Abuse Victims Call Archdiocesan Bankruptcy Plan "Repugnant"
By Annysa Johnson
The Archdiocese of Milwaukee's reorganization plan for exiting its bankruptcy is "morally repugnant," not in the best interest of its creditors and should be rejected by creditors and the court, a committee representing clergy sex abuse victims and other creditors said in a document filed in U.S. Bankruptcy Court on Friday. That objection, submitted in advance of an April 17 hearing on the plan's disclosure statement, takes issue with myriad assertions made by the archdiocese in the reorganization plan submitted to the court in February. And it telegraphs the committee's intention to continue to pursue certain assets, including $60 million the committee says was fraudulently transferred into a cemetery trust, proceeds from a $105 million capital campaign and the archdiocese's sprawling lakefront headquarters campus, known as the Cousins Center. "The Committee believes the Plan is a morally repugnant attempt to shield essentially all of its assets, save insurance proceeds, from the claims of the Abuse Survivors and obtain releases (of liability) for itself and all its parishes," the creditors committee asserts in the filing. And it urges all creditors with standing to vote on the plan to reject it. Jerry Topczewski, chief of staff for Archbishop Jerome Listecki, said Friday that lawyers for the committee are "re-arguing points that the court has already ruled upon." "The committee's objections have been clearly addressed, in great detail, in the disclosure statement," Topczewski said in an email to the Journal Sentinel. "After three and one-half years, we have turned a corner in this proceeding, and it is time for both the archdiocese and the community to move forward by bringing the Chapter 11 to its conclusion." The 10-county archdiocese filed for Chapter 11 bankruptcy protection in January 2011 to address its mounting claims by men and women who alleged they were sexually abused as children by priests, teachers, deacons and others in the local church. It is one of the largest Catholic Church bankruptcies to date with more than 570 sex abuse claims and has cost the archdiocese $12 million to date in legal fees, with millions more likely ahead. U.S. Bankruptcy Judge Susan V. Kelley is scheduled to hear arguments April 17 on whether the plan's disclosure statement, a document akin to a prospectus in a stock offering, contains enough information for creditors to make an informed decision about the reorganization plan. She will take up the plan itself at a later date. But creditors said the disclosure statement and plan are "an integral package and must be considered together for the reader to be adequately informed." James Stang, lead attorney for the creditors committee, said Friday that the disclosure statement is inadequate. "The question is whether it provides enough information and whether that information is accurate, and they are deficient on both," said Stang. A group of archdiocese insurers on Thursday also filed an objection to the disclosure statement, calling it inadequate and inaccurate. Under its reorganization plan and the disclosure statement, the archdiocese says it would set aside up to $4 million for 128 abuse survivors and create a $500,000 therapy fund that would be available to most victims — the smallest settlement offered survivors in any of the six diocesan bankruptcies that have settled to date. The plan would settle all pending litigation in the case, including a First Amendment issue of national significance before the 7th Circuit Court of Appeals over whether forcing the archdiocese to tap its cemetery trust would violate its constitutional rights and protections under the 1993 Religious Freedom Restoration Act. The plan also would shield some 200 Catholic entities, including parishes and charities, from lawsuits related to past sexual abuse. It would be funded by an $8 million settlement with London Market Insurers, half of which would go toward legal fees. If the reorganization plan is not approved, the archdiocese argues, the bankruptcy and its related legal cases will drag on for years, cost the church millions more in legal fees and undermine its ability to remain solvent. Throughout the proceedings, both sides have accused each other of staking out extreme positions, fighting every step in court, and running up bills by refusing to find middle ground. In the response filed Friday, creditors called the insurance settlement "inadequate" and said it violates both Wisconsin law and the rights of abuse survivors. Creditors maintain the archdiocese has no legal standing to settle the cemetery trust lawsuit at the 7th Circuit.And they say the settlement proposed by the archdiocese — in which the cemetery trust would pay the archdiocese $2 million annually — creates a significant conflict of interest for Listecki, who is both sole trustee of the cemetery trust and head of the archdiocese, which will benefit from that settlement. They say creditors have a legitimate claim to several assets, including the cemetery trust, the so-called Faith in Our Future trust created to hold proceeds of the $105 million capital campaign, the Cousins Center and $11 million in fixed income accounts at J.P. Morgan Bank; and that the archdiocese is overestimating the cost and time involved in pursuing those assets. Creditors called the defunct St. Francis de Sales seminary, which the archdiocese now maintains owns the Cousins Center, a "shell corporation." And they rejected the archdiocese's assertion that the cemetery funds, moved to a newly created trust in 2008, were always held "in trust," saying they were described in the archdiocese's own documents as unrestricted and property of the archdiocese. They argue that the transfer, together with the bankruptcy filing, were part of an "asset protection scheme" to move the archdiocese's sex abuse claims into federal court, where it could assert protection under the 1993 Religious Freedom Restoration Act without being hindered by state laws on fraudulent transfers. "The Archdiocese and the (sic) Archbishop Listecki elected to file bankruptcy to avail themselves of the substantial benefits that exist under the Bankruptcy Code, while simultaneously maintaining that the provisions of the Bankruptcy Code (that) they view are burdensome," creditors said in the filing. Among the issues to be considered by Kelley when she takes up the reorganization plan is the cost effectiveness of pursuing assets for the estate. Included in the plan is a so-called "cramdown" provision that would allow the archdiocese to impose the plan on objecting creditors. But Kelley could reject the plan as not feasible or in bad faith. The archdiocese has argued from the beginning that it has limited resources to compensate victims. It says it has already paid more than $33 million in settlement and therapy costs over the years, including $8.25 million of a $17 million settlement in a California case brought by victims of Wisconsin priests who had been transferred there. So far, creditors have yet to obtain a single asset of significance for the bankruptcy estate. Kelley ruled in December 2012 that creditors could not tap the assets of the archdiocese's parishes, which are separately incorporated; or $35 million in parish deposit funds the archdiocese moved off its books in 2005 — though she said there was arguably "something fishy about the transfer." The parties have yet to litigate issues related to Faith in Our Future, the Cousins Center or the $11 million fixed income account. Kelley ruled in January 2013 that forcing the archdiocese to tap some portion of its cemetery funds would not violate its free exercise of religion. But U.S. District Judge Rudolph T. Randa overturned her ruling, and Randa's decision is now on appeal before the 7th Circuit. That decision, whenever it comes down, is likely to generate an appeal to the U.S. Supreme Court.
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