Judge in the Harrisburg Catholic Diocese bankruptcy case makes it harder for church to shield assets from liability

Church officials may not shield from liability such assets as $50 million in Harrisburg real estate.

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A federal judge in a bankruptcy case involving the Roman Catholic Diocese of Harrisburg has ruled that church officials may not shield from liability such assets as $50 million in Harrisburg real estate, including the residence of Bishop Ronald Gainer and the priest retirement home. Other assets include eight cemeteries and seven high schools.

Advocates for victims of clergy sex abuse are applauding the decision by Chief Bankruptcy Judge Henry W. Van Eck as a sign that the court is willing to challenge the veil of secrecy that Catholic officials have long used to shield assets.

In the Feb. 17 ruling, Van Eck ruled that the court had found sufficient claims of fraud allegations against the diocese, and that attorneys representing sexual abuse survivors could explore alleged fraud by Catholic officials.

Plaintiffs seek a judgment against an estimated $95 million in assets that the diocese transferred behind two different trusts. The judge’s decision designates those assets to the diocese’s bankruptcy estate.

“It is hopeful to victims simply because the judge is not discounting the defense blocking other assets,” said Mike McDonnell, a spokesman for SNAP, the network that represents survivors of clergy sex abuse.

“In other words, he essentially is saying that the gate is now open and you can explore what you may believe to be hidden assets by the diocese.”

The Harrisburg Diocese in 2020 filed for Chapter 11 protection in the wake of a statewide grand jury investigation that found that priests in the diocese and five others in Pennsylvania had sexually molested generations of minors.

The 15-county Harrisburg Diocese was named in the 40th Statewide Investigating Grand Jury led by Attorney General Josh Shapiro, which found that church leaders had for decades covered up the crimes.

In addition to the real estate assets, the court ruled that $45 million in furniture and appliances, cash and securities, religious artifacts and objects, vehicles, notes, records and books were also liable in the bankruptcy suit, according to filings with the U.S. Bankruptcy Court for the Middle District of Pennsylvania.

In the wake of the watershed 2002 investigation into clergy sex abuse in the Archdiocese of Boston, the Catholic Church has tried to diminish the damage wrought by pedophile priests by resorting to bankruptcy, not only for the relative ease of mass settlement but for the opportunity to shield millions of dollars in assets by transferring and reclassifying them.

According to BishopAccountability, the Catholic Church has shielded some $2 billion in assets over more than a decade since the Boston case. BishopAccountability maintains a database of abusive priests and church officials.

Courts have increasingly made it tougher for the church to decrease the pot of money liable in bankruptcy cases.

In 2015, for instance, the St. Paul and Minneapolis Archdiocese filed Chapter 11 bankruptcy, claiming only $50 million in assets. Lawyers for victims estimated the archdiocese’s worth at about $1.7 billion. In 2018, the archdiocese reached the largest bankruptcy settlement by an archdiocese: a $210 million settlement.

Advocates said the court’s decision stood on the side of victims of clergy abuse, transparency, accountability and reparation.

“We have seen these tactics in dioceses throughout the country,” said McDonnell, who was abused by two Archdiocese of Philadelphia priests when he was between the ages of 11 and 12. “This allows plaintiffs attorneys to do deeper dives. It gives hope to the victims that the judge is not siding with every motion that the diocese is tossing out to protect its reputation as well as assets.”

The Harrisburg diocese becomes the first Catholic diocese in Pennsylvania to file for bankruptcy.

Bankruptcy means that scores of victims who are time-barred from the legal process because they passed the statute of limitations are now eligible to seek compensation in a bankruptcy settlement. Almost all the abuse cases documented by the grand jury investigation fell out of statute.

Victims of clergy sex abuse in Pennsylvania have for years faced a slew of setbacks in their attempts to reform statute of limitations. A voter referendum is slated to be put on the ballot next year to allow state residents to decide whether the constitution should be amended to allow victims to pursue claims in court even if they are well beyond the statute of limitations.

Meanwhile, the bankruptcy case winds its way through the court.

“This is good news,” McDonnell said. “It’s a step in the right direction and certainly in a process that is a slow moving train.”

McDonnell said the decision will lead to attorneys doing “deeper dives” into attempts by the diocese to shield assets.

“They are not going to just pull out the bishop’s residence and high school and say, ‘Boom these are the assets,’” he said. “They are going to do a deeper dive that could go back years of transferring deeds.”