Can a Church Go Broke?

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

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Still, the church's secrecy and defiance are formidable obstacles. In 1998 Minnesota attorney Jeffrey Anderson sued the diocese in Stockton, Calif., on behalf of two brothers who had been sexually abused. Anderson discovered in the middle of the trial, when he happened to rephrase a question posed to the diocese comptroller that the diocese operated the separate Roman Catholic Welfare Corp., worth an estimated $400 million. But it was too late to add another defendant to the suit and too expensive to start a new trial. A jury awarded $29 million to Anderson's clients, but the diocese, pleading poverty, managed to have the judgment reduced to $7.6 million. Anderson says the award would have been much higher if the jury had known about the additional assets. The problem, Anderson says, is that "the Catholic Church doesn't have to do any accounting to anybody."

As a result, lawyers and plaintiffs must act as forensic investigators, digging through real estate title-transfer records and questioning local officials about church management of various charitable entities. They are finding, for instance, that church authorities regularly keep only records of the book value rather than the current market value of certain properties. The Stockton diocese, for example, in 1998 valued its multimillion-dollar cathedral at $28,000, the cost to build it in 1942.

In Providence and Boston, plaintiffs' research has yielded some detail on the scope of church enterprises. But no matter how opulent their headquarters or how many seaside retreats their subsidiaries operate, the archdioceses and dioceses generally plead poverty and tend to get away with it. Los Angeles attorney Katherine Freberg recalls trying in vain to get around California laws preventing access to church documents in a sex-abuse case last year. By releasing so little financial information, the Los Angeles archdiocese and Orange County diocese, reputed to be among the wealthiest in the country, were able to negotiate a relatively small settlement--$5.2 million which they delivered in just 15 days.

Now, though, the sheer volume of complaints is making church officials nervous, fearful that their defenses might be breached. In 1997 the Dallas diocese had to use insurance money, borrow $11.3 million and sell all its vacant property to pay a reduced judgment of $31 million following an initial $119.6 million award for sex-abuse victims of Father Rudolph Kos. The Boston diocese says that to date it has paid nearly $30 million in settlements.

The threat of financial ruin is one reason Boston last month pulled back from a proposed settlement that would have given as much as $30 million to 86 victims of convicted child molester Father John Geoghan. Boston and other defendants are now taking a harder line against plaintiffs, interviewing their ex-wives, detailing their history of drug abuse or money troubles. "We act like any other defendant in any other civil litigation," says David Smith, chief financial officer of the Boston archdiocese. "If counsel for the diocese didn't explore every possible avenue, they'd be negligent."

Practically every Catholic institution in the U.S. is searching for ways to protect itself financially. The Boston archdiocese, for instance, is considering a complete reorganization of its corporate structure to protect against future liability. One possibility would be for it to hold all its real estate in trust for its parishes, which would make it even more difficult for new claimants to squeeze much money out of the archdiocese for priests' misdeeds.