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By ruling that parish property should be included in the estate of the bankrupt Spokane diocese, a judge in Washington state did more than just hand a group of sex abuse victims access to a far richer cache of assets. Judge Patricia Williams of the U.S. Bankruptcy Court for the Eastern District of Washington in Spokane also laid down an important marker on just what the legal structure and financial responsibility of the Catholic Church in America is. “It’s a huge decision,” said Douglas Laycock, a constitutional law authority at the University of Texas School of Law. As part of an adversary motion for summary judgment filed by a committee of tort litigants, Williams ruled Friday, Aug. 26, that the parish property should be included. The diocese immediately appealed to a federal district court. “We have a responsibility, not only to victims, but to the generations of parishioners,” Spokane Bishop William Skylstad said in a statement. In her decision, Williams forcefully rejected the arguments of Skylstad that as leader of the diocese, he merely holds church property in trust for individual parishes. “The named beneficiary is the diocese itself,” she wrote. “The bishop, in his official capacity, holds the property in trust for the debtor diocese.” The decision wasn’t equivocal. Williams dived right into the contentious issues of the rights and boundaries of religious institutions in a civil society. She ruled that the diocese couldn’t on its own decide what property it holds and that a bankruptcy court has wide latitude to make the ultimate determination. “If only the debtor had authority to identify and raise disputes as to property of the estate, the Chapter 11 debtor’s unilateral designation could not be challenged,” she wrote. “Such a result is unwise.” This interpretation goes on to explicitly dismiss both the diocese’s argument that the court must defer to internal church doctrine and that the court lacks jurisdiction because of issues of church/state separation. “Religious organizations do not exist on some ethereal plane far removed from society,” Williams wrote. “Religious institutions engage in many secular activities. These secular activities often result in conflicts with others.” Texas’ Laycock believes the separation issue will likely form one basis of appeal, but he and several other scholars have said all along that the diocese ceded legal high ground on the church/state dichotomy by entering into a voluntary bankruptcy. Other points of appeal will likely include the interpretation of a trust relationship within both federal and Washington state law and the issue of “compulsory deference” — or whether the court must defer to religious bodies on interpretation of doctrine. Also in question is whether Williams’ decision violates the Religious Freedom Restoration Act, which says laws can’t substantially burden the practice of religion. In theory, the appeal could move from district court to the 9th Circuit Court of Appeals and then to the Supreme Court. “It’s not the end of the story,” said David Skeel, a law professor at the University of Pennsylvania School of Law and a bankruptcy expert who has been monitoring the issue. Indeed, the appeals process could take years and it’s anyone’s guess how the courts may ultimately rule. At any time, the diocese could withdraw its bankruptcy petition. What’s more, no one expects tort litigants to demand all church property in the diocese be sold off to pay the diocese’s debts. But Williams’ decision puts enormous pressure on the diocese to negotiate with creditors on a plan that includes more than the $11 million in property the diocese originally maintained it owns. Tort victims filed claims totaling about $76 million, according to the debtor’s own schedule of liabilities. The diocese “could still try to use the bankruptcy process to strike a deal,” said Skeel. However, “this completely tilts the leverage in the case.” By ruling that a diocese owns all the church assets within its jurisdiction, the ruling affects sex-abuse victims throughout the United States. For one thing, they can now cite legal precedent in attempts to pursue millions of dollars of property in compensation. Williams’ ruling also could affect other church-related litigation. “There are far wider implications,” said Villanova University economist Chuck Zech, who has written extensively on issues of church finances. Spokane declared bankruptcy on Dec. 6. It was the third diocese to seek shelter from potentially crippling sexual abuse lawsuits through Chapter 11. But all the cases have gone differently. The Tucson diocese, which filed on Sept. 20, 2004, successfully pushed through a reorganization scheme that avoided the issue of parish property. A judge approved the plan in July and the diocese is due to emerge from bankruptcy by mid-September. The Portland, Ore., archdiocese — the first to use the bankruptcy courts, having filed July 6, 2004 — is now bogged down in conflicting views of the relationship of parishes to the archdiocese. Copyright �2005 TDD, LLC. All rights reserved.

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