Archdiocese, Parishes Win Key Victory in Bankruptcy

By Annysa Johnson
Milwaukee Journal Sentinel
December 7, 2012

http://www.jsonline.com/features/religion/parishes-protected-from-archdiocesan-bankruptcy-judge-rules-kg7uahd-182451581.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 Catholic Archdiocese of Milwaukee's 200-plus parishes are separate legal entities and their assets will not be consolidated with the archdiocese's as part of its bankruptcy, U.S. Bankruptcy Judge Susan V. Kelley ruled Thursday in a major victory for the church.

But the parishes could still face separate lawsuits over more than $35 million in parish investment funds that the archdiocese moved off its books in 2005.

Kelley could decide as early as Friday whether to allow the bankruptcy creditors - including hundreds of sexual abuse victims, the archdiocese's pension and health care funds, and others - to sue to recover at least a portion of those millions.

Attorneys for the creditors argued in a Thursday hearing that the archdiocese fraudulently transferred the money to shield it from sex abuse claims.

They pointed to the minutes of a 2003 meeting of the archdiocese's finance committee in which it discussed "setting up a trust fund to shelter the Parish Deposit Fund."

Archdiocese attorney Frank LoCoco called the charges "ridiculous" and the threatened lawsuit "blackmail."

Any such suits, he said, could drag on for years, destroy parishes and make it impossible for the archdiocese to continue its ministries.

"They're trying to extort money out of non-debtor entities. . . . I'm pushing back hard," LoCoco said.

"Enough is enough."

The archdiocese, its attorneys and lawyers for creditors and the parishes declined to comment on Thursday's ruling.

The Survivors Network of Those Abused by Priests issued a statement commenting on the 120,000 pages of documents LoCoco said the archdiocese has made available to the creditors committee. It said the documents, which are under seal with the court, should be made public.

The archdiocese filed for Chapter 11 protection in January 2011 as a way to resolve its outstanding sex abuse claims.

From the beginning, the two sides have pursued divergent strategies, with the archdiocese moving to throw out victims' claims and the creditors pursuing church assets that could be used to pay them.

A lawsuit is already pending over $57 million in a Cemetery Trust Fund created by the archdiocese in 2007. And the archdiocese and two victims have jointly filed a complaint aimed at recovering what could be hundreds of millions of dollars from newly discovered insurance policies.

The archdiocese and its creditors 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.

Without such a "tolling agreement," any lawsuits to recover assets - including the Parish Deposit Fund - would have to be filed by Jan. 4, two years after the start of the bankruptcy.

The Parish Deposit Fund question is before Kelley because the two sides could not come to an agreement to stop the clock on that issue. It's further complicated by the narrow window that makes it impossible for the creditors to appeal any decision she makes by the Jan. 4 deadline, effectively shutting out their access to that asset.

Kelley called the situation "uncharted waters for me," and appeared open to a compromise that would allow the creditors to seek an appellate decision without being penalized by the Jan. 4 deadline.