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The Boston Globe

Business

Church’s bankruptcy case enters final phase

Several dozen members of the Charles Street African Methodist Episcopal Church filled a courtroom in Boston Monday, as lawyers for the congregation and those representing bankers made their final arguments before a judge in the church’s bankruptcy case.

The parties remain far apart, nearly a year and a half since the historic Roxbury church filed for Chapter 11 bankruptcy protection in order to reorganize roughly $5 million that it owes OneUnited Bank and other creditors. The dispute has become highly personal, bruising the reputations of two prominent black institutions in Boston.

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A contrite Charles Street AME has offered full repayment of its debt over 20 years, and the oversight of a special examiner who would report back to the court. The bank wants the judge to dismiss the bankruptcy case entirely, arguing that church leaders have been misleading about Charles Street’s finances and cannot be trusted to manage them going forward.

“You’re saying I shouldn’t trust them? That’s what it comes down to,’’ US Bankruptcy Judge Frank Bailey said to OneUnited’s lawyer, Lawrence Edelman.

Edelman was evasive when the judge asked him what the bank would do to recoup its money if the bankruptcy case was dismissed. Edelman suggested the bank wanted to return to state court, where the parties have other lawsuits pending, and could negotiate their loan problems there.

Edelman noted that OneUnited still has the right to foreclose on the church building in Roxbury and also on a nearby community center that Charles Street is building, which serves as collateral for a separate loan. The congregation filed for bankruptcy protection in March 2012, when the bank threatened to auction off the church building.

The question at the heart of the feud is whether it was the church or the bank that overextended to build or finance the Roxbury Renaissance Center, a space meant to house a music school, a ballroom for weddings and gatherings, and business incubator offices.

What was billed as landmark community cooperation in 2007 turned into a quagmire by 2009, as the financial crisis hit. The church struggled to repay its loans as OneUnited became financially strained and under government scrutiny.

When communication between the two institutions broke down and turned into a public legal spat, community activists rallied and a host of politicians intervened, from Mayor Thomas M. Menino to former US senator Scott Brown.

But since the bankruptcy case started, the bank’s lawyers have portrayed the church’s pastor, Gregory S. Groover, as negligent and misleading. Most recently, the bank has accused Groover and a church bookkeeper of fraud for improperly using $825,000 in grant money earmarked for the training of new clergy to instead pay church bills, loans, and salaries.

“This debtor has not only committed wrongdoing, but at all times knew it was committing wrongdoing and kept it a secret,’’ said Edelman, the bank lawyer.

Groover apologized for borrowing the funds, granted by the Lilly Endowment. He said Charles Street has been repaying the money and continues to fund the pastoral program the grant was meant to support. The church’s pro bono lawyer, Ross Martin of Ropes & Gray, said his clients were unsophisticated about finances.

Under the church’s plan of reorganization, it would repay the bank over 20 years at an interest rate of 5.75 percent, or a rate of 5.2 percent coupled with a guarantee from Charles Street’s district church organization. The plan would aim to finish the community center with donated money so it can start generating rental revenue.

The judge is expected to deliver a ruling in the coming weeks.

Beth Healy can be reached at bhealy@globe.com.
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