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Ruling allows victims to sue archdiocese over millions transferred to parishes

Copyright © 2020 Albuquerque Journal

A U.S. bankruptcy judge in Albuquerque has ruled that lawyers for clergy sex abuse survivors can file lawsuits alleging the Archdiocese of Santa Fe fraudulently transferred an estimated $150 million in assets to parishes in an attempt to avoid bigger payouts to victims.

The decision by Judge David T. Thuma in the Chapter 11 reorganization case opens the door to what could be a multimillion-dollar boon to hundreds of alleged victims. Or it could set off protracted, costly legal appeals that would tap funds that could have paid valid abuse claims.

Lawyers for the 94 archdiocese parishes, several of which predate the archdiocese by many decades or even centuries, predicted at a court hearing in August that the “decimation” of certain parishes would result if the lawsuits into the transfers go forward.

Thuma didn’t address whether he thought the claims surrounding the transfers ultimately would succeed, but wrote in an 18-page ruling filed Sunday that some litigation might be needed “to help the ongoing efforts to reach a global settlement in this case.”

Negotiations between the parties have stalled in the nearly 2-year-old bankruptcy case, which the archdiocese filed in late 2018 to deal with a surge of claims alleging childhood sexual abuse perpetrated by priests and other clergy. An estimated $52 million has been paid in out-of-court settlements to victims in prior years.

Attorney J. Ford Elsaesser told the Journal on Monday that the archdiocese is “disappointed and disagrees with the court’s decision.”

“We are reviewing all of our options, which may include an appeal.”

Attorneys for the 374 victim claimants filed a motion in June alleging the archdiocese improperly shielded assets in preparation for the bankruptcy filing. The victims’ lawyers didn’t return a request for comment on Thuma’s ruling.

Their motion alleges the archdiocese, the state’s largest, incorporated its parishes and transferred assets into trusts to “hinder, delay, or defraud” the claimants.

Lawyers for the archdiocese have contended that wasn’t the intent and argued that permitting inquiry via lawsuits into the transfers would constitute an improper burden on the exercise of religion in violation of federal law.

The archdiocese contends that a decision to incorporate its parishes and set up trusts for the transfer of assets and property was part of a restructuring that began in late 2012. The transferred total was more than $150 million, Thuma’s ruling said.

In filing for bankruptcy, the archdiocese reported owning nearly $50 million in real estate, cash and investments. And at least two multimillion-dollar properties owned by the archdiocese in Santa Fe are up for sale to help liquidate assets for a settlement with victims.

The archdiocese and parishes contend most of the transferred assets at issue were held in trust to benefit the parishes. But the claimants counter that the property couldn’t have been held in trust, because before they incorporated in 2013, the parishes were not legal entities capable of being trust beneficiaries, the ruling said.

If the lawsuits are filed and the parishes prevail in their trust arguments, Thuma noted, the question arises whether alleged abuse victims could sue the parishes that employed the alleged clergy abusers.

At the same time, the claimants also might “run afoul” of statute of limitations issues, given that some alleged transfers occurred years ago.

“The proposed claims are large, potentially the largest estate assets,” Thuma wrote. If the claimants prevail in their proposed separate fraudulent transfer lawsuits, victims “will recover many millions of dollars for the estate.” Or they could lose those lawsuits and nothing would be added to the current pot of money available to pay claims.

“Either way, the proposed litigation will be very expensive and time-consuming,” Thuma’s ruling said. “Unless settled, the proceedings may have to be completed by successors to the party representatives, the judge and counsel, after years of motion practice, discovery, discovery disputes, trials, appeals, remands and retrials. Millions of dollars would have been spent on attorney fees and costs that could have paid valid abuse claims,” Thuma wrote.

But he added, “More clarity about the rights of the parties and what is estate property could help the ongoing efforts to reach a global settlement in this case.”

With “some litigation” of the victims’ claims, the judge ruled, “there will be a point, however, that the cost of continued litigation likely will outweigh the benefit. If the proceedings are not settled before then, Debtor (the archdiocese), the parishes and the abuse victims will be the poorer for it.”

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