Buffalo Diocese sues to get $1.7 million SBA loan through Covid-19 relief program

Buffalo Diocese sues to get $1.7 million SBA loan through Covid-19 relief program

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Buffalo Diocese Bishop Edward Scharfenberger in the lobby of federal courthouse in Buffalo on Feb. 28, 2020, after the diocese filed for bankruptcy protection from its creditors. (Robert Kirkham/Buffalo News)

The Buffalo Diocese has asked a judge to allow it to apply for a $1.7 million loan through the national Paycheck Protection Program, after the Small Business Administration determined the diocese wasn’t eligible because it declared bankruptcy.

The diocese wants to use the money to pay employees and avoid further layoffs.

Its lawyers are arguing that the SBA illegally excluded the diocese from applying for a share of the $659 billion Congress has made available to businesses that keep employees on their payrolls during social distancing shutdown measures prompted by the coronavirus pandemic.

The diocese also recently asked a federal bankruptcy court to stop all Child Victims Act lawsuits against parishes and other Catholic entities from moving forward in the state court system, a legal maneuver that was criticized by lawyers representing sex abuse case plaintiffs.

Without a PPP loan, the diocese argued in court papers that it “will be forced to lay off or furlough essential employees which will have a permanent effect” on how its Chapter 11 bankruptcy case is administered.

The Buffalo Diocese has joined with the Rochester Diocese in asking the U.S. District Court, Western District of New York for a preliminary injunction that prohibits the SBA from denying the loan based on their bankruptcy statuses.

The Rochester Diocese sought $1.1 million from the SBA’s Paycheck Protection Program and was ineligible because it filed for Chapter 11 bankruptcy protection last September. The Buffalo Diocese followed in February with its bankruptcy filing.

Both dioceses have said a Chapter 11 reorganization is the fairest way to continue their missions as they attempt to settle a deluge of Child Victims Act lawsuits. Both dioceses are represented by the Bond, Schoeneck & King law firm in bankruptcy proceedings and in the SBA lawsuit.

The Buffalo Diocese was named as a defendant in more than 250 Child Victims Act cases filed since last August by plaintiffs alleging they were sexually abused as children by clergy or other church employees. Most of the abuses alleged in the lawsuits happened decades ago.

Buffalo Diocese anticipates at least 400 abuse claims in bankruptcy

The diocese in March eliminated the jobs of 21 employees, a fifth of its workforce, due in part to the “anticipated financial impact of the pandemic." The cutbacks followed a 2019 fiscal year loss of $5 million for the diocese.

With Catholic Masses suspended during the pandemic, area parishes have been unable to bring in offertory collections. In turn, the parishes have been unable to meet their financial obligations to the diocese, lawyers said in court papers.

As long as stay at home directives remain in effect, the diocese “will struggle to continue making payroll payments,” which is the main eligibility requirement for the Paycheck Protection Program, lawyers argued.

The lawyers also said that the SBA added the bankruptcy rule arbitrarily, even though nothing in the CARES Act passed by Congress and signed by President Trump limits the diocese’s eligibility for the funds.

Small businesses and other entities – including churches and religious organizations – that employ up to 500 people are eligible for the Paycheck Protection Program, which provides loans to cover payroll costs, rent, mortgages and utilities.

The loan, which requires no fees or collateral, is fully forgiven as long as at least 75 percent of it is used for payroll. If that requirement isn’t met, the loan must be repaid over two years at a 1% interest rate.

Several other dioceses around the country and some Catholic parishes in Western New York have applied for and received loans through the Paycheck Protection Program.

Abuse lawsuits against parishes

In a separate, but related matter, the Buffalo Diocese asked a U.S. Bankruptcy Court judge to put a halt on any Child Victims Act cases that are continuing to proceed in state courts against area Catholic parishes, schools and other entities.

The bankruptcy filing immediately stayed lawsuits naming the diocese as a defendant. But parishes, schools and other entities are separate nonprofit corporations and not part of the bankruptcy filing, so those cases have not been stayed. At least 80 parishes are named alongside the diocese as defendants in CVA lawsuits.

The diocese’s lawyers said the continuation of those cases will deplete diocese assets, prevent staff from properly administering and reorganizing the diocese and hinder the diocese’s ability to “collectively engage in meaningful settlement negotiations regarding a consensual plan of reorganization” that achieves a “fair and equitable resolution of all claims” against the diocese and other Catholic entities.

Attorney Steve Boyd, who represents more than 100 plaintiffs in Child Victims Act cases, criticized the filing as an effort to keep secret the diocese’s internal files on abuse. Boyd said the Rochester Diocese negotiated a voluntary stay of the parish and school cases in exchange for pertinent diocese files. The Buffalo Diocese, he said, was “being way more aggressive in protecting” its files.

Attorney Mitchell Garabedian said the diocese’s legal move was “another example of the Catholic Church coldly putting its needs before the needs of victims.”

“Instead of trying to negotiate an agreement, the diocese has chosen to litigate and accordingly once again shown how little it cares about the healing of victims,” he said.

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