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A recent federal ruling that parish assets of a Roman Catholic diocese in bankruptcy over sex abuse litigation belong to a diocesan bankruptcy estate charts a new area of the law, and could increase assets available to sex abuse victims. The ruling, by Judge Patricia C. Williams of the U.S. Bankruptcy Court for the Eastern District of Washington, potentially increases the Diocese of Spokane’s assets from the $10 million it had claimed to more than $80 million in the assets of its 81 parishes. The assets would be available to 58 people who sued the diocese, as well as others who claim that they were sexually abused by clergy members. Williams rejected the diocese’s view that applying civil law interfered in its free exercise of religion, calling the matter before her “purely a secular dispute between creditors and a bankruptcy debtor, albeit one which is a religious organization.” In re the Catholic Bishop of Spokane, No. 04-08822-pcw11 (E.D. Wash. Bankr.). “It is not a violation of the First Amendment to apply federal bankruptcy law to identify and define property of the bankruptcy estate even though the Chapter 11 debtor is a religious organization,” Williams wrote. “Nor is it a violation of the First Amendment to determine the nature and extent of the debtor’s interest in property by application of state law rather than internal church doctrine,” she added. The diocese created a trust in its articles of incorporation under the Washington state law doctrine of corporate sole, a device by which deeds to its property, including parochial churches and schools, are held in the bishop’s name in trust for the diocese-and not for its constituent parishes, as the diocese contended-”such that the disputed real property constitutes property of the estate,” the court said. Just like everyone else James I. Stang of Pachulski Stang Ziehl Young Jones & Weintraub’s Los Angeles office, who represents the official committee of tort litigants in the Spokane diocese bankruptcy, said Williams told the diocese “You’re no different from anyone else,” and that “the church just doesn’t have that kind of privileged status in this country.” Spokane and two other dioceses filed for Chapter 11 protection “on the eve of trial,” but the bankruptcy code also imposes disclosure requirements and a fiduciary duty to maximize the return to creditors with legitimate claims. “If you take the benefits, you must accept the burdens. You can’t have it both ways,” Stang said. However, the bankruptcy opinion is “without precedential value, yet,” and the issue of parish property ownership remains in clergy sex abuse litigation before a number of state courts, such as in Nashville, Tenn., he said. Uncertainty over the status of parish property has prompted dioceses to incorporate unincorporated parishes and to transfer real property titles to them from the bishops, Stang said. “Bishops are saying that this is just part of a larger business plan, but the transfers started in 2001 when the sex abuse scandal broke in Boston,” Stang said. He noted that such transfers are taking place in Nashville and eastern Oregon, as well as in the Diocese of Tucson, whose Chapter 11 reorganization plan was confirmed last month. Last month, the Vatican’s Congregation for the Clergy ruled that the Archbishop of Boston could not unilaterally dispose of the assets of closed parishes. Appeal on the way Shaun M. Cross, a bankruptcy attorney at Paine Hamblen Coffin Brooke & Miller of Spokane who represents the Diocese of Spokane in the bankruptcy case, said “We’re obviously very disappointed, but that’s why you have an appellate court system.” Cross said the diocese could ultimately prevail on appeal, which he expects to file this week. He said he thinks the diocese came close to meeting three key criteria that the court set, falling short only where the court “skirted around the Religious Freedom Restoration Act and Washington state constitutional arguments.” “When any citizen, including a Catholic bishop, goes into federal court, they don’t check their constitutional rights at the door,” Cross said. “They take them in with them to the courtroom.”

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