Texas sues Bishop Gracida; he sues back

National Catholic Reporter, May 24, 1996 by Arthur Jones

Texas authorities have brought suit against Corpus Christi Bishop Rene H. Gracida -- who as president of a controversial, multimillionaire-dollar foundation, funneled more than $100 million to his diocese in 12 years -- charging that he "manipulated the grant process" and breached his fiduciary duty.

According to the suit, filed May 2 in Travis County by the Texas state attorney general's office, Gracida's involvement in the fund is laced with conflicts of interest and improprieties, including the diversion of funds from charity for the purchase of a for-profit television station. The suit again draws attention to one of the more controversial major U.S. foundations with Catholic connections. It is the fourth time since 1963 that the state has tackled the actions of officers and board members of the John G. and Marie Stella Kenedy Memorial Foundation. The most recent was in 1984.

In response this time, Gracida has filed suit against the state to secure a position on the foundation for himself and his successors and, among other points, seeking for the foundation board sole discretion in distributing the funds in Texas.

In fact, recourse to the law has been frequent since the death of rancher Sarita Kenedy East in 1961, when she left Trappist Br. Leo Gregory in charge of her charitable foundation worth nearly $500 million. She wanted the money, Leo said, directed to the poor of Latin America (NCR, Feb. 6, 13 and 20, 1987).

According to a 1963 agreement with the state, the foundation's board would be 60 percent Catholic, including the Corpus Christi bishop, and 33.3 percent non-Catholic. At least 10 percent of the charitable distributions would be nonsectarian and nonchurch-related and all made within Texas. The Corpus Christi diocese would receive 15 percent of the oil, gas and mineral resources from foundation properties, plus 10 percent of the foundation's income.

According to the suit, Gracida, foundation president since 1984, "has been faced with numerous conflicts of interest in his dual role" as bishop and foundation president and "has exercised de facto control over the foundation contrary to the terms, spirit and intent" of previous agreements and a 1984 lawsuit.

The suit said that by manipulating the grant process, ignoring foundation bylaws, flouting grant procedures and misrepresenting the foundation's status and financial situation, "the defendants [Gracida and the board] have transformed the foundation from a charitable trust designed to serve the public of the state of Texas into an entity primarily controlled by and for the bishop of the Diocese of Corpus Christi," including diverting money "away from charitable purposes into for-profit ventures."

According to court documents, the Corpus Christi diocese received more than $100 million in the nine years leading up to June 1993. (The state has no figures beyond that date.) The bishop and board are charged with having breached "common fiduciary duties" for failing to properly distribute, "failing to properly oversee," "failing to require accounting," and "failing to terminate or redesignate grants which were not properly and timely spent."

"Gracida," the action continues, "has consistently subordinated the interests of the foundation to the interests of the Diocese of Corpus Christi," and "the foundation's board has ratified all Gracida's actions without exercising independent judgment, allowing the foundation to be controlled by Gracida."

According to a copy of the suit obtained by NCR, the state charges that Gracida has dictated which grants should be approved and denied, with the overwhelming number going to the Corpus Christi diocese. Limits of $50,000 on sectarian grants are avoided by dividing them "into dozens of requests for $50,000 or less, [which] at Gracida's request the board routinely approves."

The suit charges that Gracida has made use of foundation funds to acquire a for-profit business ... KDF-TV, Channel 13, the Fox network affiliate in Corpus Christi, by forming and using as a purchasing agent Paloma Broadcasting Co., a for-profit company organized on Feb. 25, 1991, as a wholly owned subsidiary of the Corpus Christi Diocesan Telecommunications Corporation [DTC], a nonprofit corporation funded and operated by the diocese."

DTC received $3.1 million in 25 foundation grants and channeled some of its funds to the for-profit company in order to acquire and operate KDF-TV, says the attorney general. Gracida has made no public reply.

His coadjutor, Bishop Roberto O. Gonzalez, in a statement, said he is "distressed" by the suit, has "the highest respect" for Gracida, and pleaded with "all persons of goodwill to reserve judgment." He concluded, "Let us pray that the judicial process will be conducted in a climate of civility and mutual respect, without rancor or bitterness, that the court will render justice, and truth will prevail."

At press time, Gracida's attorney, Jorge Rangel, had not returned NCR's phone calls.

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