Lawsuit: Montana diocese hid assets to avoid paying clergy sex abuse victims

By Sherry Devlin | Missoula Current

Creditors have filed suit against the Catholic Diocese of Great Falls-Billings, alleging the church transferred more than $16 million in assets and cash to a nonprofit corporation shortly before declaring bankruptcy “to avoid being held accountable” by victims of clergy sex abuse.

The “asset protection scheme” was intended to shield the church’s assets from its creditors, “while still maintaining complete control over the assets,” the lawsuit contends.

Calling the transfers “fraudulent,” the suit – filed in U.S. Bankruptcy Court for the District of Montana – seeks to recover the $16 million for use in settling claims filed against the church in scores of sexual abuse cases.

Resolution of the lawsuit is critical to the diocese’s bankruptcy proceedings, the lawsuit continues, because “it will determine the magnitude of distributions to its creditors, including survivors of the childhood sex abuse enabled by (the diocese) or whether (the diocese) can continue to avoid being held accountable to the survivors.”

Eighty-six victims of childhood sexual abuse by church officials have made claims against the Diocese of Great Falls-Billings since 2011.

The first lawsuit was set for trial in July 2017, but was stayed when the diocese filed for Chapter 11 bankruptcy protection on March 31, 2017.

The Great Falls-Billings Diocese is the second in Montana and the 15th nationally to file for bankruptcy as a means of limiting and settling claims of sexual abuse by clergy.

In 2015, the Helena Diocese resolved its bankruptcy by paying $20 million to 360 survivors of childhood sexual abuse.

According to the new lawsuit, filed last Friday, the Great Falls-Billings Diocese forced itself into bankruptcy by essentially transferring away all its assets and cash.

The church believed that by transferring the $16 million to the newly formed Diocese of Great Falls-Billings Juridic Persons Capital Assets Support Corporation, it would protect those assets from the victims’ claims, the lawsuit contends.

The money came from the diocese’s Deposit and Loan Fund, which included cash and “investment accounts containing stocks, bonds and other financial assets.”

Beginning in late 2016, the diocese began transferring assets from the Deposit and Loan Fund to the nonprofit Capital Assets Support Corporation – $11.3 million in one transfer, then $500,000; then beginning in 2017, transfers of $642,000-plus, $1.2 million and $1.8 million.

At no time did the CASC make any payment to the diocese for the transferred assets.

The diocese “made the CASC transfers with the intent to hinder, delay or defraud its creditors, including, but not limited to, the plaintiffs who filed the sex abuse cases against (the diocese) and other sex abuse survivors who had (and still have) claims against DGFM for sexual abuse,” according to the new lawsuit.

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The Diocese of Great Falls-Billings filed for Chapter 11 bankruptcy protection on March 31, 2017. Photo by Missoula Current

The real estate includes more than a dozen parishes and Billings Catholic Schools. In a separate suit, creditors asked the bankruptcy court to determine whether $70 million in real estate assets are held in trust by the diocese or whether they are part of its bankruptcy estate, and therefore open to recovery by the creditors.

The affected parishes include Holy Rosary Parish, Billings; Our Lady of Lourdes Parish, Great Falls; Holy Family Parish, Great Falls; St. Bernard, Billings; St. Patrick Co-Cathedral, Billings; St. Joseph, Plentywood; Holy Spirit, Great Falls; St. Mary, Livingston; St. Pius X, Livingston; St. Pius X, Billings; St. John the Evangelist Church, Baker; St. Bernard Church, Charlie Creek; St. Theresa, Lambert; Corpus Christi, Great Falls; and St. Anthony Church, Culbertson.

In addition, the creditors’ committee has asked that the sexual abuse complaints filed in Montana District Court be allowed to resume proceedings simultaneous to the bankruptcy.

The trial originally set for July should resume, that complaint contends, because settlement negotiations between the diocese and attorneys for the victims are at an impasse.

The creditors’ California-based attorneys believe the diocese’s insurer has set “unreasonably low values” on claims.

The diocese has declined to comment on the pending cases, and its attorneys have not yet responded to the latest filings.

In the past, however, church officials have said the complaints will be resolved via mediation and that the additional legal filings are unnecessary distractions.