Harrisburg Catholic diocese declares bankruptcy, the first to do so in Pa. under weight of clergy sex-abuse claims

HARRISBURG — The Roman Catholic Diocese of Harrisburg filed for bankruptcy Wednesday, becoming the first diocese in the state to seek protection from financial claims in the aftermath of a 2018 grand jury report that revealed decades of sexual abuse and cover-up by the church’s top leaders.

And, said a lawyer for the diocese, it’s not likely to be the last.

Citing the fallout from that probe and recent court decisions that opened new avenues for some victims with time-barred claims to sue, attorney Matt Haverstick said Harrisburg, like each of the state’s eight other Catholic dioceses, faces the prospect of crushing court judgments that it will be unable to pay.

“There is no capacity to take that kind of exposure,” Haverstick said in an interview with The Inquirer and Spotlight PA. “I think this is really the beginning — not just in Pennsylvania but across the country — of a wave of reorganizations spawned by … the economics of trying to maintain an organization in the face of catastrophic litigation.”

With its filing Wednesday, the Harrisburg Diocese joins more than two dozen others across the United States that have sought similar bankruptcy protections since the clergy sex-abuse scandal first exploded in Boston 18 years ago.

The move comes six months after Bishop Ronald W. Gainer announced that the Harrisburg church had paid out $12.5 million in settlements with more than 100 accusers through an independently run victim compensation fund.

The diocese faces five pending lawsuits both in Pennsylvania and New Jersey from accusers who chose not to pursue offers through the program. But with church officials expecting an additional 200 victims, the threat of future claims is endangering the diocese’s future, Gainer said.

At an afternoon news conference, the bishop said he believed restructuring is the best path to ensure all creditors — sex-abuse survivors included — are “equitably” compensated. It will also allow the diocese to continue offering free counseling and other support services to clergy abuse victims.

“On behalf of the Roman Catholic Diocese of Harrisburg, and in my own name, I continue to offer my heartfelt apologies for the abuse you suffered," he said, addressing victims. "I also offer my apology and deepest regret that the diocese did not do more to protect you.”

“Our current financial situation is unsustainable,” the bishop said at an afternoon news conference. “We have no other path forward to ensure the future of our dioceses.”

The Harrisburg Diocese serves roughly 245,000 central Pennsylvania Catholics, covers an area of 7,660 square miles, and includes 89 parishes with 98 diocesan priests.

It told the court in its filings Wednesday that it has more than 200 creditors and estimated liabilities between $50 million and $100 million. Of its top 20 creditors, 19 were plaintiffs in sex-abuse cases that remained unresolved in court.

Its petition for bankruptcy protection freezes all pending litigation against the diocese while the court considers its reorganization plan. Compensation for victims with outstanding claims would become part of the bankruptcy judgment.

But now that that process has begun, lawyers for accusers questioned just how much of the diocese’s assets would be available to victims.

Wednesday’s filings revealed a complex financial structure in which much of what the diocese once owned was moved in 2009 into charitable trusts, which it maintains are beyond the reach of court judgments and bankruptcy creditors.

All of its property and non-real estate assets are owned by separate trusts, as are the parishes, who each have trusts of their own, according to the documents. A priest pension fund — from which the diocese borrowed money to fund its victim compensation fund last year — is also off limits, lawyers for the diocese said.

That type of structuring has drawn scrutiny from judges who have handled other diocesan bankruptcies.

“It is common and typical in all church bankruptcies that assets will have been transferred, will have been put into different names, that there will have been trust devices or other devices to get the assets out of the pot that will be distributed to survivors,” said Thomas S. Neuberger, a Wilmington attorney who led efforts to win a $110 million settlement when that city’s diocese filed for bankruptcy protection in 2009.

The job of the attorneys for unsecured creditors — the abuse victims in this case — is to “search through all the different permutations of how assets are held” and push to include them in the creditor compensation fund, Neuberger said.

The Harrisburg Diocese reported $183 million in total assets, including $144 million in investments, according its June 2018 audited financial statements. Those numbers included some, but not all, of the assets connected to the charitable trusts referenced in Wednesday’s bankruptcy filing.

Diocesan lawyers say the affiliated charitable trusts were established to ensure the church could continue to serve its core functions of ministry, Catholic education, and charitable service. It is just one tactic dioceses nationwide have employed to ensure their survival as the clergy sex-abuse crisis endures.

The 2018 Pennsylvania grand jury investigation, led by Attorney General Josh Shapiro, set off a wave of similar probes in other states and renewed calls in state houses across the country to grant victims of decades-old childhood abuse a second chance to sue.

Eight states, including New Jersey, New York, and California, passed so-called window laws opening a short-term opportunity for victims, whose abuse had fallen outside civil statutes of limitations, to pursue lawsuits in court once more.

Pennsylvania’s proposed version of a “window law” ignited a contentious battle in Harrisburg, drawing opposition from Senate Republicans who warned it would violate the state constitution. Still, in November, lawmakers reached a compromise, opting to leave the decision up to voters in a statewide referendum.

Fearing the financial fallout, seven of the state’s eight Catholic dioceses launched independently managed compensation funds last year, hoping to settle some old abuse claims before any new law had the chance to pass.

Separate from the $12.5 million paid out by the Harrisburg Diocese, an additional five funds have paid out more than $80 million to more than 470 individuals, said Camille Biros, who, along with Kenneth R. Feinberg, administered many of the funds. (Philadelphia has not finished paying out all its compensation fund claims, but it has already cut checks totaling nearly $39 million to more than 180 victims of abuse.)

Accusers and their lawyers have viewed those programs with skepticism, saying that while the funds’ payouts are better than nothing, they have allowed dioceses to limit the penalties they might have faced in court.

Some victims opted to take their chances, hoping that the “window law” referendum would pass or deciding to press their claims in other venues. The same day New Jersey opened its “window period” last year, five sisters who say they were all abused by the same Dauphin County priest in the 1980s sued the Harrisburg Diocese in that state.

With the bankruptcy filing Wednesday, that case is in limbo.

“It’s disappointing,” their lawyer Ben Andreozzi said. “We’ve been patient with them and have acted in good faith. … This filing would seemingly preclude them to having to move forward in our case.”

Despite the setback, lawyer Richard Serbin, who represents five Harrisburg-area sex-abuse plaintiffs, said he wasn’t “ready to throw in the towel just yet.”

“Survivors will now just be treated just like any other creditor,” he said. “It doesn’t mean that survivors and their claims are dead in the water and that they get nothing.”

Staff writer Harold Brubaker contributed to this article.