Fees in Archdiocese Bankruptcy Case Reach $4 Million

Milwaukee Journal Sentinel
June 8, 2012

http://www.jsonline.com/features/religion/fees-in-archdiocese-bankruptcy-case-reach-4-million-4u5n0nd-158280095.html

The Catholic Archdiocese of Milwaukee, which faces more than a dozen civil fraud lawsuits over its handling of clergy sex abuse cases, filed for Chapter 11 bankruptcy protection in January. As the case proceeds, we'll have updates, analysis, documents and more.

Legal fees and expenses approved to date in the Archdiocese of Milwaukee bankruptcy are approaching $4 million, according to court records. And hundreds of thousands dollars in additional fees are pending approval or have yet to be filed.

U.S. Bankruptcy Judge Susan V. Kelley called the fees "astronomical" at a hearing this week and threatened to bring in a mediator if the parties could not come to some agreement in the coming weeks.

"The legal fees in this case are over the top. . . . And the pleadings being filed . . . don't show me that we are getting to a resolution," said Kelley. "It looks to me like it's all-out war."

Assistant U.S. Trustee David Asbach echoed Kelley's concerns, calling the fees a sign of a "scorched earth" legal battle.

Attorneys for the archdiocese and the creditors committee said they are making progress in court-ordered settlement talks and persuaded Kelley to hold off on the mediator for the next few weeks.

In the interim, they are continuing to pursue their separate strategies: the archdio cese's to limit the number of sex abuse claims eligible for compensation, and the creditors' to expand the asset pool available to pay them - all of which keep the meter running.

As of Friday, fees and ex penses approved for four firms representing the archdiocese total nearly $2.2 million, according to court records. More than $1.5 million has been approved for three firms representing creditors.

Fees in a related lawsuit over $55 million transferred by the archdiocese into a cemetery trust have topped $1 million, according to court records. Creditors are seeking permission to file a similar lawsuit over $35 million in parish funds. In addition, both sides are pursuing appeals on rulings by Kelley, and the archdiocese has filed a new round of objections in an effort to throw out sex abuse claims.

The nearly $4 million does not include fees for other professionals such as forensic accountants or auditors who provide additional information for the attorneys.

Archdiocese foots bill

The archdiocese will foot that entire bill. Under bankruptcy law, the debtor pays all legal fees except those of individual plaintiffs' attorneys, who receive a portion of their clients' settlements.

Archdiocese spokesman Jerry Topczewski said he had no frame of reference to respond to the judge's assertion that the fees are astronomical, but he blamed the creditors' committee, saying it has sought thousands of pages of documents that must be reviewed by attorneys and is litigating matters that are "clearly not contestable."

"Our position on many of the motions that have been filed in the case . . . like the recent motion on the parish deposit fund is that they are nothing more than distractions from the real issue of the Chapter 11, namely determining which claims that have been filed are eligible for compensation," Topczewski said in an email to the Journal Sentinel.

Jim Stang, lead attorney for the creditors committee, said it is acting in the best interest of creditors by investigating assets "the diocese transferred in a fraudulent manner."

"The debtor's strategy of knocking out claims (of sex abuse victims) is not something we can agree with. And it needs to be more forthcoming about the assets it transferred to defraud creditors," he said.

Catholic Church bankruptcies have proved expensive in other dioceses. In Portland, Ore., for example, lawyers submitted a final bill of $18.8 million; and in Spokane, Wash., $8.3 million, according to news accounts.

"Fees are high because these cases are complex and highly contentious," said Fred Naffziger, professor emeritus of business law at Indiana University South Bend, who has studied some of the nine Catholic Church bankruptcies to date.

Fees can be affected by myriad factors, including the corporate structure of the diocese and related entities, the number of creditors and the lack of federal appellate rulings on many of the issues debated.

"These are uncharted waters in many ways," he said.

Attorneys for the creditors committee had asked Kelley to call in a mediator but pulled back on that request this week, saying the talks with the archdiocese's counsel have been productive.

The archdiocese attorneys are scheduled to meet with Jeffrey Anderson, who represents 350 of the nearly 500 men and women who filed sex abuse claims against the archdiocese.

Archdiocese attorney Daryl Diesing called the gulf between the parties "pretty wide right now" but agreed that the talks should continue.

"Whether that can be narrowed or not is impossible to determine without talking to attorney Anderson," he said.