Milwaukee Archdiocese Says It's Going Broke

By Annysa Johnson
Milwaukee Journal Sentinel
January 25, 2013

http://www.jsonline.com/features/religion/milwaukee-archdiocese-says-its-going-broke-628gmme-188309451.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 is hemorrhaging money on legal and professional fees as a result of its bankruptcy and will be unable to pay its monthly operating expenses beginning in April unless the judge suspends those payments, it says in court documents filed Thursday.

The archdiocese filed a motion asking U.S. Bankruptcy Judge Susan V. Kelley to allow it to suspend all payments to attorneys and consultants, except $125,000 for work on its plan of reorganization. And it would continue to pay its own attorneys to challenge sex-abuse claims with proceeds from its insurance carriers.

"Without it, we will be unable to continue operating. We've used all the money we had from savings, reserves, investment earnings and money budgeted for litigation," archdiocese spokesman Jerry Topczewski said.

"This is a reorganization, not a liquidation," he said, "and under bankruptcy law, the goal for Chapter 11 is to keep the organization operational."

James Stang, lead attorney for the bankruptcy creditors committee, said he had not had a chance to discuss the motion with his colleagues. But he blamed the cost of the bankruptcy - nearly $9 million in fees paid to date - on the archdiocese's aggressive efforts to throw out hundreds of sex abuse claims.

"The archdiocese has spent a fortune trying to throw out these claims," Stang said. "No one (among other church bankruptcies) has used its resources to object to claims the way this diocese has," he said.

Topczewski casts the blame on the creditors' attorneys, saying they've pursued frivolous actions, including trying to get money out of parishes.

According to the court records, the archdiocese spends between $1.6 million and $2 million monthly, excluding its legal fees. And it keeps a cash balance equal to one month's expenses.

If it is required to pay legal fees after January, it will fall into so-called administrative insolvency beginning in April, with a shortfall of about $488,000 that will hit $765,000 by June.

"Administrative insolvency - they're the most terrifying words a bankruptcy practitioner can hear," said Jonathan Lipson, who teaches bankruptcy law at Temple University in Philadelphia.

But it also comes with risks for the debtor, according to Lipson. Kelley could dismiss the case, after which unpaid creditors would likely sue in state court, or she could appoint a trustee to manage the archdiocese's day-to-day operations.

"Any of these results would be very bad for the archdiocese," Lipson said. "Essentially it would be thrust into a litigation quagmire . . . or someone else could be running the railroad, and that's a very dicey proposition for them."

Thursday hearing

In a hearing Thursday unrelated to the financial issues, victims' attorney Jeffrey Anderson made an emotional plea to Kelley, asking her to put the archdiocese's claims objections on the back burner and pursue its insurance coverage in an effort to compensate victims.

"There is nothing more important than ensuring that no further harm is done to these folks," said Anderson, who accused Archbishop Jerome Listecki of reneging on an explicit promise to compensate all victims - not just those of diocesan priests, those who fall within the statute of limitations for fraud or any other restrictions now being argued by its attorneys.

Attorneys for the insurers have asked to move the question of their liability to the U.S. District Court, saying that would save time and money.

New objections

The archdiocese this week filed a new round of objections aimed at throwing out 157 claims by victims who allege they were molested by religious order priests, nuns or lay workers, over whom the archdiocese maintains it has no direct control.

The archdiocese has already objected to 62 claims involving victims who signed prior settlement agreements with the archdiocese and several others on the grounds that they are beyond the statute of limitations. If successful, the statute of limitations argument could be used to try to throw out the vast majority of the 570-plus claims in the bankruptcy.

In Wisconsin, the statute of limitations for fraud begins ticking when the victim has reason to suspect that he was defrauded.

On Thursday, Kelley disallowed one claim, finding that it was beyond the statute of limitations. But she allowed three others to move forward, saying there were issues of fact that would need to be resolved, including in one case whether the archdiocese misled the victim when he reported his abuse.

That victim, Leonard Sobczak, who was molested by the late Father Richard Nichols in the 1980s, wept after Kelley issued her decision.

"It's just so hard to hear them argue it back and forth," he said. "There's such a disconnect from the spiritual message."

The four cases on which Kelley ruled included some of the archdiocese's most notorious serial offenders, including the late Father George Nuedling and defrocked priest Franklyn Becker.

"If I can admit it, every time I have to read his file, I'm just devastated," Kelley said of Becker. "It's very difficult."

Also Thursday, Kelley signaled that she is open to revisiting the confidentiality order she issued early in the case to allow some content to be made public, including information on abusive priests and depositions of Archbishop Rembert Weakland and Bishop Richard Sklba - both now retired - who together handled the archdiocese's sex abuse cases for decades.