Milwaukee Archdiocese, Bankruptcy Creditors to Enter Mediation

By Annysa Johnson
Milwaukee Journal Sentinel
July 3, 2012

http://www.jsonline.com/news/milwaukee/milwaukee-archdiocese-bankruptcy-creditors-to-enter-mediation-r960mvk-161244745.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.

The Archdiocese of Milwaukee and its bankruptcy creditors, most of them known or alleged victims of child sexual abuse, agreed Tuesday to enter mediation, a signal that one of the nation's largest Catholic Church bankruptcies to date may be nearing a resolution.

U.S. Bankruptcy Judge Susan V. Kelley issued an order Tuesday naming retired U.S. Bankruptcy Judge Randall J. Newsome of San Francisco as the mediator, at the request of both sides. She gave them 60 days beginning July 20 to try to reach a settlement, and she imposed a stay on all court proceedings during that time.

"The focus should be on the mediation," said Kelley, who has raised concerns about the mounting legal fees in the 15-month-old case, which she has likened to an "all-out war."

"We need to do what we can to get this thing resolved," she said.

Newsome is the former chief judge of the U.S. Bankruptcy Court in the Northern District of California. As mediator, he will guide the parties through a host of issues, the most contentious of which are likely to be: Which of the nearly 500 sex abuse claimants should be compensated? And which church assets should be made available to pay them?

In addition to compensation, any settlement is likely to include provisions that have no dollar value but are of great significance to abuse survivors, such as public apologies or the release of church docu ments.

James Stang, lead attorney for the creditors committee, said he was pleased with Kelley's order but stopped short of saying he was optimistic about the outcome.

"I think Judge Newsome is a great mediator, but it's too early to tell," he said.

Church attorneys declined to comment.

Jerry Topczewski, chief of staff for Milwaukee Archbishop Jerome Listecki, said in an email that the archdiocese was entering mediation "in an open and sincere effort to resolve claims, just as it attempted to" in prior mediations with victims before filing for bankruptcy.

The advocacy group Survivors Network of Those Abused by Priests issued a statement criticizing the archdiocese for its actions leading up to the bankruptcy, including $20,000 payments to abusive priests who were laicized and the transfer of millions of dollars into trusts, it alleges, to keep it from victims.

And it called for former Archbishop Timothy Dolan, now cardinal of New York, to explain those actions under oath.

That accounting, and the release of sealed depositions taken of retired Archbishop Rembert Weakland and Bishop Richard Sklba, "are absolutely necessary if the victims and the Catholic community are to truly move on from this terrible . . . crisis," it said.

Legal actions stalled

Tuesday's decision followed weeks of court-ordered settlement talks in a case described by one court official as a "scorched earth legal battle."

And it stalls, at least for now, an effort by the creditors committee to pursue at least $35 million in parish funds it alleges the archdiocese illegally transferred off its books before filing for bankruptcy, a charge the archdiocese's attorneys called "frivolous" and a "bargaining ploy."

A lawsuit involving at least $57 million in a cemetery trust fund is already pending.

Kelley has been pushing the two sides toward mediation since early May and turned up the heat last month, calling the case's mounting legal fees "astronomical."

Attorneys fees and expenses were nearing $4 million as of early June, with hundreds of thousands more yet to be filed or approved. That did not include payments for other professional services, such as forensic accountants or auditors.

Under federal bankruptcy law, the debtor pays the legal and professional fees for the both sides, though not those of individual plaintiffs' attorneys.

Attorneys for the creditors committee asked Kelley in April to order a global mediation that would include the archdiocese's insurers, religious orders named in sex abuse claims and others.

Kelley's order Tuesday was more limited, but said Newsome could call in other parties as needed.

The archdiocese initially resisted mediation in May, saying it wanted a ruling first on which of the claims should be compensated. The archdiocese has filed motions that, if successful, could result in the vast majority of the sex abuse claims being thrown out. Those motions are stayed during the mediation.

The archdiocese filed for Chapter 11 bankruptcy protection in January 2011, saying it was the only way to fairly compensate victims and continue the mission of the church.

It is the largest of the nine bankruptcies involving Catholic dioceses or a religious order, in terms of the number of sex abuse claims filed.