Tuesday, September 11, 2007

San Disaster

At this hour in San Diego, Bishop Robert Brom is meeting with his priests to go further into the specifics of Friday's mammoth settlement and what it'll mean for the future of the diocese.

In a statement issued after the announcement of the $198 million payout, Brom said that the agreement to close 144 abuse cases "will result in some damaging consequences" for the local church of a million-plus Catholics. The SoCal see disclosed direct holdings of 34 properties as part of its problem-ridden bankruptcy filing.

(While Brom announced today that no payment plan had yet been devised for the diocese to muster its promised $107 million share of the deal, he said at the meeting that the diocese will take on a $100 million bridge loan from a local bank, the annual interest of which was stated at $7-8 million. No word was given on the fate of the 34 properties.)

Meanwhile, the San Diego bankruptcy -- universally seen as the most tortuous and plagued of the five "Chapter 11" filings by US dioceses -- is being chewed over as a textbook example, not of good stewardship and effective restructuring, but brutta figura-fest.
Legal experts who have followed the sexual abuse crisis in Catholic dioceses across the country said the bankruptcy process – intended to dispose of legal claims in a calm, ordered way – turned into a tumultuous, embarrassing ordeal for the church.

“This was to my mind the clumsiest bankruptcy of all the dioceses that have gone that way,” said Charles Zech, an economics professor who has followed the clergy abuse crisis from Villanova University, a Catholic school near Philadelphia. “They didn't gain a thing. And they lost a lot of credibility.”

Moreover, those involved in negotiations that led to Friday's announcement of a $198.1 million settlement of the lawsuits said Brom and the diocese would have been far better off financially if they had settled seven months earlier.

Several attorneys pursuing lawsuits against the diocese said their clients would have settled for as much as $50 million less than the San Diego diocese and its insurers will ultimately pay had they avoided bankruptcy and settled in February.

But chief diocese attorney Micheal Webb strongly disputed that, saying the $50 million figure was “very incorrect.”

Webb conceded that a February settlement would have been less costly, especially when the bills for the bankruptcy filing – already more than $5 million with more invoices to come – are factored in. The diocese is responsible for attorneys' fees for both sides in bankruptcy court....

The diocese filed for bankruptcy Feb. 27, one day before the first of the lawsuits was set for trial in San Diego Superior Court.

The bankruptcy immediately halted all litigation, a plus for the church. But almost from the start, one misstep after another dogged the diocese in bankruptcy court.

Formal reports of all church assets, required by federal law, were deemed incomplete and had to be amended four times.

Adler, whose handling of the case was widely praised by lawyers and experts, called the diocese's accounting system “byzantine.” She ordered a forensic accountant to examine the nearly 900 bank accounts for the diocese.

That turned into a crucial event in the case, experts said.

A report by financial expert R. Todd Neilson, a former FBI agent, found that the diocese had claimed the assets of its 98 parishes as its own in applications to banks and bond markets. But in bankruptcy court, the church asserted the parish funds were separate and could not be tapped for any settlement.

The diocese also was not reporting accurate values for its properties, failed to keep parishes from hiding money from the court and was not properly accounting for all its money, Neilson found....

[The settlement's] high cost will be felt by Catholics in San Diego, the nation's largest diocese to declare bankruptcy, and across the nation.

“They kept shooting themselves in the foot,” mused Zech, the economics professor. “They hurt the credibility of every diocese in the country.”
Beyond the settlement itself, the loan interest, legal bills, etc. it's been estimated that the diocese's bankruptcy fees alone will total upwards of $10 million.

And, on a final note, as the bankruptcy decision neared in late winter, San Diego recruited Susan Boswell -- the highly-regarded specialist attorney who seamlessly guided the diocese of Tucson through its reorganization -- to handle its own Chapter 11 filing.

Over the course of the process, not a few have noticed that Boswell -- whose hiring was greatly trumpeted at the outset -- gradually vanished from the scene and, by Friday, wasn't heard from at all.

They're just sayin', of course.