In a move filled with admonishments and anger, a federal judge overseeing the bankruptcy proceedings of the Roman Catholic Diocese here on Wednesday ordered an outside accounting expert to sort through what she called “the most Byzantine accounting system I have ever seen,” and to report directly to her.The order was issued in a contempt hearing in which diocese lawyers and priests were ordered to explain why they should not be sanctioned for trying to move church money without court authorization.
The judge, Louise DeCarl Adler of Federal Bankruptcy Court, also said that she had not “foreclosed” on the idea of appointing a trustee in the case, an extraordinary move if executed.
Judge Adler said that the diocese would have to resubmit documents describing its assets, and have them signed by Bishop Robert H. Brom under penalty of perjury.
“I don’t want any claims of insularity,” the judge said.
The diocese, which filed for bankruptcy protection in late February, is facing lawsuits from roughly 150 people who say they were abused by priests over several decades.
It is the fifth diocese in the nation to file for bankruptcy protection.
Judge Adler called the contempt hearing Wednesday as a result of a letter written by the Rev. Bruce Osborn, on behalf of the newly formed Organization of Parishes, a consortium created after the diocese’s bankruptcy filing.
The letter, citing a court order, laid out what Judge Adler described as a five-step plan to create new parish bank accounts and transfer church money into them, with new identification numbers.
Judge Adler said no such order had been given. The diocese lawyers attributed the move as an honest misinterpretation of what the judge wanted the diocese to do.
Many plaintiffs who say they were sexually abused have long accused the San Diego Diocese of moving money into parish accounts for use in building schools and other purposes as a way to shield money from potential lawsuit awards.
The lead lawyer for the diocese, Susan Boswell, was not held in contempt, but Judge Adler chastised her and two other lawyers, Jeffrey Davis and Victor Vilaplana, as misinterpreting her questions about church accounts as a “mandate or mandatory order” to change taxpayer identification numbers of accounts.
Also appearing before the judge were Father Osborn and the Rev. Michael Gallagher, who leads a congregation in El Cajon and seemed confused about at least some of what the judge was asking him. The pastors’ directives to churches about how to manage their accounts — based, they testified, on lawyers’ advice — were “reckless but I do not feel they were malicious,” Judge Adler said.
The judge added: “I have to say I think the court has not been well served by the information provided to date by the debtor. I do not feel I am getting the kind of independent information I need.”
The other dioceses that have filed for bankruptcy protection are Tucson — represented by Ms. Boswell — Davenport, Iowa; Portland, Ore.; and Spokane, Wash. Tucson has emerged from bankruptcy protection, and in Portland and Spokane the settlements are almost completed.
Some of these dioceses in the course of their bankruptcy proceedings have argued that the assets of individual parishes do not belong to the diocese and so should be shielded from sexual abuse claims.
But experts in bankruptcy law said it would be egregious for a diocese that had already declared bankruptcy to then transfer money secretly into parish accounts.
Lynn M. LoPucki, a law professor at the University of California, Los Angeles, and a bankruptcy expert, said: “It’s very unusual to have somebody in a bankruptcy case making transfers of property without alerting the court to these transfers. Even if you assume that there’s nothing wrong with these transfers, a judge would be expected to be told about them and approve them.”
Mr. LoPucki said that even if the San Diego Diocese had an honest explanation for these transfers, it had a troubling history of transferring other assets in the months before it filed for bankruptcy, while it was negotiating settlements with abuse victims.
He said he saw this as a larger pattern in which the Catholic Church was sidestepping its responsibilities by claiming that parishes, schools and other entities were separate.
“Suddenly this church with billions and billions of dollars and millions in artwork doesn’t have any money for the people who, by law, are supposed to be paid,” Mr. LoPucki said.
“They are reordering their affairs so that future plaintiffs will never be able to recover anything.”
The San Diego Diocese, like many others in California, has been hit with a large number of lawsuits because laws in that state lifted the statute of limitations on sexual abuse cases.
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