Bankruptcy court rules archdiocese can continue to assist parishes with real estate sales and affirms legal separateness

The judge in the federal bankruptcy court proceeding involving the Archdiocese of Baltimore issued an order April 29 that allows the archdiocese, as debtor in the case, to continue providing assistance to parishes and schools wishing to sell or lease real estate.

Judge Michelle M. Harner granted the archdiocese’s request on an interim basis, allowing the debtor to continue to use its property and resources (including staff members at the Catholic Center) in the ordinary course of business to help with real estate transactions.

Evidence presented to the court by Bishop Adam J. Parker, vicar general, and John Matera, chief financial officer, showed that the archdiocese and the parishes and schools are separate corporate entities, so that the parish and school property in question was not part of the debtor’s estate.

“The Archdiocese of Baltimore acknowledges today’s interim order of the United States Bankruptcy Court,” said a statement from Christian Kendzierski, executive director of communications for the archdiocese. “As we have consistently stated, our decision to enter the Chapter 11 process was made to equitably address the claims of survivors of abuse while ensuring the continued mission of the Church.

“Today’s order recognizes the distinction between the archdiocese and parishes, schools and related entities, affirming that these entities are separate from the archdiocese under both civil and canon law.”

The order requires the debtor to file and notify the creditors committee at least 14 days in advance of any real estate transaction for which it assists a parish, school or other entity. The notice will include the nature and purpose of the sale, lease or other transaction; a general description of the resources and services that will be used in connection with the transaction and their approximate value; the total purchase price or contract price; the amount of fees and expenses being paid at closing; the total amount of the 5 percent administrative fee or other fee being paid to the debtor; the total amount of any and all outstanding debt obligations owed from the nondebtor parish or school to the archdiocese; and the total amount of net profit proceeds going to the nondebtor parish or school, not including the fee or outstanding debt.

This ruling comes after the Unsecured Creditors Committee – a group of seven people who represent all the victim-survivors in the case – filed a motion to stop all parishes involved in the Seek the City to Come process from being able to sell Church properties alleging that the archdiocese and other Catholic entities are actually a single corporate structure.

“The case before the Court is anything but traditional,” the ruling said. “It involves a nonprofit religious organization that is governed by Canon Law, Maryland Law and the Bankruptcy Code. The Debtor itself is a creature of Maryland Law and distinct from related individuals, parishes and schools.”

The Court acknowledged the archdiocese’s assertion that its assistance to parishes and schools with such matters has been a longstanding practice and did not change with the filing of bankruptcy. The order also recognized that the Seek the City to Come planning process that merged and consolidated parishes in Baltimore City “has not changed in any material way how the Debtor uses its property (or the role played by the Debtor) in real estate transactions.”

Harner said in the ruling, “Although the Debtor’s resources and services are being used to assist transactions, none of the property being sold or leased is estate property. This Court and others generally respect state law corporate formalities. The record demonstrates that the Debtor is a distinct and separate entity from each parish and school corporation and the archbishop in his capacity as the ordinary of the archdiocese.”

One of the key factors the judge considered was the testimony by both Bishop Parker and Matera that parishes are the owners of their real estate and make the decisions on how to use the property, including leasing it to other entities or selling it. 

Certain transactions, notably the sale of churches, are subject to approval by the archbishop, as ordinary of the archdiocese, because of the need to respect aspects of Canon Law when a former church is relegated from sacred use to profane but not sordid use. That means that a church can be sold to be used later as an office building, apartments or other secular uses, but not for purposes that would be antithetical to Church teaching.

In practice, Archbishop William E. Lori consults with not only the parish in question, but also with the College of Consultors and the Board of Financial Administration.

“The structure of the Debtor as a separate entity from, and a service provider to, the nondebtor parishes and schools appears to align with general diocesan structure and Maryland law,” the ruling said. “The real estate transaction policy is available on the Debtor’s website. Although an individual unfamiliar with the church may not understand how the Debtor operates, that information is publicly available and did not change as a result of this bankruptcy.”

The archdiocesan statement said, “Throughout this process, the archdiocese has remained responsive and committed to transparency and good-faith engagement with all parties. For more than a year, the Archdiocese of Baltimore has provided information to the Creditor’s Committee regarding these transactions and the archdiocese’s level of involvement related to property sales of merged parishes under the Seek the City to Come initiative. We look forward to continuing this robust reporting in accordance with the direction of Judge Harner.

“We will continue to work in earnest toward a resolution so survivors can receive equitable compensation while the Church can continue to provide spiritual and material support to families across Maryland,” the statement said.

The judge set a status conference for July 6 to review the interim order and implementation of the procedures set forth in the ruling.

Email Christopher Gunty at editor@CatholicReview.org.

Also see

New Orleans archbishop apologizes to abuse survivors as settlement takes effect

Archdiocese will not assert charitable immunity in bankruptcy case

Victim-survivors tell of mistrust, pain in third court session

Agreement reached on property transactions in bankruptcy case

Archdiocese of Baltimore files ‘form plan’ for bankruptcy settlement, proposes $33 million contribution

Bankruptcy court judge gives victim-survivors temporary window to file civil suits

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