Can a Church Go Broke?

PORTER GIFFORD FOR TIME
The residence of Bernard Cardinal Law, Archbishop of Boston

It used to be said that in polite society one shouldn't discuss sex or money. But that's no longer possible in the Roman Catholic Church. Just last week Milwaukee Archbishop Rembert G. Weakland acknowledged paying $450,000 in 1998 to settle a claim that two decades ago he sexually assaulted a 30-year-old graduate student. (The Vatican accepted his resignation a day after the revelation.) Add the Weakland settlement to the huge sums other dioceses have paid to cover sex-abuse claims in recent years: an estimated $25 million in Santa Fe, N.M.; nearly $30 million in Boston; and $31 million in Dallas.

With new allegations of sexual abuse surfacing almost weekly, Catholic dioceses across the U.S. face hundreds of millions of dollars in additional claims. Many now wonder: Can the church actually go broke? The short answer is no. In the U.S. the Catholic Church collects revenues totaling around $7.5 billion annually. Even more impressive are its vast property holdings, which include everything from cathedrals and schools to beachfront retreats, stately mansions, golf courses and television and radio stations. But the real secret of the church's financial strength is that each of the 178 Roman Catholic dioceses in the U.S. organizes its affairs separately; nearly all employ a highly complex and decentralized legal structure that so far has effectively shielded their assets from legal claims brought against priests.

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The increase in lawsuits is prompting dioceses from Providence, R.I., to Los Angeles to take further measures to protect or hide, depending on your point of view their assets. But it is also prompting new scrutiny of their corporate structures and raising questions about who should be held accountable for the sins of the fathers. "They act no different than Enron," says Miami attorney Ron Weil, who has pursued scores of sexual-abuse cases. "It's a very transparent effort to insulate themselves from liability."

Unlike a public corporation, a church is not required to publicly list its assets or overall revenue. Moreover, diocese officials, citing their First Amendment right to religious freedom, often decline to disclose details about church finances. And several dioceses have persuaded plaintiffs to accept reduced settlements, on the grounds that they could not afford to pay more.

In the 1980s, when only a few victims had gone public with claims of abuse, church officials could afford to resolve each case quietly and relatively inexpensively. But in the following decade, facing the prospect of multimillion-dollar judgments in sex-abuse cases, the dioceses in Dallas and Santa Fe were forced to sell or mortgage property to stay afloat. Since then, church officials have scrambled to devise new lines of defense.

There is much to protect. According to lawyers for 38 plaintiffs in Rhode Island, the Roman Catholic diocese of Providence operates more than 220 corporate subsidiaries, including the Aldrich Mansion, a sprawling compound on Narragansett Bay where the Brad Pitt movie Meet Joe Black was filmed. Shooting took six weeks on a property that charges $3,000 to hold a baby shower there. The Providence diocese owns $44 million in real estate, and income from its property finances a wide range of social services. Diocese officials argue that it cannot afford to compensate victims of sex abuse and is not legally liable to do so.

Their rationale: the bishop's corporation manages property, not priests.

Plaintiffs across the country are encountering similar patterns of asset protection, as regional leaders divide church property among dozens if not hundreds of separate corporations, charities and other institutions. The Catholic Church in the U.S. may appear to be a monolithic religious corporation that manages its flock and money from the top down. But the church's fiefs operate as independently as fast-food franchises and with less legal liability. Each diocese and the parishes within it are separately responsible for their financial affairs. Any one of these institutions could conceivably go broke in the face of big court judgments but almost certainly would not drag down the others.

That's dramatically different from the liability of, say, McDonald's, in which the company can be sued if a customer anywhere is scalded by hot coffee. The church's legal structure acts as a foil to any attack on the center. And ultimately, headquarters is the Vatican a sovereign state that is effectively immune from private legal action in the U.S. (The Vatican for its part is publicly against any payout of compensation in sexual-abuse cases.) Church officials claim that even when an archbishop is on record as being the chairman of a diocesan corporation, whether a parish or a school, the diocese is not responsible for the acts of any parish priest. Of course, Big Tobacco once thought wrongly, it turned out that it was immune from lawsuits by individual smokers.

Lawyers representing the victims are working hard to crack each diocese's many-layered defenses, in part by showing that church officials responsible for supervising wayward priests also effectively control the corporations and entities that own church property. In a Miami case, the archdiocese claimed that it had no control over a parish school where a teacher molested a student. But attorney Weil showed that the diocese controlled not only curriculum and teacher appointments but also scheduling for the school conference rooms. The church settled before the case went to trial. "This is akin to a private getting caught and the general saying, 'He doesn't work for me,'" says Weil. "They're all wearing the same uniform."