Bankruptcy document: Most Milwaukee abuse claims will receive no money

FROM NCRONLINE.COM

The Milwaukee archdiocese will walk away from bankruptcy relatively unscathed if its proposed reorganization plan is accepted by Judge Susan V. Kelley.
Although it was lawsuits brought by 570 alleged childhood victims of clergy sex abuse that forced the archdiocese into bankruptcy court, a close reading of the 337-page document shows that the vast majority of those claims will get no financial compensation from a $4 million fund for survivors.

Most other creditors in the case will be paid, although some will get less than they say they are due.

The archdiocese has no plans to reduce its annual $24 million operating budget or sell any property. It will have to put some property up as collateral to "borrow" $2 million from the controversial cemetery perpetual care trust fund -- the same $57 million fund church officials fought to keep out of the bankruptcy case that is now being appealed.

Meanwhile, the price tag for bankruptcy legal fees that the archdiocese must pay will be at least $18 million. Already, $12.5 million has been paid and another $4.5 million in bills has accrued. The archdiocese estimates it will cost another $1 million to complete the bankruptcy under the plan.


If the plan is not adopted, litigation could continue for another five years, cost another $14 million and mean that each individual survivor who filed a claim would have a separate trial, according to the archdiocese.

The judge has scheduled a hearing with lawyers for the claimants at 10:30 a.m. Central time Tuesday.

Monica Barrett is among the 80 percent of abuse claims that the archdiocese says is not eligible for compensation. Barrett said she was sexually abused in 1968 at the age of 8 by William Effinger, one of the archdiocese's most prolific abusers.

"They said I was his first victim and that they would not have had noticed that he was an abuser," said Barrett, who filed a lawsuit in state court in the 1990s.

Barrett's state case was dismissed after the Wisconsin Supreme Court issued a pair of decisions that found that the church was not responsible for the actions of abusive priests. Later, another decision opened the door to lawsuits if victims could show that church officials knew about sexual abuse but allowed priests to continue to work in areas where they would come into contact with children.

Before Barrett's case was dismissed, the church mounted an aggressive defense, deposing former boyfriends and others about what she had told them of the abuse.

"I had told very few people about the abuse," Barrett said. "They went to all these people and told them. They wanted to depose my daughter, who was only 11 or 12 at the time."

She likened the conduct of the archdiocese in the bankruptcy case to that of predators.

"They lure the victim in by saying, 'Come forward, and we will treat you fairly and put an end to all this,' and then they do this," she said. "They are revictimizing the victims."

Lawyers representing the majority of the survivors for nearly a decade said it is unlikely they will accept the plan. Kelley has the authority to "cram down" -- force the plan to be accepted by unwilling claimants -- but an appeal is likely.

The archdiocese says only 128 of the claims are eligible for compensation and could receive approximately $27,000 per person. The other survivors will get no financial settlement, but the archdiocese may provide therapy to some or work with others to get responsible parties to pay for therapy.

Milwaukee is one of 11 U.S. dioceses to file for bankruptcy as a result of sexual abuse allegations. Lawyers representing survivors say elsewhere they received average payments of $400,000.

In 2006, 10 California victims of two abusive priests from Wisconsin received $16.65 million, about half from the Milwaukee archdiocese and half from its insurers. To pay that settlement, the archdiocese took out a mortgage of more than $4 million against its headquarters, the Cousins Center. In bankruptcy, the archdiocese asserted that the mortgaged property, originally a high school seminary, belongs to the separately incorporated board of the defunct high school.

The archdiocese must pay its own lawyers and those approved by the court to oversee the interests of the claimants. Lawyers Jeff Anderson and Michael Finnegan of St. Paul, Minn., have long represented the bulk of the survivors but have received no payments from the archdiocese, they say.

The proposed plan attacks the lawyers for driving up costs: "The Anderson firm purchased unprecedented amounts of advertising to convince hundreds of people to file claims that the Anderson firm knew were subject to legal objections, raising unfounded hopes that the abuse survivors would receive a large financial recovery."

The archdiocese had been ordered by the bankruptcy court to search diligently for victims and notify them of their right to make a claim. The archdiocese bought ads in 48 print publications. Most of the Anderson ads were in the electronic media.

Anderson countered: "They are the ones who challenged every claim. They are the ones who moved assets out of the estate."

The archdiocese electronically filed a 337-page reorganization plan with the bankruptcy court at about 10 p.m. Thursday. Earlier that morning, Archbishop Jerome Listecki announced the plan on a politically conservative radio talk show and posted a letter on the archdiocesan website.

The survivors who would receive nothing under the archdiocesan plan are:

84 who agreed to settlements before the bankruptcy was filed (they had already received $702,000);
165 claims that "have no factual basis for fraud" (they may get therapy from the archdiocese);
95 who claim to have been abused by religious order priests (they are not eligible for therapy, but the archdiocese may work with the survivors to obtain it from the orders);
43 abused by laypersons (the archdiocese will assist in seeking therapy costs from others);
51 claims that were dismissed or disallowed earlier (the archdiocese "in its sole discretion" may provide therapy).
"The archdiocese sold property, liquidated investments and eliminated approximately 40 percent of its staff and operations by 2008," according to a statement in the plan. "Since that time the archdiocese has been operating at reduced levels which have adversely impacted the scope of the religious and charitable work the archdiocese is able to accomplish."

Peter Isely, the Midwest director of the Survivors Network of those Abused by Priests, said Listecki is sending a message to the survivors.

"Money communicates what is of value to the archdiocese," Isely said, noting that some abusive priests were paid $20,000 to leave without appealing their dismissal to the Vatican. "What [Listecki] is doing is punishing the victims. It's because survivors have stood up and exposed so much here. He is saying, 'You will be dismissed for that.' "

Isely noted that the $4 million proposed for the survivor compensation fund is less than the $4.6 million offered during mediation before the bankruptcy was filed. That's deliberate, he said, but it will not end the fight.

"We're a long ways from being finished," Isely said.

A status conference is scheduled for March 12 in bankruptcy court.

Dolan In Letter: Attempt May Be Coming To Link My Name To Bad Publicity

In a letter issued just before he went to Rome this week, Timothy Cardinal Dolan warned that his name could be connected with some bad publicity regarding his home archdiocese of St. Louis.
Dolan said in a letter issued Tuesday that he tries to alert parishioners about “any potentially negative publicity about the Church, or about me,” and “there could be some.
“My home archdiocese of St. Louis just complied with a court order to release the documents regarding cases there of sexual abuse of minors. (Cardinal Egan already did that here a decade ago, sharing all of the information we had on abusive priests with proper district attorneys, something we continue to do today,)” Dolan wrote.
Dolan served as an auxiliary bishop in St. Louis for a year in 2001 and 2002, and as a vicar for priests for nine of those 12 months. Thus, he wrote: “I would anticipate that my name will again be highlighted in the press. I sure have nothing to hide, and am very much at peace with law enforcements officials reviewing the files. In fact, we already released all the documentation to them a dozen years ago!”
“This will be, I suspect, a repeat of last year’s attempt by the same tort lawyers to muddy my name. A year ago, they contended- – remember?- -that while Archbishop of Milwaukee I had ‘hidden funds,’ and they had even deposed me. Nothing of course ever came of it, although the ever-compliant press here gave me headlines about being deposed,” he wrote.
Documents made public back last summer revealed that as Milwaukee Archbishop, Dolan sought and received permission from the Vatican to move $57 million from a cemetery fund into a trust to provide “improved protection” as the archdiocese prepared to file for bankruptcy amid dozens of claims by victims of clergy sex abuse.
Dolan’s 2007 letter and the Vatican’s response were included in thousands of pages of documents the archdiocese released as part of a deal reached in federal bankruptcy court between the archdiocese and clergy sex abuse victims suing it for fraud. Victims say the archdiocese transferred problem priests to new churches without warning parishioners and covered up priests’ crimes for decades.
“Responding to victim-survivors, taking action against priest-abusers, and working to implement policies to protect children, were some of the most difficult, challenging, and moving events of the 6 1/2 years that I served as Archbishop of Milwaukee,” Dolan said in a statement last year. “One of the principles that guided me during that time was the need for transparency and openness, which is why I not only welcomed the deposition as a chance to go on-the-record with how we responded to the clergy sexual abuse crisis during my years in Milwaukee, but also encouraged that it be released.”
The victims’ attorneys accused Dolan of trying to hide the money as the Milwaukee archdiocese planned for bankruptcy. The archdiocese has denied those allegations from the beginning.
Dolan last year called any suggestion he was trying to shield money from victims an “old and discredited” attack.
“While certain groups can be counted-upon to take certain statements or events out of context, the documents released show plainly that the bishops have been faithful to the promises made over a decade ago: permanent removal from ministry of any priest who abused a minor; complete cooperation with law enforcement officials; and, strict child-safety requirements,” Dolan said in the statement last year.
Following Dolan’s most recent remarks, leaders of the Survivor’s Network of Those Abused by Priests called Dolan’s statement “preposterous and self-serving” in remarks to the St. Louis Post-Dispatch.
But the Archdiocese of New York said since there is already publicity about documents regarding sexual abuse by priests in St. Louis, Dolan wanted to let his parishioners what was happening ahead of time, the newspaper reported.

Archdiocese creditors seek order to review whether judge has conflict

Just days after U.S. District Judge Rudolph T. Randa issued a key ruling in favor of the Archdiocese of Milwaukee in its bankruptcy, the church's creditors are seeking an emergency order to determine whether Randa has a conflict of interest that should have been disclosed.

Randa ruled last week that forcing the archdiocese to tap the $50 million-plus it holds in a trust for the perpetual care of cemeteries would substantially burden its free expression of religion under the First Amendment and a 1993 federal law aimed at protecting religious liberty.

In a highly unusual move late Friday, lawyers representing the archdiocese's creditors — primarily sex abuse victims — filed a motion asking U.S. Bankruptcy Judge Susan V. Kelley to compel the release of any records showing whether Randa and his wife, Melinda, have purchased any plots or crypts in one of the archdiocese's cemeteries, or whether they have any interest as heirs or beneficiaries of several relatives known to be buried in them.

Depending on what they find, the motion says, the lawyers say they may seek to vacate Randa's order and ask him to recuse himself from the case.

"Judge Randa's decision was so indefensible in so many ways that we suspected there was reason to investigate any involvement he might have with the cemeteries," said Marci Hamilton, a First Amendment scholar who is representing the creditors committee on the issue.

Timothy Nixon, an attorney for the cemetery trust and its sole trustee, Milwaukee Archbishop Jerome Listecki, called the motion a desperate tactic and an "attack on a federal judge."

"It's sad that the committee's lawyers now ... in the face of a single, adverse decision, take the extraordinary step of impugning the integrity of a respected federal judge," Nixon said.

Both sides called the motion highly unusual. If Randa is asked to recuse himself, Hamilton said it would be a first among the several Catholic Church bankruptcies around the country.

At issue, the creditors' lawyers say, is not Randa's religion — Kelley and at least one other judge in a Catholic church bankruptcy have noted that they are Catholic — but whether he has a vested interest in the cemetery litigation. As part of the bankruptcy, Listecki filed a claim on behalf of all individuals who own burial sites in the archdiocese's cemeteries or have an interest as an heir or beneficiary of others buried there. According to the motion filed Friday, the Randas have several relatives buried in the archdiocese's cemeteries including their parents.

The cemetery decision was a key victory for the archdiocese in that it eliminates one of the last major assets available for a settlement with sex abuse victims who filed claims in the bankruptcy. If it stands, the ruling could have far-reaching implications for other religious institutions considering bankruptcy.

Bankruptcy court blocks alleged abuse survivors from pursuing $35 million archdiocese transfers in Milwaukee

FROM LEXOLOGY.COM

In 2005, as the Archdiocese of Milwaukee (the “Archdiocese” or “Debtor”) faced numerous lawsuits by alleged abuse survivors, it transferred in excess of $35 million from its “Parish Deposit Fund” to its parishes and a newly created Southeastern Wisconsin Catholic Parishes Invest ment Management Trust (the “Trust”).

After the Archdiocese filed for bank - ruptcy protection on January 4, 2011 following its failure to settle more than twenty-three abuse lawsuits, the official Committee of Unsecured Creditors (the “Committee”) of the Archdiocese, which five-member com mit tee was comprised of four personal injury plaintiffs and alleged abuse survivors, investigated those transfers and alleged that they were recoverable as fraudulent conveyances.

Notwithstanding, on December 10, 2012, the United States Bankruptcy Court for the Eastern District of Wisconsin (the “Court”) held that the Committee did not have the derivative standing necessary to commence litigation seeking the avoidance and recovery of the $35 million. See In re Archdiocese of Milwaukee, 483 B.r. 855 (Bankr. E.D. Wis. 2012).

Background

According to the Debtor, the Parish Deposit Fund was formed by the Archdiocese in 1969 to allow local Catholic entities (primarily parishes) the option of investing into one pooled fund that provided favorable interest rates and permitted investments to be redeemed upon request.

The Committee alleged that in March 2003, in the face of mounting abuse litigation, the Archdiocese’s Finance Council met and discussed paying claims of “legitimate victims” of abuse from insurance and/or borrowed funds and setting up the Trust to shelter the Parish Deposit Fund from further abuse claims. Two years later, on June 30, 2005, the Archdiocese closed the Parish Deposit Fund and investors were given the option of having their investments returned to them or transferred to the new Trust. Accordingly, the Committee asserted that the Archdiocese trans - ferred in excess of $35 million from the Parish Deposit Fund to the Trust and/or directly to parishes and other affiliates of the Debtor (collectively, the “Parishes”) with actual intent to hinder, delay, or defraud creditors in 2005.

In light of the Debtor’s refusal of the Committee’s demand that it attempt to recover the $35 million for the benefit of the estate, on May 25, 2012, the Committee filed a motion for authority to file adversary complaints to avoid and recover the alleged fraudulent transfers pursuant to Wisconsin state law and the Bankruptcy Code’s fraud - ulent transfer provisions.

The Court’s Decision

Before getting to the merits of the Committee’s motion, the Court held that despite the fact that four years had passed since the transfers were made, the Committee’s claims may satisfy the relevant statute of limitations because it was plausible that a creditor could not have reasonably discovered the trans - fers before January 5, 2010 (within one year of the Debtor’s petition), even though the Archdiocese’s financial state ments were published each year online and disclosed the existence of the Parish Deposit Fund and its “fishy” closing in 2005 when the alleged abuse survivors were involved in a mediation program with the Debtor. Id. at 865-66.

Nevertheless, the Court denied the Committee’s motion as failing to satisfy the relevant standard for derivative standing because (i) the Committee's claims were not “colorable” and (ii) the Debtor did not “unjustifiably” refuse to bring those claims. “Colorable” claims, as the Court explained, are claims that would survive a motion to dismiss, are plausible on their face, contain “more than a sheer possibility” of unlawfulness, and are not subject to affirmative defenses. Id. at 858-59. (citations omitted).

First, the Court held that the Parishes likely had a defense to the litigation because they received funds "in good faith." Id. at 866-67. on this point, the Court held that, despite being an officer and board member of each parish corporation, the Archbishop's knowledge of the allegedly fraudulent transfers could not be imputed to the Parishes because the Archbishop did not exercise his authority or control over the Parishes with respect to the transfers. Instead, the Archbishop gave each of the Parishes the opportunity to either withdraw their funds or invest in the new Trust. Id.

Second, the Court held that the Committee had not stated a plausible claim that the transfers were made with the Debtor’s property. Id. at 869. Instead, the Court held that the Parish Deposit Fund belonged to the Parishes because, unlike similar funds present in some of the seven other diocesan cases prompted by the ongoing abuse crisis, (i) the Archdiocese did not hold title to the Parishes’ property because Parishes are considered separate corporations under Wisconsin law, (ii) the Parishes’ funds were not com - mingled in the Archdiocese’s operating account, but were deposited into one segregated bank account and easily traceable, (iii) participation in the Parish Deposit Fund was voluntary, and (iv) the Parishes could withdraw their funds on request. Id. at 867-69.

Finally, despite its conclusion that the claims were not colorable, the Court went on to state that the Archdiocese justifiably refused to attempt to recover the funds given (i) the significant cost and delay associated with pursuing such claims, (ii) the dubious merit of the claims, (iii) the likely difficulty in collecting any judgment, and (iv) the adverse effects on the reorganization effort of the Debtor, which relies upon its Parishes for support. Id. at 869-71.

In sum, the Court held that the Committee’s claims were not colorable, and even assuming that they were, the Debtor did not unjustifiably refuse to bring such claims given that the cost outweighed any apparent benefit.

Conclusion

Dioceses and parishes facing financial distress or potential catastrophic liability events should take note. Although the Archdiocese was suc - cess ful in opposing the Committee’s actions in this instance, pooled invest - ment vehicles are subject to scrutiny during a bankruptcy case. The opera - tion and structure of such funds, the level of disclosure of any related transfers, and governing state law will likely dictate the outcome of future similar cases.

5 Things to Know about Milwaukee clergy abuse

HOW MANY PRIESTS WERE INVOLVED?

The Archdiocese of Milwaukee has verified claims of sexual abuse by 45 priests, including 23 who are still alive. None is allowed to work as a priest, and 15 have been officially defrocked. Most of them are accused of abuse that took place before 1990.

HOW MANY VICTIMS ARE THERE?

It's hard to say because some victims may not have come forward. But one former priest, Lawrence Murphy, has been accused of sexually abusing some 200 boys at a school for the deaf from 1950 to 1974. Other priests have been accused by only one person thus far. There are more than 570 sexual abuse claims pending in bankruptcy court, but some of those involve lay people or priests assigned to religious orders, not the archdiocese. Attorneys have not said specifically how many of the 570 claims relate to the 45 priests on the archdiocese's restricted list.

HOW DID CLERGY ABUSE CASES END UP IN BANKRUPTCY COURT?

Abuse victims had long sought to hold the archdiocese accountable, but most didn't come forward until well into adulthood, when it was too late under Wisconsin law to sue the church for negligence in supervising its priests. A 2007 Wisconsin Supreme Court decision gave them a window, saying the six-year limit in fraud cases didn't start until the deception was uncovered. The archdiocese filed for bankruptcy in 2011, once it became clear that it could face a slew of lawsuits. It said it wouldn't have the money to pay if those cases went against it.

WHAT'S IN THE DOCUMENTS THE ARCHDIOCESE IS RELEASING BY JULY 1?

It's hard to say for certain because no one has seen the collection yet except attorneys and certain church leaders. Jerry Topczewski, chief of staff for Archbishop Jerome Listecki, has said it will include the personnel files of 42 priests, depositions of church leaders including New York Cardinal Timothy Dolan, who previously led the Milwaukee archdiocese, and records from the files of bishops and other key figures.

WHAT HAPPENS NEXT?

The release of the documents has been important to sexual abuse victims, but it does not affect resolution of the bankruptcy case. Topczewski says the next step in that will be for the archdiocese to come up with a reorganization plan detailing how it will provide for victims and pay its expenses in the future. Mike Finnegan, an attorney representing many victims, says one focus for his legal team will be trying to get the archdiocese's former insurers to cover abuse claims.

Stockton Diocese finances strained in the wake of abuse lawsuits, bishop says

It will be 20 years next month since Oliver O'Grady last served as a priest in the Stockton Diocese. Yet the impact of the notorious pedophile's 22 years at five parishes remains huge — on his victims and on the diocese's finances.

To date, more than two dozen of O'Grady's victims have collected nearly $25 million in damages from the diocese and its insurance providers, including a $1.75 million settlement announced last week. That does not include an additional $500,000 scheduled to be paid over the next several years in one case, and there are two additional O'Grady lawsuits pending.

Compare that with about $7 million awarded for all other clergy abuse lawsuits against six priests and one Catholic brother, including the largest, a $3.75 million award against the Rev. Michael Kelly last year. Two more lawsuits are pending against him.

Sunday, a letter from Bishop Stephen Blaire was read in all of the diocese's 35 parishes and 14 missions, or small churches, from Lodi to Turlock and from Tracy to Mammoth. It referred to the "evil of sexual abuse" and stated: "The cash reserves from which these payments are made are all but gone. The money that remains for handling these cases is a small fraction of what is needed to face pending lawsuits as well as any new claims."

Blaire said that although protection through bankruptcy has been mentioned as a possible solution, "no decision has been made."

He pointed out that each parish is set up as a separate corporation and so would not be affected by the diocese's decision on the matter.

Thursday, the bishop provided detailed diocesan financial information. He said the reserve account was established in 1962, when the diocese was created out of the archdiocese of San Francisco. The archdiocese gave the fledgling diocese "around $6 million to get them started," Blaire said.

When he arrived as the fifth bishop in 1999, the account held about $10 million and was used mainly for emergency purposes, "like replacing a roof," Blaire said. But since then, most of the money has gone to pay the diocese's share of clergy sexual abuse lawsuits. There's now "less than a million" dollars left in that account, he said.

With four remaining lawsuits against the diocese and an unknown number in the future, diocese officials are discussing several options.

"We have enough money to run the diocese," Blaire said. "We don't have money for these four cases or any other. We have to figure out how to meet the needs to provide compensation for anyone who has been victimized or hurt. These victims … deserve compensation. We've paid out over $15 million of diocesan money, plus all the insurance money, plus the attorney fees. The point is, we've reached the end of our ability to provide that compensation."

O'Grady root of problem

O'Grady, he said, is the root of much of the problem.

Before he was deported to his native Ireland in 2000, O'Grady agreed to be defrocked in exchange for a diocese-provided annuity that began paying out in June 2010 when he turned 65. The 10-year plan, which cost the diocese about $77,000, pays O'Grady $788 a month. He is in a Dublin prison, sentenced last year to three years for possession of thousands of images of child pornography.

"He violated the trust of the people in all of the (Stockton) parishes he was in," Blaire said. "What he did was an enormous harm to the people he abused, as well as the diocese he was serving. The consequences will be with us for a long, long time.

"I know personally many of those who have been hurt by him. I just cry when I speak to them. It should never have happened."

Besides the human toll, he added, there is the financial cost.

"There is no easy answer," he said. "I don't know a diocese that runs as slim an operation as we do. You can't cut back any further."

Nancy Sloan, one of O'Grady's first victims, said Friday: "I am saddened to hear the Stockton Diocese has jumped on board to hide behind loopholes in a blatant act of irresponsibility. If appropriate actions by decades of bishops had been taken immediately against the pedophile priests such as Oliver O'Grady, there would not be the necessity of civil actions."

Victims don't look forward to lawsuits, she said.

"No victim cherishes the act of going to court. We have been through enough for many lifetimes, but for the Stockton Diocese to hide behind a bankruptcy claim is one slap too many. The diocese is not poor, except in judgment. Sell properties, get rid of ornate possessions, live in action as Jesus did."

The diocese, which runs on about $5 million a year in operational expenses, will decide on a course of action "in a few months," Blaire said.

John Manly, a Southern California attorney who has represented several of the victims, said the diocese has plenty of money and is basically playing a shell game.

"The fact is the Stockton Diocese has about $40 million in liquid assets," he said. "Our estimation is they have between $75 million and $100 million in diocese and parish accounts.

"Essentially, what the Stockton Diocese has done is put it in various accounts, not putting it in the reserve fund, and pretending they don't have any money. It's like Google taking all of their billions and putting it in a Swiss bank account and leaving half a million in a U.S. bank account and saying that's all they have. I can't prevent them from filing bankruptcy, but they'll have to explain (all those accounts) to the court."

Blaire acknowledged there are additional accounts, such as 35 incorporated parish funds and others, for example, for Catholic Charities, St. Mary's High School, Central Catholic High School and Catholic Cemeteries. There also is the capital campaign fund set up in 2008 as a corporation and governed by its own board. But he said all of that money is designated for things such as scholarships and construction costs in poor parishes and doesn't go for diocesan operating expenses.

Accusation rejected

He rejects Manly's charge that filing for bankruptcy would be a strategic move to prevent turning over material in the Michael Kelly cases or to eliminate settlements.

A bankruptcy filing has helped a handful of other dioceses around the country, Blaire said, but only where there has been plenty of communication and thoughtful discussions among all parties, including attorneys and clergy abuse victims.

"We are looking at some serious steps," he said. "My hope is to take every step carefully, keeping everyone informed, as we try to work out this situation."

Bee staff writer Sue Nowicki can be reached at snowicki@modbee.com or (209) 578-2012.

---

BY THE NUMBERS

• 27: Number of clergy sexual abuse lawsuits filed naming Oliver O'Grady; two pending

• $24.8 million: Amount of money paid to date in those lawsuits; $500,000 more is to be paid over the next 10 years for one victim

• $10.8 million: Amount paid by diocese; rest paid from insurance proceeds

• $2.775 million: O'Grady settlements paid out in past two years

• 11: Lawsuits against all other priests; two were referred to the Archdiocese of San Francisco for abuse that happened there and one was dropped; two lawsuits against the Rev. Michael Kelly are pending

• $7 million: Amount paid in these lawsuits; $3.75 million for first Kelly lawsuit

• $31.9 million: Total damages paid by Stockton Diocese for clergy sexual abuse

• $13.7 million: Amount paid by diocese (does not include litigation fees)

Spokane Diocese claims lawyers mishandled bankruptcy

The Catholic Diocese of Spokane has accused its own lawyers of mishandling its historic bankruptcy, which exposed decades of clergy sex abuse and cost parishioners and insurers $50 million.
A malpractice lawsuit filed this week by the diocese seeks more than $12 million from the venerable Spokane law firm Paine Hamblen Coffin Brooke and Miller.
The claim is the latest bombshell in a bankruptcy that staggered along from December 2004 until May. The diocese settled with 180 people who claimed they were sexually abused by priests and other Catholic clergy.
The diocese, now under the leadership of Bishop Blase Cupich, says in court documents that bankruptcy lawyers Shaun Cross and Greg Arpin failed to explore other means of ending the abuse scandal.
Cupich also blames the lawyers for writing a bankruptcy plan that failed to assess and adequately fund the risk of new claims, which nearly forced the foreclosure of churches.
The lawsuit also accuses the attorneys of a conflict of interest, in shielding former Bishop William Skylstad from testifying in the first civil trial alleging sex abuse by filing for bankruptcy on the eve of that suit. The accusation echoes concerns voiced during the bankruptcy by some lawyers and wealthy Catholics who opposed that strategy. At one point, several prominent Catholics urged Skylstad to resign.
The lawsuit stunned Paine Hamblen.
“We believe we worked very hard and very diligently for them and did extraordinary work,” Jane Brown, managing partner of the firm, said Tuesday. “We stand by our work.”
Cross, who has since left Paine Hamblen, did not return messages seeking comment. Brown spoke on behalf of Arpin.
Paine Hamblen – one of Spokane’s oldest law firms, with 50 attorneys and a storied, 119-year history – defended the legal advice it provided the diocese in the years leading up to bankruptcy.
“We kind of feel like the new bishop is not fully informed and doesn’t really understand under what circumstances any judgment calls were made,” Brown said. “They were facing hundreds of millions of dollars in claims that dwarfed the church’s financial resources, and the diocese and parishes have been able to continue.”
A decade ago, as the child sex abuse scandal deepened and lawsuits mounted, questions arose surrounding Skylstad’s ties to notorious pedophile priest Patrick O’Donnell. The two priests had both served in north Spokane’s Assumption Parish in the 1970s.
The Paine Hamblen lawyers undertook the role of representing Skylstad as an individual named in the lawsuits against the diocese, at the same time representing the diocese.
Cross contended that the bishop and the diocese were legally inseparable. It was a tactic designed to define the diocese as a one-man “corporation sole” that did not own parish property – thus shielding the assets of parishes and checkbooks of parishioners.
Cupich, appointed bishop of the Spokane Diocese two years ago, said such dual representation posed a conflict of interest.
O’Donnell – one of 27 Catholic clergy in Eastern Washington who the diocese acknowledges molested children – admitted to abusing boys in the Assumption Parish rectory.
Victims alleged that Skylstad knew O’Donnell had hosted boys at his room in the rectory and, according to multiple lawsuits, “announced his presence before entering; the implication being that he was at least suspicious of unwarranted behavior and didn’t want to witness it.”
At least one parishioner testified that she alerted Skylstad that O’Donnell was molesting boys.
Skylstad left Assumption in 1976, and shortly thereafter his replacement at Assumption learned of O’Donnell’s actions. Within months diocese officials sent O’Donnell to Seattle for treatment rather than report his activities to police.
O’Donnell later returned to Spokane and began molesting more boys. He was removed from ministry in 1986.
The first lawsuits against the diocese were filed more than a decade later.
Skylstad became bishop of the Spokane diocese in 1990 and stepped down in 2010.
In the two years since Cupich took over, the diocese has settled its remaining bankruptcy issues.
In a statement Tuesday, Cupich said he attempted to resolve the dispute with Paine Hamblen in private meetings.
“Unfortunately, overtures to resolve this on a confidential, mediation-based approach were rejected,” he said.
The lawsuit seeks repayment of millions in legal fees paid by the diocese to Paine Hamblen, along with millions more for negligence and malpractice.
Sandpoint attorney Ford Elsaesser, who represented parishes during the bankruptcy, is now advising Cupich.
Seattle attorney Robert Gould is handling the malpractice suit for the diocese.
Paine Hamblen no longer has an active bankruptcy practice. Cross and at least two other attorneys associated with the diocese bankruptcy, but not named in the suit, have left the firm.

Milwaukee archdiocese bankruptcy documents available online

Before it's over, the Archdiocese of Milwaukee bankruptcy is likely to produce many thousands of pages of legal documents - motions, affidavits, schedules, transcripts, the list goes on and on.
Now, anyone ravenous enough to read that much can access most if not all for free without setting foot in the federal courthouse.
The records are being made available online by Kurtzman Carson Consultants, a Los Angeles firm hired by the archdiocese with the court's approval to serve notices of every official development in the case on the 2,700 potential creditors or parties of interest.
Of course, the official record of the Chapter 11 proceedings is on file at the Clerk of the Bankruptcy Court in the Eastern District of Wisconsin in Milwaukee. It's available online at PACER, or the Public Access to Court Electronic Records, database maintained by the federal court system, but PACER charges by usage. The Kurtzman Carson Consultants site is free at www.kccllc.net/archmil - with the caveat that, white it makes every attempt to ensure the accuracy of the information, it is "not the complete, official record."

Creditors to question archdiocese

Creditors, including victims of clergy sex abuse, will have their first chance to question the Archdiocese of Milwaukee about its financials at a meeting Feb. 11 at the federal courthouse.
The first meeting of creditors - called a 341 meeting for the section of the bankruptcy code that requires it - will be 11:30 a.m. in the offices of Assistant U.S. Trustee David Asbach, according to electronic court records.
Often uneventful, the procedural meetings can become a forum for creditors to raise concerns about the debtor, and the meeting may shed light on some of the issues that are likely to be raised in the bankruptcy proceedings, legal experts said.
"It can be a chance for plaintiffs to come and vent, but whether they'll be shut down, I don't know," said Jonathan Lipson, a University of Wisconsin-Madison law professor who has written on the clergy sex abuse bankruptcies.
"It's a formality," he said, "but an important one: You do need some part in the procedure where creditors can look the representative in the eye and say, 'This is what you told us your assets are. Is it true?' "
In other matters related to the bankruptcy:
• The archdiocese has appealed a decision absolving its insurers of liability in pending clergy sex abuse cases to the Wisconsin Supreme Court. But the appeal was put on hold this week because of its Chapter 11 bankruptcy proceedings.
The bankruptcy, filed last week, essentially stays all related civil actions, including the fraud cases now pending in Milwaukee County Circuit Court and the Dec. 23 appeal by the archdiocese on the insurance issue.
In that filing, the church asked the high court to review a November Court of Appeals decision, which absolved its insurer of liability because the acts alleged in the fraud lawsuits were intentional rather than accidental.
But attorneys for the insurer wrote a letter to the Supreme Court this week, saying it would not file its response without approval of the bankruptcy judge, out of concern that it may violate the stay order.
David Muth, one of the archdiocese's attorneys, declined to say whether they would ask the bankruptcy court to lift the stay so the Supreme Court could respond to the appeal. The attorney for the insurer did not immediately return a telephone call seeking comment.
• Before it's over, the bankruptcy is likely to produce thousands of pages of legal documents. Now, anyone ravenous enough to read them all can access them for free without setting foot in the federal courthouse.
The records are being made available online by Kurtzman Carson Consultants, a Los Angeles firm hired by the archdiocese with the court's approval to serve notices of every official development in the case on the 2,700 potential creditors or parties of interest.
The official record is on file at the Clerk of the Bankruptcy Court and available online at the Public Access to Court Electronic Records database maintained by the federal court system, though PACER charges by usage.
The Kurtzman Carson Consultants site is free at www.kccllc.net/archmil.

Bankruptcy filing could hurt tithing, priests fear

The Rev. Ken Knippel wasn't surprised when the Milwaukee Archdiocese announced last week it was filing for bankruptcy protection.
"I'm pretty certain no one's shocked by this news because we heard that there were financial difficulties," said Knippel, the pastor at St. John Vianney parish in Brookfield.
It's the reason for the filing - ongoing expenses associated with clergy sex abuse claims - that has Knippel troubled.
"It's not really about the parish or about the good work that we're doing," he said. "It's about a very unfortunate situation from years back that we're still paying the price for and trying to manage the best we can."
Archbishop Jerome Listecki has said that parishes and schools will not be affected by the bankruptcy filing because they are separately incorporated entities, but Knippel fears parishes will be affected in another way.
"We get concerned about people being very negative about this and then withdrawing giving," he said. "We don't want that to happen."
"People react with their checkbooks."
The Rev. Peter Drenzek at Wauwatosa's St. Bernard Parish also said he wasn't surprised by the archdiocese's decision - "It could have come yesterday or tomorrow," he said last week.
He, too, thinks some parishioners will react to the news by withholding funds.
Knippel said last week that he has heard "remarkably little" from parishioners about the announcement, but that was before a recorded message from Listecki about the decision to file for financial reorganization was played at most weekend Masses.
St. John Vianney has included information about the bankruptcy filing and related issues in its weekly bulletins and on its website.
"I want people to have information," Knippel said.
St. John Vianney also will offer a prayer service for survivors of clergy sexual abuse at the church in March. Knippel said it's "just an attempt to reach out" to victims who are still hurting.
The bankruptcy is "a humbling experience" for the church, Drenzek said, but one he expects Catholics will recover from in time.
"Somehow out of this I have to think some truth and goodness will come, but there may be some pain before we get there," he said.
Knippel agreed.
"We face reality, and we go on," he said. "Hopefully, it'll be to the betterment of mission and service."

Bankruptcy Could Force Milwaukee Archdiocese To Put Insurance Tapping on Hold

The Milwaukee Archdiocese might have to wait until it emerges from bankruptcy before it can try again to tap insurance to pay off victims of priest molestation.
The Catholic church filed an appeal 2 days before Christmas, asking the State Supreme Court to reverse an appellate court decision from November. But the case was put on hold after the archdiocese filed its petition for Chapter 11 bankruptcy last week.
The church said part of the reason for the bankruptcy was that the church could not use insurance money to pay claims filed by those sexually abused by priests a number of years ago.
Milwaukee’s appellate judges said it would be wrong for the church to tap insurance to pay the claims, because the sex abuse alleged in over a dozen lawsuits was intentional and not an accident.
The church could ask the bankruptcy court to lift the hold order so the Supreme Court could act on the appeal. But archdiocese attorney David Muth would not say if he would seek such a move.
The bankruptcy petition also delayed action on the lawsuits filed by the abuse victims.

Wilmington diocese offers $74 million abuse settlement

The Roman Catholic Diocese of Wilmington, Delaware, has offered $74 million to settle 150 claims of sexual abuse by priests, an increased offer it said would be the largest settlement per case of its kind.
The diocese, which filed for bankruptcy in 2009 due to mounting sex abuse claims dating as far back as the 1950s, said on its website the average payout was about $750,000, far higher than the average in five comparable settlements.
An attorney representing the majority of the purported victims rejected the offer as "woefully inadequate" and said the diocese was misleading about the size of the offer.
"We're almost half way there to what a reasonable settlement would be," said Wilmington attorney Thomas Neuberger, who represents 98 people.
Payouts under the new offer would likely range from $75,000 to $3 million, depending on the severity of the alleged abuse, the diocese said on its website.
U.S. Roman Catholic archdioceses have collectively paid some $2 billion in settlements to victims since the priest sex scandals first erupted in Boston nearly a decade ago.
Neuberger criticized the Wilmington diocese for comparing its offer to five settlements obtained in bankruptcy court.
Neuberger said from a legal standpoint a better comparison was the $660 million paid by the Los Angeles archdiocese outside of bankruptcy. The watchdog website BishopAccountability.org estimated the Los Angeles settlement at $780,000 per victim.
The Wilmington Diocese, with a Catholic population of about 233,000, increased its offer from around $55 million after a state jury found that St. Elizabeth Parish owed purported victim John Vai $3 million.
Vai had claimed he was molested as a teenager in the 1960s by Francis DeLuca, a priest who was later defrocked.
Under the latest settlement offer, victims are required to agree to drop all legal action against the diocese and parishes, which are not part of the bankruptcy.
"Lawyers for some survivor-claimants have said that the parishes want to buy their way out of litigation cheaply. But a settlement fund of $74 million ... is hardly cheap," said a letter from Francis Malooly, the bishop of the Wilmington diocese.
Neuberger said the diocese and parishes combined have $1.7 billion in resources and said the victims had been working on a payout of $1.3 million on average with the prior bishop, who died in 2009.
The settlement was increased by contributions from outside the diocese, including $53 million from a Catholic foundation started 80 years ago by John Raskob, the builder of New York's Empire State Building.
The Wilmington diocese said its offer was higher than the average claims paid by five other dioceses in bankruptcy court settlements: Fairbanks, Alaska; Davenport, Iowa; Spokane Washington; Tucson, Arizona and Portland, Oregon.

The History in Delaware

2002

A scandal erupts nationwide over how the Catholic Church handled accusations of child sexual abuse against hundreds of priests. The Vatican outlines a new policy defining abuse and outlining how bishops should deal with allegations.

January 2003

The Diocese of Wilmington says it has received credible allegations of sexual abuse of children against 18 priests dating to 1952. Three are named: two who had resigned and one who had been relieved of his duties. The diocese refuses to release the names of the remaining 15 priests, saying seven were dead and none was in active ministry.

January 2004

The diocese acknowledges that 60 people have accused priests of abuse in the past 50 years, and that the diocese has paid $1.6 million to victims and families. The diocese says substantiated claims had been made against one now-deceased priest, bringing the total to 19.

February 2005

The diocese acknowledges a $65,000 payment to a former Wilmington man to reimburse him for counseling needed after years of abuse by a diocesan priest, the Rev. Edward B. Carley, who died in 1998.

October 2005

The Philadelphia District Attorney's Office releases an extensive grand jury report about sexual-abuse allegations in the Archdiocese of Philadelphia. That report reveals the names of several priests from the Diocese of Wilmington.

October 2005

The News Journal makes the first public attempt to chronicle how church leaders in Delaware handled molestation claims. The diocese now has acknowledged that at least 30 priests had been accused of molesting more than 60 children since 1950, but refuses to release a full list of names, saying it sees no compelling reason to do so. The newspaper's review showed that in many ways, the Diocese of Wilmington followed the same pattern revealed in Boston, Philadelphia and other dioceses, where abusive priests were quietly transferred from parish to parish.

October 2006

A former Delaware priest, the Rev. Francis G. DeLuca, is arrested on child sexual-abuse charges in Syracuse, N.Y.

November 2006

The diocese releases the names of 20 diocesan priests about whom there have been "admitted, corroborated or otherwise substantiated" allegations of child sexual abuse.

July 2007

Delaware's Child Victim's Act becomes law. It eliminates the civil statute of limitations in cases of child sexual abuse and opens a two-year legal "window" during which victims whose cases have been previously barred by Delaware's two-year limit can file suit.

December 2007

Vatican protocol requires bishops to retire at age 75. Speculation begins about a possible successor for Wilmington Bishop Michael A. Saltarelli, whose 75th birthday was Jan. 17, 2007.

July 2008

After one year, Delaware sees fewer cases than expected filed under the Child Victim's Act. Three men win settlements and 10 others file claims.

May 2009

The first Delaware lawsuit filed in the wake of the Catholic clergy sex-abuse scandal is settled out of court. It is the Diocese of Wilmington's third settlement since January, and at least the sixth since the scandal emerged in 2002. The settlement, for an undisclosed sum, includes an apology and acknowledgement from the bishop and a permanent revocation of the accused priest's authority to minister in the diocese. Saltarelli also apologizes to the victim and his parents and expresses deep regret for the abuse.

July 7, 2009

W. Francis Malooly is named the ninth bishop of the Diocese of Wilmington.

July 2009

More than 140 plaintiffs have filed more than 170 civil lawsuits during the two-year window.

Oct. 8, 2009

Michael A. Saltarelli, bishop emeritus of the Diocese of Wilmington, dies at age 77.

Oct. 18, 2009

The Diocese of Wilmington files for bankruptcy, freezing lawsuits against it.

October 2009

John Michael Vai's personal-injury lawsuit against the Rev. Francis G. DeLuca, 79, is scheduled to be the first clergy-abuse lawsuit to go to trial on Oct. 19.

Aug. 13, 2010

Bankruptcy Judge Christopher Sontchi clears nine priest-abuse cases to go forward to trail. All name a parish as a defendant and seven of the group name defrocked priest Francis DeLuca as a defendant.

September 2010

Diocese fails to reach an out-of-court settlement with abuse victims, files a bankruptcy plan with Judge Sontchi that survivors object to.

Oct. 26, 2010

The first of the parish cases cleared by Sontchi, John Vai v. St. Elizabeth Parish, goes to trial in Kent County Superior Court before President Judge James T. Vaughn Jr.

December 2010

The jury finds in favor of plaintiff John Vai, ordering defrocked priest Francis DeLuca to pay him $60 million in punitive and compensatory damages. The jury also orders St. Elizabeth Parish to pay $3 million of that award to Vai, finding the parish was partially responsible for the abuse Vai suffered as a teenager in the late 1960s.

Jan. 10, 2011

Diocese files amended bankruptcy plan with Judge Sontchi, increasing the amount of money set aside to compensate victims of abuse.

Seven Dioceses have Filed Chapter 11

Some of the issues likely to surface in Milwaukee

Parishes and trusts:

Creditors in the Milwaukee bankruptcy are almost certain to challenge the archdiocese’s assertion that parish assets are off-limits because parishes are separately incorporated. The first salvo came in the line of questioning by victims’ attorney James Stang in a hearing Wednesday. Stang questioned John Marek, the archdiocese’s chief financial officer, about parish corporation boards, which includes the archbishop and his vicar general.
Both Stang and archdiocese attorney Bruce Arnold declined to be interviewed.Legal experts said bankruptcy courts have respected the autonomy of parishes in Davenport and Wilmington, where they are separately incorporated.
But some trusts have not been ironclad.
Trust structures were contested in Portland, Spokane and Wilmington. In Wilmington, the court ruled that millions of dollars in an investment trust held by the diocese for parishes, schools, cemeteries and other organizations would become part of the estate because they had been commingled with diocesan funds and couldn’t be traced to their original sources – a decision that is now affecting pensions for lay employees.

Real estate:

During bankruptcies, creditors’ attorneys have challenged the amount of real estate initially identified by dioceses as available to pay settlements, in some cases bringing in forensic specialists to mine tax and property rolls, experts said.
In San Diego, where the bankruptcy filing was dismissed after an outside agreement with victims was reached, creditors had accused the diocese of significantly undervaluing its holdings. News coverage at the time of the bankruptcy’s dismissal put the assessed value of church properties there at more than $400 million, saying it included single family homes, vacant residential and commercial lots, multiuse buildings and condominiums.
Lawyers for that diocese said Friday that diocesan ownership of the properties was never established at trial.
But U.S. Bankruptcy Judge Louise DeCarl Adler was troubled enough to rebuke the diocese at the close of the bankruptcy, calling it “disingenuous” and saying it had enough assets to settle its claims without ever going to bankruptcy.

Future claims and a final call for sex abuse lawsuits:

One of the advantages of bankruptcy for dioceses fearful of looming court judgments is that it creates a finite pool of money and a deadline for claimants to come forward.
That’s the theory, but everyone is testing that now, of the so-called “bar dates” that have traditionally imposed narrow deadlines for compensation.
In Portland, for example, the court set an April 2005 deadline for most claims. But it left the door open for more than 20 years for certain claimants: minors, and those with repressed memories who didn’t recall the abuse in time or didn’t connect it to their injuries, such as addictions or emotional problems, according to the Portland archdiocese.
“Future claims is one of the big issues on the table,” in bankruptcy cases, said Marci Hamilton, the Verkuil chair in public law at Cardozo Law School, who has represented victims in church bankruptcy cases in San Diego, Spokane and Portland. She also represented victims in the Wisconsin Supreme Court case that opened the door for civil fraud lawsuits. “The two things that will be debated are the deadline when people have to come forward, and what happens to those who don’t.”

Non-monetary terms:

While the bankruptcy proceedings rarely result in the release of significant documents – or depositions like the one Milwaukee victims wanted of retired Bishop Richard Sklba – bankruptcy settlements have included non-monetary terms.
Across the country, dioceses that declared bankruptcy agreed to make public apologies; identify abusive priests, including those of religious order priests (that’s now being litigated by the priests); build a monument to survivors; and other provisions.
One of the most important issues that comes up very quickly is that the survivors are never solely interested in just compensation and damages.
Even with large financial settlements, many victims are left with emotional damage that money can’t assuage. They rarely get the documents and revelations that for some were the primary reason to sue.
I don’t know of any cases where the victims group was satisfied with the level of information revealed by the diocese in bankruptcy.
In the end, bankruptcy can clear the slate and give an archdiocese some level of certainty about its financial obligations. However, there are risks, including the potential loss of operational control, and the possibility that the negotiated settlement could be greater than it initially expected.
It’s a gamble. The last thing a diocese wants is for outsiders to control their decisions, and they’re careful not to go there.Across the country, dioceses have had to sell or mortgage properties, cut programs, and ask or compel parishes and the faithful to help shoulder the cost of settlements.
They’re mortgaging their futures,and cutting back on ministries that are vital to the growth and future of the dioceses.

Archdiocese assets to be put under microscope - Milwaukee Journal Sentinel - January 8, 2010

When the Archdiocese of Milwaukee announced Tuesday that it would seek bankruptcy protection to deal with its clergy sex abuse claims, Archbishop Jerome Listecki was adamant it would involve only the assets of the archdiocese itself.
Parishes and schools are protected, he said, because they're separately incorporated. Endowments and trusts - holding everything from the $105 million Faith in Our Future campaign funds to money meant for the perpetual care of cemeteries - he insisted, cannot be tapped.
But a look at Catholic Church bankruptcies across the country suggests that every one of those - every account, every asset, every legal contract that controls them - is likely to be scrutinized, litigated and negotiated as lawyers try to hammer out a settlement in which the archdiocese would compensate victims and emerge from bankruptcy intact.
In the end, if cases elsewhere are an indication, the ramifications will be felt for years - by victims, the dioceses and Catholics in the pews.
"This process will be a challenge to the faith and hope of the people involved," said Mark Chopko, a Washington, D.C., attorney and former chief counsel to the U.S. Conference of Bishops, who advised several dioceses during their bankruptcies. "This is a very painful and long process to go through."
Milwaukee, which already has spent nearly $30 million on the sex abuse crisis, including settlements and legal fees, is the eighth U.S. diocese to seek Chapter 11 protection to deal with looming claims. Across the country, bankruptcies have resulted in multimillion dollar settlements in dioceses in Tucson, Ariz.; Portland, Ore.; Spokane, Wash.; Fairbanks, Alaska; Wilmington, Del.; San Diego; and Davenport, Iowa.
Milwaukee filed for bankruptcy after a failed attempt to settle 24 pending claims for $4.6 million. Listecki said the Chapter 11 filing was the most equitable way to fairly compensate current and future victims, and continue the church's essential missions.
The diocese lists about $98 million in assets on its latest financial statement, though it argues almost all of that is in restricted accounts and trusts. Diocesan officials say earlier settlements already exhausted much of its cash and property. Of the remaining assets, it said it has $1.6 million in cash and $5.5 million in property to pay settlements - figures that Charles Zech, director of the Center for the Study of Church Management at Villanova University, called "highly unusual" for an archdiocese the size of Milwaukee.
"It's unusual and dangerous, because they'd be living right on the edge," he said.
The archdiocese cannot tap insurance funds, under a court ruling, though the archdiocese has said it may appeal that decision.
It's impossible to predict how Milwaukee's bankruptcy will shake out, experts say. Each one differs based on a diocese's assets, financial and operational structures, and how its state statutes intersect with federal bankruptcy laws.
But a review of cases nationally suggests some of the issues likely to surface in Milwaukee:

Parishes and trusts:

Creditors in the Milwaukee bankruptcy are almost certain to challenge the archdiocese's assertion that parish assets are off-limits because parishes are separately incorporated. The first salvo came in the line of questioning by victims' attorney James Stang in a hearing Wednesday. Stang questioned John Marek, the archdiocese's chief financial officer, about parish corporation boards, which includes the archbishop and his vicar general.
Both Stang and archdiocese attorney Bruce Arnold declined to be interviewed for this article.
Legal experts said bankruptcy courts have respected the autonomy of parishes in Davenport and Wilmington, where they are separately incorporated.
But some trusts have not been ironclad.
Trust structures were contested in Portland, Spokane and Wilmington. In Wilmington, the court ruled that millions of dollars in an investment trust held by the diocese for parishes, schools, cemeteries and other organizations would become part of the estate because they had been commingled with diocesan funds and couldn't be traced to their original sources - a decision that is now affecting pensions for lay employees.

Real estate:

During bankruptcies, creditors' attorneys have challenged the amount of real estate initially identified by dioceses as available to pay settlements, in some cases bringing in forensic specialists to mine tax and property rolls, experts said.
In San Diego, where the bankruptcy filing was dismissed after an outside agreement with victims was reached, creditors had accused the diocese of significantly undervaluing its holdings. News coverage at the time of the bankruptcy's dismissal put the assessed value of church properties there at more than $400 million, saying it included single family homes, vacant residential and commercial lots, multiuse buildings and condominiums.
Lawyers for that diocese said Friday that diocesan ownership of the properties was never established at trial.
But U.S. Bankruptcy Judge Louise DeCarl Adler was troubled enough to rebuke the diocese at the close of the bankruptcy, calling it "disingenuous" and saying it had enough assets to settle its claims without ever going to bankruptcy.

Future claims and a final call for sex abuse lawsuits:

One of the advantages of bankruptcy for dioceses fearful of looming court judgments is that it creates a finite pool of money and a deadline for claimants to come forward.
"That's the theory, but everyone is testing that now," Chopko said of the so-called "bar dates" that have traditionally imposed narrow deadlines for compensation.
In Portland, for example, the court set an April 2005 deadline for most claims. But it left the door open for more than 20 years for certain claimants: minors, and those with repressed memories who didn't recall the abuse in time or didn't connect it to their injuries, such as addictions or emotional problems, according to the Portland archdiocese.
"Future claims is one of the big issues on the table," in bankruptcy cases, said Marci Hamilton, the Verkuil chair in public law at Cardozo Law School, who has represented victims in church bankruptcy cases in San Diego, Spokane and Portland. She also represented victims in the Wisconsin Supreme Court case that opened the door for civil fraud lawsuits. "The two things that will be debated are the deadline when people have to come forward, and what happens to those who don't."

Non-monetary terms:

While the bankruptcy proceedings rarely result in the release of significant documents - or depositions like the one Milwaukee victims wanted of retired Bishop Richard Sklba - bankruptcy settlements have included non-monetary terms.
Across the country, dioceses that declared bankruptcy agreed to make public apologies; identify abusive priests, including those of religious order priests (that's now being litigated by the priests); build a monument to survivors; and other provisions.
"One of the most important issues that comes up very quickly is that the survivors are never solely interested in just compensation and damages," said Hamilton.
Even with large financial settlements, many victims are left with emotional damage that money can't assuage. They rarely get the documents and revelations that for some were the primary reason to sue.
"I don't know of any cases where the victims group was satisfied with the level of information revealed by the diocese in bankruptcy," said Zech of Villanova.
In the end, bankruptcy can clear the slate and give an archdiocese some level of certainty about its financial obligations. However, there are risks, including the potential loss of operational control, and the possibility that the negotiated settlement could be greater than it initially expected.
"It's a gamble," said Zech. "The last thing a diocese wants is for outsiders to control their decisions, and they're careful not to go there."
Across the country, dioceses have had to sell or mortgage properties, cut programs, and ask or compel parishes and the faithful to help shoulder the cost of settlements.
"They're mortgaging their futures," Chopko said, "and cutting back on ministries that are vital to the growth and future of the dioceses."

Expert on bankruptcy filing by the Archdiocese of Milwaukee

The University of Wisconsin-Madison's Jonathan C. Lipson, a professor in the University of Wisconsin Law School and an expert on bankruptcies in the Roman Catholic church, is available to answer questions about the implications of the Archdiocese of Milwaukee's bankruptcy. Lipson is the author of the leading scholarly paper on Catholic church bankruptcies, "When Churches Fail: The Diocesan Debtor Dilemmas" and is frequently interviewed and quoted on these cases.
Lipson says it's likely that the plaintiffs' lawyers' claims about the reason for the bankruptcy — to hide assets and records — are wrong, as bankruptcy usually leads to greater judicial and public scrutiny of a debtor. Nevertheless, he said, "these cases present many difficult choices for bankruptcy courts, because it is hard to balance sensitivity to the religious mission of the churches with the need to assure creditors that they receive payment."
Lipson can be reached at 608-890-3749 or jlipson@wisc.edu.

Archdiocese decision to file for bankruptcy fraught with risks

The strategy is fraught with risks and could backfire, possibly inflicting a catastrophic toll on Catholic parishes, schools and hospitals throughout Wisconsin.

This week the Archdiocese of Milwaukee joined at least seven other U.S. Catholic dioceses in seeking Chapter 11 bankruptcy protection amid fraud lawsuits fueled by sex abuse cover-ups.

The goal is to keep the archdiocese running and also compensate current and future sex abuse claimants. But if the archdiocese and claimants aren’t able to agree on a bankruptcy settlement, a subsequent bankruptcy trial could pull in other Catholic organizations.

“If you push this and litigate, there’s obviously some risk that the court could rule against some of the parishes or some of the other related entities and drag more assets into the bankruptcy estate in a way that would have long-term consequences,” said Stephen Lubben, a professor at Seton Hall Law School in New Jersey and bankruptcy expert. “It’s usually best to try to work out some sort of reasonable settlement.”

Bankruptcy trials can be particularly unfavorable to dioceses because it’s often unclear what property the diocese owns and which assets it has spun off. For example, if a diocese isn’t sufficiently independent from a local Catholic Charities organization, the two could be lumped together in a court judgment.

“This has been a big issue in some of the prior diocese bankruptcies,” Lubben said. “That would obviously have devastating consequences for the charity’s ability to fulfill its mission, because its assets would suddenly be available to pay towards (claimants).”

The Bankruptcy Files

Wisconsin firm Whyte Hirschboeck Dudek is serving as general bankruptcy counsel to the archdiocese in its Chapter 11 case. Daryl Diesing, a former chair of the firm's real estate and commercial law team, is advising the archdiocese, along with managing director Bruce Arnold.
Both lawyers are billing $475 per hour for their services and associates from their firm are billing between $165 and $275 per hour. Court filings by Whyte Hirschboeck show that the firm was paid $228,191 by the archdiocese in the year prior to its bankruptcy filing. The firm has also received an advance of $432,352 for the bankruptcy case.
Leverson & Metz, a Milwaukee bankruptcy boutique that opened in 2007, is serving as conflicts counsel to the archdiocese. Name partners Leonard Leverson and Mark Metz have requested a $25,000 advance to cover their expected fees in the bankruptcy case.
Robert Buikema, president of Waukesha, Wis., firm Buelow Vetter Buikema Olson & Vliet, and employee benefits head Matthew Flanary are serving as special union and collective bargaining counsel to the archdiocese. The firm has received a prepetition fee advance of $25,000 and estimates that its total fees will not exceed $50,000.
Partners John Gehringer and Seth Dizard from Milwaukee firm O'Neil Cannon Hollman DeJong & Laing are serving as special real estate counsel to the debtor. The firm states in court filings that it's received a $25,000 advance from its client and estimated its total fees at no more than $100,000.
Court records show that Quarles & Brady real estate cochair David Muth and litigation partner John Rothstein have also been advising the archdiocese. Milwaukee solo practitioner Joseph Fenzel is representing Park Bank, a secured creditor for the archdiocese.
The unsecured creditors of the archdiocese predominantly consist of personal injury plaintiffs represented by Jeff Anderson of Minneapolis firm Jeff Anderson & Associates. Anderson questioned the motives behind the archdiocese's bankruptcy filing in an interview with The Associated Press. (Anderson's firm has carved out a national reputation for representing victims of sexual abuse, providing documents to The New York Times last year showing that the Vatican declined to defrock a priest in Milwaukee who abused nearly 200 deaf boys.)
Late last year, the Catholic Diocese of Wilmington filed for bankruptcy in Delaware the day before a civil trial over sex abuse allegations was supposed to start. The Chapter 11 filing postponed those proceedings indefinitely, putting more than 100 civil suits, many of which were filed by Anderson, on the back burner.
Lawyers for the Wilmington diocese--represented by Delaware firm Young Conaway Stargatt & Taylor--said in bankruptcy court on Tuesday that their client would file an amended reorganization plan next week, which would give sex abuse victim creditors the choice of continuing with litigation or pursuing a settlement. Young Conaway partner Anthony Flynn, Sr., told Bloomberg that the average maximum payment to victims will now exceed $349,000 under the new reorganization plan.