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A Spokane, Wash., judge will hear arguments in June on one of the most basic, highly charged and judicially thorny questions facing the U.S. Catholic Church and its use of bankruptcy protection — namely, when a diocese is in Chapter 11 protection, what’s the legal standing of an individual parish? On May 2, Judge Patricia Williams of the U.S. Bankruptcy Court for the Eastern District of Washington set June 27 as the date for a hearing on a partial summary judgment motion against the bankrupt Spokane diocese and the 81 parishes within its territory. Williams said she would rule on the parish-standing question at that hearing. When she does, Catholic dioceses across the nation will hang on her words because plenty still face potentially crippling litigation associated with sexual abuse by priests. The Spokane diocese claims it holds parish property in trust for individual parishes and, as such, should exclude from its estate dozens of churches and schools. If Williams determines a parish as a separate legal entity doesn’t exist, then the diocese would have a much tougher time establishing the trustee relationship. A committee of tort litigants in February brought the adversary motion against the diocese and named 131 parishes, schools and other church entities as co-defendants. The motion demands that the parish properties be included as part of the debtor’s estate, something that could potentially increase the value of the holdings several-fold. The parishes respond that they aren’t part of the estate, aren’t debtors and are, therefore, outside the reach of the bankruptcy court and the tort committee. In fact, the parishes emphasize in legal briefs, several have claims as unsecured creditors. As a result, the parishes have filed cross-motions asking for summary judgment in their favor. They also filed May 2 a motion asking Williams to dismiss them as defendants in the committee’s complaint. (The diocese and the parishes must file their response to the summary judgment motion brought by tort litigants by May 27.) Williams has options. She can decide for one side or the other. Or she can decide that neither side has a case for summary judgment. In that event, they would move to discovery and trial. The diocese filed for Chapter 11 protection on Dec. 6 in the face of 19 lawsuits involving nearly 60 plaintiffs that accuse the diocese of neglect in supervising sexually abusive priests. The first lawsuit was scheduled for trial in January. The bankruptcy filing stayed the lawsuits, but not the legal issues regarding what the assets of the Spokane diocese — or other Catholic ones like it throughout the nation — are. Like the two other bankrupt dioceses in the U.S. — in Tucson, Ariz., and Portland, Ore. — Spokane maintains it owns no parish property, even if it holds legal title under a nonprofit designation called corporation sole. In corporation sole, the office of the bishop is the lone holder of deeds to various parish churches and schools. The dioceses all claim that their role is that of trustees to the parishes, which are the ultimate beneficiaries under religious code called canon law. Under this code, parishes have standing as “juridic persons,” an ecclesiastical designation that translates roughly as “fictional” persons. The dioceses steadfastly reject any other interpretation of the relationship between them and parishes as both misplaced and an infringement on religious freedom. “We’re arguing that civil courts must defer to the church in its recognition of parishes as separate legal entities,” said the diocese’s lead debtor counsel, Shaun Cross of Spokane-based Paine, Hamblen, Coffin, Brooke & Miller. Juridic person “is a separate legal entity and recognized as such within the Catholic Church,” he explained, adding that canon law is a legitimate legal code that predates civil law. “It’s not just a goofy thing.” The Spokane diocese is also expected to argue that Washington state law recognizes the relationship between the diocese and individual parishes as an expressed trust. Washington state law is explicit in the way it designates a corporation sole, Cross said, noting that under that specification, the bishop holds property in trust for use by the church. Tort litigants’ counsel, meanwhile, reject the notion that canon law is a legal benchmark. They argue that the court shouldn’t look to the church’s religious regulations for guidance on the legal relationship between the diocese and parish when it applies to outside parties. “The church can’t unilaterally dictate its own rules with its creditors,” said the lawyer for the tort litigants committee, James Stang of Pachulski, Stang, Ziehl, Young, Jones & Weintraub in Los Angeles. “We’re not part of its internal structure.” In a brief, the committee’s lawyers further argue that “the purpose of the corporation sole statute is a restriction on the Bishop’s personal interest” in parish property. (When corporation sole laws were enacted about a century ago, titles to parish properties were often held in the actual name of the bishop, as opposed to the office of the bishop.) Any trust, the lawyers maintain, is being held for the benefit of the church as a whole, not any individual parish. Creditors charge that the diocese trots out canon law and church interpretation of the relationship with parishes as a way to protect assets that rightly belong in the debtor’s estate. Creditors’ lawyers in the Spokane case echo what has already been said by many legal scholars as well as by their counterparts in the Portland bankruptcy — that because the Catholic Church is highly hierarchical, parishioners themselves enjoy no rights or say over individual parish property. Some creditors’ lawyers cite Boston as an example, where the archdiocese is forcibly attempting to close more than 80 parishes and sell off property against the wishes of the parishioners. This has prompted parishioners in some cases to mount occupations of the church buildings. In written arguments, however, the Spokane diocese has raised Washington state’s Religious Freedom Restoration Act, or RFRA, and the parishes will likely do the same in their defense. This law puts a burden on the state to show any action that impairs religious freedom is done for compelling state interest and done in the least intrusive way possible. Some legal scholars question that use of RFRA or other religious separation doctrines in a bankruptcy proceeding. According to Michael Broyde, a professor at Emory University School of Law in Atlanta and academic director of the university’s law and religion program, RFRA can shield religions to the point where authorities can’t close down a church or force it into bankruptcy, but it can’t be used as a sword “so a church fares better than its creditors.” What’s more, according to Broyde and other scholars, Spokane’s bishop authorized the bankruptcy filing, meaning there’s implied consent of the court’s jurisdiction. Copyright �2005 TDD, LLC. All rights reserved.

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