: these are just some possible reasons why the letter was sent. There may be other reasons of which I am unaware, or information not currently available that would change my assessment. 

The first reason is, I believe, undisputed. All parties involved in the mediation want access to the parishes' insurance policies, including those in which the parish is an 'additional insured' with the Archdiocese and vice versa. The goal of the mediation is to reach a settlement that is agreeable to both victims of abuse and the Archdiocesan leadership, and tapping into additional insurance policies is a relatively painless way to increase the dollar amount available as compensation. 

Not all parishes will have available insurance coverage, however, so it is likely that there are other factors at stake. In other Catholic bankruptcies, parishes have joined the process in order to secure a release from existing and future claims. However, according to the notices to creditors sent out last week, no deadline for proof of claims has been set. Establishing such a deadline is difficult in this bankruptcy because more than a year still remains in the 'civil window' which temporarily permitted the filing of lawsuits in cases of sexual abuse that otherwise would be time barred

There is also the question of the benefit trust and general insurance money (and deposits in the interparish loan fund). As I pointed out in a previous entry, nearly every parish (and even some that no longer exist) have been listed as a creditor because of previous contributions to these funds. If those monies are being proposed as potential sources of settlement funds, parishes and other Catholic entities would certainly have an interest in the proceedings. 

Which brings us to another reason why parishes may be encouraged to join the mediation: to circumvent potential litigation arguing that the Archdiocese controls the parishes' assets. Under the reorganization plan filed by the Diocese of Tucson, for example, the parishes agreed to contribute $2 million towards the settlement in order to avoid prolonged and expensive court battles over property ownership under canon and civil law.

What, you say? My parish is separately incorporated, and the Archdiocese has assured us our assets are not at risk! Your parish is separately incorporated, that is true, and the Archdiocese has said that parishes and schools are not part of the reorganization filing.  Beyond that, they have been extremely careful to use wording such as 'should' rather than 'is'. 


The threat of attorneys for creditors positing an alter ego claim of liability (arguing that the parish corporations are controlled by the Archdiocese to such an extent that the former is a mere instrument of the latter) is a very real one. In Minnesota, we have seen similar claims against religious organizations proceed, most recently against the ECLA. And, this tactic is frequently used in Catholic bankruptcies, including that of the Archdiocese of Milwaukee. 


Under Minnesota law, in order for the parish corporations to be liable for the Archdiocese's debts ('piercing the corporate veil') two conditions must be met. First, upholding the independent corporations must result in an inequitable result or sanction a fraud. In other words, there must be a finding that recognizing the independent corporate form of the parishes would result in an injustice to a third party, which in this case would be the victims of sexual abuse by clergy who deserve compensation for their injuries. Second, those attempting to posit the doctrine must demonstrate a unity of interest and ownership between the Archdiocese and the parish corporations so that the separate personalities of each do not exist. Practically, what is at issue is whether the parish corporations are treated as separate entities generally and at all times. Some of the criteria that may be looked at to establish this are whether funds are co-mingled, whether corporate formalities are followed, and whether the corporations are adequately capitalized or whether the Archdiocese frequently floats costs for day-to-day operations.


The doctrine of alter ego liability represents an exception rather than the rule, so the burden of proof is high. To a certain extent, the purpose of establishing corporations is exactly to lawfully isolate and limit liability. But this must result is an actual separation, not merely the creation of 'shadow' corporations. Milwaukee was primarily able to refute the alter ego arguments, but that Archdiocese was in a very different place than we. First, because our historical and current practices are unlikely to demonstrate that transactions are kept at arm's length and, second, because the theft by Scott Domeier, when reported in 2012, made hundreds of financial records and other documents available for scrutiny by the media and, through them, attorneys for the creditors.


I think it likely that an alter ego theory could be successful in regard to the Archdiocese of Saint Paul and Minneapolis, its parishes, institutions, and related entities such as the Catholic Services Appeal. Over the next few days I will outline here the 20 or so criteria that are generally examined when such an argument is made and why I think the Archdiocese's claim of separation is likely to fail in many, if not most, areas. Hopefully it will not come to this, but parishes should definitely be weighing the cost of defending against such claims when considering whether to voluntarily contribute to settlement funds, and should also be seeking the legal advice of someone with the knowledge and experience to properly assess the risks.   

 
 
Earlier today, the Holy See's Press Office issued a news release about the work of the Plenary Assembly of the Pontifical Commission for the Protection of Minors, which held its first meetings this past weekend. According to the statement, the Commission approved an initial proposal regarding accountability for bishops who fail to uphold their obligations to create a safe environment.

'The Commission is keenly aware that the issue of accountability is of major importance. In its Assembly, members agreed on an initial proposal to submit to Pope Francis for consideration. Moreover, the Commission is developing processes to ensure accountability for everyone in the Church - clergy, religious, and laity - who work with minors.

Part of ensuring accountability is raising awareness and understanding at all levels of the Church regarding the seriousness and urgency in implementing correct safeguarding procedures. To this end, the Commission also agreed to develop seminars to educate Church leadership in the area of the protection of minors.'

After the Commission's press conference, the National Catholic Reporter was able to interview Commission members about the proposals. According to NCR, Marie Collins, one of two Commission members who experienced sexual abuse by a member of the clergy, was asked about the process of accountability in light of the fact that only Pope Francis can remove bishops. Collins reportedly responded,  'Currently, yes.'  The NCR also reports that she went on to note, 'All I can say is the commission is working on a means by which bishops can be made accountable, and if that goes forward ... there will be an answer to this problem.'

If this is indeed the case, Archbishop Nienstedt might have more to worry about then just the state of the bankruptcy mediation, about which I will have more to say later today.  

 
 
Pastors of more than 100 parishes in the Archdiocese of Saint Paul and Minneapolis received this letter via email today. Interested parties, take note.
 
 
Obviously, I want to see the victims of sexual abuse by clergy adequately compensated for the harm that was done to them. And, I want to see this compensation provided sooner rather than later. Recent bankruptcy proceedings involving Catholic dioceses suggest that the easiest way for this to happen is by the insurance companies agreeing to 'pony up' big money to provide monetary compensation to victims and other creditors. However, when the news broke in November of 2014 that the Archdiocese of Saint Paul and Minneapolis was suing its insurers for refusing to pay on abuse claims, my sympathies went immediately to the insurers. 

After all, most if not all of the companies involved in the Archdiocese's suit are publicly held, and therefore they have a fiduciary duty to their stockholders. And, in many cases there is truth to their argument that the abuse that resulted in these claims was not an 'accident' or 'occurrence' but an expected event that, if unintended, the Archdiocese should have been able to foresee and prevent. Moreover, in my experience the Archdiocese of Saint Paul and Minneapolis continued to reassign clergy guilty of misconduct even after receiving notice from its insurers that there would no coverage of the individual going forward. [I received a comment from someone suggesting that the Archdiocese would argue that it only reassigned men that they believed had been reformed or cured. The questioner asked if there was evidence to refute that. That argument, while once popular, has been much less persuasive since the 2009 unsealing of letters by Father Gerald Fitzgerald, founder of the Servants of the Paraclete, the order which sponsored the preeminent treatment center for clergy. I am attaching below a few of his letters from the 1950s and 1960s which demonstrate that he had no belief in 'cures' for clergy with sexual interests in children. From my own experience, I can't remember ever seeing a psychological assessment that concluded that there was no risk of the priest re-offending.]

Take, for instance, the case of Father Stanley Maslowski. In 1991, Father Maslowski served time for the theft of nearly $200,000 during a three year period from the parish at which he had been assigned, Saint Thomas of Corcoran. At the time that he was assigned to the parish the Archdiocese was aware that Father Maslowski had a serious sex addiction, and thought it likely he had embezzled from Saint Pius in White Bear Lake. Nonetheless, they were apparently taken by surprise by the more recent theft, which went to fund sex binges that by Maslowski's own admission often cost up to $1000 a week. In Corcoran. In the 1980s. 

Barely more than two years after his release from the workhouse, Father Maslowski was back in ministry in this Archdiocese (on the condition that he end his friendship with the notorious madam Rebecca Rand), despite the fact that the Archdiocese had received notice from Catholic Mutual- Catholic Mutual!!!!- that they would not provide insurance coverage for him if he was reinstated. And, despite serious concerns about his ongoing behavior, he remained in ministry until the summer of 2013, when he was removed due to 'a change in the church's political climate'. 

Given circumstances such as this, is it just to expect insurers to pay? To the extent that the Archdiocese was aware of the likelihood of abuse taking place and continued to reassign clergy, probably not. More importantly, is it helpful? If such pay outs provide necessary compensation to victims, perhaps it is appropriate. But, for the safety of children in the Catholic Church, the best result would be for the insurers to have their day in court, and win.

Why? Because that is one of the few things that could really impact the way that the Archdiocese responds to clergy who are guilty of or are disposed to acts of sexual abuse. I can state from experience that appealing to the better natures of the Archdiocesan leadership does not work, nor does logic or even trying to shame them into doing the right thing. But, take away insurance coverage, and send a clear message that the insurers won't be compelled to pay, and then you will see a change. We all know that as of now that change has not occurred- the reinstatement of Fathers Barrett, Gallatin, and Stolzman have made that clear.

In case you doubt my assessment, you should review the letter I am posting below, which was written by a former Chancellor for Civil Affairs, Bill Fallon, and is a part of the recently released file of Father Joseph Gallatin. Note closely the reason given for Archbishop Roach introducing a policy of background checks for clergy. 
 
 
In between appearances in bankruptcy court, the Archdiocese of Saint Paul and Minneapolis has apparently devoted its time to what really matters: sending out reminders to clergy who have not yet submitted the altogether worthless 'Attestation' stating that they have never abused a minor (see below).

I would support this initiative if I thought it even remotely likely to have a positive impact on the safety of children and vulnerable adults, but the fact is that those clergy who have abused minors would have no qualms whatsoever about signing and returning the required form. 

It would appear that a significant portion of the presbyterate agrees, and is in no rush to complete the form. Good for them. If it is to truly create a safe environment, what this Archdiocese needs is a change of hearts and minds (and leadership), not more paperwork. 
 
 
One of the many legends that is told about the first Archbishop of Saint Paul and Minneapolis, John Ireland, is that he rose up out of his death bed in order to burn his papers, including the list of donors, donations, and other acts of procurement that facilitated the building of the Cathedral of Saint Paul. His sister, Sister Seraphine, CSJ, was entrusted with completing the job, but as any historian can tell you both brother and sister were only partially successful. Therefore, I can only imagine the thoughts of the illustrious Archbishop Ireland if he happened to be looking down from heaven last Friday when his former Archdiocese submitted its financial schedules to US Bankruptcy Court.  ‘Did I teach you nothing?’, would probably have been first and foremost.

For, in providing what it described as a ‘good faith best effort’ to account for its financial assets, the Archdiocese may have fallen into the old Ireland trap of having produced more documents than it is possible to account for in the eleventh hour. Local and national newspapers and media outlets are already having a field day identifying those areas in which the Archdiocese has apparently significantly underestimated the value of its assets, as well as attempts to shield those assets by transferring them out of church control. From my perspective, however, what the schedules demonstrate is abysmally poor bookkeeping and administration. In other words, from where I stand the schedules simply don’t match the current situation of the Archdiocese.

For instance, Schedule A is the list of real property owned by the Archdiocese. It lists the Chancery complex on Summit Avenue and Kellogg Boulevard, the Cathedral, the Hazelwood property which was the retirement home of Archbishop Flynn prior to his move to the University of St Thomas, the land on which three Catholic high schools sit, and the Indian Ministry building in Minneapolis (listed as Gichitwaa Kateri although she was canonized in 2012 as Saint Kateri Tekakwitha, a ceremony which Deacon Joseph Damiani attended despite accusations of child sexual abuse) . 

I find it interesting that the Archdiocese chose not to list its current value interest in the high school properties in the Schedule, but only gave an estimated land market value in the notes. I also question whether such numbers truly represent a 'good faith best effort' to assess the value of those properties. As I mentioned in an earlier blog post, in 2004 the Archdiocese executed a quit claim deed for its 49% of the property on which Hill Murray sits, and the school purchased the other 51% from the Sisters of Saint Benedict. The total value of the property at that time was estimated at $12,000,000, which makes last week's estimated appraisals of the De LaSalle property (located on the historic Nicollet Island, and listed by the Archdiocese at $2,682,100), Totino Grace ($5,088,200), and Benilde-St Margaret ($5,900,000) seem suspiciously low.

As do some of the transactions involving those Archdiocesan properties that took place during my time as Chancellor. For instance, in 2011 Totino Grace, with the assistance of the Archdiocese as property owner, refinanced multiple loans as a real property mortgage in the amount of roughly $7,000,000, nearly two million dollars more than what it is currently claiming the property is worth. A similar refinancing took place with Benilde-St Margaret during the same time period. Benilde had bonds issued by Allied Irish Bank, a bank that dropped to an extremely low rating. The school was able to refinance by securing a mortgage on the Archdiocese's property in the amount of nearly $7,500,000, again almost two million dollars more than current estimated value provided in the notes for Schedule A. I don't think the 'improvements' on the properties made by the schools cover the discrepancies.

Also in Schedule A the Archdiocese notes an estimated market value for the Cathedral of Saint Paul of $21,195,000, while at the same time indicating that the property is encumbered by a long-term lease agreement with the Cathedral parish for $1 a year that means 'no realizable value is assumed' (implying the lease agreement precludes the Archdiocese from profiting from the sale of the property). I find this claim especially interesting because the 'lease' with the Cathedral has never prevented the Archdiocese from realizing income from the use of the property in ways not pertaining to this long-term lease. In 2012, for instance, the Archdiocese (not the Cathedral parish) received $60,000 from Red Bull for the use of the Cathedral property for its three-day Crashed Ice event (the amount was slightly higher in 2013). Although this was referred to as a 'donation', the agreement between the Archdiocese (again not the parish) and Red Bull was a standard rental agreement, with no reference to a sub-lease or the preexisting lease with the Cathedral parish, and with the exception that the 'consideration' received was referred to as a 'donation' so that the Archdiocese could not be legally required to 'rent' the premises for other events that would be perceived as contrary to its mission (e.g. same-sex marriage ceremonies).

I will post more about these long-term leases over the next few days, but in the meantime it is worth noting that while the Archdiocese is estimating the Cathedral's market value at approximately $22,000,000, just a few years earlier the rector of the Cathedral stated publicly that the cost to build the 'artistic treasure' today would run upwards of $1 billion. This statement was made at a time when the Archdiocese was working to pay off the Cathedral debt (held by the parish, not the Archdiocese), incurred as part of a $30,000,000 renovation, and also trying to collect an additional $14,000,000 for water damage and more than $2,000,000 to replace the pipe organs (the latter has been done). It is hard to imagine that there is no market value for a property that is used, in addition to a worship site, as a concert venue, event hall, museum, office building(s), rental housing, and iconic landmark.

I think it is safe to assume that the Archdiocese has significantly undervalued it assets, but at the same time my experience tells me that their recent financial statements likely support such undervaluing. For example, I believe it was in late 2012 that the Archdiocese transferred its ground lease in the Oak Grove property to Commonbond Communities, which wanted to sell the property to get out of the assisted living business (in 1999 Commonbond agreed to a 99-year lease with the Archdiocese for $1000 a year). Commonbond offered the Archdiocese $50,000 for the two and a half acres on which the facility sits at the same time that the Archdiocese was carrying the property on its ledgers at a little more than $16,500, less than half of what Commonbond was offering to purchase it for. 

Interestingly, the Oak Grove property had been donated to the Archdiocese for the specific purpose of building a new parish in Hastings. The parish was eventually built on other land, and, contrary to its representations in the 'Global Notes', the Archdiocese had no qualms in utilizing and eventually selling this 'donor restricted' land for purposes other than what the donors intended, and without consulting the family for its approval (see Item 3 of the Global Notes and Statement, p. 2) or making the proceeds of the sale available to the parish. 

Perhaps the most surprising listings in Friday's filings, however, is the list of creditors found in Schedule F. At first glance it would appear that many of the unsecured creditors (in addition to victims of abuse) are actually parishes in the Archdiocese with some, like Saints Cyril and Methodius, listed twice. The explanation given to journalists is that these entities are owed money as a result of an over-funding of insurance and benefit funds. However, a closer look at the 'parishes' and institutions named shows some, um, interesting listings.

Most of those reading this blog will be familiar with the Strategic Planning initiative that took place between 2010 and 2013 (one of Father Laird's 'signature initiatives). Those who are, and especially those whose parishes were merged as part of this process, may be surprised to find that their former parish appears in Schedule F as a creditor of the Archdiocese. For instance, the Church of the Visitation in Minneapolis is listed on sheet 12 of Schedule F, even though that parish was merged into the Church of the Annunciation in July of 2012. Saint Canice appears on sheet 15, although it merged with Most Holy Redeemer (listed on sheet 16) at the same time.

As the canonical decrees of merger make evident, the receiving or surviving parish in a merger (in these cases Annunciation and Most Holy Redeemer) receives the assets and the liabilities of the merging parish (in these cases Visitation and Saint Canice) on the day that the merger takes effect. The civil statute provides for the same, determining that when two or more religious corporations merge, 'The legal title to assets held or owned by any property corporation that is a party to the merger and consolidation vests in the surviving corporation. The surviving corporation is entitled to receive gifts, devises, bequests, legacies, or other transfers or assignments of money or property, real, personal, or mixed, made after the merger directly or in trust to or intended for any of the constituent property corporations.' (Minnesota Statutes 315.365). So, why list both parishes, when only one is properly a creditor?

In many cases, Schedule F fails to note that the 'creditors' as listed are actually corporations that have been subsumed into surviving parish corporations, but rather lists each former parish in the merger as a separate creditor. However, in other cases only the surviving parish is listed, such as the Cathedral (parish) of Saint Paul (sheet 6)Even more quirky, some of the listings identify the parish by the name that was adopted at the time of the merger (Saint Maximillian Kolbe Church, sheet 10), but others don't (St Mary Church, sheet 11). 

There is no apparent rhyme or reason as to why some creditors reflect the merged status of the parishes and others do not. I thought at first it may be to protect parishes merged with others that have received notices of claims (Father Wehmeyer's merged parishes of Blessed Sacrament and Saint Thomas are listed separately), but then one would expect Lumen Christi and Divine Mercy to be listed along with the parishes that merged into them. I also thought perhaps the merged parishes were listed to suggest a larger number of parishes had unsecured claims, but such a tactic would seemingly have been applied universally. So, one has to conclude that this is simply a reflection of the poor bookkeeping and lack of administrative oversight that has brought the Archdiocese to its knees.

It might even be funny (the Chancery doesn't know how many parishes they owe, or what they are called?), if it wasn't the case that so many of the parishes that were merged out of existence had devoted parishioners who fought those decisions tooth and nail, and who often resigned trusteeships and other leadership positions rather than signing over their parish's assets. The Church of Saint John of Saint Paul comes to mind, since it is listed on sheet 7, right above the parish it merged into, despite the fact that the church was sold to an Islamic Center and is currently operating as a mosque. I can't imagine what those parishioners feel seeing their former parish listed as being owed an unspecified amount of money by the Archdiocese, especially given that their church was taken from them (they were told) because of their 'financial issues'. 

I am posting my version of the Schedule F below, with my notes on which parishes have merged, which corporations survived, etc. The key is light pink= surviving parish, hot pink= parish merged into another corporation, yelllow= surviving parish of a merger with merged parishes not appearing on the schedule. I have placed orange stars next to parishes where name changes have been noted. I also highlighted Our Lady of Good Counsel (sheet 18) which was the cancer relief home of the Dominican Sisters that was sold to Franciscan Health Community in 2008 and which currently operates under FHC as Our Lady of Peace Home. The Dominican Sisters completely divested themselves of their property in the Archdiocese at the time of the sale, even going so far as to donate their remaining burial plots. I can't begin to imagine what or why the Archdiocese now owes their former cancer home, but I hope they get their money.
 

    Author

    Jennifer Haselberger is a canon lawyer who served as the Chancellor for Canonical Affairs in the Archdiocese of Saint Paul and Minneapolis until April of 2013, when she resigned in protest of the Archdiocese's handling of sexual misconduct by clergy.

    To receive notice when a new post is added, follow @jmhaselberger.

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