Diocese case to go beyond Christmas

Diocese case to go beyond Christmas

Mediation buys more time for settlement

John Stucke
Staff writer
December 3, 2006

The Catholic Diocese of Spokane bankruptcy case will continue past Christmas and spill into its third year.

Two days of mediation in Reno last week marked progress, pushing back court deadlines and hearings another month to early January.

Attorneys representing the diocese and a key group of people with abuse claims agreed that December was a crucial month, but would not be specific.

James Stang, representing a committee of abuse claimants, declined to say if he had asked his committee to vote on a potential settlement.

"We just can't go there," Stang said this week, adding that pushing back the deadlines should be interpreted as a sign that the mediation is progressing toward a deal.

The court hearings, scheduled for Jan. 5, could map an end to the diocese's bankruptcy – a legal action taken in December 2004 to stave off pending lawsuits and attempt to settle dozens of sexual abuse claims.

A federal judge's gag order has kept the lawyers involved in the mediation from commenting on its progress, though several contacted this week indicated they were optimistic that a deal would be reached.

The bankruptcy endeavor has been controversial, and it's expected to cost the Eastern Washington Catholic community more than $25 million above the approximately $20 million the diocese's insurers have agreed to pay.

The diocese is selling assets and enlisting the financial help of other Catholic organizations, such as Catholic Charities and its 82 parishes. The amount Bishop William Skylstad is expected to be able to raise – above insurance payouts – has been estimated at $12 million to $13 million.

The diocese's parishes have said that they intend to make a significant contribution to a settlement. At one time the number was $8 million. That has likely gone up as a result of the mediation, though some parishioners say that the bankruptcy case could hinder fund-raising efforts.

Settlement numbers and conditions have been negotiated since the parties began mediating last July.

An earlier deal, which would have split $45.7 million among 75 sexual-abuse victims, was thrown out by the bankruptcy court judge.

The judge ruled the agreement was unfair because it didn't cover all victims. Parishes worried that it was impossible to fund without jeopardizing their ministry.

Nevertheless, the $45 million number drove the early mediation talks, and today the final cost of a settlement is expected to be between $47 million and $50 million and cover perhaps twice as many victims and myriad bankruptcy costs.

The diocese has already paid $2.6 million in legal fees, and the law firms and other professionals have accrued unpaid fees of $5.4 million, according to the diocese operating reports through October.

Those unpaid fees may have to pass muster with the U.S. Trustee's office, and ultimately need the approval of U.S. Bankruptcy Court Judge Patricia Williams.

The amount does not include the money paid to lawyers representing other Catholic organizations that have had to weigh in on the case, such as parishes and charitable groups.

And it doesn't include the millions that plaintiffs' lawyers will earn from their contingency payments – in many cases 40 percent of the total paid to a victim.

The best estimates are that legal fees and payments could comprise at least $25 of the projected settlement.

The fees might be rolled into any settlement or agreed upon plan of reorganization.

In court filings last week, attorney John Munding, working for the Association of Parishes, filed papers asking the judge to protect proceeds from the sale of one of the diocese's most visible assets – its Chancery building on Riverside Avenue. Munding wants the $2.05 million from that sale to be deposited in escrow – an attempt to ensure the cash is not used to pay legal and professional fees.

A Cowles Co. real estate subsidiary called Centennial Properties has agreed to buy the stately white building that houses the bishop's offices and other Catholic Charities. Cowles Co. also publishes The Spokesman-Review.