Archdiocese Counters Bankruptcy Creditors

By Annysa Johnson
Milwaukee Journal Sentinel
November 20, 2012

http://www.jsonline.com/features/religion/archdiocese-counters-bankruptcy-creditors-5l7lkeh-180255661.html

The Catholic Archdiocese of Milwaukee is firing back at creditors in its bankruptcy, vowing to fight their plans to pursue the assets of its 200-plus parishes and calling their proposed lawsuit "frivolous and a waste of time and money."

At the same time, lawyers for the archdiocese have moved to throw out 62 of the 575 sex abuse claims filed in the bankruptcy, its largest group of claims objections yet. And the church has filed a complaint aimed at recovering what could be tens of millions of dollars from its insurers.

"I have few options left," Archbishop Jerome Listecki told local Catholics in a letter last week, explaining the church's legal strategy. "We will continue to examine every possible legal avenue that moves us toward a resolution of the Chapter 11."

James Stang, lead attorney for the creditors committee, said the archdiocese's legal theories are flawed, and would be proved so in court.

The committee is asking U.S. District Judge Susan V. Kelley for permission to file a lawsuit to pull the assets of the parishes into the bankruptcy estate, the pool of money that will be used to pay creditors and fund future operations of the archdiocese. Creditors include the archdiocese's own pension funds and retired priests' medical plans, in addition to sex abuse victims.

The creditors argue that the archdiocese exerts total control over the parishes, with the archbishop serving as president of each church's board of trustees, and that parishes are merely a legal alter ego of the larger organization. It accuses the archdiocese of siphoning off tens of millions of dollars to or for the benefit of parishes to avoid the legitimate claims of sex abuse survivors.

The archdiocese denies the allegation. It counters that parishes have been separate legal entities for more than 100 years, and that its relationship with them is governed by state law.

The creditors' motion does not estimate the value of the parishes, but it would include any funds returned to congregations when the archdiocese moved at least $35 million in a Parish Deposit Fund off its books in 2005. The archdiocese, which had invested those funds for parishes, gave congregations the options of getting their money back or putting it in a newly created Southeastern Wisconsin Catholic Parishes Investment Management Trust.

A similar lawsuit is pending over $57 million in a Cemetery Trust Fund created by the archdiocese in 2007. Creditors have also asked for standing to sue to recover the Parish Deposit funds.

Both sides have agreed to postpone disputes over the archdiocese's sprawling headquarters complex known as the Cousins Center and at least some assets of the Faith in Our Future Trust established in 2007 to hold the proceeds of a $105 million capital campaign. The filing by the creditors committee said the fund raised $94 million in three years, but it could not determine how much of that was cash rather than pledges.

Hearing Dec. 6

Kelley is expected to take up the requests to sue over the parishes and the Parish Deposit Fund at a Dec. 6 hearing.

Also last week:

The archdiocese moved to throw out 62 abuse claims by victims who had previously signed settlement agreements with the church. Settlements over the years have ranged from a few thousand dollars to more than $100,000. Some victims allege that they were misled or coerced into signing the agreements. The archdiocese won a favorable ruling in an earlier test case when Kelley ruled that the victim didn't meet the statutory requirements for voiding a signed agreement.

Kelley ruled that two other victims, whose cases the archdiocese argues are beyond the statute of limitations for fraud, are not entitled under bankruptcy law to jury trials, and instead said she would hear them herself.

Under Wisconsin law, the clock on the six-year statute of limitations on fraud begins ticking when a victim has reason to believe he or she was defrauded.

The archdiocese has argued that it should not have to compensate victims whose cases are beyond the statute of limitations, those involving church staff or religious order priests or nuns, and those who signed prior settlement agreements. If it's successful on the statute of limitations objections alone, that could be used to throw out the vast majority of claims in the bankruptcy.

Attorney Jeffrey Anderson, who represents 350 of the victims in the bankruptcy, said each claims objection would have to be litigated on its merits, based on the facts specific to each victim, a process that could take months.

"We're prepared to fight those out one by one," he said.

The archdiocese and two victims jointly filed a complaint aimed at recovering what could be tens of millions of dollars from insurance companies whose policies were uncovered by an insurance expert hired by the creditors committee. The complaint says the policies with Lloyd's of London and others could provide from $5 million to $10 million for each incident alleged by more than 270 of the 575 claims in the bankruptcy, the largest potential asset available to creditors in the case.

The complaint asks Kelley to determine the legal viability of a claim against the insurers.

A Circuit Court judge has ruled that insurers were not liable to pay sex abuse claims against the archdiocese because they involved alleged fraud. But those involved a different carrier, whose policy language differed from the newly discovered policies.