Milwaukee Archdiocese's Bankruptcy Plan Is in the Works
By Annysa Johnson
Three years after it declared bankruptcy as a way to deal with its mounting sex abuse claims, the Archdiocese of Milwaukee is poised to file the reorganization plan that will detail how it compensates abuse victims and operates as an institution into the future. The archdiocese is preparing that plan, but it has offered few hints about its content or when it might be filed in U.S. Bankruptcy Court in Milwaukee. While the reorganization plan is a significant step toward exiting bankruptcy, legal scholars suggest that exit could still be a long way off. Even then, the legal battles could go on for years. "This is not the end game. There will be multiple objections on multiple bases," said Pamela Foohey, a professor at the University of Illinois College of Law in Champaign, who specializes in bankruptcy law. The Milwaukee bankruptcy, filed by Archbishop Jerome Listecki in January 2011, came after the archdiocese had been largely successful in fighting lawsuits dating back at least to the 1950s. With 575 sex abuse claims and legal fees topping $11 million, it is one of the largest and most contentious bankruptcies filed by Catholic dioceses around the country, say observers and lawyers who've worked on those cases. In the three years since its filing, Listecki has rarely, if ever, been made available to the Milwaukee Journal Sentinel to discuss the bankruptcy. And the archdiocese's lawyers generally do not comment on the case. Jerry Topczewski, Listecki's chief of staff, said in an email, however, that the plan would include a "lifetime therapy fund" for victims and allow the archdiocese to continue its ministries. "It's been three years since our Chapter 11 petition was filed, and it is time for the archdiocese to return its focus to its ministry of charity, service and education," Topczewski said. "Outreach to abuse survivors will always be part of that ministry." 9 other bankruptcies Milwaukee is among nine Catholic dioceses across the country that have sought Chapter 11 bankruptcy protection since 2004 to deal with their sex abuse obligations. Settlements reached in seven of those have ranged from $9.8 million in tiny Fairbanks, Alaska, to $198 million in San Diego. Across the country, the average payment to survivors was more than $400,000. By all accounts, that seems unlikely in Milwaukee, where the archdiocese has insisted from the beginning that all but a few million dollars of its $100 million or more in assets is restricted and cannot be used for sex-abuse settlements. Insurance funds, which have been a major contributor to other church settlements, are expected to be a much smaller part of the Milwaukee reorganization plan. Insurers have argued that they are not liable because the underlying allegation against the archdiocese is fraud, but one group has negotiated with the archdiocese to buy back its policies for an unspecified amount of money. In three years, the archdiocese has sold no significant property to help pay for a settlement — U.S. Bankruptcy Judge Susan V. Kelley chastised the church on this point last year. And it has successfully blocked creditors' efforts to place any church assets, such as parish properties or the $55 million cemetery trust fund, into the estate to finance the reorganization plan. Whether the archdiocese should have to tap its cemetery trust is on appeal before the 7th U.S. Circuit Court of Appeals. Kelley had ruled that forcing the archdiocese to use at least some of that money would not constitute a substantial burden on its free expression of religion, but she was overturned at the District Court level. Other legal battles have been postponed, including those over the archdiocese's Cousins Center headquarters complex, once valued at $10 million, and what could be up to $105 million in what's known as the Faith in Our Future trust. In a February hearing last year, creditors committee attorney James Stang speculated that the archdiocese might place the Cousins Center into a settlement trust, expecting creditors to take on the burden of selling it at a later date. But the church's attorneys denied that. And the archdiocese maintains that it does not actually own the building, though it said for years before the bankruptcy that it intended to sell it to help pay for sex abuse settlements. Stang said victims and the creditors committee have been excluded from negotiations with insurers and the development of the reorganization plan, a first for any of the Catholic Church bankruptcies on which he's worked. Though he knows the amount of the insurance settlement, he declined to comment. Who will be compensated? Just as unclear about what assets the archdiocese is proposing to pay for the reorganization plan is exactly who will be compensated and at what level. As unsecured creditors, the victims could very well end up among the lowest priority for disbursement of archdiocesan funds. "Could we conceivably come out of this with nothing for the victims? That's a hard question to answer because it turns in part on underlying state law on things like statutes of limitations, prior settlements and so forth," said Jonathan Lipson, a bankruptcy professor at Temple University's Beasley School of Law who, like Foohey, has written on church bankruptcies. "The archdiocese of Milwaukee has been far more aggressive, far more litigious than any other diocese I've observed," Lipson said. "They would rather pay their lawyers than pay claimants." Each side blames the other, with the archdiocese accusing the creditors of pursuing assets they should never have gone after, and the creditors accusing the archdiocese of blocking victim claims and assets at every turn. The plan is likely to include millions of dollars in legal fees. Bankruptcy law requires administrative fees — those of the archdiocese's and creditors committee lawyers, forensic accountants and others — to be paid in order to exit bankruptcy. Those fees have been accruing since last year when the archdiocese persuaded Kelley that it would go broke if it was not allowed to suspend those payments. (Plaintiffs' attorneys, such as Jeffrey Anderson, whose firm represents most of the victim-creditors, are paid separately by their clients a percentage of any settlement they receive.) In addition to victims, there are myriad other creditors, ranging from small businesses owed as little as $130to the archdiocese's own employee pension funds, which have claims totaling almost $56 million. Among creditors, some classes will be paid before others, and the victims rank behind both secured and priority creditors. First in line after the administrative fees comes secured creditors, such asbanks holding mortgages on archdiocesan property. These are followed by priority creditors, which include the archdiocese's pension funds. In all, the archdiocese lists claims totaling about $5.7 million by secured creditors and $96.6 million for priority creditors, according to the court record. Victims are among the unsecured creditors, who have the least priority. Whether the archdiocese intends to compensate victims at all is unclear. It has moved to throw out all of the sex-abuse claims, arguing that they are beyond the statute of limitations, or they involve individuals with prior settlements. The archdiocese also dismisses any claims against it made by teachers, religious order priests and others it does not consider direct employees. Kelley has agreed to dismiss a few cases, but those are on appeal. Lawyers representing plaintiffs have suggested that every one of the cases would have to be individually assessed, which could drag on for months, if not years. More actions needed Once the archdiocese plan is filed, it must be voted on by creditors and confirmed by Kelley. Creditors can object, arguing, for example, that it's not feasible or was not proposed in good faith. Then each class of creditors must receive certain protections, Foohey said. Victims' lawyers would almost certainly fight any plan that left victims with little or nothing in the way of financial compensation. And that may also create problems for survivors who have prior settlements with the archdiocese. Kelley has approved nearly $600,000in continued payments to victims with settlements reached before the bankruptcy, but with the caveat that it could be withdrawn if victims in the bankruptcy get less, a prospect the judge called "horrible." One option open to Kelley that has not been raised by any of the parties in the case is to dismiss the archdiocese's bankruptcy case and allow the individual lawsuits to move ahead in the state courts. "If I'm Judge Kelley, I would seriously entertain a motion to dismiss this case," said Lipson, explaining that bankruptcy courts were designed to resolve purely financial issues, not the complex emotional, religious and constitutional questions that underlie the Catholic church bankruptcies. "Bankruptcy is about dealing with money, but that's not all that's involved here," Lipson said. Toll on many The bankruptcy case has taken a toll on the 10-county archdiocese; its parishes; and victims, many of whom believed the bankruptcy would bring a measure of justice after years of being thwarted in the state courts. "All these three years have done has been to add salt to an open wound," said Monica Barrett, who alleges she was raped as an 8-year-old child by the late Father William Effinger, who'd been convicted of second-degree sexual assault of a boy. The extent of the financial toll on the church is not yet known and cannot be until all the battles over assets are done. The archdiocese has not posted its annual financial statements on its website since the 2010-'11 fiscal year. However, it argued last year that it would become insolvent — at least in its day-to-day finances — if it could not suspend its legal fees. Listecki has called a special synod for this spring at which parishes will help shape the local church's priorities for the coming years, though the church has said the motivation was pastoral, not financial. Listecki and the church, including former Milwaukee Archbishop and now Cardinal Timothy Dolan of New York, have had to parse difficult ethical questions as they sought to balance their rights in the federal court system against their moral obligations to survivors, many of whom they have acknowledged again and again have been grievously harmed. The church has said it also has a moral obligation to continue its ministries. The number of parishes, priests and members have all declined since 2011 — membership by 54,000, although those numbers typically fluctuate. It's hard to tell what if any of that is related to the bankruptcy. The drain on the archdiocese long predates the bankruptcy, Topczewski said. Before the filing, the archdiocese had already spent some $30 million on the sex abuse crisis, but it doesn't know how much of that has gone to survivors vs. legal costs. As a result, he said, the archdiocese over the last decade has cut staff by 40%; trimmed outreach to parishes, schools and other ministries; and cut its operating budget by 38% to $24 million in 2013. The bankruptcy has certainly taken an emotional toll on the local church, say priests and Catholics in the pews, eroding support in some quarters for both the victims and the archdiocese, out of fear the ongoing battle will undermine the long-term health of the church in southeastern Wisconsin. "The pain I think people feel is that it's not contributing in any way to the healing," said Father James Connell, a retired priest and former vice chancellor of the archdiocese, who has emerged in recent years as an advocate for sex abuse victims. "I don't think anybody thinks this is resolving the crisis, or bringing healing to survivors and their families," said Connell, who has spoken extensively on the issue with parishioners and his fellow priests. "That further erodes trust in the leaders of the church...and it's probably affecting people's prayer life and spiritual life."
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