Could Diocese of Providence Declare Bankruptcy — Now Facing Exposure to Tens of Millions

The very idea that the Diocese of Providence could file for bankruptcy seems absurd as it historically has been one of the most influential and wealthy institutions in Rhode Island. If it did file for bankruptcy it would not be the first Diocese in the United States to file for bankruptcy to avoid financial claims.

Today, the Diocese of Providence is facing a massive lawsuit by the receiver for the St. Joseph pension fund — a lawsuit that alleges, in part, that Bishop Thomas Tobin and other top Diocesan leaders perpetrated a massive fraud. If the lawsuit is proven to be true then the Catholic Church will have major exposure. The pension fund is underfunded by an estimated $118 million and the 2,700 plus plan members face an uncertain financial future and the potential of as much as 40 percent cuts to their benefits.

The lawsuit crafted by Max Wistow, the attorney who recovered more than $60 million in the 38 Studios case, names not just the Diocese of Providence, but 15 other defendants as well.

Tobin did not respond to questions for this article.

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In the early 2000s, a number of Dioceses around the country filed for bankruptcy protection to minimize exposure to claims for sexual abuse of children.

In 2004, the Roman Catholic Archdiocese of Portland, Oregon was the first Diocese to file for bankruptcy protection. At the time, the Diocese was facing more than $53 million in claims.

“The Chapter 11 filing in U.S. Bankruptcy Court for the District of Oregon halted two civil trials scheduled to begin yesterday, in which alleged victims of the Rev. Maurice Grammond, a deceased priest, were seeking about $160 million in damages. About 60 additional claims involving Grammond and other Portland area priests are pending, lawyers said. ‘The pot of gold is pretty much empty right now,’ Archbishop John G. Vlazny said,” reported the Washington Post in 2004.

Other Diocese followed suit to avoid or minimize exposure to lawsuits seeking to recover funds for the victims of sexual abuse — Tuscon, Spokane, Davenport, San Diego, Fairbanks, Willmington, and Milwaukee all sought bankruptcy protection.

"The U.S. Catholic church has incurred nearly $4 billion in costs related to the priest sex abuse crisis during the past 65 years, according to an extensive NCR investigation of media reports, databases and church documents," National Catholic Reporter has identified.

Former Rhode Island Attorney General Arlene Violet who has been representing a group of older members of the St. Joseph plan members, says, “While anything is possible, I think the diocese has been careful about maintaining assets at least by the public comments it has made to parishioners as to why they are closing certain parishes as a tool to remain solvent.”

“In any event [if the Diocese did file for bankruptcy], Max Wistow has brilliantly advanced the theory in the lawsuits that the pensioners have a right to the hospitals' assets as recoupment. Personally, I think that he has a viable argument so the facilities at Roger Williams and Fatima may be recouped to fund the pensions,” said Violet.

One other factor is the Diocese is in the midst of a two year $50 million capital campaign. While those fundraising dollars are dedicated for a specific use, they could be tapped as part of a judgment.

“In preparation for the 150th Anniversary of the Roman Catholic Diocese of Providence, Bishop Thomas J. Tobin has announced that a diocesan wide capital campaign will be launched in January 2018 to increase resources to stabilize and maintain the viability of parish and diocesan funds. The Diocese will observe its 150th Anniversary in 2022. The theme of the campaign, Grateful for God’s Providence, will be among the many ways the historic milestone will be commemorated. The campaign will run over the course of 2 years with the goal to raise a minimum of $50 million,” the Diocese of Providence announced in June of 2017 — just 50 days before the St. Joseph pension fund was thrust into receivership.

"[The capital campaign] is a tangible way of showing that we are ‘Grateful for God’s Providence,’ which we have all experienced over the years, while also creating a beautiful legacy for future generations,” said Tobin at the launch of the capital campaign.

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The lawsuit lays out that “Bishop Thomas Tobin did not disclose in his letter to the Vatican that the proposed asset sale increased the probability of the Plan failing. Instead, Bishop Tobin omitted that information and, in effect, said the opposite, that approval of the asset sale was actually necessary to secure the Plan.”

The suit goes on to assert, "On September 27, 2013, Tobin signed his letter as altered by [legal] counsel for [St. Joseph Health Services, CharterCare and Roger Williams Hospital] and sent it to the Vatican.”

The parties knew the implications, “These misrepresentations and omission concerning the Plan in the Bishop’s letter to the Vatican…all understood that Vatican approval was required for the transaction to proceed..”

Bishop Tobin did not disclose in his letter to the Vatican that the proposed asset sale increased the probability of the plan failing. Instead, Tobin omitted that information (removed from the letter was “spiraling and gaping liability’ which was in the draft) and, in effect, said the opposite, that the approval of the asset sale [to CharterCare] was actually necessary to secure the plan."

The lawsuit goes on to assert, ”These misrepresentations and omissions concerning the Plan in the Bishop’s letter to the Vatican were included by the defendants…and the Diocesan defendant, all understood that the Vatican approval was required for the transaction to proceed, and knew or were told that the Vatican must approve specifically the ‘pension structuring.’”

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