Churches can sell property amid Baltimore Archdiocese bankruptcy, judge rules

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The Archdiocese of Baltimore‘s affiliated churches and schools may continue to sell real estate despite the archdiocese’s ongoing bankruptcy case, a judge ruled Wednesday.

In an interim order, U.S. Bankruptcy Judge Michelle Harner determined that the affiliates are separate from the archdiocese and allowed them to continue real estate transactions. She required the archdiocese to provide two weeks’ notice and certain information before the closing or effective date.

The committee representing abuse survivors in the bankruptcy case had challenged the archdiocese’s Seek the City to Come initiative, through which 61 parishes in and around Baltimore are consolidating into 30. That plan, which began before the bankruptcy and was prompted by declining attendance and revenue at churches in the city and inner suburbs, means many churches were left with property to sell.

The committee argued the archdiocese and its affiliates were not independent of one another and that the sale of real estate implicated the debtor’s estate in the bankruptcy case.

Harner on April 2 issued a preliminary injunction, temporarily pausing most transactions, while the parties litigated the issue of the archdiocese’s independence from its affiliates. Tuesday’s order eases many of the restrictions of the earlier injunction.

“(T)the structure of the debtor and these individuals, parishes, and schools, as well as the three separate bodies of law, make the situation appear more complex than it actually is,” Harner wrote, referring to state law, bankruptcy law and Catholic canon law.

“Although the Debtor’s resources and services are being used to assist transactions, none of the property being sold or leased is estate property,” she wrote. “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.”

She added that the archdiocese is also distinct from the archbishop when he acts in his capacity as the “ordinary” of the archdiocese under canon law.

At a hearing in mid-April, two archdiocese executives testified about the organization’s complex financial relationships with affiliates. Parishes are separately incorporated and own their own property. They pay a tax-like fee to the archdiocese, and the archdiocese takes 5% of any real estate sale, plus any debt the parish owes to the parent organization. Churches initiate sales, but the archdiocese must give final approval for many transactions.

Although the affiliates are considered independent of the archdiocese, they are enjoying the primary benefit of the bankruptcy — they have been immune from civil lawsuits for two and a half years.

The survivor’s committee has asked the court to consider the archdiocese and its affiliates to be one entity in an eventual settlement so the affiliates’ assets can compensate victims. Tuesday’s interim order is not a final ruling on that issue. A hearing is scheduled for June.

Harner ordered the archdiocese to disclose the purchase price, the amount of the 5% fee, the purpose of the transaction and other information at least 14 days before closing.

“We are very pleased that the Court imposed meaningful notice requirements on the Archdiocese,” said Ed Caldie, a Minneapolis-based partner at Stinson LLP who represents the victims’ committee. “That’s all the Survivor Committee was asking for.”

Archdiocese spokesperson Christian Kendzierski said it “has remained responsive and committed to transparency and good-faith engagement with all parties” and has provided “robust reporting” on property sales.

“The 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,” Kendzierski stated in an email.

“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.”