STATE OF MINNESOTA DISTRICT COURT COUNTY OF HENNEPIN RTH JUDICIAL DISTRICT - Dale Scheffler TRANSCRIPT OF PROCEEDINGS Plaintiff, Case No. PI 95-2180 vs. Volume 7 Archdiocese of St. Paul and Minneapolis and Father Robert Kapoun, Defendants. The above--entitled matter came on for trial before the Honorable Gary Larson, one of the judges of the above--named court, and a jury, commencing on the 19th day of January, 1996, in the Hennepin County Government Center, City of Minneapolis, County of Hennepin and State of Minnesota. APPEARANCES I Jeffrey R. Anderson, Esq., and Mark A. Wendorf, Esq., appeared as counsel for and on behalf of the Plaintiff. Andrew J. Eisenzimmer, Esq., and John C. Gunderson, Esq., appeared as counsel for and on behalf of Defendant Archdiocese of St. Paul and Minneapolis. Frederick_C. Brown, Esq., appeared as counsel for and on behalf of Defendant Father Robert Kapoun. 914 (February 7, 1996.) THE COURT: Mr. Eisenzimmer, I think we will start with you. MR. EISENZIMMER: Thank you, Your Honor. would the Court prefer I deal with the directed verdict questions first or with the punitive damages or do you want me to do all of them? THE COURT: Let's talk about the subject we were just talking about starting out and then we will get to the other things we have got to do. I MR. EISENZIMMER: Your Honor, I have a number of motions to bring relative to the issue of punitive damages should it become necessary for this case to move into the punitive damages phase. I am not going to repeat the statutory language or the factors other than as they may be germane but I certainly reference the statute and this Court has already ruled on a previous motion that the former statute will apply with respect to punitive damages. I have been advised just before coming into Court here in chambers by counsel for plaintiff that in the punitive damages phase he would intend to call Archbishop Roach, Father Kapoun and then his financial expert. His name is Kevin Bergman. OJIU 915 Counsel indicated that his purpose in calling Archbishop Roach it would be to ask him about a number of things. Number one, is a matter pertaining to a young man named Howard Braith, brother of Russell Braith who testified in this case earlier, and the expected testimony there is that Father Kapoun admits to some sexual contact with Howard Braith in the years approximately 1983 and 1984, and he intends to ask Archbishop Roach about what the Archdiocese did about the Howard Braith matter. No litigation has ever arisen out of the Howard Braith matter. Howard Braith has been deposed so we have some idea of what those matters pertain to. It's my understanding counsel does not intend to call Howard Braith because Father Kapoun will admit to some sexual contact with Howard Braith. The only position I have on this is certainly the Howard Braith matters pertain to a period of time after the plaintiff in this claim says he was abused, so beyond that I wouldn't say anything further. The other things that counsel indicated he intends to ask Archbishop Roach about is a 1969 complaint about a priest named Father Jerome Kern and what the Archdiocese did about that. I will indicate to the Court that at least with respect to 1969 the 916 Archdiocese excuse me Archbishop Roach was not an auxiliary bishop, he was not the archbishop and he was not the director of priest personnel. There has been a lawsuit involving Father Kern. That case was litigated but not tried and resulted in a settlement which includes a confidentiality provision. The next case that counsel indicated he wished to talk to Archbishop Roach about was in approximately 1976 complaint involving a Father Joseph Wadja, A A. There again there was litigation involving Father Wadja and those cases were ultimately settled. Then counsel has indicated that he wants to ask Archbishop Roach about a priest named Father Thomas Adamson who came to this Archdiocese beginning in 1975 and specifically counsel has indicated he wants to talk about the information that the Archdiocese received when Adams came here in '75, about Adamson's assignments to a parish in '76 and '79, and that sometime in '79 or '80 there was a report about Adamson, there was another report in '81, and then finally there was a couple of other complaints about '83 or '84. There have been a number of lawsuits involving Father Thomas Adamson, some nine or ten of those lawsuits. All of them have been settled or 917 litigated. There is currently two cases against -- involving Father Adamson outstanding and one of them was tried to a verdict in late 1990 where compensatory [damages and punitive damages were awarded against this Archdiocese as well as against the Diocese of Winona. And then finally all the rest of the cases were settled but there was either no attempt to add a claim of punitive damages or an actual attempt was made on punitive damages were allowed to go forward, although in one case the Court with respect to the Archdiocese, that was the case called Ferris, the judge in Ramsey County did not allow a claim of punitive damages to go forward with respect to the punitive damages. Then finally counsel referred to claims involving a priest named Robert Thurner. There to is litigation arising out of damages with Father Thurner. There was a settlement reached in that case and either there was a decision not to pursue punitive damages or punitive damages were pursued but the claim was settled. In each one of these case, Kern, Wadja, Adamson and Thurner, the Archdiocese has engaged in litigation arising out of those cases and has entered into a settlement or has been subject to judgment. In LIJN 918 each case either plaintiff's counsel chose not to pursue punitive damages positive or punitive damages were pursued and either denied by the Court or the claim was allowed to go forward and ultimately settled or as I said in one case there was an agreement reached, so our position is that with respect to each one of these cases that counsel has referred to, the Archdiocese has already been subject to legal claims in those cases, and it would amount in essence to a double punishment under the statute for those cases to be now allowed as part of this claim in order to increase the amount of punitive damages exposure that my client might face. So specifically I would make a motion in limine to restrict counsel from inquiring into any of these matters through Archbishop Roach as it pertains to Braith but more specifically inquiring into claims involving Father Kern, Father Wadja, Father Adamson and Father Thurner. Now, counsel in chambers alluded to the fact that the settlement agreements where a settlement was entered into included a confidentiality provision, and I agree that is certainly true I believe in probably all instances, but confidentiality provisions basically I think are the same one submitted to the thin 919 Court earlier with respect to one of the witnesses in this case and that is they restrict discussion of the amount of that particular settlement and those kinds of things, but there is certainly nothing that would restrict some consideration of those settlements from a global perspective if this Court decides that the evidence should go in. The difficulty with that, Your Honor, as I have earlier alluded to in some chambers discussions is if you look at the Mrozka decision from the Court of Appeals, the Mrozka decision says -- THE COURT: What's the cite on that? MR. EISENZIMMER: If I may have a moment, Your Honor, I believe I have a copy of that. THE COURT: Somebody got an extra copy of it? MR. EISENZIMMER: Okay. Mrozka is at 482 THE COURT: Okay, Jeff has it. MR. EISENZIMER: Page 806. THE COURT: Now, in that case did they say that it was within the discretion of the Court to not disclose the amount or -- MR. EISENZIMMER: I will read the specific language, Your Honor. From page 813. THE COURT: Okay. Let me look at it. MR. EISENZIMMER: The amount of other 920 settlements let me begin. The amount of other settlements and judgments and the nature and extent of media coverage were properly kept from the jury, but they went on to say that in light of the trial court's responsibility to closely supervise an orders for damages those those matters were appropriately considered in granting Now, the question this simply raises is if this Court is Mrozka is saying that the amounts of other settlements and judgments were properly kept from the jury, that certainly raises the question how does the Archdiocese then have in this case other settlements and judgments considered, especially, especially, Your Honor, if counsel is going to be permitted to inquire into any of these other claims. THE COURT: I don't disagree with you, counsel. I find it very troubling how he can raise those issues and then we can't tell the jury that there has been some payment on those issues. MR. EISENZIMMER: Your Honor, I also have one other motion to make with respect to punitive damages and if the Court prefers I can make that at this point in time or -- THE COURT: What is it? MR. EISENZIMMER: Well, Your Honor, it's my 921 position that the Court of Appeals in at 528 895, a Minnesota Court of Appeals case from 1995, in essence determined that under the delayed discovery statute of limitations 541.073 that because that delayed discovery statute uses the word negligently that it did not apply to respondeat superior claim, and Your Honor has already ruled on this claim and some others on that issue as to the question of whether or not delayed discovery statute extended the statute of limitations for respondeat superior claims, so it has been clear by a number of decisions beginning with and following that the delayed discovery statute did not extend the statute of limitations for respondeat superior claims so the law is quite clear on that. It's my position, and the motion I would intend to make, is that the same analysis applies to claims under the statute of limitations. The delayed discovery statute of limitations 541.073 says that a claim based upon sexual abuse can have an extended period of time for the statute of limitations, but it specifically says a claim based upon sexual abuse and it defined sexual abuse by specific reference to the criminal sexual conduct code. The Court just as in the issue of respondeat 922 superior could just as easily excuse me the legislature with respect to what the Court ruled on with respondeat superior, the legislature could have just as easily included the term punitive damages in 541.073. The fact that they didn't means that a claim of punitive damages is barred by the statute of limitations, because the delayed discovery statute of limitations doesn't extend the time frame of damages. Now, I think further support for that is case law and other law that very clearly indicates that because of the nature of punitive damages in essence to punish, they are to be strictly and narrowly construed, so the position I am taking at this point in time, Your Honor, is that any glaim for punitive damages in this case is barred by the statute of limitations and that 541.073 under the analysis of and the other cases that have dealt with respondeat superior equally applies to a claim of punitive damages and thus they are barred by the statute of limitations. THE COURT: Go ahead, Mr. Anderson. MR. ANDERSON: I would like to address the last argument first. The 541.073 is a statute of limitations enactment. There is no reference to punitive damages in there and there is nothing in the 923 legislative history that had any reference to punitive damages, It does refer to cause of action for sexual abuse and in section 3 it says that in six years for cases of sexual abuse when somebody negligently permits sexual abuse to occur. By that very language it specifically refers to this cause of action for compensatory and punitive damages and there is nothing anywhere that counsel can cite as authoritative that says otherwise and punitive damages are properly allied here. The other issues. The first issue I heard raised was that in 1969 the evidence pertinent to Father Kern and what the Archdiocese did or didn't do is isn't probative because Archbishop Roach wasn't the archbishop, and I agree he wasn't the archbishop, but this is a claim against the Archdiocese, not the archbishop individually, and it was his predecessor, Archbishop Benz that was the archbishop then, and so it doesn't matter whether it's Roach or not. Secondly, I have told the Court and made an offer of proof that we would intend to call Archbishop Roach and examine him in connection with four separate priests. First should put on the record what the offer of proof would be? THE COURT: Sure. 924 MR. ANDERSON: First, pertains to Father Jerome Kern, a diocesan priest of the Archdiocese. In 1969 two parishioners reported suspected molestation of their sons by Father Kern. In that instance in response to that, the director of the priest personnel board among other things dealt with that and the archbishop in that case in response to that moved Father Kern. We will be offering testimony that in 1975 Father Thomas Adamson came to the Archdiocese. He was an ordained priest of the Diocese of Winona and had been a priest since 1969, and when he came here he had a long history of sexual abuse of boys in his parish and was moved around the Diocese of Winona for about 14 years no, he was a priest ordained in '59, I am sorry, and he has moved around about 14 years. When he came here Archbishop Roach knew he had a homosexual problem in the past and was in therapy. He served here in residence for a year and then Archbishop Roach placed him in a parish in 1976 in St. Paul Park, and then in 1979 he placed him as the head of a parish in Immaculate Conception, and there he sexually molested another youth having molested roughly 12 before that in his past as a priest, and a parishioner father reported the abuse of the 925 13--year~old son and they moved Father Adamson out of that parish to another parish in the southern part of the Archdiocese, and I would ask Archbishop Roach about that. We would also show that in 19 they told him not to have contact with kids but reports that he was having Contact with kids continued to surface and I would ask him about what they did about that which was nothing. He fondled a youth in a whirlpool in 1981 and that came to the attention of the Archdiocese, and they did essentially nothing and continued him there. He continued to abuse youth until 1986 when they removed him from the priesthood and he continued to abuse through '87, so I would ask him about what they did in connection with these reports of molestation by Father Adamson through that period of time. I will further offer testimony and cross examine Archbishop Roach in connection with the report of molestation by another priest, Father Joseph Wadja. Father Wadja was an assistant pastor at St. Raphael's in 1981. The report of his molestation of another youth surfaced, and I would ask what they did in that connection which was nothing. 926 That evidence and all of it is clearly probative to punitive damages. It goes to the seriousness, the hazard of the public, it goes to the duration of the hazard, it goes to the attitude and conduct of this defendant upon discovery of this, it clearly goes to the number and in particular the level of employees involved in causing and concealing the misconduct, and it goes to frankly each of the factors of punitive damages except for financial. In the context of legal claims that have already been brought, in each of these cases of these four priests, we legal claims have been brought and they have been settled. The terms of settlement are strictly confidential. That means that both parties or all parties to those settlements are bound to not disclose the amount of the settlement or the terms of the settlement. At the time those settlements were made, the parties bargained and contemplated by those terms that those amounts paid, whatever they were, would not be thereby used in any context, released publicly, brought into the courtroom or used in future cases, either in punitive or compensatory damages. I can represent I can't even represent that well, I can't even represent more about the terms of settlements other than that. I would say 927 that it would be relevant that there had been claims made in connection with these priests, and it would seem to me relevant that they were settled, but certainly the amounts paid would not to be conflict evidence and it can't be said that any punitive damages have been paid in any of those contacts. Now, I would agree and suggest that any payments of punitive damages have actually been made in connection with this conduct would be properly a factor. Also, and there has been but one instance where punitive damages have been paid for this kind of conduct by this defendant and that was in 1990, early 1990, and in that instance, and this is of record and there is no confidentiality as to this, there was a verdict rendered in another court for punitive damages, and the punitive damage verdict against the Archdiocese I think was 1.5 million 2 million. I didn't think I would forget that. It was 2 million dollars and it was a jury verdict. The Court reduced that, the judge in that case reduced that to a hundred thousand dollars and so that was paid, and I would think that that would he certainly probative and Archdiocese would be fairly able to offer that, but that is the only evidence of payment of any punitive damages by this Archdiocese its conduct since 19 since time. THE COURT: Okay. MR. EISENZIMMER: And I too would like to respond, Your Honor. THE COURT: Mr. Brown. M. BROWN: I have a separate issue, Your Honor. Father Kapoun remains in the lawsuit, but there is no claim against him for punitive damages. It's my understanding from Mr. Anderson that he intends to call Father Kapoun to discuss with him some incidents and some activities following June of 1981. I would like to make a motion in limine with respect to what I understand that testimony to be. First off, Your Honor, there has been no relevance, materiality for any evidence following June of 1981. The Court has already ruled for purposes of the claims that are now being decided that everything prior to 1981 with the other limitations that the Court put on it was relevant, but with respect to punitive damages I don't know why it should be any different. We are talking about a right to recover or a claim to recover by this plaintiff who was allegedly damaged in 1981. We are asking the jury to decide whether or not somebody other than Father Kapoun, and that's a critical issue with respect to the motion 1 making, has acted in such a way as to merit punitive damage and an award to this plaintiff, so with respect to anything following 1981, there should be no testimony from this particular defendant, Father Kapoun, who would just be irrelevant and immaterial. Furthermore it would be in this instance in light of such things as the final argument made by Mr. Anderson, in light of the testimony given by Father Kapoun already, extremely prejudicial with respect to not only the claim of the plaintiff against the Archdiocese but would be prejudicial to the Archdiocese to bring this particular defendant in and ask him about things that again occurred after 1981 but more importantly if he is now if this jury is being asked to separate what Father Kapoun did wrong from what the Archdiocese did wrong, it's going to create confusion, it's going to create prejudice, and from the standpoint of Father Kapoun it's really personal punishment that he ought not have to go through, and I say that from a confusion standpoint for this reason. Mr. Anderson is going to ask about three or four other priests and he is going to ask" similar questions about what the Archdiocese knew, about what the Archdiocese did, and will certainly make argument about whether or not that meets the jury 930 instructions, but to single out Father Kapoun; especially in light of the fact that we have now been here for seven days, in light of some of the comments and final arguments and perhaps my own comments, I think this is unfair, prejudicial, confusing and duplicative of all of what I understand is going to be brought in this next phase of the trial. So I would move the Court either to find that anything after 1981 by this particular defendant Father Robert Kapoun is not relevant to the issue that's set forth on the proposed special verdict form, or secondly, that this his testimony should be excluded and his presence not used and that if the Court finds it's material to bring this evidence from persons and sources other than Father Kapoun. You know the bottom line, judge, this is going to be personal punishment to Father Kapoun, personal punishment that is going to I think unfairly impact the claims against the Archdiocese, and the same evidence can become can come to the jury through other witnesses and those are the witnesses that should talk about it, not Father Kapoun. THE COURT: Mr. Eisenzimmer. MR. EISENZIMMER: Your Honor, I want to raise some issues that I raised at the time of plaintiff's 931 motion in this case to add punitive damages. At that time I indicated to the Court that pursuant to the Court's own scheduling order the motion was made after both the dispositive and non--dispositive deadline and discovery deadline were concluded. Despite that the Court indicated at the time of that argument that the motion was going to be allowed and that no continuation in the trial would be allowed. In essence what I believe is is that this has been to a certain extent litigation by ambush. We are now because of the time of that precluded from determining what was going to be offered in terms of the punitive damages because of the lateness of that motion, and now counsel has identified for the first time what he intends to offer. The punitive damages statute -- THE COURT: That motion was granted when, counsel? MR. EISENZIMMER: That date I do not have here, Your Honor, but it was after the discovery deadline in this case, whatever. THE COURT: okay. MR. EISENZIMER: The with respect to these claims there has already been claims of punitive damages made with respect to those priests or, and I ostnaa-wto 932 think maybe one instance no claim was made because counsel chose not to do that. Now he wants to seek punitive damages a second time for the same claims. He talks about the confidentiality provision, and as I represented to the Court, it's in essence identical -- virtually identical to the one the Court reviewed earlier in this case where you did decide that evidence could go forward with respect to the fact that there was a lawsuit, that all that couldn't be discussed was the specific amount of that settlement. THE COURT: I think the record should reflect that I never examined that confidentiality agreement. Apparently you agreed upon yourselves about that. It was talked about but never presented to me just so the record accurately reflects that. MR. EISENZIMMER: I may be mistaken about that, Your Honor. I thought Mr. Brown submitted it to you, Your Honor, but I will represent to this Court that there is a confidentiality provision in each one of those settlements that restricts, and I will certainly offer and submit that to the Court. I think it restricts from there being a discussion of the amount of the individual settlement, but the restriction is no broader than that. In fact, the restriction itself contemplates some of the instances that there is litigation between the defendant and their insurers and that some of that information may have to be involved in that litigation. Indeed it is involved in that litigation. Now, counsel says with the exception of the Mrozka verdict defendants haven't paid any punitive damages. Certainly that's true on the surface because they only had the one judgment for punitive damages, but in many of these other cases and the majority of cases he is talking about, there have been claims of punitive damages that have been settled so amounts have been paid in contemplation of the exposure to punitive damages liability, so as I said we are being subjected twice to the same punitive damages. Now, the factors that are listed under the punitive damages statute to be considered repeatedly talk about the duration of the hazard THE COURT: Counsel, you are just repeating everything you said the first time. MR. EISENZIMMER: The point I want to make is it talks about duration of the hazard, and the hazard here is matters pertaining to Father Kapoun, and if we are going to allow matters pertaining to Kern, Adamsonr Wadja and Thurner, what that necessitates, 934 for example, is we need to bring in Father Kern to testify, because he denies what he did in 1969 was a sexual contact or abusive. Father Wadja denied sexual contact in his case, and Adamson has denied some of the sexual contact, other sexual contact he has admitted, and Father Thurner has similarly denied some contact, admitted other contact, so in essence what counsel would require here is that we relitigate all of those cases all over again, especially considered that we have already been subjected to that, so I by necessity would have to call more witnesses than I have identified to the Court at this point of time if counsel is permitted to proceed on that basis. THE COURT: I am going to allow him to proceed on that basis with the understanding that the Archdiocese can through some witness identify the total amount, the global amount that is paid in settlement for those claims, and I am also going to let them identify that they paid a hundred thousand dollars in punitive damages. And I know that that seems to be contrary to the Mrozka decision, but it is patently unfair on its face to not include both of those pieces of information under the terms of the statute, and either I am misreading the Mrozka case or the Mrozka case is wrong or whatever, but it's 935 patently unfair to allow half of that information and not all of the information so MR. ANDERSON: May I inquire? THE COURT: Yes. MR. ANDERSON: Does that pertain to just the cases involving the four priests? THE COURT: All of those that you bring out in your all of those that you intend to bring out, they can testify that we paid 2.6 million dollars in settlement of those cases and we paid a hundred thousand dollars in punitive damages in those cases. MR. EISENZIMMER: Well, Your Honor, we do have some difficulty about that question for example, to use Adamson as the best example. Counsel is going to talk about Adamson. I don't know if he is going to talk about every claim that has been filed with respect to Adamson or just limited claims, so for me to gather that information Certainly is going to take some time. I don't know how to what extent he is going to be allowed to discuss Adamson and those claims that are being made. In fact an additional issue I THE COURT: Counsel, I am trying to address what you asked me to do. MR. EISENZIMMER: I understand that, Your 936 Honor. An additional factor with respect to Adamson is that some of those claims were settled by another defendant the Diocese of Winona so how do we then bring in that amount of money, because in every one of those cases the Diocese of Winona has been a defendant as well which is part of the Catholic church but -- THE COURT: The Diocese of Winona settlement amounts do not come in. This is the Diocese of St. Paul and Minneapolis. MR. EISENZIMMER: Well, the difficulty is is the amounts of those settlements have at times been all one settlement, so I am not even sure if it's possible to determine which amount each paid because in some instances we THE COURT: I would be real surprised if the Archdiocese doesn't know how much money it paid. MR. EISENZIMMER: Your Honor, in that regard I can represent that as I have earlier indicated to the Court, these matters are still in litigation as to many of the Adamson cases as well as other cases, so the amounts that are ultimately going to be paid are undetermined at this time in some instances, so you know basically what I am telling the Court is if the Court is deciding to allow this, I am going to need time to gather this information in order to submit it part of this case. I can't represent I can walk into my office and ten minutes later have this information. MR. ANDERSON: Your Honor, in that connection and his concern, I can tell Mr. Eisenzimmer about the amounts of settlement in each of those cases because I know, and I can have a conversation with him and tell him the victim and when it was settled to the number. THE COURT: I will let the two of you talk about it and you can raise the issue again to me if you need to. MR. ANDERSON: And the other thing THE COURT: At the same time your motion to deny punitive damages is denied while I am thinking about it, Mr. Eisenzimmer, so I get that on the record. MR. EISENZIMMER: On the statute of limitations? THE COURT: Right. MR. EISENZIMMER: To address what counsel has said, he can tell me what the amount of the total settlement is, but he can't tell me what amount the Archdiocese and Diocese of Winona THE COURT: After the two of you talk you can raise the issue with me again is what I said, Mr. OJN 938 Eisenzimmer. MR. ANDERSON: The Court should know that the settlements that we are talking about in large part and maybe in total have been paid by insurance companies. Now, we are talking about punishing the Archdiocese. I am wondering if the jury is going to be allowed to hear the amounts of the settlements. They also have to be told that insurance companies paid those. THE COURT: No. I understand your point but the answer is no. MR. EISENZIMMER: To make the record as that, Your Honor, that's part of what is largely in litigation at the present time, and also I want the record to reflect that the Archdiocese certainly has paid insurance premiums for any insurance coverage they have. THE COURT: I understand that. Affects whether they can get coverage and continue coverage and that's a non issue for me. The Archdiocese gets credit for the payment by their insurance company. That's what we have insurance for. I Mr. Brown's motion is denied as to prohibiting Father Kapoun from testifying after 1981. MR. ANDERSON: In that connection, Your Honor, 939 also Father Kapoun has admitted sexually abusing James Drummond in 1969. I will simply ask him did you sexually abuse a boy in 1969. 4 THE COURT: Does he admit it or not? MR. ANDERSON: He admits it. MR. EISENZIMER: Well, this is not something that comes raised in chambers before we came in here, Your Honor. As to Drummond I do agree that Kapoun has acknowledged some contact with him. However, that contact as counsel just indicated comes before the 1973 notice to the Archdiocese, so I don't see how it's relevant to the Archdiocese and the question of whether they were willful and indifferent. They couldn't have been willful and indifferent before 1973. THE COURT: Yes. MR. ANDERSON: I had attempted to offer the testimony of James Drummond in the first case and it's probative to several things. First, the length and duration of the hazard which is factor number one, second, the fact that he had this history and he has admitted to it goes to the seriousness of the hazard as well as what they did in 1973, what they didn't do in 1983, when the Braith complaint surfaced, and it is dramatically probative to that, and I have also 940 advised the Court that I wasn't going to call another witness who Father Kapoun denies, a Roger Kubes who Father Kapoun sexually abused at his first parish at Holy Redeemer in 1967, and I am aware of how the Court ruled. I wouldn't be allowed to call that one. THE COURT: And you can't ask him the question about the '69 guy either. MR. BROWN: That's James Drummond, Your Honor. THE COURT: Drummond. Okay. Where else are we? MR. EISENZIMMER: Directed verdict motion. THE COURT: And then we have to talk about the instructions. Go ahead and make your directed verdict motion. MR. EISENZIMMER: Your Honor, on a number of occasions previous to today we have talked about needing to make motions for directed verdict, and we agreed that today while the jury is deliberating we could make those motions, so I want to do that at this time in with respect to four separate items. First is the item of the scope of employment. It's our position that the evidence here was that there was no proof that in initiating or supervising the trip to the cabin was Kapoun acting in the scope of employment or acting as plaintiff's parish priest. the extent of this claim that the priests quote religious close quote role and responsiblities are unique, as this Court referred to in its motion denying summary judgment, the church is in essence being made liable based on beliefs and not its acts in violation of constitutional protection, so I would ask the Court to rule as a matter of law that at the time of any alleged sexual abuse of the plaintiff Father Kapoun was not acting in the course and scope of employment. I would also repeat for the Court that the constitutional defenses that we raised earlier as part of our motion for summary judgment I will raise those now as a directed verdict plaintiff's negligence claims, especially the negligent retention claim, are barred by the judicial deference document under the first amendment and therefore, a directed verdict should be granted in favor of defendant Archdiocese on those claims. Next is on the statute of limitations. The facts have shown that plaintiff, actually a reasonable person in plaintiff's situation had reason to know more than six years before he commenced his lawsuit that he was sexually abused and that he suffered injury as a result of that. I am not going to go over 942 those facts that were presented to the Court as part of the argument and I simply would renew that make that motion for directed verdict now which is on the same basis that it was made as a motion for summary judgment. Finally, the fourth area of motion for directed verdict is on the issue of loss of earnings, "and here I would like to emphasize to the Court that there was no evidence presented in this case that would allow a jury other than based upon speculation or guess to determine loss of past earnings on the part of the plaintiff or loss of future earnings on the part of the plaintiff. In that regard, Your Honor, I want to make reference to matters that we have somewhat alluded to earlier but I don't think we made a complete record, and that is in this lawsuit as part of the discovery I submitted interrogatories to plaintiff's counsel, one of which was specifically interrogatory number 14 which states, "If you claim that you lost any time from work as a result of your injuries or damages or if you claim that you suffered or will suffer any damages or wage loss or income loss because of your injuries, state A, the name and address of your employer, B, all dates you were off works, C, your 943 wage rate at the time, and D, the amount of wages or income loss claimed by you and how you compute same." In essence this question was asking for past loss of earnings as well as future loss of earnings. Counsel's interrogatory response was as follows: "Plaintiff's loss of income will be determined by expert review and testimony prior to trial. This interrogatory answer will be supplemented in accordance with the Minnesota Rules of Civil Procedure." We never received any further supplementation of that interrogatory answer. The only thing we ever obtained that counsel has alluded to that referred to loss of earnings or future earnings, past or future, is what he has referred to in Dr. Gonsiorek's report. It's my understand that Dr. Gonsiorek's report is not part of any record here, so I would like the opportunity to submit both counsels' answers to interrogatories as well as a copy of Dr. Gonsiorek's report by mailing those to the court and making those part of the record because of counsel's repeated reference to Dr. Gonsiorek's report means somehow his answer to this interrogatory and the basis for the claim of lost earnings -- THE COURT: You should do that and make sure 944 they are part of the file. MR. EISENZIMER: I will do that, Your Honor. I will represent to this Court that I have again as I had done earlier reviewed Dr. Gonsiorek's report, and the only thing that I find in that report that refers to anything remotely related to this issue is a statement that says as follows. Quote, "The net effect of this mingled with his lack of confidence, self defeating behavior, isolation and distrust has resulted in substantial educational and occupational diminishment," so the only thing that Dr. Gonsiorek referred to as occupational diminishment referred to that when he testified, but he also indicated in his testimony he did not feel he was competent to any extent to quantify any kind of lost earnings on the part of the plaintiff, so it's my position, and I objected to loss of earnings we included on the verdict form and in the Court's instructions, so it's my position that a verdict should be directed in favor of the defendant Archdiocese on the issue of lost earnings past and future, and certainly it's my expectation that if the jury were to return a verdict that included any such losses, that this Court would strike them based on my motion for directed verdict, or if necessary on a motion post trial for further 945 relief. Thank you, Your Honor. THE COURT: Mr. Brown. MR. BROWN: I will be brief, Your Honor. On behalf of Father Kapoun I would also move the Court for directed verdict on liability, first on the basis of the statute of limitations for the same reasons as the Archdiocese has argued. There is insufficient evidence to show that this suit was commenced within the applicable period of the statute of limitations. (Jury brought into the courtroom.) THE COURT: I bring you out here because it's necessary when I communicate with you to have my court reporter present, and it's easier for her to do this in the courtroom rather for me to drag her into the jury room. The Court has received a question. "2/7/96. Could we please have use of a dictionary? Thanks. 8. Yerigan." The instructions are complete in themselves and it is not appropriate for me to supply you with outside sources to supplement those instructions. A JUROR: Thank you, Your Honor. THE COURT: Okay. (jury returns to jury room.) THE COURT: okay. Mr. Brown. Go ahead, Mr. 946 Brown. MR. BROWN: The second basis for Father Kap0un's motion at this time for directed verdict is that there is insufficient evidence of any sexual abuse in the event that there should be the evidence is just simply too skinny, Your Honor, and his and only can be based upon testimony from persons such as Tuma, such as Raymond, such as Schutz who are only making accusations, and I think that it just is, especially given the seriousness of the claim in this case that plaintiff has not produced sufficient evidence to permit the jury or any reasonable fact finder to find that there has been sexual abuse. With respect to one other motion made by the Archdiocese, that being a motion for directed verdict on loss of earnings and on future losses, be those loss of earnings or impairment of earning capacity, I wholeheartedly support the argument that has been advanced by Mr. Eisenzimmer and that I remind the Court that we have talked in chambers about the insufficiency of that evidence and it just really is there is no testimony as to what work the plaintiff has been doing with any specificity. There has been no testimony as to the desire this plaintiff to work any harder or any longer than he has._ There has been minimal testimony in what work the plaintiff is now doing which is a self--employed situation, so both with respect to past period of time as well as the future there is just no basis for this jury to make any determination in accordance with the in accordance with the law as to what that loss might be. Any numbers that would come back are based on pure speculation and guess and that is not permitted, Your Honor. Thank you. THE COURT: Mr. Anderson. MR. ANDERSON: I would say only that there is sufficient evidence and in the record and in testimony on which the finder of fact can ultimately make a determination. I have nothing further. THE COURT: All right. All of the motions are denied. (Recess taken.) (Jury brought into the courtroom.) THE COURT: I was just going to say, ladies and gentlemen of the jury, but the bailiff tells me that you have got a verdict, but it's ladies of the jury. The bailiff tells me that you have reached a verdict. would you give that to the bailiff for me 948 please. It's going to take me a few minutes to look at this and read through this and I am not going to respond to you for a few moments so don't be alarmed. I have to read through the whole thing. I will now read the verdict as it will appear permanently in the records of Hennepin County. "State of Minnesota, County of Hennepin, District Court, Fourth Judicial District. Dale Scheffler, plaintiff, versus the Archdiocese of St. Paul and Minneapolis and Father Robert Kapoun, defendants. Special Verdict File No. 95-2180. we the jury in the above--entitled action find as a special verdict the following facts by way of answers to the following questions submitted to us by this Court. 1. Did Father Kapoun sexually abuse Dale Scheffler? Answer, yes. If your answer to question number one was yes, then answer the following question. 2. Did Dale Scheffler sustain any injury as a result of the sexual abuse by Father Kapoun? Answer, yes. If your answer to question 2 was yes, then answer the following two questions. 3. When should a reasonable person in Dale Scheffler's situation have known that he was sexually 949 abused and that he sustained injury as a result of the sexual abuse? October 23, 1993. 4. was Father Kapoun acting within the scope of his employment with the Archdiocese of St. Paul and Minneapolis when he sexually abused Dale Scheffler? Answer, yes. 5. Did the Archdiocese of St. Paul and Minneapolis negligently retain Father Kapoun as a parish priest. Anxious, yes. 6. If your answer to question number 5 was yes, then was such negligence a direct cause of Dale Scheffler's injury? Answer, yes. 7. Did the Archdiocese of St. Paul and Minneapolis negligently supervise Father Kapoun? Answer, yes. 8. If your answer to question number 7 was yes, was such negligence a direct cause of Dale Scheffler's injury? Answer, yes. Regardless of your answers to the other questions, you must answer the following questions. 9. What sum of money will fairly compensate Dale Scheffler for his damages up to the date of the trial: Medical therapy and counseling expenses, $2,548.' Loss of earnings, $33,636. Disability, emotional distress and embarrassment. $241,558. 10. 950 What sum of money will fairly compensate Dale Scheffler for his damages reasonably certain to occur in the future? expenses, $44,220. Disability, $161,038. jury foreperson. Dated 2/7/1996. Medical, therapy and counseling Loss of earnings, $67,000. emotional distress and embarrassment, Signature line Susan Yerigan, 2:36 Is this your true and correct verdict so say you one so say you all. and and and and and THE THE correct MS. THE correct MS. THE correct MS. THE correct MS. THE correct JURY: Yes. COURT: Rebecca Weiss, is this your true verdict. WEISS: Yes. COURT: Ruth Stewart, is this your true verdict? STEWART: Yes. COURT: Susan Yerigan, is this your true verdict? YERIGAN: Yes. COURT: Maria Kessler, in this your true verdict? KESSLER: Yes. COURT: Brenda Nereson, is this your true verdict? 951 MS. Yes. THE COURT: And Valerie Hornor, is this your true and correct verdict? MS. HORNOR: Yes. THE COURT: It will be necessary for you to come back and hear some additional testimony and do some additional deliberations. The soonest I can do that is starting at 9 o'clock tomorrow morning. I am expecting that you will be able to start tomorrow morning at 9 o'clock but you should call my office by 4 o'clock this afternoon just to verify that, but I am fully anticipating that we will start at 9 o'clock tomorrow morning and hear about one day's worth of testimony. You will then deliberate and make some further decisions. I know that this is taking longer than you anticipated and longer than we expected and I am Sorry for that but it just has. Yes. A JUROR: I feel confident you won't answer me if I am out of line, Your Honor. I think I am confused and it's my understanding and probably my ignorance on Court behavior or lack of knowledge of conciliation court, but it was my understanding that once the jury comes to a verdict, you did tell us I am just confused why or how -- 952 THE COURT: You are going to consider tomorrow morning when you come here I am going to tell you what you are going to consider, and you are going to consider punitive damages at this time. You are considering a different as aspect of this trial. The trial was bifurcated. A JUROR: Bifurcated, Your Honor? THE COURT: It was cut into two parts. You did not hear what you are going to hear tomorrow until you answered these questions, and depending upon how you answered these questions, we are going to move into the second phase and that's what you are going to do tomorrow. A JUROR: Thank you, Your Honor. THE COURT: You should not discuss this case with anybody else, do not listen to any news media. We have news media people in the courtroom here today. Do not watch the television or listen to it tonight, do not read the newspaper tomorrow morning, and I will see you all tomorrow morning. i; 91 "7g"/2/so STATE OF MINNESOTA DISTRICT COURT COUNTY HENNEPIN FOURTH JUDICIAL DISTRICT -- Dale Scheffler TRANSCRIPT OF PROCEEDINGS Plaintiff, Case No. PI 9542180 Volume V-SI Archdiocese of St. Paul and Minneapolis, Defendant. January, 1996, in the Hennepin County Government Ce&f?gy :2 of Minneapolis, County of Hennepin and State of Minnesota. Jeffrey R. Anderson, Esq., and Mark A. Wendorf, Esq., appeared as counsel for and on behalf of the Plaintiff. Andrew J. Eisenzimmer, Esq., and John C. Gundersony Esq., appeared as counsel for and on behalf of Defendant Archdiocese of St. Paul and Minneapolis. 953 (February 8, 1996) THE Make your motions. MR. EISENZIMER: Thank you, Your Honor. Your Honor, yesterday in chambers we discussed the special verdict form and punitive damages instruction, and it's my understanding that Your Honor intends to give the jurors the punitive damages instruction prior to the punitive damages phase in this case, so for that reason I wanted to bring to the Court's attention some of the objections_that I would have to that as well as the verdict form. I am going to take the verdict form first, Your Honor, if you don't mind. THE COURT: Counsel, I don't mind. You can take it in any order you want. I have no preference. EISENZIMMER: I think the difficulty with the verdict form as it's presently constituted, Your Honor, relates to the fact that Your Honor has apparently decided that Mr. Anderson is going to be _able to elicit testimony regarding misconduct by other priests involving other victims, and when I say other priests and other victims, I am talking about priests other than Kapoun and victims other than Kapoun's victims. Question number one on the verdict form talks about whether the Archdiocese acted with willful 954 indifferent to the rights and safety of others. I think the verdict form needs to specifically refer to the fact that an employee, Reverend Robert Kapoun, did the Archdiocese act with the willful indifference to the rights and safety of others. It's my understanding that the testimony that would be THE COURT: Let's just do you have a problem with that saying did the Archdiocese of St. Paul and Minneapolis act with willful indifference of others or safety of others in employing Father Kapoun? MR. ANDERSON: Yes, because -- THE COURT: Never mind. I will let him finish. MR. EISENZIMER: My reason for that, Your Honor, it's my understanding that plaintiff's counsel will be permitted by this Court over my objections to introduce evidence of other priests and other victims, and I think then we risk confusing the jury as to what that evidence is coming in or for what purpose that evidence is coming in. It's my understanding that that evidence is only coming in with respect to those factors that the jury is to consider in determining the amount of punitive damages under the statute, and so, therefore, that testimony as I understand it is 955 not offered for the ultimate purpose of whether the Archdiocese was willfully indifferent to the rights and safety of others with respect to Father Kapoun but rather as to the amount of punitive damages. The same is true with question number 2, did the Archdiocese of St. Paul and Minneapolis directly employ an unfit agent. I think that question for the exact same reason needs specifically to refer to Reverend Robert Kapoun. Now, that would conclude well, then question 3-as well, Your Honor, and actually I think- we agreed yesterday that these questions were going to be numbered 11, 12 and 13. THE COURT: They are. MR. EISENZIMMER: Where mean 11, 12 and 13. The same with question 13 then, what sum of money will punish and deter similar conduct? I think that needs to refer to Reyerend Kapoun. Now, as to the jury instruction I indicated to- the Court yesterday and_I believe the Court has agreed that where it refers to defendant we are going to have it referred to defendant Archdiocese of St. Paul and Minneapolis so there is no confusion referring to Father Kapoun, so I won't object to that because it's understanding that that has been agreed to. I did object, however, on the second page of the instruction where it indicates that to the jury or instructions to the jury that they may award punitive damages against an employee because of an act done by an employee. only if you find that, and it was originally four factors set forth in there. The Court indicated yesterday that you intended to instruct on two of them, one being that the employee was unfit and the employer was reckless in employing him, and-the second being that the employee was employed in a managerial capacity and was acting within the scope of employment. It's that second one that I object to an instruction to the jury" that the employee was employed in a managerial capacity and was acting within the scope of employment. The reason for that as I indicated to the Court yesterday and as I told the Court I would. present further information about that. MR. ANDERSON: "Executes me, Your Honor. "Mr. Eisenzimmer, excuse me. I can probably save you further argument on that. I went back and looked at whether our motion to amend the complaint and punitive damages asked for an amendment as to item 3 whether he. was employed in a managerial capacity. I don't 957 believe it did, so I think THE COURT: We will take that one out. MR. ANDERSON: _Yes. I MR. EISENZIMMER: And counsel is correct, Your Honor. THE COURT: I appreciate your shortening that up for us, counsel. MR. EISENZIMMER: Now, Your Honor, I would like to turn once again to the question and make a record because yesterday in part we I think the most part we weren't on the record and some other things have happened since we were on the record yesterday that I need to bring to the Court's attention, so it's my intention here to take a few moments and make a full record about matters pertaining to testimony of Archbishop Roach and what area of inquiry would be permitted in that regard. I wish to note first that Your Honor originally issued a scheduling order on this matter on March 7, 1995 which indicated that dispositive and nondispositive motion deadline of October 1, 1995 with a discovery deadline of September 1, 1995. In a pretrial conference on November 1, 1995, there was an order setting trial issued by Your Honor and part of that order setting trial also indicated that exhibits 10958 needed to be identified and exchanged prior to the start of trial. Counsel despite the untimeliness pursuant to the schedule order was permitted to make a motion for . punitive damages dated November 27, 1995 with a hearing on that motion of.December 7, 1995. Your Honor granted that motion to amend to add punitive damages by an order dated January 2, 1996. 1 At the time of the hearing on December 7, 1995 I indicated to the Court that the discovery deadline had expired and that the lateness of motion didn't permit me to conduct the discovery I would otherwise conduct with respect to punitive damages, and I indicated to the Court that if the Court were inclined to grant the motion it would be necessary to continue the trial. The Court made it quite clear-there was no intent on the part of the Court to continue the trial based upon that. We then proceeded with the trial date as scheduled of January 29 which was a week ago Monday. Archbishop Roach was called to testify on January 31, 1996 which was last Wednesday, a week ago Wednesday. Mr. Anderson was informed that Archbishop Roach would be arriving Tuesday evening and that he had a flight back to Florida at approximately 1:30 p.m. on 959 Wednesday, January 31 and that it was necessary to complete his testimony by 12 noon on Wednesday, the 31st. Mr. Anderson agreed to that at the time -- excuse me, Mr. Anderson agreed to that, and at no time prior to February 5, 1996 did he indicate any intention to obtain any additional or other testimony from Archbishop Roach. In fact within a day or two of Archbishop Roach's testimony, Mr. Anderson acknowledged that Roach had returned to Florida. On Monday, February 5, 1996 at approximately 9:04 and I made a note of.that in my trial notes, Mr. Anderson informed me for the first time that he intended to call Archbishop Roach to testify as to-punitive damages. This was the first time I had been informed of that. I I informed Your Honor immediately of Mr. Anderson's indication. While that was not on the record, the Court did indicate at the time that Mr. Anderson would be permitted to call Archbishop Roach. At no time has Archbishop Roach been under subpoena and at no time had he been informed Mr. Anderson wished to have him testify further. Archbishop Roach has made other commitments and I will discuss that in a moment. 960 Archbishop Roach's testimony here was completed by 12 noon on.Wednesday, January 31, 1996, and as I indicated, he then returned to Florida that afternoon. Yesterday there were discussions both on and off the record about what factors Mr. Anderson intended to obtain testimony from Archbishop Roach about. I was informed for the first time yesterday morning that this included matters relating to four other'priests and alleged misconduct from the period of approximately 1969 which was prior to Archbishop Roach being a bishop or archbishop and through the late 1980s. Objections on behalf of my client were made to this basis for Archbishop Roachis testimony. The Court indicated that Mr. Anderson would be permitted to pursue these matters despite the fact that they had not been pled or made part of the discovery in this case. Yesterday at approximately 10:30 a.m. immediately after leaving Your Honor's chambers Mr. Anderson for the first time provided me with 47_pages of documents authored by seven different individuals, most of them hearsay I might say, involving these four priests. These documents had not been previously listed as exhibits, identified or produced by 961 plaintiff's counsel in any manner whatsoever. I also have informed the Court from the beginning of this case we trial, that the Archdiocese is entitled to have considered other settlements and judgments in other cases as recognized by the Mrozka decision that we discussed yesterday. Mr. Anderson has objected to that in part citing the confidentiality provisions in each of those settlement agreements. Yesterday, as I understand it, Your Honor rule that my client would be permitted to introduce some of that evidence. Yesterday afternoon following the jury's return of verdict on liability and damages, during a telephone conversation with Mr. Anderson be indicated that the confidentiality provisions in the settlement agreements included liquidated damages for violation of the confidentiality provisions, and Mr. Anderson threatened to pursue liquidated damages against the Archdiocese if my client might offer this evidence at this punitive damages phase of the trial. Following the discussion with Your Honor Monday, February 5, about Mr. Anderson's intention to again call Archbishop Roach, I sought to contact Archbishop Roach. I talked with him at approximately noon yesterday and informed him of the status of the 962 matter and that the jury was still out deliberating. Archbishop Roach reminded me that no prior agreement, commitment or arrangements had been previously made for his return to testify and that he had made a number of commitments in the absence of.any such notice. I I spoke again last evening with Archbishop Roach following the jury's return of verdict and informed him that trial_was to resume at 9 o'clock a.m. this morning and that Mr. Anderson still intended to call Archbishop Roach to testify. I have been informed that Archbishop Roach has made a number of commitments, both today and next week. He is not under subpoena, plaintiff's counsel knew full well Archbishop Roach was returning to Florida, and that Archbishop Roach did return to Florida. No request was made for him to remain available for further testimony. He was not advised at the conclusion of his testimony on January 31 that further testimony would be necessary. I He is not an officer of the defendant corporation at the present time and he is retired. Since he is not under subpoena. My understanding is that Archbishop Roach will not appear to testify as requested by Mr. Anderson. Nothing further, Your 963 Honor. THE COURT: How do we resolve this? Seems to me we either go without Archbishop Roach or we set the matter for trial next fall on the punitive damage stage of the trial, or I actually have a week this spring left. MR. ANDERSON: Your Honor, let me address this. We showed up for trial January 29 intending to try punitive damages with compensatory damages. There was no motion for bifurcation here. They made their motion to the Court over my objections. The Court granted it. We then went into the compensatory damages phase. We showed up for trial intending to try punitive damages. Mr. Eisenzimmer has agreed to produce Archbishop Roach without subpoena. He_is the principal and was the principal officer of this corporation against the Archdiocese. No subpoena was required to compel his attendance given that at that time, We began the trial of the compensatory damage phase of this case and in the middle of that on Monday morning I asked Andy and discussed with Mr. Eisenzimmer the necessity he better get Roach back here because he knows I need to cross examine him for purposes of punitive damages and he is the principal witness for 964 purposes of punitive damages, and then we had a discussion with the Court at 9 a.m. Monday morning about that and the Court told Mr. Eisenzimmer you have to produce Archbishop Roach. He_is now telling the Court that he didn't make any attempt to contact Archbishop Roach in this connection and in this trial until noon yesterday, and he is now telling the Court that he cannot produce or will not produce Archbishop Roach because he has some other matters. I am well, this jury has already heard almost all the evidence going to punitive damages. This jury is the one that has to decide that question. There is no other jury that can, and the Court has to compel Mr. Eisenzimmer to compel Archbishop Roach's attendance in this trial. THE COURT: That's not very likely to occur, Mr. Anderson. MR. EISENZIMMER: Your Honor, if I may respond for the record, the issue of bifurcation of the punitive damages phase was heard by Your Honor on January 29 which is the first day of trial. That was two days before Archbishop Roach's testimony.' There was never any discussion at any time between the time Your Honor said they were going you were going to bifurcate that, and I indicated to the Court that one .965 of the reasons I thought it should be bifurcated is because the present statute for punitive damages requires bifurcation. I know Your Honor probably has since regretted bifurcation, but it's clear, Your Honor, there was a substantial period of time between then and the time that Archbishop Roach testified, and I constantly informed counsel that Archbishop Roach intended to return to Florida 1:30 that day on Wednesday, the 31st, and that he needed to be off the stand by noon. There was no discussion of having him appear again in this case. I would also indicate to the Court that as I have said_we have not had any opportunity to prepare Archbishop Roach, and counsel yesterday for the first time informed me what matters he intended to inquire into, provided me with 47 pages of documents, so I think it would be patently unfair and as I indicated to the Court yesterday I believe this has been trial by ambush on those issues. THE counw: I don't find any bad faith on anybody's part here, and I am not going to hold this jury until I can get Archbishop Roach back here, Mr. Anderson. I am not going to impose upon those people that way, so we have to figure out how to solve the 966 problem. MR. ANDERSON: Well, I would like to comment about two things. THE COURT: Make any part of the record anyway you want, counsel. MR. ANDERSON: Mr. Eisenzimmer cannot represent to this Court that he did not know that the principal witness in the punitive damages phase in this case was Archbishop Roach, because he is, he was and he always has been. Second, the suggestion that there has been trial by ambush is not the case. On November 1 In advised Mr. Eisenzimmer that we were bringing this motion, and it was at the pretrial conference of this case, and we scheduled it with this Court's clerk at that time. We had a hearing on the motion, and it was subsequently granted about a month later on or about December or sometime. In that connection after it was granted or even after it was noticed there has been no discovery conducted by defendant Archdiocese of St. Paul and Minneapolis and there has been no attempt to conduct discovery. Furthermore, Mr. Eisenzimmer knows that the inquiry that would be made in the punitive damage phase of this case would rest largely with that 967 witness, Archbishop Roach, the chief executive officer of the Archdiocese and still a priest of the Archdiocese. Mr. Eisenzimmer at all times agreed to produce Archbishop Roach, and this Court is aware and Mr. Eisenzimmer is aware is that in that instance I have no obligation to subpoena him nor should I him being the principal party in this case. when the Archdiocese mu when we appeared.for trial in this case, we intended to cross examine Archbishop Roach on the punitive damages aspects of this case. Mr. Eisenzimmer brought a motion at that time to bifurcate which the Court granted. Before that motion I had no idea that you intended to bifurcate. It was granted over my objection and we proceeded into phase one. We have been in trial for this being the tenth day, eight days of which we offered testimony and called all the witnesses and a large number of them. think there were 15 witnesses easily going to the questions in the compensatory damage phase of this case, that is the negligence questions and the_damage questions and the abuse questions. About 95 percent of the evidence that we intend to offer in the punitive damages phase has already been offered into evidence and is before this 968 jury, these six people. Therefore, this jury now is the only jury or finder of fact that can properly hear this case and this issue. I appreciate that the Court has made a finding of no bad faith, but I also believe that given everything that has gone on to this moment, the representation that somehow they can't produce this principal and critical witness at this stage is to me shocking, and it compels us to find a way to get this witness here. He is well. In response to the suggestion that there has been trial by ambush, that is not the case. In discussing Archbishop Roach's testimony after the Court's after the hearing yesterday we had in connection with the offer of proof I made to this Court about what evidence we would be offering in this phase and through Archbishop Roach, the Court instructed us to sit down and talk about how we wanted to handle that those evidentiary matters, and I gave Mr. Eisenzimmer was asking me some questions about these various events, and I said well, look, Mr. Eisenzimmer, instead of making you go back to those files I will give you copies of my documents that I am going to use to ask him some questions about. I didn't offer them as exhibits and I am not offering them as exhibits, and to ask Archbishop Roach 969 about those things, they don't need to be offered as exhibits and I never intend to offer them as exhibits so I as really just I thought at the time doing him a favor. In any case, I am not going to offer any exhibits and I am simply going to ask Archbishop Roach the very same things that I have told the Court in an offer of proof made yesterday morning. Okay. That's all I have to say about that. MR. EISENZIMMER: Well, Your Honor, to just address very briefly three points. The documents Mr. Anderson provided me with yesterday I fail to see how he can ask Archbishop Roach about those documents without having them at least marked as exhibits. THE COURT: That's not what he said, counsel. He didn't say he was going to ask him about the documents. He said those documents contained information that might be helpful to you that he is going to ask Archbishop Roach about. He thinks Archbishop Roach has the information in his memory concerning those matters, and it was a courtesy to you to give you those documents to say these contain sorts" of things I am going to ask Roach about. MR. EISENZIMMER: That's not how they were described to me yesterday. THE COURT: That's the way he described it 970 just now, counsel. MR. ANDERSON: will represent to the Court that everything I am going to ask Archbishop Roach about in that connection, Archbishop Roach has already been deposed in connection with or there has been litigation where discovery has been done in that connection. THE COURT: All right. You have had your turn, counsel. I MR. EISENZIMMER: Well, Your Honor, again to make a record in that record. THE COURT: Again belies what you are saying so me, Mr. Eisenzimmer. Is again saying something that you have already said this morning. MR. EISENZIMMER: I don't believe so, Your Honor. THE COURT: When you start a sentence again MR. EISENZIMMER: Well, I am sorry. The issue being many of these documents that counsel has provided to me aren't documents that relate to anything that Archbishop Roach they are hearsay conversations between other people. So the other two points I wanted to'make, Your Honor, counsel says that I cannot represent to the Court that I didn't know that he needed Archbishop 971 Roach for punitive damages. I will represent to the Court that at no time did I understand that he would be asked to testify as to any of these matters or did I agree to produce_them other than when I did produce him on the 31st, and also counsel says that on November 1 at the pretrial he did inform me of the punitive damage motion. Indeed he did. Indeed I was aware he did get a motion hearing date for that, but as I informed counsel at that time, his motion was untimely. It wasn't actually until he served the motion that he indeed did intend to pursue that motion. Nothing further. THE COURT: All right. I have already decided and made a finding and let the record reflect that I don't think either counsel here did anything improper. I don't think there is any bad faith. I think there was maybe some sloppiness in communication between the two of you during this period of time of trial. We need to resolve the problem. I have a note here that my clerk just gave me, foreperson on the jury would like to make a request. Her request is that she get off this jury. I cannot hold this jury while I get Archbishop Roach back here from Florida. There is no practical way I can do that or will I do 972 that to them. I need to figure out how to resolve this problem. MR. Your Honor, I would suggest and then request that the jury be discharged temporarily until next week or at a time that each of these jurors can reappear with the instructions to not read anything or anything pertaining to this case or anything like that and then make inquiry of this jury when they can next appear and with the Court's schedule. THE COURT: Mr. Eisenzimmer. MR. EISENZIMMER: Your Honor, I haven't had any opportunity to discuss what counsel has suggested with my client to express an opinion. We can take a short recess. I can talk to Mr. Fallon. THE COURT: The problem is if we lose this jury, then we have a new two--week trial. He gets to redo everything that he did the first time. MR. EISENZIMMER: Again, Your Honor, I don't know what to tell the Court. THE COURT: You can chat with your client, counsel. MR. EISENZIMER: Thank you. (Recess taken.) THE COURT: Where are we? 973 MR. EISENZIMMER: your Honor, I talked with Mr. Fallon who is the Chancellor of the Archdiocese and one of the corporate officers, and we have decided that the Archdiocese is prepared to proceed at the present time. THE COURT: Then you should have Archbishop Roach here, counsel, and if that's your position, I am going to order you to have him here within four hours if that's your position. Then I intend to sanction you for not having him here. I-am trying to work out a problem, and your approach does not meet a good faith effort to do that, counsel. I intend to sanction you a thousand dollars a day for his nonappearance. That would be my intention if you intend to proceed on that basis. 1 MR. Then, Your Honor, if I might inquire, what other basis do we want to proceed on? What is being suggested? THE COURT: I suggested and Mr. Anderson suggested that we somehow try to insulate this jury, give them some instructions and reschedule this for trial at a time that would be convenient for the' archbishop to be here. That's what I thought we were talking about. MR. EISENZIMMER: Mr. Fallon has informed me 974 that we have no objection to that. I can tell Your Honor based upon my discussion with Archbishop Roach last evening I am not certain when he would be available, but I can be in immediate Contact with him. THE COURT: I was suggesting -4 and next week is not going to work, Mr. Anderson. These jurors are so hostile out there. They just about ate my staff alive. They are so hostile that I am suggesting the first week in April. Is that what I am suggesting? MR. ANDERSON: Could we consider something sooner? THE COURT: I have other cases, counsel. MR. EISENZIMER: Your Honor, may I make a suggestion in that regard. I would be more than happy to try to reach Archbishop Roach today. I know I have to leave a message down there and he has to call me back, but I will try my best to reach him today. when I reach him, I will discuss his schedule and talk to Mr. Anderson about his schedule, and I would agree to initiate a telephone conference late this afternoon at whatever time Your Honor is available to see if we can 'agree upon a date. THE COURT: I also have next week by finessing some things. I have next week, but then we have to deal with the hostility of that jury. 975 MR. ANDERSON: Perhaps we could do this, Your Honor. Maybe you could call the jury in, tell them that under the circumstances, and this would be deferential to the request that the foreperson has already made to get off the jury, that under the circumstances we are prepared to recess until a future date, and then the Court could make inquiry into the jury as to when it would be within the confines of the Court's schedule that would be able to, and then if they are able to next week as opposed to the first week in April, we could do it next week. MR. EISENZIMER1 My understanding is that Archbishop Roach has made commitments next week in terms of he is serving in a parish down there doing" some things assisting out the diocese where he is located in Florida, and I am not certain where that is, and'my understanding is he has committed to that period of time next week. I don't know the exact parameters of that, but as clear as I can understanding from my conversation with him last night, he had made commitments today and THE COURT: Okay. Come up for just a second. (Discussion off the record.) THE COURT: What'does somebody want to put on the record? 976 MR. EISENZIMMER: Your Honor, its my understanding based upon previous discussion we had on the record is that the decision is to select another date to have this portion of the trial heard when everybody can be available, and my client has agreed to that and it's a matter of scheduling, and it's my understanding that a recommendation is made that we use the March 18 trial date which is already scheduled for the S. M. Case, that's the Mark Schutz case, and then push the Mark Schutz case to some different date. I have advised the Court I am available then,' I am presuming Mr. Anderson is available. I do know that Daniel Haws is counsel for.the Archdiocese with respect to S. M., so I don't know if he is available April 1, but as to this case the Archdiocese would be prepared to proceed on March 18 with this jury. Again assuming the jury, and I understand the Court would inquire of the jury, that they would be available beginning on March 18 for two or three days of testimony and deliberations and a verdict. THE COURT: Mr. Anderson? MR. ANDERSON: Your Honor, I oppose any continuation of this to that date. I think that Archbishop Roach can and should be made to appear. I 977 think that the offers or suggestions because he has made other commitments as a priest in Florida is not an excuse for not appearing or refusing to appear, and he can be flown up from %lorida you know any time. I would ask the Court to let the jury essentially decide about when it would be next best for them to hear the next portion of this case, and I would suggest that the Court inquire of them and tell them that we have in light of the circumstances, and they won't know that the real reason we are doing this is because they are refusing to produce a witness, but they will think it's because the foreperson has made an inquiry. I THE COURT: I am not going to blame it on the foreperson. I am going to say that there are some logistical problems that have developed. MR. ANDERSON: Then ask them, say we have two choices here. We can come back.next week on Monday and do this and tell them it will take a couple of days, or we can come back on March the 18th and let the jury decide, and then I would ask the Court to allow them to go into the jury room and for them to deliberate that decision so they could talk among themselves given that choice. . THE COURT: I am going to keep the alternates 10978 and ask them all to come back for the time being. MR. ANDERSON: Yes, and I would ask the Court to keep the alternates. THE COURT: Mr. Brown? MR. BROWN: If the Court is going to be in a position to have something next week -- THE COURT: The date I am going to suggest to them is the week of March 18. M. BROWN: Thank you, Your Honor. MR. EISENZIMMER: That's fine, Your Honor. Nothing further. THE COURT: What I am going to say to them when they come in is there has been some logistical problems that have developed and I know that you people are all antsy, that has been conveyed to me, and that we need to finish this trial with all of you, and because of the logistical problems and you are one of the solutions that has come up is that we continue this trial until March 18 and that it would take probably no more than three days'on that week of March 18 to finish this case, and can they all be available at that time. MR. ANDERSON: Why not give them the choice, Your Honor, next week or March 18. THE COURT: Because I have decided it's not 979 worth it to give them that choice and then find that the archbishop is out of the country or something. MR. ANDERSON: Well, he isn't out of the country. THE COURT: He isn't this moment. Counsel, I have made myself clear in that area and I know that you are not happy with me and that's fine that you are not happy with me, but it doesn't do you any good to push me on that point. That's why I get paid all of these big dollars for is to_do this. Are we tentatively agreed that that's what I say understanding that that's the direction we are going. I know that you are not happy, MR. ANDERSON: Yes, I understand. MR. EISENZIMMER: Yeah, I just think it would be my recommendation that the Court be rather firm with the jury, so unless it's absolutely critical that they can't be available that they be here. THE COURT: Yes. I am going to do that. (Jury brought into the courtroom.)f THE COURT: Good morning, ladies and gentlemen. I understand from at least one note I have that you all are not happy with me and I can understand that and I accept that. I have some problems with this case.' We need to finish a second 980 part of the case and I need all of you to be part of that. We have ourselves developed some logistical problems with continuing this case today. What I, after extensive discussions here, am suggesting is that we continue the second part of the case to March 18, the week of March 18. That it will take us about three days two days actually, and I gave myself an extra day, to finish this case, and if that would work for all of your schedules to come back for three days on March 18. I need all of you and I need all of you in this case. I thought that would give you all an opportunity to get back to your_work and employment and whatever and then to miss three days then rather than trying to finish this case today, tomorrow and with the logistical problems we have running into next week. Now, if you need to talk with each other about that or if you need to talk with me about that, you need to let me know how we can move forward here. I do need you all in this case. A JUROR: I think it would be perhaps be a good idea if we could discuss it. THE COURT: That's fine. You can use the privacy of that jury room if you would like to do 981 that. A JUROR: Okay. Thank you very much. THE COURT: Does anybody have any questions before you go in for your private discussion? Okay. All right. (Jury goes to jury room. Following discussion is out of the hearing of the jury.) MR. ANDERSON: I might THE COURT: The question for the record and everybody else in the courtroom, does he know that the alternates have no idea what the verdict was. MR. ANDERSON: What I might suggest that the Court might think about if they come back in and there is one of the jurors that can't reappear on March 18 and it would be a hardship, the Court could consider the alternate and the alternates. THE COURT: I am going to be open to lots of things when they come back,-counsel. What I will really be open to is I will push this case ahead of something else someplace if I have to do that and.bump somebody down the list which I don't want to do but enough said. MR. EISENZIMER: Your Honor, in terms of Mr. Anderson's comment about one or more might have a conflict, I think certainly since we do have 982 alternates, it would be possible to just simply ask them to work on that conflict. Even though they might have a conflict today, something could be worked out between now and then. I don't know that we need to move an alternate at this time. We-can wait to see what happens when we get close to the 18th. THE COURT: She does raise a good point. How are we going to tell the alternates what the decision was? Just give them a copy of the verdict form. They are entitled to know what the verdict is. They all apparently followed my instructions and not listened to the news. MR. EISENZIMMER: I would have no objection to them seeing a copy of the verdict form. It's the verdict. MR. ANDERSON: That would be fine. And I know in that instance the Court would instruct them in no uncertain terms to read and watch nothing that would be THE COURT: If .we are going to seal it, then we will do that. (Jury returns to the courtroom.) A JUROR: Your'Honor, if I could speak? THE COURT: Yes. A JUROR: 'We met. We have first of all we 983 have some concerns and some questions. Trying to understand your logistical problems, one of the main problems is that people feel holding this until March 18 emotionally it has been very.trying for them. Some people are going to be seeking counseling after this to deal with the issues, and March 18 is an extremely long time for them because they don't feel they can go out and do this. The other one of our concerns, it's not that we don't want to work something out here, but is March 18 the soonest date would be another question. And we do have some people on the jury that are leaving town, and we would want the plans are to be gone for a month so one of them is leaving Wednesday. That would be another concern, and then the media avoidance issue, does that mean if it still remains that March 18 that they are not_allowed to watch TV, the news and the newspaper, and so we had a hard time coming to a decision. THE COURT: sure; The last question is the easiest. I would assume after today there won't be anything more in the media about this case. It's not going to go on for ever and ever. 'That will die and it will stop and that won't be a problem. Who is going out of town on Wednesday?" JUROR: I don't have to leave Wednesday. Wednesday, Thursday. THE COURT: That's just important for me to know whether you are an alternate or whether you are one of those. A JUROR: Mine is I had a tentative plan to leave in March but.that can be on hold. THE COURT: All right. --Could counsel come up for a second. (Discussion at the bench out of the hearing of the jury.) THE COURT: Go back in the ball. This is going to take me a few minutes. This is something that has never happened to me before. (Jury leaves the courtroom.) (The following discussion was held out of the hearing of the jury.) MR. EISENZIMER: Your Honor, I did talk with Archbishop Roach as we discussed and he is leaving the country, and what I discussed with him was when he was returning and when he could then get up here, and he suggested if we don't want to do it March 18, then the earliest as possible he is suggesting February 26. That he could be here and available and ready.to go. THE COURT: Okay. Why can't he fly up today back tomorrow? MR. EISENZIMER: He has commitments through today and beyond and then again on next week is when he is going out of the country. THE COURT: What day is he going out of the country? MR. EISENZIMMER: I don't know if it's Monday or Tuesday, one or the other. THE COURT: What are his commitments tomorrow that he couldn't fly up tomorrow and go back tomorrow? MR. EISENZIMMER: Your Honor, I don't know. I do know he has commitments today and this evening. MR. ANDERSON: 'Your Honor, if there is a question about getting him up here and availability of flights, I will charter a plane to get him up here. THE Can he come up tomorrow and go back tomorrow on a chartered plane? MR. EISENZIMMER: I have no idea, Your Honor, and I don't know how. THE COURT: Go call him and ask him. Or' Monday, come up and go back on Monday. I am trying to accommodate. MR. I understand, Your Honor. THE COURT: But I need some accommodation from 986 him too. (Recess taken.) MR. EISENZIMMER: Your Honor, I have again spoken with him and the suggestion we have is to have him come here Sunday and testify first thing Monday morning so that he could get on that same flight that he went back last time which apparently leaves 1:30 Monday afternoon, so if we can agree we could do his testimony Monday morning, he is willing to push whatever space he needs in terms of going out of town to do that. THE COURT: All right. when do we want to start the testimony then? Friday afternoon? MR. I would be willing to start right now you know and just do a brief thing and I could call an MR. EISENZIMMER: Start tomorrow afternoon as the judge said. MR. ANDERSON: I would suggest we just start right now. I will call Father Kapoun as the first witness. I will examine him for I estimate a short period of time and then I can call a financial person to testify, and then I would be done, and then we could recess and we could do that this morning before 110011 . 987 THE COURT: Okay. And they recess until? MR. ANDERSON: Monday at 9 a.m. THE COURT: Monday at 9 a.m. Do Roach and then you would be done and how long is it going to take you to do Roach? 1 MR. ANDERSON: Not very long. THE COURT: An hour, half hour, 45 minutes. MR. ANDERSON: I would say an hour. THE COURT: An hour. So we could finish your complete case and probably get to the jury Monday? MR. EISENZIMMER: I think that's probably pushing it. THE COURT: You could do your complete case, get to the jury Tuesday morning, make your closings Tuesday morning, and they could start deliberating Tuesday before noon probably. MR. EISENZIMMER: Sure. THE COURT: What I would suggest to the jury now going to go with a few witnesses right now, and we would probably be done by noon. That'we would then recess until Monday morning. We would take all Monday .with some testimony and we would close Tuesday morning. Mr. Brown? MR. BROWN: Perfect, Your Honor. THE COURT: All right. Get copies of the I-IELAJBQ 988 verdict form. I am going to bring them in and tell them what we are going to do and have them go back in the hall for a few minutes. I have one thing that I want to we agreed on the change on the JIG instruction, and I want to discuss the special verdict form, but I don't need to do that now because they are_not going to see that, and I am willing to make_some changes in that I think, but I need to discuss that with you more, so bring them in, make sure that they are okay with what we are going to do. Send back out and tell them we are going to start in 10 minutes, and then when they come in I will read them that stuff that we have agreed upon. (Jury brought into the courtroom.) THE COURT: This is what we are proposing and I hope and I think that this will work. We have a couple of witnesses right here now today. We will take those two witnesses and we think we will be done by noon today. We would recess for this afternoon, all day Friday. Bring you back on Monday. Take testimony that we would take most of the day Monday. You would have.the case Tuesday morning, we would argue it, and you would start deliberating Tuesday morning, and I am hopeful that that will meet everybody's needs and schedules as well as ours. 989 Does that sound like something that's going to work for everybody? Thank you very much. I am going to have you step out_in the hall for ten minutes so that we can organize ourselves and get going here, and we are going to start in ten minutes, and I will give you a little bit of instruction of what we are actually going to do at that point. Thank you. I appreciate your effort} The lawyers and parties worked very hard to reach this accommodation. (Recess taken.) (Jury returned to the courtroom.) THE COURT: I think the alternates have now had an opportunity to review the verdict form so you are aware of what the verdict was that was reached by this jury. Good morning the umpteenth time this morning. This is phase two of the trial concerning only the defendant Archdiocese of St. Paul and Minneapolis. Mr. Brown, therefore, will not be sitting at counsel table. There will be additional testimony and argument concerning punitive damages, and you will be asked three additional special verdict questions. I am going to read to you now before we start the jury instruction that you will get in regard to the punitive damages so you will have that keep to mind 990 throughout this phase of the trial. If you find by clear and convincing evidence that the acts of the defendant Archdiocese of St. Paul and Minneapolis shows a willful indifference to the rights or safety of others, then you may in addition to other damages to which you find the plaintiff is entitled award the plaintiff an amount which will serve to punish defendant Archdiocese of St. Paul and Minneapolis and deter others from commission of like acts. When I say clear and convincing evidence, I mean that the evidence must lead you to conclude that it is highly probable that the defendant Archdiocese of St. Paul and Minneapolis acted with willful indifference to the rights or safety of others. Put another way the evidence must produce in your minds a firm belief or conviction that the defendant Archdiocese of St. Paul and Minneapolis acted with willful indifference to the rights or safety of others. when I say that the defendant Archdiocese of St. Paul and Minneapolis must have acted with willful indifference to the rights or safety of others, I mean that the defendant Archdiocese of St. faul and Minneapolis must have acted with a deliberate lack of concern for the rights or safety of others. you determine that punitive damages should be awarded, you should consider factors relating to the purpose of punitive damages in determining the amount including but not limited to the following factors. One, the seriousness of the hazard to the public arising from the defendant Archdiocese of St. Paul and Minneapolis' misconduct. Two, the profitability of the misconduct to .the defendant Archdiocese of St. Paul and Minneapolis. Three, the duration of the hazard and its excessiveness. Four, the attitude and conduct of the defendant Archdiocese of St. Paul and Minneapolis upon discovery of the misconduct. Five, the number and level of employees involved in causing or concealing this misconduct. Six, the financial condition of the.defendant Archdiocese of St. Paul and Minneapolis. Seven, the total effect of other punishment likely to be imposed upon the defendant Archdiocese of St. Paul and Minneapolis as a result of misconduct including compensatory and punitive damages awards to the plaintiff and other similarly situated persons. .992 You may award punitive damages against an employer because of an act done by an employee only if you find that the employee was unfit and the employer was reckless in employing him. Mr. Anderson has indicated that he is going to open at this_time and it will take him approximately 15 minutes to do that. Mr. Eisenzimmer has indicated that he will reserve his opening until he presents his case in chief. 1 You may proceed, counsel. MR. ANDERSON: Thank you, Your Honor. May it please the Court, counsel, you have done something meaningful. You are now being asked to do something even more meaningful. Let me tell you what I am going to be doing here and then what you are going to be asked to do. I am going to call as the first witness Father Robert Kapoun back to the witness stand and I am going to ask him some questions about some things that you have not heard or been told about, and I will restrict my questions to just that which you'don't already know. I will then call an accountant to the witness stand to tell you what the financial condition of the Archdiocese of St. Paul and Minneapolis is. I will then call-and that will be Monday 993 morning Archbishop John Roach back to the witness stand and I will ask him some questions about what they have been doing and they haven't been doing with their priests in this Archdiocese for about 27 years. I will be asking him about Father Kapoun, and when I do, I will ask him things about Father Kapoun that you have not heard. I will not nor do I intend to repeat myself. I will have and show respect for your time and commitment in every question that I ask and every' word that I deliver from this point to the conclusion of this case. I will ask him some questions about Father Jerome Kern, a priest of the Archdiocese, about Father Joseph Wadja, a priest of the Archdiocese, about Father Robert Thurner, a priest of the Archdiocese, and about Father Thomas Adamson, a priest ordained in the Diocese of Winona but transferred and placed in the Archdiocese of St. Paul and Minneapolis in 1975 and served in it after that. I will ask some questions about what these priests did to boys, and I will then ask him some questions about what they did about it. And then I will be done asking questions, and then I will appear and stand before you again I expect Tuesday morning and will address you, and at that time I will be Robert Kapoun -- Cross by Mr. Anderson 994 seeking a morale and a legal imperative, and I will be asking you to deliver a verdict that will never allow the Archdiocese of St. Paul and Minneapolis to do what they have done here and what they have been doing. THE COURT You may proceed, counsel. MR. ANDERSON: Thank you. I am going to call Father Robert Kapoun. THE COURT: Father Kapoun is still under oath from the last time he appeared in front of you. This is the same trial and you may take the witness chair, Father Kapoun. And you don't need identification, right. You may proceed, counsel. CROSS EXAMINATION BY MR. ANDERSON: Father Kapoun, when you were at St. Patricks Church as the pastor, there was another boy by the name of Howard Braith who was a youth in that parish, correct? Yes. And his parents were members of that church and you were their priest and pastor? That's correct. And you came to know Howard by reason of that? That's.right. And you came to gain the trust of the Braiths and their son and took him various places? 11>' 80 IO Robert Kapoun - Cross by Mr. Anderson I 995 I did. And father, you molested him and sexually abused him on at least two occasions? Yes. And you took him to places to swim?' Yes. And you took him on a trip to Ohio? We went to a youth conference with several members of the parish. And you also and when you didwas older than that. 15, 16. In any case, when you molested him, he was in his early teens? Middle teens. And when you did that, you didn't know that that was molestation? I didn't. And father, in 1983, after you had molested this boy, did you become aware that Carol Braith wrote a letter and made a report to the.Arohdiocese in the name of Bishop Bullock about their son and what you may have done to him? I wasn't aware of that. Okay. When, father, did you learn or did anybody from I would think he was probably- it" Robert Kapoun -- Cross by Mr. Anderson 996 the Archdiocese first ask you about your relationship to and with Howard Braith? It was in April of 1984. What happened? I received a telephone call from Bishop Bullock and he said we need to make an appointment and that's what we did. And how soon after that call did you meet with him? Approximately two weeks. And where did you meet? We met at the chancery. And what did Bishop Bullock was he then an auxiliary bishop? Yes. What did Bishop Bullock say to you? I don't recall him asking the questions. Who also was present? Bishop Robert Carlson. Okay. He was another auxiliary bishop then or was he the chancellor, do you remember? I don't know what his titles were. Well, you are aware that Bishop Robert Carlson became an auxiliary bishop at some point in time? Yes. And you are also aware that he was a chancellor of the Robert Kapoun -- Cross by Mr. Anderson 997 Archdiocese before that? I never paid much attention to those titles. I will represent to you that he was? Okay. In any case, was anybody else present? No. Okay. And would you tell the ladies and gentlemen of the jury what was said by either Bishop Bullock or Carlson in that meeting with you? Bishop Carlson had received a letter from Carol Braith, and when I came in it was presented to me outlining some accusations. And did you read the letter or did they show you the letter or both? They showed me the letter. I did not read the letter. And did they tell you that the letter called your relationship with young Howard Braith into question? Yes. Did they tell you that the letter suggested or called into question that you either were or may have molested their son? Yes. And when they told you that, what did you say, father? I did admit to inappropriate behavior. You admitted to inappropriate behavior with the youth? Robert Kapoun -- Cross by Mr. Anderson 998 Yes. And in that admission you admitted that you had in fact while not using the words sexually molest or abuse you had in fact touched him in a sexual way? Yes. On more than one occasion? Two. So you admitted what you had done? Yes. Okay. Did either of these ~--.either Bishop Bullock or I am not sure if Carlson was bishop then or not - but I'wi1l use the term bishop because he is now a bishop. Did either Bishop Carlson or Bullock ask you if you had done this before? Not that I can recall. And you had, correct? Yes. And if they had at that time asked you what you had done before, what would you have told them then you had done? MR. EISENZIMER: Objection, speculation. THE COURT: Sustained. BY MR. ANDERSON: What happened then, father? They asked me to resign my parishes. Robert Kapoun -- Cross by Mr. Anderson 999 And in fact you did not resign your pastor at St. Patricks that day, did you? I believe I signed the form. They also did they tell you that the reason they wanted you to resign was that if you didn't the Braiths were going to the police? Yes. And so you did? Yes. And the Braiths didn't go to the police because you did resign? That's right. Father, you were assigned after that by the then archbishop to St. Scholastica? Yes, I was. And you have served their as the pastor and priest of that and two other neighboring parishes continuously since then and to the present, correct? I served St. Thomas parish since November of 1991. And St. Scholastica and St. Joseph since 1984? That's correct. I Father Kapoun, after this meeting in 19 did you say it was '83 or"84? I am sorry. I didn't -- It was April of 1984. Okay. After this meeting with Carlson and Bullock in Robert Kapoun -- Cross by Mr. Anderson 1000 April of 1984, when is the next time any priest or official from the.Archdiocese asked you about your sexual abuse of boys? It was 1987. Tell the ladies and gentlemen of the jury what happened in 1987? Bishop Carlson called me and he said we need to talk. And when he made the call, did he tell you why? No. Did you go to the Chancery and talk with Bishop Carlson? Yes, I did. And when you did, father, where were he and you? Where did he talk to you? In his office I believe. Anybody else present? No. What did Bishop Carlson tell you at that time? He said we would like you to go for an evaluation. And did he tell you why? Yes. What did he say? I can't remember his words. I just don't recall that.. I know he wanted me to go.' Okayevaluation? lO'3='lO IO IO 11' Robert Kapoun -- Cross by Mr. Anderson 1001 Yes, I did. And was your service in the parish interrupted_at all by reason of that meeting with Bishop Carlson or your evaluation? Yes; For how long? I believe I was gone for about ten days. And you told the members of the.parish, the parishioners, that you were taking vacation? That I don't recall. Well, you didn't tell them you were going for an evaluation? That's right. And then when is the next time if at all you ever had any discussion with any official of the Archdiocese about your abuse of boys? 1989. And how did that come about? It came about through the Dearing case. And when you say the Dearing case, that's when I on behalf of my client Michael Dearing sued you and the Archdiocese? Yes. And in at that time and after that well, who asked you about your sexual abuse of boys at that {#110 lb' Robert Kapoun Cross by Mr. Anderson 1002 time? I believe it was Father Kevin Mcnonough. And Father Mcnonough is currently the vicar~general but at that time he was the chancellor? I believe he was. Okay. And what did Father McDonough ask you? . I can't recall the conversation. Did he ask you if you had sexually abused Dearing? I believe so. And you told him you had? Yes. Did he ask you if you had sexually abused or done similar conduct with any other of the youth in your parishes since you had been serving in parishes since 1964? I had already relayed that back in 1987 to Bishop Carlson. What did you relay to Bishop Carlson in 1987 about that? I mentioned Michael Dearing at that time. Anybody else? And I mentioned another youth. when you say you mentioned Michael Dearing and another youth, did you mention that you had engaged in sexual Contact with Michael Dearing and this other youth? Robert Kapoun -- Cross by Mr. Anderson 1003 Yes. And both of those youth that you made mention to the bishop of in 1987 were youth in your parishes at the time? They had been in parishes, yes. And? .That I had served in. Michael Dearing was in when you made mention of this mm excuse me. When you made mention to Bishop Carlson in 1987 and referred to Michael Dearing you referred to inappropriate conduct you had with Michael Dearing when he and you were at St. Raphael's, correct? Yes. And the other youth you made mention of to Bishop Carlson in 1987 was a youth that was at your parish when you served at what parish? St. Kevin's. Did you tell Bishop Carlson the names of these youth? Yes. What did you tell him? Michael Dearing and Jim Drummond. What did Bishop Carlson say to you, father, when you told him you had done this? He said these occurred quite some time ago. Robert Kapoun -- Cross by Mr. Anderson 1004 Anything else?' And possibly the statutes of limitations had run out on those. Statute of limitations for what, father? MR. EISENZIMMER1 Objection, irrelevant. THE Sustained. BY M. ANDERSON: Did he mention anything else that you recall? NO. What happened after that? Let me ask you this, father. Did you return to your parish? Yes. And have you ministered there continuously since that time? You are talking about which parish. St. Scholastica and the other ones? Yes. Father, you have told us that you had or have a compulsive sexual interest in boys. Did they ever ask you about that? Not specifically that I can recall. At some point in time after being at some point in time did they restrict you in your ministry and your faculty at your parish? That was in the 1987 meeting with Bishop Carlson. Robert Kapoun -- Cross by Mr. Anderson 1005 Okay. What did they tell you to do or not do? He said I should not associate with boys, counsel them. Did they limit you or restrict you in any other way? No. Father, you have testified that when the Michael Dearing lawsuit was brought in 1989, you told your parish about that? Yes. You didn't tell them that it was true though, did you? NO. And they never have been told by you at least that you have a history of sexual molestation of youth in your care, correct? That's correct. And in fact you told your parish ten days ago that you. were taking a leave and going on vacation to Florida, didn't you? NO, I-- Let me ask you this father. What did you tell your parish about your current parish about where you were going to be in the coming weeks while you were attending this trial? I would be in Florida. MR. ANDERSON: Nothing further. Robert Kapoun -- Direct by Mr. Eisenzimmer 1006 THE COURT: You may inquire, counsel. MR. EISENZIMMER: Thank you, Your Honor. DIRECT EXAMINATION BY MR. EISENZIMER: Father, did you make some kind of announcement at your parish this past weekend? Yes, I did. And did the announcement including anything about this case?' It did. And what did you tell your parish about that this past weekend? I told them that I had been in trial all this past week and I will continue the trial will continue into this week. And father, where were you immediately prior to the commencement of this trial on January 29? I was in Florida. So when you told your parish that you were in Florida, that was true? That's true. You didn't tell them when the trial was going to start but you have told them this past weekend that you are in trial? I did. Robert Kapoun -- Direct by Mr. Eisenzimmer 1007 Now, father, there is no question that in April of 1983 you were confronted by the chancery with the allegations being made by Mrs. Braith? Yes. And you knew at that time who Mrs. Braith was, is that correct? Yes. In fact she either was or had been an employee of St. Patricks parish where you were at at the time? That's right. You knew her as one of the employees at that parish? I did. And at some point in time did you also talk directly with Carol Braith about the allegations her son was making of sexual abusing on your part? No. You learned from the Chancery that she was making these allegations? Yes. You resigned that parish? Yes. And other than your resignation, in order to maintain your position where you are currently assigned at St. Scholastica, have you been required to do certain things? Robert Kapoun -- Direct by Mr. Eisenzimmer 1008 Yes, I have. Can you outline for the members of the jury what you have been required to do in order fie continue to serve in St. Scholastica and the other two parishes that you have served? Well, I have been in counseling, in therapy, seeing a spiritual director every month, making a confession, belonging to a support group. And who has required that you engage in these activities that you have just described? The vicarwgeneral. Kevin McDonough? Yes. And I don't want to get into what any of the evaluation or counseling has been, father, except to ask basically is it your understanding that while you have been in counseling and therapy and spiritual direction and these other things that you have described that reports have been made to the Archdiocese about your progress in those activities? Yes. And to whom do those reports go, do you know? They go to Father Kevin McDonough. And he is the person at the Archdiocese that you have dealt with regarding these matters? Robert Kapoun - Direct by Mr. Eisenzimmer 1009 That's right. Did Yeu agree when you engaged in counseling and therapy that it was necessary for you to do that? Yes. As part of your counseling and therapy, did you come to understand that you have a compulsive sexual interest in boys? Yes. Did you understand that, father, before you went through some period of counseling? Not completely. Despite your counseling, there are some allegations against you, father, that you have continued to deny, is that correct? Yes. But as you have already described here and I am not going to ask you to repeat that, you have admitted both in your counseling and to the Archdiocese about these other instances of abuse? YES. Father, at some point in time were there meetings at your parishes when I am talking about your parishes. let me make sure that's clear because I think we have talked about that and used different names. You since for some period of time have served three parishes, Robert Kapoun -- Direct by Mr. Eisenzimmer 1010 correct? That's correct. St. Scholastica is one? Yes. St. Joseph is another? That's correct. And what's the third? St. Thomas. And they are all in generally the same geographical area? Yes. And have there been meetings with parishioners and parish leadership in these parishes about the allegations that have been made against you in the past?' Yes, there have been. And when did they have the first of any of those. meetings? The first one I believe was somewhere in 1989. And tell me, father, if you can recall who on behalf of the Archdiocese attended those meetings? The archbishop, archbishop John Roach. And did archbishop John Roach go out to your parishes? Yes, he did. And did he meet with parishioners and parish IFLUDQ Robert Kapoun Direct by Mr. Eisenzimmer 1011 leadership? Yes. And has that included the parish trustees? Yes. But it's also included the members of the parish? Yes, it did. And did he speak to the parishes about the fact that there were allegations against you of sexual inappropriate conduct? I wasn't in the meeting but that was the topic of the meeting. were you present when there was an announcement made that there would be such a meeting? Yes. So you'weren't present so Archbishop Roach would be the best person to describe what occurred during those meetings? Definitely. Do you know if there was more than the one meeting? There were several others. Who attended on behalf of the Archdiocese? Father Kevin Mcbonough came to one I know and another time Father Kevin Mcnonough and archbishop Archbishop is the current archbishop? Yes, he is. Robert Kapoun -- Direct by Mr. Eisenzimmer 1012 And he began serving as coadjutor about a year ago? That's right. So he too has talked to your parishes about allegations and things that have occurred in your ministry? Definitelyl Father, you have been allowed since when to be in those parishes? when did you first go to those parishes? 1984, June. And ever since that time you have been required to take the steps that you have described here in order to maintain that position? Yes. And as part of that, have you promised to the Archdiocese that you would fulfill whatever requirements and obligations they imposed upon you in order to keep that position? Absolutely. Father, as you sit here today, can you assure the members of this jury that-your conduct since the time you were assigned there has been above reproach? It has been above reproach. You have heard testimony, father, in this case that there are boys that you have abused and you have' Robert Kapoun a Direct by Mr. Eisenzimmer 1013 continued to deny that, is that correct? Yes. How can we rely upon you sitting there today, father, in assuring us since you were assigned to those parishes you haven't abused anybody else? I can swear to it. And there has been just constant supervision and checking. I have reported at meetings and I have respected the people of the parish and -- And has the parish leadership to your knowledge been instructed to so to speak keep an on you? Yes. To ensure that those restrictions are being lived up to? Yes. That includes a restriction of no youth contact? That's right. And no youth counseling? That's right. Have you ever violated those restrictions, father? No, I haven't; Are you-satisfied in your own mind that the restrictions that have been imposed upon you by the Archdiocese have been sufficient to ensure the safety of the youth in the parishes where you have served for these last number of years? Robert Kapoun -- Recross by Mr. Anderson 1014 Absolutely sufficient. Are you prepared sitting there, father, to represent to this jury that you have not harmed a single individual as a result of these restrictions? Not a single individual have I harmed. Can we believe you when you say that father? Yes. MR. EISENZIMMER: No further questions, Your Honor. THE COURTS You may inquire. RECROSS EXAMINATION BY MR. ANDERSON: Father Kapoun, you are a priest and you just said since you have been in that parish and in those parishes you have not harmed a single individual, correct? That's correct. When you as a priest deny publicly and in this courtroom and in these papers that you had sexually abused or touched Dale Scheffler, does it occur to you that you are harming him? I deny I had any sexual contact with him. And when you have denied sexually abusing Mark Schutz as a priest in the Archdiocese, have you thought about the harm that is done by that denial publicly to him? Robert Kapoun Recross by Mr. Anderson 1015 I must deny it. Are you aware of whether or not Curt Raymond went and talked to the Archdiocese about what you had done to him in the late 1980s? MR. EISENZIMMER: Objection. Beyond the scope, Your Honor. THE COURT: It appears to be. The objection is sustained. BY MR. ANDERSON: When you deny the sexual abuse of him, are you aware or cognizant of any of the harm that is done to him by that? MR. EISENZIMMER: The same objection. THE COURT: I am going to allow this question. He is already in this this door has already been open. THE WITNESS: Where the harm would come from, I don't know. BY MR. ANDERSON: when you deny the sexual abuse of Mark Tuma and have so publicly and in papers and throughout, have you intended to cause him harm? No. And in fact, father, when you abused the boys that you had been abusing, at the time you abused them you Robert Kapoun -- Redirect by Mr. Eisenzimmer 11015 weren't intending them harm, were you? That's correct. You didn't know you were hurting them at the time? That's right. Because you were in denial and unaware of what you were doing and why you were doing it? I didn't realize I was harming them. Have you thought about the harm that is being caused to these boys that you have denied abusing but who have accused you of it? MR. Objection, asked and answered. THE COURT: The question is argumentative. The objection is sustained. MR. ANDERSON: No further questions. THE COURT: Counsel. MR. EISENZIMMER: Thank you, Your Honor. REDIRECT EXAMINATION BY MR. EISENZIMMER: Father, you have testified that you didn't intend to harm any of the boys that you have sexually abused. Today as you sits here, you do understand that this sexual abuse that you have perpetrated on them caused them harm, do you not? Oh, definitely. Kevin Bergman -- Direct by Mr. Anderson 1017 Q. And you know that you cannot permit yourself to harm people in that fashion? A. That's correct. MR. EISENZIMMER: No further questions. THE COURT: Counsel? MR. ANDERSON: Nothing further. THE COURT: You may step down. (Witness excused.) THE COURT: You may proceed, counsel. MR. ANDERSON: Your Honor, we will call Mr. Kevin Bergman. KEVIN BERGMAN, being duly sworn, was examined and testified as follows: THE COURT: State your name for me spelling your first name and your last name. THE WITNESS: Kevin Bergman, I N, A N. THE COURT: Your business address. THE WITNESS: 7900 Xerxes Avenue South, Minneapolis, Minnesota, 55431. THE COURT: You may proceed, counsel. MR. ANDERSON: Thank you, Your Honor. DIRECT EXAMINATION BY MR. ANDERSON: Q. Mr. Bergman, what is your occupation? $1310 Kevin Bergman -- Direct by Mr. Anderson I 1018 I am a certified public accountant. And as an accountantsomething? Yes, you did. What did I ask you to do or hire you to do? I was asked to review and read the audited financial statements of the Archdiocese of St. Paul and Minneapolis and to give you my professional opinion about the financial position of the Archdiocese. Okay. The financial condition of the Archdiocese, is that Yes . Okay.' And what did you review in that connection? I reviewed the June 30, 1995 audited financial statements. I am showing you Exhibit 20, is that what that is? Yes, it is. MR. ANDERSON: We will offer 20. MR. EISENZIMMER: Your Honor, nay we approach? THE COURT: Sure. Yes. (Discussion at the bench out of the hearing of the jury.) THE COURT: Do you guys want to run out in the hall one second or in the back room for a second. He wants it's to put it on the record. Scoot out in the Kevin Bergman -- Direct by Mr. Anderson 1019 hall for a second. (The following discussion was held on the record out of the hearing of the jury.) THE COURT: Okay. MR. EISENZIMMER: Your Honor.-I would object to admission into evidence of the exhibit and I am not certain, Your Honor, of the exhibit number here. THE COURT: 20. MR. EISENZIMMER: 20? THE COURT: Yes. MR. EISENZIMER: I-would object, Your Honor, that the -- THE COURT: Go ahead. MR. EISENZIMMER: That the exhibit is the entire audited financial statements for the - Archdiocese and contains -- THE COURT: Wait just a second. Tammy would you go out and stand by the door until we get this done. Okay. MR. EISENZIMMER: My objection to the admission of the exhibit into evidence, Your Honor, is is that the exhibit includes far more details about the financial condition of the Archdiocese than would be appropriately admitted in court relative to the Archdiocese's financial condition. It contains Kevin Bergman Direct by Mr. Anderson 1020 information that far exceeds the scope of Mr. Bergman's testimony at least according to the expert witness report that has been provided to me. I understand he is only-going to deal with fund balances and certain adjustments to those fund balances. On the other hand the financial statements deal with an incredible amount of information far beyond that scope including I might add notes to financial statements that deal with a number of issues, not the least of which is other litigation against the Archdiocese including other misconduct cases and reference to insurance and other matters pertaining to those things. The Mrozka decision that we have repeatedly referred to here, in that case the Court of Appeals affirmed dudgt Jones' determination that only the liquid assets of the Archdiocese be considered relative to the financial condition. In that case the financial statements were not admitted into evidence at the trial court level and I think the more. appropriate approach here is to have the witness testify. Certainly I have no objection to him utilizing the exhibit as he has done in this expert witness report, but as I have indicated to the Court the financial statements are just loaded with a lot of Kevin Bergman -- Direct by Mr. Anderson 1021 other information that is not going to be helpful to the jury, in fact will prejudice the jury, so its prejudicial value far outweighs the probative value, because discussion of financial statements of millions of dollars of assets that are somehow encumbered and restricted and would not be available to determine the financial condition of the Archdiocese. In large measure these assets have been restricted by the donor in some fashion and thus are not financial matters that are available to the Archdiocese except for the purposes expressed in the donor's documents where they donated that money. it's my understanding that Mr. Bergman will not testify as to all of those matters but simply as to what he has described as unrestricted and institutional property and a couple of adjustments to that, and I certainly think that his report pertains only to that very small fraction of these financial statements, and thus as I say it would be prejudicial to introduce this exhibit into evidence. THE COURT: Mr. Anderson. MR. ANDERSON: Your Honor, we have been supplied this exhibit by the defendants in response to our request for production of documents going to the financial condition of the Archdiocese. This is the Kevin Bergman -- Direct by Mr. Anderson 1022 document they have produced that says this is our financial condition,.and the question that this jury is to be asked is what is their financial condition. Because it is a document, a financial document, we are calling Mr. Bergman simply to explain what this all is about, because it is a financial statement, and I am not sure what he is objecting to, if it's irrelevancy or if it contains prejudicial material. I don't know how to address that, but I would say only that there is nothing in here that doesn't pertain to the 1 financial condition of the Archdiocese. THE COURT: Counsel. EISENZIMER: 'Your Honor, it is my position that most of the material here is irrelevant to the determination of the financial condition and that much of the information that's relevant is also prejudicial in assisting this jury in determining the financial condition of the defendant, and I take issue with the representation that I presented this as the financial condition of the Archdiocese. It is the financial statement and plaintiffs demanded a copy of the most recent audited financial statement of the Archdiocese so we produced it pursuant to their demand, not because we.misrepresented this to be the financial statement. ON 2-hulkKevin Bergman 4 Direct by Mr. Anderson 1023 I too intend to call a witness similar to Mr. Bergman who will testify only as to a very limited purpose as to what might be relevant here, and itfs going to be similar of the testimony of Mr. Bergman. It's just those assets that are considered available because they are not restricted through some donative intent to represent the financial condition of the Archdiocese. THE COURT: All right. The objection is overruled. I am going to allow it. If there are some specific references to insurance or other matters I will consider any request of redaction. MR. EISENZIMHER: I will request that. THE COUBT: I will do that before it actually goes back to the jury, counsel. We don't need to do that now. Bring the jury in. (Jury returns to the courtroom.) THE counr: The objection is overruled. 'The exhibit will be received. You may proceed, counsel. BY MR. ANDERSON: Mr. Bergman, before I ask you about that and the financial condition of the Archdiocese of St. Paul and Minneapolis, let me just show you what we have marked Exhibit 40. Is that your resume? Yes, it is. Kevin Bergman Direct by Mr. Anderson 1024 It talks about your background as an accountant and that kind of stuff? Correct. MR. ANDERSON: I will offer.that, Exhibit 40. MR. EISENZIMMER: No objection, Your Honor. THE COURT: It will be received. BY MR. ANDERSON: Mr. Bergman, will you tell the ladies and gentlemen of the jury about the financial condition of the Archdiocese? MR. EISENZIMMER: I will object to the question. Calls for a narrative, Your Honor. THE COURT: Sustained. Ask questions, counsel. BY MR. ANDERSON: Well, what did you do and what opinions did you reach in connection with the what the financial condition of the Archdiocese is and maybe you can address it for us in nontechnical terms? As an accountant, you are often called upon to review financial statements of business entities or nonprofit entities, and in accounting there is an equation that talks about what a financial position looks like. Basically that equation is that your total assets minus your liabilities equals your net worth, and it's Kevin Bergman -- Direct by Mr. Anderson I. 1025 on that basis that I reviewed the financial report that was submitted to me including reading the financial footnotes which elaborates some of the details inherent in the financial statements that I have read. The term that's used for nonprofit organization instead of net worth is called fund balance, so we need to consider what a fund balance means and that means total assets minus liabilities associated with a particular fund. This financial statement is quite complex and includes not only funds which are unrestricted for the use of the Archdiocese but in fact includes restricted funds, and that for example would include moneys that donors give to the Archdiocese with restriction upon that which means that they are not available for-other than their designated purpose. So in my evaluation of the financial statements, I have made a determination of what the unrestricted fund balances of the Archdiocese were which is something smaller than what the total fund balances are because'that includes restricted funds. I then proceeded to make adjustments to the fund balance for some of the information that was contained in the financial report, and I limited my adjustments Kevin Bergman -- Direct by Mr. Anderson 1026 to two items that in my professional opinion should be made to state the financial position of the -Archdiocese. Okay. Well then why don't you tell us what first it sounds like first you reached some conclusions about unrestricted funds and then some conclusions about restricted fund and then you made some adjustments to the fund balances, is that correct? That's correct. Okay. Why don't you tell us what your conclusions or opinions are in connection with the unrestricted funds? on the balance sheet that I reviewed dated June 30, 1995, the unrestricted fund balance was $5,129,455. And what are unrestricted funds? Those funds by definition are moneys that are at the discretion of the managers and the Board of Directors of the nonprofit organization. And what conclusions or opinions did you reach in connection with the restricted funds? I have excluded for this purpose any restricted fund balances in my evaluation. And why is that, Mr. Bergman? It's my opinion that those moneys have been earmarked by the donors for very specific reasons and can only Kevin Bergman -- Direct by Mr. Anderson 1027 be used for those reasons by the management of the Archdiocese. Now, you said you made adjustments to the fund balances pertaining to the unrestricted funds, is that correct? I made two adjustments. Tell us what you did why you did that and what you did? The first adjustment I made was to reduce the fund balance for an item that the auditors for the Archdiocese reported on. What I mean by that is there is a liability that exists for unsecured retirement benefits to bishops which has not been recorded as a liability on the balance sheet of the Archdiocese as of June 30. The auditors are required to state that that's an exception from generally accepted accounting principles, and therefore, identified the $203,000 of liability existed as of June 30, 1995. I deemed it appropriate to reduce the fund balance by that amount because that is a liability that was identified, however, not recorded on the books. Any other adjustments that you did? I made one other accounting adjustment. In the definition of net fund balance is total assets minus liability. On the balance sheet that I read, there Kevin Bergman -- Direct by Mr. Anderson 1028 was a liability identified for moneys that had been received by the Archdiocese for campaigns relating to the future. The money has come into the Archdiocese before the end of their fiscal year which is June 30, so they accounted for the amount of assets they have received, but instead of showing that as unrestricted funds, they have recorded it as a liability for the future recognition of income. In my professional opinion those moneys are property of the Archdiocese and that this liability is only an accounting treatment of how to account for it as revenue in a future period, so in my professional opinion I have added that to my fund balance and that amount is $4,353,000. So with the adjustments, what is your opinion as to the amount of the unrestricted funds? Included in my report I have included the institutional property which is the plant property and equipment owned by the Archdiocese. That is not a restricted fund balance as I have interpreted the financial statement. I have included that fund balance also in my report. That amount is 4 million -e excuse me $8,497,233. I give that information at this point because as I understand the last question, what is my total amount of undesignated Kevin Bergman -- Direct by Mr. Anderson 1029 moneys which includes the institutional fund, approximately $17,776,688. Now, Mr. Bergman, is there reflected in the financial statements that you have reviewed reference a reference to the creation of a Catholic Community Foundation? MR. EISENZIMER: Objection. Irrelevant, Your Honor. THE COURT: Approach. (Discussion at the bench out of the hearing of the jury.) THE COURT: The objection is overruled. You may proceed. BY MR. ANDERSON: Mr. Bergman, I was asking you about the data that you reviewed that reflects a creation of a Catholic Community Foundation? Yes. What can you tell the ladies and gentlemen of the jury about that from your review of these financial records? The information is found in note number 2 of the audited financial statement, and it says that in December 1993 the Archdiocese commenced the operation of a new and separate nonprofit corporation, and they Kevin Bergman -- Direct by Mr. Anderson 1030 have transferred significant assets from the Archdiocese into the community foundation. I was not able to determine from the information I have reviewed whether unrestricted fund balances were in fact transferred to that corporation. However, the footnote continues and says that the Archdiocese continues to provide services to the foundation of approximately $48,000 a year, and in fact funded the community foundation with fund raising dollars or fund raising expenses totaling approximately $790,000 over the last two years. I could not determine from my review of the financial statements what control the Archdiocese might have on the community foundation.and simply noted it as an item that perhaps should be explored. Were you able to tell the ladies and gentlemen of the jury about give an opinion as to the value of the assets transferred by the Archdiocese to this foundation? MR. EISENZIMMER: Objection. Irrelevant, Your Honor. THE COURT: Overruled. You may answer. THE WITNESS: Thank you; In fiscal '94 and '95, approximately $13,000,000 in assets have been transferred to the community foundation. Kevin Bergman - Cross by Mr. Eisenzimmer 1031 MR. ANDERSON: Thank you. Nothing further. THE COURT: Xou may inquire, counsel. MR. EISENZIMMER: Thank you. CROSS EXAMINATION BY MR. EISENZIMMER: Mr. Bergman, you would agree would you not that the assets that may have been transferred by the Archdiocese to the Catholic Community Foundation that you have just finished describing would appropriately not be considered as part of your analysis that you undertook at Mr. Anderson's request if those funds that were transferred to the Catholic Community Foundation are restricted funds? Yes, I would agree with that. So that we are clear on that, Mr. Bergman, you have expressed an opinion as to the adjusted fund balance of the Archdiocese as it existed on June 30, 1995, correct? Correct. And in making in expressing that opinion, you are telling the members of this jury that with respect to any assets that were transferred to the Catholic Community Foundation you don't know if they were restricted or not? Correct. Kevin Bergman -- Cross by Mr. Eisenzimmer 1032 But if they were restricted funds, then they clearly would not be part of your determination that they should be included as part of your adjusted fund balance, correct? From my reading of the financial report, restricted funds are made up of three types of moneys. one type of money is true restricted moneys coming to the Archdiocese from donors that specifically limit their use. The other type of restricted fund is moneys earned, however not yet spent on those restricted dollars from donors, and the third type of restricted funds or endowment fund represents boardwdesignated funds that are designated as such by the action of the board, and it's my professional opinion that the board could undesignate those moneys at any future time. It's that third element of the definition of restricted funds for this purpose that 1 would not agree with your question, because restricted funds is broader, is a much broader term than what I have tried to explain a component of it to be which in my professional opinion would be moneys that the board could redesignate. Mr. Bergman, let's again try to follow that and see if we can understand that for our benefit. You are suggesting that there is three kinds of funds that the Kevin Bergman - Cross by Mr. Eisenzimmer 1033 Archdiocese holds, is that what you just got done saying? There are three categories of funds that are called endowment funds or restricted funds. Okay. And the first category of those are let's for a moment refer to them as true endowments, is that a fair statement? Yes. Okay. And a true endowment is a money that has been given to the Archdiocese or a nonprofit corporation where the donor has said I want this money used and you can only use it for a specific purpose, correct? That's correct. So I might give money to the Archdiocese and say I want this money only used for Cretin High School, for example? Correct. And thus that money would not be then included-in your calculation of the financial worth of the Archdiocese as measured by the adjusted fund balance? That's correct. And then there is also another category, the second category, is it fair to call those restricted funds functioning as endowment? I believe if you are looking at page 12, footnote Kevin Bergman -- Cross by Mr. Eisenzimmer 1034 number 1. I am not but I will. Okay. There is the definition of what we are talking about. Okay. And the restricted funds functioning as endowment is the label I would put on your example of donorerestricted funds for Cretin High School. Okay. Is that how the Archdiocese itself is treating it? I believe so. Well, if you look at page 34, isn't that the money that's restricted for Cretin High School listed under endowment funds? Yes, there is an amount there also. And anyway the second category I want to talk about at the moment. Okay. Regardless of what purpose has been defined to use those funds, the restricted funds functioning as endowment are funds restricted by the donor, the granter or other outside party for particular purposes, correct? Correct. So this second category too you have not included in your calculation of net worth for financial condition Kevin Bergman -- Cross by Mr. Eisenzimmer 1035 purposes as shown by the adjusted fund balance that you have computed, correct? Correct. It's the third category that you believe should be included? Yes. And the reason for that is these are although they are unrestricted the Archdiocese has said we will use these for a particular purpose? Correct. And it's your belief and it's your opinion that they can change their mind and can unendow them? They can decide we are not going to use it for that purpose, we are going to use that for some other purpose? I say that and the auditors likewise say that. Okay. And you haven't I presume examined any corporate records to determine whether the Board of Directors of the Archdiocese has the power to do that or not, have you? No, I haven't. So in determining though your adjusted fund balance, you have only included the first two categories excuse me only included the last category of those funds? YES . Kevin Bergman -- Cross by Mr. Eisenzimmer 1036 And you have basically arrived at a conclusion that those unrestricted funds together with institutional property minus these two adjustments you talked about total something in excess of $17,000,000? That's correct. MR. Your Honor, may I approach the witness to use.the board up there? THE COURT: Yes. MR. EISENZIMMER: Thank you, Your Honor. BY MR. EISENZIMER: Mr. Bergman, I want to try to follow through your analysis of the adjusted fund balance as determined by you, and I want to put some figures on here in order to do that, so hopefully the Court and the jury and yourself can see those. "Now, if I understand what you did determined adjusted fund balances, you first took those unrestricted funds, and I believe you said that was $5,129,455, is that correct? Yes . Now, of that amount, $3,470,078 has been put in a category of funds functioning as an endowment, is that correct? That's correct. So of this $5,000,000 or excess five million, almost three-and--a--half million dollar has been put in this Kevin Bergman Cross by Mr. Eisenzimmer 1037 third category that you have described where the Archdiocese has said we are going to restrict the use of that money to a particular purpose, correct? Yes. Okay. But you are saying that they could undo that if they decided to? Yes. And I take it that in making that, you are you don't know whether or not they might have made certain commitments to the Catholic community to restrict that in some fashion that although they might be able to do it legally, because of certain commitments they have made they couldn't do it from a practical standpoint. You don't know that? I believe what I in my-professional opinion legally they do reserve the right to reserve, to change that designation. Okay. But you don't know whether they have made commitments to the Catholics, 700,000 Catholics in this community to use that for certain purposes? Correct, I don't know that. And those funds, the three million, almost three~and--a~half million dollars, they have described those as funds functioning as an endowment, correct? Yes. Kevin Bergman -- Cross by Mr. Eisenzimmer I 1038 And then of this five million dollars, also there is $274,201 that has been earmarked for replacement and renewal, is that correct? That is a part of the property reserve, yes. Okay. And so of this five million dollars, two hundred seventy--four thousand and some odd dollars is placed in a category called replacement and renewal, correct? Yes. And is it correct if you know and perhaps you can tell us if you know or not, isn't this money that in essence, money that's being set aside to replace a roof on a piece of property or replace broken concrete or whatever, is that typically what renewal and replacement talks about? Yes. And you would agree that it's appropriate as part of generally accepted accounting principles that a corporation such as the Archdiocese set up.a fund to reserve money to do that? It's a bad--weather fund. If we have a storm tomorrow and a roof gets blown off, we want to have the money to do that,,correct? Normally that would be covered by insurance. i think your previous example which is to replace a roof that's aged is a better example. Kevin Bergman -- Cross by Mr. Eisenzimmer 1039 Certainly. If we decide the roof now needs replacing, we want some money set aside to be able to do that? Sure. And then there is also something called an expansion fund, is there not? Yes. And that's $823,234, Correct? Correct. And that too is part of this five million dollars? Correct. Okay. And the expansion fund you understand from the financial statements is money that the Archdiocese has in essence earmarked for expansion of parishes, churches, schools, whatever it might be in the Archdiocese? Yes. And again that's appropriate in light of generally accepted accounting principles? Yes. And then there is finally a sum of $561,942 that's called undesignated, is that correct? Yes. Okaythese figures up, it's going to equal this $5,129,455, correct? Correct. Kevin Bergman -- Cross by Mr. Eisenzimmer 1040 Okay. Now, I want to talk a bit more about this money here. So let's draw a line here and I want to take the same figure, $3,470,078. Now, I want to talk a bit about what those are for. And perhaps you can if you can follow along with me we are talking about page 34 of Exhibit 20. Now, of this amount, and again this amount comes out of that fine million dollars, correct? This 3.4 million dollars comes out of the five million dollars? That's correct. Now, of that amount the Archdiocese has said that $1,419,542 is for the Cathedral, is that correct? That's what they have restricted that money to use. Are you saying they can unrestrict it, but for the' moment they have said they want to use that for the Cathedral, is that correct? That's correct. And then another $66,269 of this amount has been. restricted for something described as charitable benefits in the financial statement, correct? Right. And the next figure is $114,870. Can you tell me what that is designated for? Christ Child. Okay. And then we have got $343,332. What's that Kevin Bergman -- Cross by.Mr. Eisenzimmer 1041 designated for? Clergy. And then we have got $252,326, and that's designated for what? 1 Education. And then we have $145,621. What's that designated for? Operations. And what are operations? Do you know from looking at the financial statements? I would assume that means day-to--day operations of the Archdiocese. 1 Okay. And then we have got $1,128,118. What is that designated for? Seminars. Okay. So if I add those all together, I am going to get the same figure $3,470,078, right? Correct. Okay. So of this five million dollars that you have described as unrestricted funds, three million of it 3.4 million has been established by the. Archdiocese for these categories, correct? Correct. Okay. And then we have already talked about what the balance of that is. Now, in arriving at your opinion Kevin Bergman Cross by Mr. Eisenzimmer 1042 about the adjusted fund balance, you also have added to this five million an amount for what's called institutional property, have you not? Yes. Let's talk about that. What's the amount of institutional property that you-have included in the adjusted fund balance of the Archdiocese? $8,497,233. Now, this is the property of the Archdiocese, correct? Correct. Okay. And if we look at the financial statements, we can determine what that property is, can we not? Yes. Okay. Let's look at that. We have the Chancery. That's a Chancery building, correct? I don't know what a Chancery is. Okay. Well, let me just represent to you and tell you that the chancery is the headquarters building for the Archdiocese. What is the amount of this eight million dollars that is the chancery building, do you know that? I don't know that. Page 19 of the financial statement. Is this Qorrect it's $3,676,920? Right. Kevin Bergman -- Cross by Mr. Eisenzimmer 1043 Okay. Then other archdiocesan offices are on the balance sheet and financial statements $1,750,834, correct? Correct. And then we have got the Cathedral, correct? Right. You know what the Cathedral is? I know that. The cathedral is a church, is it not, church building? Correct. Okay. And that's $2,900,876,.correct? Yes. Okay.' And then the next category is Catholic high schools, correct? Yes. And those are on the financial statements for $6,894,630, correct? ThatVs true. Okay. And if we look at page 27, and I don't think I will list them on the hoard, but I want you to tell us from your review of these financial statements when we talk about the Catholic high schools, we are talking about_four of them, are we not? Correct. Benildewst. Margaret? Kevin Bergman - Cross by Mr. Eisenzimmer 1044 Yes. DeLaSalle? Yes. Totino Grace? Yes. And Bill Murray? Yes. Do you know whether the Archdiocese owns those high schools themselves or in some kind of joint ownership with some other owner? I don't know that. Do you know whether those high schools are restricted by lease so that their lease to the-corporations that operate those high schools for high school purposes? i don't know that. And do you know whether there is.any deed restrictions on any of those high schools that would limit the ability of the Archdiocese to use those properties in any fashion? I do not know that. Now, let's continue our list here. After high schools we have got, and I am just going to call it priests' home, but in essence it's the Leo C. Byrne residence for retired priests, is that correct? Yes. Kevin Bergman -- Cross by Mr. Eisenzimmer 1045 And that's $2,310,520? Correct. Okay. And the next category is Catholic Youth Ministry Services, correct? Yes. And thatfs $406,574? Correct. And then the next category is Indian ministries building, right? Yes. And that is $170,000, right? Correct. And then there is the retreat center, right? Yes. And that's $228,398, correct? Yesthose up I am going to get the same figure, $8,497,233, correct? No. I am sorry. Okay. Let me rephrase that I-guess. From these values we have to subtract accumulated depreciation, is that correct? That's correct. So if I subtract depreciation of $9,562,519, then I will get this $8,497,233? Kevin Bergman - Cross by Mr. Eisenzimmer 1046 That's correct. Okay. So then to recap once more, of the 17 million dollars that you have found to be the unrestricted fund balance, three million has been earmarked for the Archdiocese for these charitable purposes? Correct. 3.4 million? Correct. Something in excess of a million dollars has been earmarked for these expansion and replacement categories? Correct. And then eight million dollars, almost eight--and--a~half million dollars are the properties, churches, cathedrals, chancery offices, ministry offices and retreat centers? night. 1 These are all hard assets. 'In essence they are either the buildings or the equipment in the buildings? I think so. I know it's the real estate. I don't know if it's the personal property. Well, does page 27 of the financial statements tell you that or answer that question? With respect to some of the properties, yes. Okay. so with respect to some of those properties, it Kevin Bergman -- Cross by Mr. Eisenzimmer _1047 includes such as furniture and equipment, communications equipment and that stuff? Right. Stuff that in essence the Archdiocese needs to do business? Yes . Just like a for~profit corporation needs an office, needs a factory, whatever, the Archdiocese needs their properties to do what they do? Yes. I THE COURT: Do you need to remain there at the board, counsel? MR. EISENZIMMER: I do, Your Honor. COURT: Okay; BY MR. EISENZIMMER: Okay. Now, what I want to talk about is the adjustments you made. Now, one of the things you have done is you actually reduced the fund balance by $203,000, correct? That's correct. Okay. And that's for I am going to call it deferred comp, and I am going to put it in brackets because I think that accountants put things in brackets if they are going to subtract it? Correct. Kevin Bergman -- Cross by Mr. Eisenzimmer 1048 And so you have determined that this is a legal liability of the Archdiocese even though its financial statements really don't show it as a liability? That's correct. But the footnote reflects that it is a liability and they are obligated for it, so you felt it was fair to reduce their assets by that amount? Well, further than that. The auditors identified that as an item that hadn't been put on the financial statements. Okay. So this is entirely appropriate the adjustments you have talked about? Yes. And then you have added something called deferred revenue? Correct. of $4,353,000, correct? That's correct. Okay. And that's an item that you have described as money that has been received but they haven't shown it as an asset yet? 1 It has been shown as an asset. They haven't shown it as part of the fund balance at this point. Okay. And you know from reading the financial statements that what this money is is Annual Catholic Kevin Bergman -- Cross by Mr. Eisenzimmer 1049 Appeal money that parishioners of the Archdiocese, people that are members of the Catholic church have donated to the Archdiocese, correct? Correct. Okay. Now, do you know whether that money is restricted for any particular purpose, whether moneys that are included in that amount have to go back to parishes, schools or anything about that money? You can't you can't tell what that money represents from reading the financial statements. And the fashion that you are treating it as treating it deferred revenue and an adjustment to the fund balance is a treatment of that amount different than the Boulay Accounting Firm that did the financial statements for the Archdiocese? Would you restate the question. Sure. What I am asking you is you have utilized this as an adjustment to the fund balance? You have adjusted the fund balance by increasing it by 4.3 million dollars, correct? Correct. And your treatment in doing that to arrive at an adjusted fund balance isla treatment that differs from the way the Boulay Accounting Firm that did these financial statements treated it? Kevin Bergman -- Cross by Mr. Eisenzimmer 1050 Yes, there is a reason for that. And but Boulay doesn't put it in there as part of their fund balances? That's correct. Now, if I took all of these figures, and again with the Court's indulgence I want to flip back a couple of pages here, but if I take this five million dollars that we have already talked with what its designated for and I add to that five million dollars the eight million dollars in church and other property, I am going to get somewhere about 13--and--a~ha1f million dollars, right? Yes. And then if I subtract the $203,000, correct? Yes. And I add this four million dollars, I am going to come up excuse me. Let me restate. $17,776,688, correct? Correct. And you have called that adjusted fund balance, correct? Correct. Now, ignoring the part of this ignoring the eight million dollars that's real estate, property, hard assets, furniture, fixtures and so forth, the balance Kevin Bergman - Cross by Mr} Eisenzimmer 1051 of this of approximately nine million dollars is these other things we have talked about, correct, the other restricted funds? Yes. And those kinds of things. Okay. Now, you also in looking at these financial statements looked at the effect of the operations itself of the Archdiocese, did you not? Yes. Okay. And let's talk about that a minute. I want to see if we can talk about the Archdiocese and its financial condition just like I would talk about in my own financial condition. First of all we would look at possibly and again from a current operating standpoint, we would look at what the income is, what's my income, correct, and for current operating funds for the period covered by this financial statement, their income, their revenues, 23.8 million dollars, is that correct? Maybe page 7-and is what I am looking at. - What number did you read? 23.8 million dollars for revenues for current operating funds. That's correct. Okay. So the revenue was actually $23,858,435 for the Kevin Bergman --_Cross by Mr. Eisenzimmer 1052 period represented by this financial statement? That's correct. I can'never spell when Ilam at the board. So revenue -- that's an-accountant's term for income, that's what we brought in was current operating funds, correct? In a nonprofit organization I think revenue is an appropriate term to use. Okay. But that would be analogous to my income for example? Yes. The money coming in to it? Yes. 1 And then just like me, there is money going out, right? Correct. And for the same period out of current operating funds, the expenses, and that's a pretty easy term, but that's the money that went out, correct? Correct. $25,125,055, is that correct? Yes. So for the period represented by these financial statements, the Archdiocese and current operating funds had a deficit, is that correct? Kevin Bergman -- Cross by Mr. Eisenzimmer 1053 With the current operating fund, yes. So that's a deficit. We will put that in brackets. Is that a fair thing to do? It's a deficit. Yes. Okay. So they spent 1.2 million dollars more than they brought in in current operating funds, correct? Correct. Okay. And in fact if we look at all funds, not just current operating funds, it's even a bigger deficit for the same period, is that not true? yes. 1.3 million dollars? Yes. Okay. Now, they lost this money in current operating funds but then they did something in order to decrease that, correct? Rightr Okay. And what they_did was they transferred money from some of these endowments that you talked about before, correct? Yes. Okay. So they transferred money. want to talk about that for a bit. Just again like my own financial situation, I have income and I have expenses, and if this year my expenses exceed my Kevin Bergman -- Cross by Mr. Eisenzimmer 1054 income, I can dip into my savings, right? Right. And that's kind of what they did? Correct. But they took some of this money that's restricted for certain purposes? Yes. Because they Spent money for some of those purposes, they can use some of that money for those purposes? Correct. 1 And that way they can reduce what they show on their balance sheet as the deficit, actually it's a statement of fund activity? Yes. Okay. So they transferred $944,664, correct? Yes. I Okay. So then they had a net decrease of $321,956, is that correct? That's correct. In other words, from a fund standpoint for the year ending June 30, 1995, their fund balances went down by over $300,000? Mm hmm. Correct? Correct. Kevin Bergman Cross by Mr. Eisenzimmer 1055 THE How much longer are you going to be, counsel? MR. EISENZIMER: I believe just a few minutes, Your Honor. 1 THE COURT: Okay. BY MR. So what happened is then their fund balance at the beginning of the year was $883,898, correct? At the beginning of the year, yes. Okay. I am just going to put G, beginning of the year. Then if we subtract this out, then their fund balance at the end of the year is $561,942, correct? Correct. I am going to put fund end of year or just end. So in other words, if you look at their fund balances they were higher before they applied this loss and so then the fund balance at the end of the year was the $561,000? Correct. And that's the same figure that's right here, correct, the undesignated unrestricted fund? Undesignated current operating funds balance was 561. Okay. And if we look at this same analysis that we just got done doing and instead of using just current operating funds we use all funds, then there it's even Kevin Bergman Cross by Mr. Eisenzimmer 1056 a bigger decrease, correct, actually over three million dollars? That's correct. But part of that has got to do with the fact that some of that money was transferred to the Catholic Community Foundation as you have described? Right. I only have one last question and that is if we talk about this $321,000 as a loss for the year, in essence if we take the fact that their expenses were higher than revenue and even after transfers it was still $321,000 decrease in their fund balance, are you aware that the year previous to this that the decrease was even more? It was approaching half a million dollars? That's possible. I didn't focus on that so I can't substantiate that. But if that's correct, then for the last two years, the Archdiocese in essence in current operating funds has decreased their loss to almost $800,000, correct? Yes. MR. EISENZIMMER: No further questions, Eour Honor. THE COURT: Counsel, how long are you going to be? MR. ANDERSON: Three minutes. Kevin Bergman Redirect by Mr. Anderson 1057 THE COURT: Okay. REDIRECT EXAMINATION BY MR. ANDERSON: Three questions. First, that deficit that you were just testifying about, this is for the what did we call the loss for the year end 1995. Have you looked at any of the financiai records in this connection of the Archdiocese going back before 1995 and '94? Yes. Did they show deficits in any of those years? Yes. And did they show any years for purposes of accounting where they didn't show a deficit? I can't specifically remember a specific year. Were there years where an accounting deficit wasn't shown however? I don't have those records and I can't recall. All right. The second question is that institutional property that has been talked about, how do they carry that in terms of value in it on their books? The accounting rules require that you carry it at original cost minus depreciation, and that's what the a,4oo[odo represents. What we refer to as net book value. In other words, that Cathedral over there in St. Paul Kevin Bergman -- Redirect by Mr. Anderson 1058 is carried on the books at the cost of what it was when it was built? Built or donated, yes. And if that was built in 1880, it would be carried on - these books for accounting purposes at what it cost then? Yes. Well, the institutional property then is reflected in one of those pages. It's 26 or 14. I don't remember, but in any case, do you know what the market value is or do you have any way of knowing what the market value or true value of any of those properties is from review of the financial records? I have read a statement in the report that contains its insured value. Okay. And how does the insured value differ from the cost value? MR. EISENZIMMER: Objection, Your Honor. Calls for speculation and also beyond the scope. THE COURT: Sustained. MR. ANDERSON: Nothing further. MR. EISENZIMMER: Nothing further, Your Honor. THE COURT: You may step down. THE WITNESS: Thank you. MR. ANDERSON: I have a question. I am Kevin Bergman -- Redirect by Mr. Anderson 1059 sorry. It's appropriate. THE COURT: Go.ahead. BY MR. ANDERSON: There was something that Mr. Eisenzimmer and I got a little lost in these numbers but talking about 4.3 million and you treated it differently than the accounting firm than did the audit? Yes . Why did you treat that 4.3 million different than they did? The funds had been received and it was only an accounting definition to which year those funds should be accounted for, and under the current accounting standards it was a deferred item which meant a liability which didn't go into fund balance of course, but beginning next year there is a change of accounting standard for the Archdiocese that will require if those funds are all unrestricted that they get picked up into revenue in the year they are received, and they will no longer be able to defer them as a liability. MR. ANDERSON: Okay; Thank you. MR. EISENZIMMER: Nothing further, Your Honor. THE COURT: Okay, you may step down. (Witness excused.) Kevin Bergman - Redirect by Mr. Anderson 1060 THE COURT: We are going to recess now until MR. EISENZIMMER: Your Honor, may I ask a question about that. I have Mr. Nicholas Basil who is the accountant for the Archdiocese available. If the Court prefer I could have Mr. Basil testify this, afternoon or we could wait until Monday to have him testify. THE COURT: We will take a vote. Do you want to hear it on Monday or after lunch today? I think it's maybe not totally unanimous but I think it's the majority today. Okay. we will see you at today is Thursday. And I have something that's called a conference called at-1:30, so we are going to try and start it at 1:45. (Recess taken.) THE COURT: Good afternoon, ladies and gentlemen. You may proceed, counsel. MR. EISENZIMER: Thank you, Your Honor. Your Honor, as I indicated before the lunch break, I have agreed in order to speed this up to call out of order one of my witnesses and that's Mr. Nicholas Basil, and I would ask him to come forward and be sworn. NICHOLAS Nicholas Basil -- Direct by Mr. Eisenzimmer '1061 being duly sworn, was examined and testified as follows: THE COURT: State your name for me and spell your first name and your last name, please. THE WITNESS: My name is Nicholas Basil, A I L. THE COURT: And your business address? THE 5151 Edina Industrial Boulevard, Edina, Minnesota. THE COURT: You may proceed, counsel. MR. EISENZIMMER: Thank you, Your Honor. DIRECT EXAMINATION BY MR. EISENZIMMER: Mr. Basil, by whom are you employed? I am employed by Boulay, Heutmaker, Zibell Co., a CPA firm. And you are a certified public accountant? Yes, I am. And how long, Mr. Basil, have you been a certified public accountant? 17 years; And what is your position with the Boulay Accounting Firm? MR. ANDERSON: Your Honor and Mr. Eisenzimmer, if you wish, I will stipulate to foundation. MR. EISENZIMMER: I have just a few brief Nicholas Basil -- Direct by Mr. Eisenzimmer 1062 questions. THE WITNESS: I am a partner BY MR. EISENZIMMER: And tell me if you will briefly what is the association of your firm and the Archdiocese of St. Paul and Minneapolis? We are the independent certified public accountants for the Archdiocese. And how long has the Boulay firm served in that capacity? Since about 1970 I believe. And have you during that period of time been a partner in charge of that account? For the last several years, yes. And there has been introduced and you were here for Mr. Bergman's testimony earlier Exhibit No. 20 which is the audited financial statements for the Archdiocese for the year ending June 30, 1995. It's Exhibit 20. Are you familiar with that document? Yes, I am. And was that document prepared by your accounting firm? Yes, it was. .Now, I am going to try to keep to a minimum any repetition of whatever information I sought to elicit Nicholas Basil -- Direct by Mr. Eisenzimmer 1063 from Mr. Bergman earlier this morning, but let me ask you first have you reviewed the report that he prepared relative to the adjusted fund balance? Yes, I did. And you were here for his testimony this morning? Yes, I was. Now, you heard Mr. Bergman testify that in his opinion the Archdiocese has an adjusted fund balance of something in excess of 17 million dollars, have you heard that testimony? Yes. Now, what I would like to do is to use Mr. Bergman's numbers and ask you to clarify some of the information- that we already discussed with him this morning, and I want to utilize some of the material that I put on the board up there. The first thing that Mr. Bergman talked about was the_unrestricted funds of $5,129,455. Are you familiar with those funds? Yes. Now, one of the things I talked.about was the fact that there is afiproximately 3.4 millicn dollars of funds that are referred to as endowment as part of that five million dollars? Function as endowment, correct. Would you tell me what that means when we are talking Nicholas Basil -- Direct by Mr. Eisenzimmer 1064 about unrestricted funds that are functioning as an endowment? What can happen is the Archdiocese revenue stream is not always real steady at times. They will maybe close a school, sell a building, or they get a big bequest or something in, and they will get funds that you know really they don't need in that current year's budget to operate with, so they will as a board decide to designate some of that for future use to help supplement programs in the future that when times might not be so good-when they possibly need that so and sometimes the church has made public commitments like in the closing of a school that will take the proceeds and set that aside to be used just for educational purposes, so there is that's how those.funds develop and become. And as I illustrated with Mr. Bergman on the stand, to" use your last example about earmarking some of those for education, of that 3.4 million dollars approximately a quarter of a million dollars has been earmarked for education? Yes. Now, in that regard, Mr. Basil, is what you are saying that the Archdiocese and corporate board is somehow designating that those funds be used for certain Nicholas Basil -- Direct by Mr. Eisenzimmer 1065 purposes? Yes, as opposed to having the donor stipulate how that those funds would be used. And just as you have described that the Archdiocese and board designate those funds for particular purposes, can they in essence undesignate them for some purpose? Yes. And -- but as you said in some instances they have made commitments to other people like in the sale of a school as you mentioned that has committed them to not doing that? Yes.' Is that a fair statement? Yes. Now, of that five million dollars that Mr. Bergman began with, there is also a little over $274,000 that's described as replacement and renewal, correct? Mm hmm. 1 You have to say yes? Yes. Okay. I am sorry. Could.you tell us what that means? Those are funds that are set aside and it's exactly what you talked about this morning. It's it's prudent to set aside funds to fix things that Nicholas Basil - Direct by Mr. Eisenzimmer 1066 unexpectedly need repair or replacement, and when you have got 18 million dollars of property and equipment on the books, it's prudent to set aside a good amount of funds to maintain that property and equipment, things that you don't envision you can't possibly budget for, so that's what that fund is for. And then there is also somewhere a little over I think it's $823,000 for expansion fund? Correct. Can you tell me what that is? That is money that the Archdiocese is f~ and property that the Archdiocese has set aside to fund future parish sites within the Archdiocese and possibly to expand the chancery office space if necessary; I believe that would meet its purpose as well. It's more of again an asset acquisition type reserve._ And is that money that you in the past have seen utilized for that purpose by the Archdiocese? Yes, yes. I So in instances where they have wanted to add parishes or expand parishes, they have utilized funds out of that expansion fund? Correct. Now, then finally under the unrestricted funds there is an amount for undesignated of $561,000. Can you Nicholas Basil -- Direct by Mr. Eisenzimmer 1067 tell me where did that money comes from? That's if you are in the corporate world and you understand retained earnings, that in essence is the Archdiocese retainer earnings money. It's the measurement of all the dollars that they have made over you know over the years that remain as undesignated. You have got surpluses some years. It builds up the undesignated funds. If you have got deficits, it reduces the undesignated funds. It's the measurement of how much was net of all the net surpluses and deficits for all the years, so it's just a number that's measured you know once a year or so. Now, on a couple sheets back, and I will get to it in a moment, but for the year ending June 30, '95, did the Archdiocese have a surplus or a deficit? Deficit. Now, of the five million dollars in unrestricted funds then, as we have discussed about 3.4 million dollars is in these other designations, endowment funds? Mm hmm. And those are funds that as you have said the Archdiocese has determined what purpose they should be utilized for? Yes. And for example there is money there that shows for Nicholas Basil -- Direct by Mr. Eisenzimmer 1068 the Cathedral. Could you tell us for example what that's used for? I As you know the Cathedral is a large piece of property that is very expensive to maintain, and as a parish they have a very small membership. It's the church of the Archdiocese basically. It's very expensive to maintain. That's money that's basically been donated and set aside to properly maintain and fund the Cathedral operations. And then what about the charitable benefits category, what is that money for? As it says it could be used to for Catholic charities or humane reasons. Now, some of these others are Christ Child is what? That there used to be a school Christ Child, and when they closed the school, that was like the net remainder of those moneys, and they have said that that will be used for education and in particularly Christ Child type programs. And Christ Child type programs are what kind of programs, do you know? I don't recall. And then there is an amount for clergy. Do you know what that entails? Again, it's for clergy benefits, training, retreats, Nicholas Basil -- Direct by Mr. Eisenzimmer 1069 certain clergy needs that are above and beyond what can be budgeted. And then education is self--explanatory, is that educational purpose? Yes, high schools, grade schools. And then operations, what operations are we talking about that money being for? Could be used for any of the operations of the Archdiocese. And when you are talking about Current operations. Daywtowday operations? Could be, yes. And then the money designated for seminaries, what is that?. That is the Archdiocese supports two separate seminaries and then they also support seminary students as they are studying to become priests, and it's a very expensive undertaking, so that's money that is set aside to support the seminaries that are in the Archdiocese and also for use by seminary students. So then to recap, Mr. Basil, of the five millions dollars, 3.4 million dollars plus the renewal and replacement funds and the expansion fund have all been Nicholas Basil -- Direct by Mr. Eisenzimmer 1070 designated by the Archdiocese for some particular purpose? Yes. And the only one that 4- the only amount of that five million dollars that hasn't been so designated in some fashion is the $561,000? That's correct. Now MR. EISENZIMER: Your Honor, may I approach the witness? THE COURT: Yes. BY MR. EISENZIMMER: Mr. Basil, I want to go on to the next step of this same analysis. Mr. Bergman in arriying at his adjusted fund balances then talked about institutional property. Here I don't know that I want to repeat that, but I take it then that the eight million dollars that he has added in order to come up with the adjusted fund balance of 17 million dollars is exactly this. It's a list of property and what their historical value is? Yes, that's correct.- And as we discussed with Mr. Bergman, those numbers basically are then adjusted for the amount of depreciation? Nicholas Basil - Direct by Mr. Eisenzimmer 1071 Correct. Now, I take it you don't know what the market value of these properties might be? I do not, no. And is the manner that you have handled this institutional property on the financial statements of the Archdiocese is that handled in accordance with generally accepted accounting principles? Yes, it is. Now, the Exhibit 20 also indicates that it's prepared in accordance with let me find the language if I might. That they are prepared in accordance with standards set forth by the National Conference of Catholic Bishops? That's correct. Can you tell me a bit about what those standards require generally with respect to preparation of financial statements such as those of the Archdiocese? They are in essence the same as generally accepted accounting principles. What that really refers to is how the financial statements are presented, you know the different types of funds. They all pretty much agree to use the same types of funds, like property funds, endowment funds, current funds and how they classify them and to basically make it so you can Nicholas Basil Direct by Mr. Eisenzimmer 1072 compare it to other diocese. Okay._ Now, I take it of this approximately eight--and~a--half million dollars worth of institutional property, that's property that the Archdiocese owns? Substantially all of it, yes. And it's the Cathedral, high schools and things of that nature. I take it that this wouldn't be converted to any type of liquid asset unless the property was either sold or perhaps a mortgage put-on the property for example? That would be one way of turning into liquid assets, yes. And if mortgages were placed on those properties, there would have to be some kind of debt service or payments on those mortgages? Before anybody would lend you the money, they would want to see how the debt was going to be repaid, so you would have to somehow allow for that in the future, yes. Now, I want to talk at this point in time too about are there certain guarantees that the Archdiocese has made as part of its financial commitment? I Yes, there is. Could you tell me generally what are those guarantees? Nicholas Basil -- Direct by Mr. Eisenzimmer 1073 MR. ANDERSON: Objection, lack of foundation. THE COURT: I don't know that. You need to establish foundation. . MR. EISENZIMMER: Sure. BY MR. EISENZIMMER: Mr. Basil, you as part of your work as an accountant for Boulay handling the Archdiocesan account, have become familiar with certain guarantees that the Archdiocese has made? Yes. And is there a reference to those guarantees in Exhibit 20? Yes, there is on page 21. Page what? 21. Okay. And in terms of those guarantees, do you know first of all the amount of those guarantees as of the date of this financial statement? Yes, they are recorded at approximately $42,990,000 plus there is an additional one million dollars guarantee on that, so there would be a total of $43,990,000 of guarantees. And do you know whether those guarantees are based upon the financial assets of the Archdiocese? Yes, they are. Nicholas Basil - Direct by Mr. Eisenzimmer 1074 Now, I want to next go to the two adjustments that Mr. Bergman talked about to the fund balances. Now, the first adjustment he has made is a subtraction for $203,000. Can you tell me what that's about? That is a when Archbishop Roach retired, he did not have a funded pension as most of the other priests in the diocese do because in essence the bishops are excluded from that plan for whatever reason, and he was then given a pension amount upon retirement that was basically unfunded. Generally accepted accounting principles say that you need to accrue that when it becomes known and measurable, so it's an adjustment that we proposed to make to the financial statements and the Archdiocese did not want to make to the financial statements, because I think it conflicted with the accounting standards of the diocesan churches that we referred to earlier. That's the National Conference of Catholic Bishops? Right. They checked I think with some other diocese and found that they none of them were really accruing for those pensions and they also they did not want to record it. But in terms of analyzing that under generally accepted accounting principles, you would agree with Mr. Bergman that's a set off? Nicholas Basil -- Direct by Mr. Eisenzimmer 1075 Yes . But in fact in the Archdiocese financial statements, you didn't take it as a set off like that? That's why we had to qualify our opinion to state that fact, yes. Now I want to talk for a moment about the next item, approximately 4.3 million dollars that's referred to as deferred revenue. First of all, do you know what the source of that money is that Mr. Bergman has added to the fund balance? Yes, that represented the 1995 Annual Catholic Appeal. And Could you tell us briefly let me ask you first. Do you know what the Annual Catholic Appeal is? Yes. And what is it? It's a fund drive that the Archdiocese does once a It's coming up year. It's usually done in February. this month as a matter of fact.' Once a year they appeal to all the Catholics in the Archdiocese to make a pledge and give money to the Archdiocese. And it's just done once a year, and then the money comes in between February and usually July or August because certain people pledge certain amounts. In other words, myself, I have got an envelope in the Nicholas Basil -- Direct by Mr. Eisenzimmer 1076 mail just a couple of days ago from the annual appeal, that's what they do? Yes. And people then send in a pledge I take it? Either a check or a pledge, yes. And the money that Mr. Bergman has designated there, the 4.3 million dollars, that's money that the. Archdiocese as of June 30, 1995 had collected, had received? Exactly, yes. Tell me then I take it that Mr. Bergman's treatment of that for purposes of computing the adjusted fund balance differs from the way the Archdiocesan financial statements treated that? Yes. And tell me you heard Mr. Bergman's testimony? Yes, I did. - And tell me why in preparing Exhibit 20 your accounting firm treated it in the manner that they did? Well, the basis for the Annual Catholic Appeal when they collect it like any fund raising appeal that you have seen you know in your churches and things, they sell it based on their programs and the services and everything that's going on in the Archdiocese to Nicholas Basil -- Direct by Mr. Eisenzimmer 1077 promote those programs. They tell the donor and the donor understands that when they are giving that that's to fund the programs of the church. That money is is not really available to fund the church immediately. It is supposed to be used for the next years to fund the next year's budget. Since they only ask for it once a year and it takes a little while to collect, they never really could say well, it's used for the current year operation. And keep in mind the Archdiocese has a June 30 year end. It's not a calendar like a lot of companies. They are collecting funds and getting people to pledge for next year's budget in essence, to budget next year's operations and next year's funds. And then the way that your firm treated that is that in accordance with generally acceptable accounting principles? Yes, it is. Now, tell me also is there a portion of this 4.3 million dollars that doesn't remain with the Archdiocese? That's correct. As part of it, 25 percent of the funds that are collected go back to the parish from where the parishioner was that denoted the money from the first place, so 25 percent of that is donated back -Nicholas Basil -- Direct by Mr. Eisenzimmer 1078 to the parish. I And that's an obligation that's_part of the Annual Catholic Appeal? It's part of the understanding, it's part of the campaign, it's part of the program. I take it that's not something the Archdiocese can undo or change their mind or something? No. Now, then, I want to talk a bit then about the last sheet. You would agree with the analysis I took of Mr. Bergman through earlier that if we look at current operating funds for the year ending June 30, 1995 that there was a deficit, is that a fair statement? Yes . And before transfers, that deficit was how much? $1,26d,620. I And then the money that then is reflected up there on my illustration of $944,000, where did that money come from? That came from funds functioning as endowment basically. What they did is you know everything is budgeted and they do adopt the balanced budgets, they don't budget for deficits, but certain areas, certain needs were there and sometimes those areas get overspent, and that's why those funds function as 'Nicholas Basil Direct by Mr. Eisenzimmer 1079 endowments were set up originally to help fund those times where you know for example during this year they were in the process of consolidating some of the innermcity elementary schools, and they had to pour another $400,000 into those projects to keep the schools going and supplement the programs, so they took some of that savings out of fund's function endowments and basically reimbursed the operating expenses to bring down the deficit. So then they would bring down the deficit for what amount for the year ending June 30, '95? The net amount was $321,956. And then apparently that net decrease is applied against this fund amount that you talked about earlier that existed from earlier surpluses? Yes. So that's the where I have fund the beginning that's the amount at the beginning of the fiscal year which ended June 30, '95? Yes, on July 1, 1994 that fund was $883,898. If I understand your earlier testimony, that fund exists because in some earlier years there was a" surplus? Yes . So up there where I show a net decrease of $321,000, Nicholas Basil -- Direct by Mr. Eisenzimmer<< 1080 in some earlier years there was a net increase? Yes. . And that money sits there as you referred to it's like retained earnings in a corporation? Correct. But then when you apply this year's net decrease to it, that money has been reduced to $561,000? Correct. And so if there are future decreases, then that would continue to cover a portion of those? Yes. Okay. And for the do you know what the net" decrease was for the preceding fiscal year? It was approximately $400,000 I believe, $426,000. I don't have that up here but that's my recollection. And so again using your approximation, for the last two years then the net decrease has been something in excess of $700,000? Correct. Akin to a loss, it's a decrease? Yes. And so the fund balance that exists of $561,000 at the end of the period, this is the same amount that we talked about earlier is undesignated, unrestricted? Yes. Nicholas Basil -- Direct by Mr. Eisenzimmer 1081 And that's what its purpose is is to cover future deficits? Yes. Now, Mr. Basil, when the jury looks at Exhibit No. 20, they are going to see a number of other dollar amounts in there that are going to be quite substantial, is that a fair statement? There is a lot of numbers in this report, yes. And they are large numbers, yes. And you would agree that some of those numbers suggest that the Archdiocese has some money when actually that money is really not available to them? MR. ANDERSON: .0bjection, leading. THE COURT: It is leading. The objection is sustained. BY MR. EISENZIMER: Let me ask it this way, Mr. Basil. Is a person who is unfamiliar with the financial statements of the Archdiocese likely to get misled as a result of looking at some of those financial figures in there? MR. Objection, leading. THE COURT: Overruled. - THE WITNESS: That's very possible, yes. BY MR. EISENZIMMER: Now, one of the things that has been discussed here in Nicholas Basil -- Direct by Mr. Eisenzimmer 1082 Mr. Bergman's testimony is the Catholic Community Foundation. As part of your work as the accountant -- outside accountant for the Archdiocese, are you familiar with the moneys that have been transferred from the Archdiocese to the Catholic Community Foundation? Yes. And can you tell me the types of moneys that have been transferred and what categories they were in prior to their being transferred to that foundation? The money that was transferred to the Catholic Community Foundation was the endowments of the Archdiocese, the restricted funds, they transferred them down to the foundation, because there is going to be fund management capabilities in the foundation that they thought they could benefit from. Now, in the financial statements on page 12, you have defined endowment funds that are as donations that have been received subject to restrictions of the gift instrument requiring that the principal be invested in perpetuity and only the income be utilized. Is that the same type of endowment then that any moneys were transferred to the Catholic Community Foundation? They only transferred endowment funds were owner restricted. Nicholas Basil -- Direct by Mr. Eisenzimmer 1083, So those are funds then that the Archdiocese can't decide how to use them? The donors have decided that? That's correct. So even though Mr. Bergman didn't have all the information about that, it would have been appropriate to exclude them from his calculations then? That's correct. Mr. Basil, as part of your work as the outside accountant for the Archdiocese, have you become aware that the Archdiocese has paid certain sums of money in connection with claims of inappropriate conduct on the part of the priests? Yes. And in your opinion have those moneys that have been paid in connection with those cases had an effect on the financial condition of the Archdiocese? It's had some effect. -I can't argue that, yes. Are you able to determine whether in the opinion of the Archdiocese it's been some minimal effect or some significant effect or that's something that's - incapable of your determination? MR. ANDERSON: Objection. THE COURT: The objection is sustained BY MR. EISENZIMMER: Well, are you able to express an opinion on that Nicholas Basil -- Cross by Mr. Anderson 1084 matter any further than you already have? Not really, no. 1 MR. ANDERSON: The same objection. THE COURT: He has answered the question. We are in the same spot. MR. EISENZIMMER: Nothing further, Your honor. THE COURT: You may inquire, counsel. MR. ANDERSON: Thank you, Your Honor. CROSS EXAMINATION BY MR. ANDERSON: I have somebody next to me that knows something about this stuff. Mr. Basil, first let me ask this. on page 3 of the statement, the financial statement, do you have it there? Yes. This is the balance sheet, the first entry is cash in short term investments, 2.562321. 2.5 million dollars plus, right? Is that what that is? Under the current operating funds, yes. Current operating funds. Now, this financial statement is really just a snapshot in time, isnfit it? That's correct. This is just one snapshot? It's as it existed on June 30, 1995. At that moment. All right. This entry right here is Nicholas Basil - Cross by Mr. Anderson 1085 in common parlance, this 2.5 million could be considered like a checking and savings account? It was in check, cash and short term investments is the caption, yes. Like a checking and savings account? That's correct. And if a snapshot were taken at a different point in time, that number would be different? Yes. is that fair to say? But this is just representative, Well, it's what it was as of that day, yes. Well, you know some of us have our checking accounts and sometimes they go way.up and not so far up, and sometimes they go up not much and sometimes they stay the same and sometimes they go down, and what about this checking account of the Archdiocese and this savings account? Does it stay pretty stable? - That's a question I guess I am not qualified to answer. I don't manage the day--to-day operations of the Archdiocese. Well, you do the annual statements, these financial statements? Yes. That's it was needed of course as of that day. Whenever you have an operation that runs 22 million dollars of revenue through it at any one given Nicholas Basil a Cross by Mr. Anderson 1086 time, there would be a certain amount of money in transit, yes. Okay. Well, you do the statement year end every year and you have been doing that for this corporation for how long? Since about '70, I believe, 1970. The year 1970? Yes . Let me just ask you this then. For the five years prior to the issuance of this statement for this year, would that checking and savings account entry have been oretty much the same or similar to that? I would say yes, because there is a lot of different funds that make up that two-and-a--half million dollars. It's not all you know here is our general checking account. Sure. And then the five years prior to that, you know, how would that checking and savings account balance compare? I have no idea. All right. Now, you talked and were asked some questions about this Catholic Community Foundation and you aren't the one or any or the person that made the decision to create and fund that, correct? Correct. Nicholas Basil - Cross by Mr. Anderson 1087 That was made by the board, wasn't it? Correct. I And that board created a separate board to run that foundation? They appointed people to'a separate board, that's correct. Okay. Now, the board that appointed that board to run that foundation can elect to use funds from that. foundation to fund debt service? EISENZIMMER: I will object. No foundation. THE COURT: He can answer it if he can or can't. I don't know. THE WITNESS: I don't know the answer to that. BY MR. ANDERSON: Is Archbishop Roach's pension a secured obligation? NO. That means in common parlance it's available for payment? MR. EISENZIMMER: Object. Calls for an opinion and conclusion, THE COURT: This is cross--examination. He can lead. BY MR. ANDERSON: Nicholas Basil -- Cross by Mr. Anderson 1088 Let me ask you this. If a fine were assessed, it could be made available for payment? It's he is an unsecured creditor of the Archdiocese, is that-what you mean? I think so. Yes, I would agree with that. Now, you made reference to the National Conference of Bishops? Mm hmm. And that the Archdiocese has adopted standards promulgated and recommended by them, correct? Correct. And you are aware that the National Conference of Bishops cannot require this Archdiocese to utilize their recommended accounting standards, correct? Correct. The Archdiocese is free to use their own if they choose? Yes. But you are also aware the way the Archdiocese works and the diocese in this country who are members of the National Conference of Bishops give weight and deference to the recommendations made by the National Conference of Bishops on how they do their business, correct? Nicholas Cross by Mr. Anderson 1089 I believe that's correct. All right. Now, the Annual Catholic Appeal, that is every year and has been going on every year since you have been doing the what you call it? Not the books, but the financial? Yes. Right? 'Correct. The appeal this year did well, didn't it? I don't know how to answer that question. Well, did it exceed their goal? The '95, yeah. The d?353 million? Yes, I did read in the paper that it went over the goal last month. This operating deficit that shows up at this snapshot in time, in fact the year before why don't you tell the ladies and gentlemen of the jury the five years prior to this snapshot what that net operating deficit looked like on the financial accounting statements? I did not bring that information with me today. Well, I mean you know whether or not your client operated at a loss for each or any of those five years on their statements or not, don't you? Yes. Nicholas Basil -- Cross by Mr. Anderson 1090 Did they? They I believe that they had losses or deficits the last two years and prior to that they would have had surpluses. Okay. Now, you talked about your method of accounting in connection with the Annual Catholic Appeal. The method that you utilized for this statement is going to for that entry is going to change, is it not? It is, yes. Tell the ladies and gentlemen of the jury about that and why? There is new accounting standards that have been issued for a couple of years and right now we are in the transition stage. The Archdiocese will be converting to the new accounting rules in the fiscal year that we are in now so it does change the way some ot the revenue is recognized and it will change the way these financial statements look. It's trying to make them simpler but I am not sure that will be accomplished, but it is changing certain of the accounting rules and how restricted funds in particular are accounted for. There is basically going to become three different classes of assets, and it's all going to be donor driven now. They are doing away with the board Nicholas Basil -- Cross by Mr. Anderson' 1091 designating certain funds because of the confusion we are having here today I believe so you are going to have totally unrestricted funds, temporarily restricted fund and permanently restricted funds. The permanently restricted funds are going to be like the endowment funds where the donor said here is a million. dollars. Don't want you to ever spend the principal but you can use the interest to fund Catholic education or something. The temporarily restricted funds would be like here is $100,000 and I want you to use it for support of your seminary program, so they can only use that for seminaries, and if it's just a donation without restrictions, then it's going to be unrestricted, so you are going to have three types and they don't call them fund balances anymore. They call they net assets but it's the same as fund balances. Is it fair to say that Mr. Bergman's adjustments for purposes of understanding the financial condition of the Archdiocese has accounting merit? No. It is simply an accounting change, is it not? It's an accounting change, but it still would not enter into the calculation that he presented in his report. I think Mr. Bergman did not understand the nature of the Annual Catholic Appeal and that it is a 3510 'You would have to change the appeal. Nicholas Basil -- Cross by Mr. Anderson 1092 donor restricted donation to be-used for the following year' budget. It cannot be used to currently fund operations, and the new FASB number 116 does allow, does respect time restricted donations, does allow you to the donor to give money to be used at a future purpose either through the expiration of time or the expiration of some future event, so it's entirely appropriate and under either accounting method it would not enter into a calculation of what's unrestricted funds. The board can unrestrict those funds, can't it? No. If the board chooses to the next Annual Catholic Appeal unrestrict the funds that are raised in the next Annual Catholic Appeal, they can, correct? MR. EISENZIMMER: Objection, speculation. THE COURT: Overruled. BY MR. ANDERSON: Correct? I don't think so. You have to understand that that money -- Let me ask you. Do you know? Yes. Okay. Go ahead then. They would have "the budget. "that money to fund the next year's program. Nicholas Basil -- Cross by Mr. Anderson 1093 to change the whole character of appeal. You have to understand we are trying to match revenue and expenses here. You can't bring in all of that revenue in and call it revenue right now and then you would have nothing to fund next year's programs. It's part of It's how they do their budgeting. They see how their appeal is going. of their annual budget, so really they need to collect If you took it all away, there would be no programs. I understand. You cannot shift the revenue without somehow shifting the expenses to go with it. Well, they use that money to fund their operations? To fund the programs of the Archdiocese. Okay. And if they were to decide to change the appeal and the operations that they fund for the next- Catholic appeal, they can do that? MR. EISENZIMER: Objection, asked and answered. THE Overruled. THE WITNESS: If this future event you are talking about is to change a campaign and change the way that they are collecting their money and funding it, that's true but I don't see how it has any impact It's a very major part Nicholas Basil Cross by Mr. Anderson 1094 on what the current practice is. BY MR. ANDERSON: Well, is your answer yes? No. Is your answer no? My answer is_no. You are saying that the board for the Archdiocese of St. Paul and Minneapolis cannot change their the goal, the designated purpose and the stated purpose of the archbishop's appeal for next year? It can do that. They can't do anything about the 4.3 -million dollars though. I wasn't asking about that. You are telling us then that they can change the next archbishop's appeal? They can't change this one, is that correct? I don't know how they would change it without somehow changing the way they fund their programs. It's not a fair question. Why isn't it fair? They are the ones that established the -- THE COURT: Counsel, is there a reason why you have to stand up there? MR. ANDERSON: Because I am going to refer to the exhibit, Your Honor, but I have to get an answer to this question before I do. Nicholas Basil -- Cross by Mr. Anderson 1095 BY MR. ANDERSON: They are the ones that established the scope, the goals, the purpose, and the nature of the archbishop's appeal, correct? MR. EISENZIMMER: Your Honor, object as argumentative and repetitious. THE COURT: Overruled. THE WITNESS: Correct. BY MR. ANDERSON: And they are the ones that for next year?s archbishop appeal have the power and the authority to change it if they choose? Yes. Okay. Now, I have got to ask you about you were talking about some of these here unrestricted funds, and I think Mr. Eisenzimmer was_talking about this is replacement and renewal. This is like replacing a roof, is that right?' That's the analogy we used. And if the Archdiocese was assessed a penalty or a fine, they could make a decision to pay that fine with these funds which means that roof wouldn't get built, right? Yes, that's my understanding. Sure. This expansion fund here, 823,234, if they were Nicholas Basil Cross by Mr. Anderson 1096 assessed a fine in that amount, they could take that money, pay the fine, because the law required them to, which means that expansion wouldn't get done that they planned, right? That would be the result; And in fact if they were assessed a penalty of 3.4 million dollars, these endowment funds could get unendowed by the board? I am not saying it's easy. I am just asking can it happen? It's my understanding, yes, that those are not legally restricted by the donors. Page 34, when talking about these unrestricted funds functioning as endowment, a lot of those that are endowed go to education and training and things like that for the priests, right? Yes. They could if required to or assessed well, they could or -- in fact they could do it today, they could redesignate those funds for education in sexual abuse? MR. EISENZIMMER: Objection, speculative. THE COURT: What was the question, Barb? (The court reporter read the pending question.) Overruled. THE COURT: THE WITNESS: Can I ask which of these funds Nicholas Basil - Redirect by Mr. Eisenzimmer 1097 on page 34 you are talking about? BY MR. ANDERSON: I am referring to the unrestricted funds functioning as endowment. Those funds are unrestricted and the function is endowment. Was the answer yes then? I believe so, yes. MR. ANDERSON: Nothing further. THE COURT: Counsel REDIRECT EXAMINATION BY MR. EISENZIMMER: Mr. Basil, as of the time of this statement had any of those funds been changed or undesignated as Mr. Anderson-suggests that the board could undesignate them? You are talking about the unrestricted funds functioning as endowment? Yes, at the time of this financial statements they were designated for the purposes set forth in the financial statement? Yes, there were several that were undesignated for clergy, for operations. Just the same categories we have already outlined? Yes. Nicholas Basil -- Redirect by Mr. Eisenzimmer 1098 They have decided at least as of the financial statement date of June 30, that they would. designate them for that purpose? Correct. so in response to Mr. Anderson's questions, the question is in the future whether they might determine they want to use those funds differently, can they do that, and you are saying yes, they can? Yes, they can. And let me ask a similar question about the appeal and as of the date of this financial reported had they I changed the appeal so as to change the manner in which you were accounting for in in these financial statements? No. And if I am understanding correctly, even after these new rules come into effect you will still be treating it the same way you have unless the appeal itself is changed? That's correct. So you would disagree even under the new rules with the way Mr. Bergman has handled that 4.5 million dollars? MR. ANDERSON: Objection, leading. THE COURT: Sustained. Nicholas Basil -- Redirect by Mr. Eisenzimmer 1099 BY MR. EISENZIMMER: Would you disagree then with Mr. Bergman that under the changed rules it would be handled in the fashion that he has suggested? Under the changed rules it would not enter into his calculation of unrestricted funds. It's still a' restricted fund. So it would not be part of the fund balance as he has computed it? No, it would not. And in fact I think your testimony was well, let me ask you. Your testimony has been that at least a portion of that four million dollars isn't the Archdiocese any ways. It goes back to the parish? That's correct. I thought I might have heard you use the term FASB, did you use that? Yes . Could you tell us just briefly what FASB is? MR. ANDERSON: Objection, beyond the scope. THE COURT: Overruled. THE WITNESS: It's the Financial Accounting Standards Board. It's an independent board that creates the accounting rules for the United States and it's based out in Connecticut. It's got accountants Nicholas Basil -- Redirect by Mr. Eisenzimmer 1100 on there and business people. BY MR. EISENZIMMER: And these are the rules you were just talking about? These are the rule. MR. ANDERSON: Nothing. THE COURT: You may step down. (Witness excused.) THE COURT: I will see you Monday morning at 9 o'clock. I want to tell you that all the time that you were out in that hall this morning we were in here talking, and there was extensive news media coverage. Please, please, please do not listen to the news or read the newspaper. I expect that there will be extensive news coverage of what happened here today. Please don't do that. It's imperative. Have a friend tape the news for you or cut out the newspaper or save the newspaper or whatever. We are going to be done with this on Monday or Tuesday and at that time in addition to that I will spend any amount of time that you want me to spend with you answering any questions that you may have so I am just imploring you not to taint yourselves with any news coverage, please. A JUROR: Is that implying_then if you say they can cut it out of the newspaper or whatever -- THE COURT: You can read any other section of 1103 the newspaper. A JUROR: I don't want to read the paper. I am wondering what can I talk to my daughter about it. THE COURT: Wait until this is over and then talk to her about it. A JUROR: She is very worried about her mother. THE COURT: Tell her that by Tuesday afternoon you think you are going to be done or Wednesday morning you will be done and you will be happy to chat with her all about it. A JUROR: Okay. THE COURT: Thank you all. See you Monday morning at 9 o'clock. (Jury left the courtroom.) (The following discussion was held out of the hearing of the jury.) THE COURT: Go ahead. MR. EISENZIMMER: Your Honor, counsel has just informed you that he intends to call Father Austin Ward, financial officer of the Archdiocese. Father Ward's deposition was taken in connection with this case, but I have from the very beginning indicated that he was a potential expert witness on my part as was Mr. Basil, and I have chosen to call Mr. Basil and 1102 have chosen not to call Father Ward, and I advised the Court yesterday apparently Father Ward's brother suffered either a stroke or heart attack and was found unconscious and is in the hospital, and my understanding Father Ward is with him, and that's one of the reasons I have chosen not to call him. Counsel now indicates that he wants to call him for some purpose. I have no idea what it is. He is now seeking to compel my expert in this case totally without indicating he was a witness or anything of that nature. I object to that and I am asking the Court to tell him he can't do and he stood here this morning and told Your Honor who his witnesses were and Father Ward wasn't among them. THE COURT: Counsel. MR. ANDERSON: Your Honor, Father Austin Ward is the chief financial officer of the corporation. He is a factual witness. We took his deposition in this case as a factual witness. Mr. Eisenzimmer has noticed him as a witness to the financial condition of the Archdiocese. He has been on every witness list. He was on the witness list read to the jury and given in the questionnaire to them. Mr. Eisenzimmer has represented to me that he was going to call Father Austin Ward, and then in 1103 discussing this with him he said yesterday or the day before that he may not call him, and in that case I told him then I will call him and as a witness. He has factual information pertinent to the financial condition of the Archdiocese and in particular how the lawsuits have affected them, and he in fact has given previous testimony on that question, and obviously that is a question very probative to the inquiry_here. THE COURT: Counsel. MR. EISENZIMMER: Well, Your Honor, it's an opinion. He is an expert. He is a financial person and counsel is suggesting he gets to call my expert. It's just simply not permitted. THE COURT: Counsel, I don't think you can designate an officer of your corporation as an expert and prohibit him from calling him. You get no sympathy from me on those grounds. He is an intrical part of your corporation and you can't designate one of your corporate officers as an expert and prohibit cross-examination. I am concerned when I asked about who was going to be here and who was going to testify that I wasn't told that, counsel, and that does concern me. MR. ANDERSON: Okay, and I can represent to the Court that my examination of Father Ward will be 1104 very brief, so I didn't actually know until Andy just said that that he wasn't going to call Father Ward. THE COURT: When we talked about it this morning, he didn't mention Ward's name. when I asked who was going to be here-and we went through the list, he didn't say he was going to call that individual. MR. EISENZIMER: We talked about it yesterday as well, judge, and never talked about Ward yesterday. I always said I decided to call Basil. THE COURT: who has anything else they need to say to me? I MR. EISENZIMER: Your Honor, I simply indicate counsel has never disclosed Father Ward would be one of his witnesses. I the week before trial sent out updated expert witness interrogatory answers to counsel and designated Father Ward as my expert. THE COURT: He is not an expert. He is your employee. MR. EISENZIMMER: I put him on my witness list. He is going to be asked counsel wants to ask him his opinion as to whether or not the sex abuse cases have had a financial impact on the Archdiocese. That's eliciting his expert opinion. MR. ANDERSON: Your Honor, if I may. He has been and is the chief financial officer. I have asked 1105 him in testimony past under oath whether or not these sex abuse lawsuits have caused a financial strain on the Archdiocese. He has testified that they have not. That is all I am going to ask him. THE COURT: Well, you should have told me that before. I am not going to let you bring him. We are going to have Roach and Mcnonough and that's it, right? MR. That's correct, Your Honor. THE COURT: Okay. (Recess taken.) 2 9