Twin Cities archdiocese could file for bankruptcy soon, experts predict

Editor's note: The St. Paul-Minneapolis Archdiocese filed for bankruptcy Friday morning.

The Archdiocese of St. Paul and Minneapolis is likely on the verge of filing for bankruptcy as it faces the prospect of three clergy sex abuse lawsuits heading to court in 10 days.

While the archdiocese wouldn't comment Thursday, it acknowledged last month that it was considering bankruptcy after its 2014 financial reports showed a $9 million deficit.

Pending trials typically have triggered bankruptcy filings in dioceses and archdioceses facing a large number of cases, said Charles Zech, director of the Center for the Study of Church Management at Villanova University in Pennsylvania.

"I can't think of a single case where bankruptcy wasn't filed as a trial loomed," said Zech, referring to the 11 other dioceses and archdioceses that sought court protection from lawsuits and judgments.

The Twin Cities archdiocese previously indicated that it had just $5.3 million set aside for clergy abuse victims, even as it faced 25 current lawsuits with dozens more pending.

Christopher Soper, a bankruptcy attorney and a University of Minnesota law professor, agreed that pending trial dates "are typical pressure points" for bankruptcy filings, whether for corporations or a church.

"When you have a combination of $9 million in debt and three court dates, bankruptcy is a potential way to address both of those problems," said Soper.

A bankruptcy filing would automatically postpone the trials, and future ones, as the church reorganizes its finances to meet its obligations to creditors, in this case clergy abuse victims.

The sheer number of those claimants is surging. The law firm of Jeff Anderson, which represents most of the victims, has given the archdiocese more than 100 "notices of claim" of lawsuits not yet filed.

Avoiding trial also could prevent further public disclosure of how the church handled abusers.

"[A trial] would reveal the people behind the [court] documents, which could cause even greater backlash," said the Rev. Tom Doyle, a victims' advocate who has served as an expert or consultant on church structure and finances in about a half-dozen archdiocesan or diocesan bankruptcies.

A trial would put victims and witnesses on the stand, bringing to life their tragedies, Doyle said.

Back to court?

Three lawsuits are scheduled for trial Jan. 26, the first to go to trial under the Minnesota Child Victims Act. The 2013 law opened the door for filing older clergy abuse lawsuits by temporarily stripping the state statute of limitations on child sex abuse cases.

All three cases are to be heard by Ramsey County District Judge John Van de North, who presided over the first clergy abuse case filed by a John Doe 1. That case led to the unprecedented release of thousands of pages of letters and information about abusive priests and the church's response to them.

John Doe 1's lawsuit also resulted in a much-publicized global agreement in October that created a victim-sensitive process for the church's handling of future abuse allegations. However, no global financial settlement was reached, just for John Doe 1.

With more than another year before the Child Victims Act ends, the archdiocese has acknowledged that bankruptcy is an option as it confronts financial difficulties stemming from the suits.

Late last year, it announced it would cut 20 percent of the chancery's operating budget, or more than $5 million, and lay off staff.

It also sued about 20 insurers to force them to pay claims of abuse victims.

When the archdiocese released its 2014 financial report in November, the chancery's chief financial officer, Tom Mertens, said no final decision about bankruptcy had been made. Such a move would not be an attempt to avoid paying victims, he said.

"Reorganization under the bankruptcy code would be a way to respond to all victims/survivors by allowing the available funds to be equitably distributed to all who have made claims, not just those who have the earliest trial dates or settlements," Mertens wrote in his introduction to the report.

Church officials made no other comment Thursday.

'Bankruptcy inevitable'

The 2014 report did not reflect any payments to victims. However, the archdiocese said it spent $4.2 million to hire outside professionals to investigate its handling of abuse allegations and to explore its financial options.

"Once I saw the financial report, I knew bankruptcy was inevitable," Villanova's Zech said.

The advantage of bankruptcy is that "it provides predictability" to the archdiocese, said Charles Reid, a professor of law and canon law at the University of St. Thomas. It currently has an unknown number of victim lawsuits, which would be its "liabilities," and an unknown dollar value of damages.

"There's an order, a structure," Reid said. "They have a plan in place with clear goals to meet."

At least three church institutions are in bankruptcy proceedings: the Stockton, Calif., diocese; the Helena, Mont., diocese and the Milwaukee archdiocese. Milwaukee's is now dragging into its fifth year. Earlier this week, a federal bankruptcy judge approved a reorganization plan for the Helena Diocese that includes a $16.4 million settlement for 362 people who sued over clergy sex abuse from the 1940s to the 1970s.

Jean Hopfensperger • 612-673-4511