Gallup Diocese Bankruptcy Judge: Get to ‘end Zone’

By Elizabeth Hardin-Burrola
Gallup Independent
March 7, 2014

http://gallupindependent.com/

ALBUQUERQUE – It’s been nearly four months since the Diocese of Gallup filed for Chapter 11 reorganization, and a bar date deadline for clergy abuse claimants still has not been announced.

In a preliminary hearing Feb. 14, U.S. Bankruptcy Court Judge David T. Thuma expressed concern that considerable time has been devoted to sorting out a number of problematic bank accounts in the Gallup Diocese while more effort needs to be focused on moving the case toward settlement.

With references to the contentious bankruptcy case of the Archdiocese of Milwaukee, Thuma made it clear he did not want the Gallup Diocese case to follow down that same path. The Milwaukee Archdiocese has reportedly spent more than $11 million in litigation fees while only proposing to set aside $4 million to compensate clergy abuse claimants.

“We need to figure out a way to get the minimum facts before the committee and the debtor that they would need to settle this case, and we need to start thinking about how we get a whole lot closer to the end zone, to use a sports metaphor,” Thuma said. “I don’t want this case to be like the Milwaukee case where the debtor says all the money that could have been paid to creditors has been spent on litigation. I would be pretty unhappy if that happens in this case.”

Bank accounts resolved

Thuma helped move the case forward Feb. 21, when he issued an order resolving the disputed bank accounts issue.

Initially the problem centered on parish bank accounts that had been improperly opened using the diocese’s tax identification number rather than the parishes’ I.D. numbers. After the diocese filed its Chapter 11 petition, the problem was compounded when many of those same parishes closed the original bank accounts without authorization and transferred the money into new accounts.

The question then became did the bank accounts belong to the parishes whose officials opened the accounts, or did they belong to the Gallup Diocese because they were originally opened with the diocese’s tax identification number?

Thuma didn’t address that question with his order. Instead he agreed to allow the parishes to continue using the accounts “in the normal course of their operations, consistent with past practice,” and he required the Gallup Diocese to make monthly reports regarding account activity in each account.

He also didn’t grant any liens on the real and personal property of those parishes as requested by attorney James I. Stang, counsel for the Unsecured Creditors Committee which represents clergy sex abuse claimants. Stang had requested Thuma grant liens on the property as insurance against those bank account funds being depleted by the parishes.

Thuma did rule that if the Gallup Diocese, the Unsecured Creditors Committee, or the U.S. Trustee Office wanted to obtain a final judgment from the court about ownership of the bank accounts, they could commence an adversary proceeding and name the parishes as defendants.

Sidestepped questions

Thuma’s order sidestepped questions whether any of the parishes’ real or personal property was property of the Gallup Diocese, whether parishes are separate legal entities from the diocese, whether some or all of the funds in the disputed bank accounts were property of the diocese, and whether parishes were bound by his court order. Those questions have permeated legal sparring in the bankruptcy case, but they have not been formally addressed by the court.

In the preliminary hearing of Feb. 14, Thuma did indicate some support for an argument advanced by Stang that the diocese has flip-flopped on whether parishes are separate legal entities from the diocese. Prior to its Chapter 11 petition, Stang argued, the Gallup Diocese had stated that under civil law, parishes in the diocese are not separately incorporated and have no separate legal existence apart from the diocese. Stang cited documents written by diocesan attorneys in the Arizona clergy sex abuse lawsuit Moya v. The Roman Catholic Church of the Diocese of Gallup.

“According to the debtor, whether the parishes are part of the Debtor or separate legal entities appears to be a completely ‘flexible’ concept which is solely dependent on which position is most self-serving for the Debtor at the time the representation is made to the courts,” Stang stated.

“I’m certainly not critical of the committee to call attention to the fact that in state court the debtor took the opposite position, and I frankly think there is some significance to that,” Thuma said during the hearing.

Extension requests

The next hearing in the case, scheduled for March 12, concerns two motions by Susan G. Boswell, the lead bankruptcy attorney for the diocese. The first motion is a request for the court to extend the diocese’s exclusive period to file a reorganization plan, and the second motion is a request to extend the diocese’s time to assume or reject some property leases.

Regarding the first motion, Boswell said the Gallup Diocese has been working with Stang’s committee.

“In connection with this, the debtors are working with the Committee on a comprehensive list of property, possible recovery of funds for the estate, and analysis of insurance coverage to maximize recovery to the creditors,” Boswell stated in the motion. “While the debtors have made progress toward identifying potential sources that might be used to fund a plan of reorganization, there is still work to be done and the debtors hope that with more time, the Debtors and the Committee can agree on a consensual plan.”