Judge rejects bid to tap parishes, schools in archdiocese bankruptcy

Catholic parishes, schools and other church properties cannot be included among the assets in the bankruptcy of the Archdiocese of St. Paul and Minneapolis, a federal judge ruled Thursday.

U.S. Bankruptcy Judge Robert Kressel denied the request by a committee representing clergy abuse victims to consolidate the assets of various entities linked to the archdiocese, which would have increased funds available to settle victims' claims.

The decision was met with relief by Catholic parishes and a pledge to appeal the ruling by the victims' committee.

Archbishop Bernard Hebda said he was pleased with the decision.

"I am particularly thankful that he was not swayed by the allegations that the archdiocese had hidden assets and engaged in deceptive practices," he wrote in a prepared statement. "... We certainly concur with Judge Kressel's earlier comments that inflammatory allegations to the contrary are not helpful as the case moves forward.

"Further litigation could needlessly prolong the process and take away funds from claimants."

Kressel wrote that he lacked the authority to consolidate the assets of the Catholic entities involved, including 187 parishes, schools, cemeteries, the Catholic Finance Corporation and the Catholic Community Foundation of Minnesota.

Even if the judge did have authority, the victims' committee "failed to allege sufficient facts" to support the consolidation, he said.

"To demonstrate the interrelationship [between the archdiocese and the church entities], the committee alleges facts naming only a few of the more than 200 targeted entities," wrote Kressel.

The victims' committee had filed a motion in May to consolidate assets of the archdiocese with its related entities, for a combined worth of $1.7 billion. The archdiocese reported a net worth of $45 million when it filed for bankruptcy in January 2015.

The motion alleges that the archdiocese shifted millions of dollars into related nonprofit organizations, as it became clear that clergy abuse lawsuits were about to soar.

Victims' attorney Jeff Anderson, for example, had presented internal archdiocese documents indicating that during that period, the Catholic Finance Corporation and the Catholic Services Appeal Foundation were spun off from the archdiocese. He also presented a series of photographs from Catholic cemeteries, in which the words "Archdiocese of St. Paul and Minneapolis" had been painted over.

Anderson issued a statement saying the decision will be appealed.

"The archdiocese hid assets that could and should be available to survivors the same way they hid sexual offenders and their misconduct for years," Anderson said. "We won't stand by while the archdiocese uses bankruptcy to hide its assets, and we will continue to fight against this injustice."

Catholic parishes across the Twin Cities are pleased with the decision, said Mary Jo Jensen-Carter, who represents more than 100 parishes in the bankruptcy proceedings.

"As much as we want to be fair to clergy abuse victims, we felt this had gone too far," said Jensen-Carter. "We are separate legal entities and always have been."

Parishes have been cooperating with the bankruptcy court all along, she said, contributing more than $10 million of the $65 million victims' fund established in the archdiocese's financial reorganization plan.

Merging parish assets with the archdiocese would undermine their ability to provide services to parish members, she said.

In a 10-page ruling, Kressel wrote that the interrelationship between the archdiocese and its related entities do not meet the criteria for consolidation.

"The typical substantive consolidation is reserved for situations where the finances of two or more debtors are so confusingly intertwined that it is impossible to separate them," Kressel wrote.

"Nothing of the sort is alleged here."

Jean Hopfensperger • 612-673-4511