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Judge to decide on Catholic diocese bankruptcy plan

WILMINGTON, Del. — The bishop of the Catholic Diocese of Wilmington told a federal bankruptcy judge Friday that the diocese’s reorganization plan is fair and just for all creditors, including victims of priest sex abuse, and that he doesn’t expect the diocese to provide pension payments or other benefits to known child abusers.

“I think we tried to be fair to all survivors,” said Bishop Francis Malooly, the first witness to testify at a hearing on whether the judge should approve the diocese’s plan.

The plan is based on a $77 million settlement with some 150 alleged victims of priest sex abuse. In return, the diocese, its parishes and affiliated entities would be released from legal claims related to the church sex abuse scandal.

The plan, which is supported by abuse survivors who constitute the official committee of unsecured creditors, also requires that church officials turn over internal documents detailing how the diocese handled pedophile priests, who in many instances were allowed to continue to prey on children for years after their abuse became known.

The diocese resolved an objection by its official committee of lay employees by agreeing to make an additional payment of almost $10 million into the lay employee pension plan when the reorganization plan takes effect, and to take out a secured note of $15 million to cover future pension plan payments, using real estate held by the diocese and its non-debtor affiliates as collateral.

But attorneys representing some survivors accused the diocese on Friday of reneging on a settlement reached in February and trying to prevent one parish from being held to a separate $1.7 million settlement it reached with an abuse survivor earlier this year.

Tom Neuberger, an attorney representing an unofficial group of abuse survivors, said the diocese agreed in February that the abuse victims would be paid within 60 days after the court confirms the reorganization plan, but that it now wants to reserve the right to delay payments until any possible appeals are resolved.

“We’re asking the court to enforce the settlement agreement,” Neuberger told Judge Christopher Sontchi.

Robert Brady, an attorney for the diocese, said it has agreed to put $50 million for the abuse victims in escrow within 14 days of the plan confirmation date, thus allowing interest to accrue on behalf of the abuse survivors.

Brady also noted that the plan is supported by all but one of the abuse survivors who voted on it.

That survivor, Joseph Curry, reached a $1.7 million settlement with the St. Dennis Church parish in Galena, Md., in January. But Curry could see that agreement voided because the parish entered into it after diocesan officials already had agreed to accept more than $50 million from the Wilmington-based Catholic Diocese Foundation to help fund the bankruptcy settlement, on the condition that all parishes would be released from liability.

“How were you being fair to Mr. Curry by agreeing to take away what the parish had agreed to?” Curry attorney Robert Jacobs asked Malooly.

Malooly said that given the total amount of the settlement with all survivors, he expects that Curry “would do fine.”

The Associated Press does not normally identify victims of sexual abuse, but Curry and his attorneys have used his name in court filings and arguments.

Malooly also downplayed concerns that priests identified by the diocese as child abusers will receive pensions or other benefits in the future.

“It would take a real stretch for me to be charitable to any of these perpetrators because of the impact that it would have on survivors,” he said under cross-examination by Neuberger.

In 2009, the diocese requested authorization to provide pension and medical benefits to six priests who were among those the late Bishop Michael Saltarelli identified as substantiated child abusers. After attorneys for abuse victims objected, the diocese agreed not to provide benefits to those priests for the duration of the bankruptcy case.

Under the settlement plan, two confirmed child abusers, Douglas Dempster and John Sarro, could have their pension payments reinstated, but Malooly said he is seeking to have the men defrocked, which would make them ineligible for pensions.

“I have not got confirmation from Rome about that,” said Malooly, adding that he would amend the diocese’s pension plan to exclude known child abusers.

Malooly also testified that he likely would resist any request under canon law to provide charity or “sustenance” to known abusers.

“I would have a concern about that because of how appalling it would be for the survivors,” he said, adding that in the unlikely event he was asked by church authorities to provide such payments, he might have to consider resigning his position.

The Wilmington diocese, which serves about 230,000 Catholics in Delaware and the Eastern Shore of Maryland, was the seventh U.S. Catholic diocese to seek Chapter 11 bankruptcy protection since the church abuse scandal erupted almost a decade ago in Boston. It filed for Chapter 11 bankruptcy protection in October 2009 on the eve of the first in a series of trials scheduled in lawsuits filed by alleged victims of priest abuse.