Diocese racks up more than $600,000 in legal fees

By Elizabeth Hardin-Burrola
Gallup Independent
June 23, 2014

http://gallupindependent.com/

ALBUQUERQUE – In less than six month’s time, the Diocese of Gallup has racked up more than $600,000 in legal and accounting fees and expenses since it filed its Chapter 11 petition in U.S. Bankruptcy Court.

Those “first interim” professional fees, totaling nearly $612,000, were detailed in several hundred pages of court documents.

Quick payment, however, may not be forthcoming.

According to the court file, the Gallup Diocese is not currently able to pay its own bankruptcy attorneys and accountants. Like clergy sex abuse survivors who have to submit their claims to the court by the Aug. 11 deadline, the diocesan attorneys and accountants may have to wait for payment until the diocese sells off property, taps into insurance policies and possibly draws from the financial assets of other Catholic dioceses and religious orders who allowed their sexually abusive clergy to serve in the Diocese of Gallup.

The diocese filed its Chapter 11 petition on Nov. 12, 2013, in response to what Bishop James S. Wall said were mounting clergy sex abuse legal claims and lawsuits.

The diocese had been named as a defendant in 13 such lawsuits in Arizona’s Coconino County Superior Court, and the first case was slated for a jury trial in February of this year. By filing for bankruptcy, Wall halted all those civil cases, spared his church officials from court depositions and testimony, and kept the Gallup Diocese’s child sex abuse history from a jury.

First interim fees

The Diocese of Gallup’s bankruptcy case, however, is proving to be costly in other ways. The diocese’s three currently active law firms and one accounting firm recently submitted their first interim fees and expenses to the court for a total cost of $611,916.63.

*Quarles & Brady of Tucson, the diocese’s lead law firm in the bankruptcy, submitted an application for payment for the period of Nov. 12, 2013 to March 31, 2014. Quarles & Brady requested payment of $450,601.03, which included $426,550 for fees and $24,051.03 for expenses.

*The Albuquerque law firm of Walker & Associates is providing a supporting legal role in the bankruptcy case. Attorney Thomas D. Walker submitted an application for payment of $18,062.40, which includes legal fees, expenses and gross receipts taxes. Walker’s billing period extends through April 30, 2014.

*The Albuquerque law firm of Stelzner, Winter, Warburton, Flores, Sanchez & Dawes, which is listed as special counsel for the diocese, submitted an application for $4,820.69 for legal fees, expenses and gross receipts taxes for a billing period through March 31, 2014. According to the law firm, most of its work for the diocese was related to “routine employment law-related services” rather than to the Chapter 11 reorganization. Prior to the bankruptcy, attorney Robert P. Warburton of the Stelzner firm represented the Diocese of Gallup in many of its clergy abuse lawsuits and legal negotiations.

*Keegan, Linscott & Kenon, an accounting and financial consulting firm from Tucson, submitted its application for payment for $138,432.51, which includes professional fees and expenses. The firm’s interim billing period goes through March 31, 2013.

The Diocese of Gallup is also responsible for paying the legal fees and expenses of the legal counsel for the Official Committee of Unsecured Creditors, which advocates for the interests of clergy sex abuse claimants in the case.

Tasks and challenges

According to statements made by Quarles & Brady, the Stelzner law firm, and the Keegan accounting firm, the three companies did not charge the Gallup Diocese their full professional rates. All claimed they offered the diocese various financial discounts, and Quarles & Brady stated the firm had written off over $60,000 of its time.

Last week, U.S. Bankruptcy Judge David T. Thuma issued orders approving the interim compensation fees and expenses submitted by those three firms. Thuma authorized “such compensation and expenses as and when sufficient funds become available to do so.”

Thuma has yet to rule on Walker & Associates’ application for payment.

In the Quarles & Brady application, the law firm included an itemized list of legal fees by category that is nearly 120 pages in length. Some of the more critical legal tasks include dealing with bank accounts improperly opened by parishes and missions using the diocese’s tax identification number, determining what real estate property the diocese owns because the diocese did not maintain such a list, trying to ascertain market values of property, researching information about insurance coverage, sorting out oil and gas leases, negotiating with various creditors such as utility companies and banks, and reviewing diocesan files to identify potential claims against the diocese.

According to the Keegan accounting firm, it faced a number of challenges because the diocese’s chief financial officer, Deacon James Hoy, resigned two months before Wall made his Chapter 11 announcement.

“The Debtors are currently without a Chief Financial Officer …, and did not have one for several months pre-petition,” the firm stated in its application for payment. “The Debtors also did not have accounting software or systems that were appropriate for their operations.”

The accounting firm stated it “had to perform both high-level analysis and ground-level operational and training functions” as it worked with Hoy’s staff.

Identifying assets

So how will the Diocese of Gallup eventually pay the ongoing fees for all these attorneys and accountants and settlement money to clergy sex abuse claimants?

According to court documents, attorneys for the diocese and the Unsecured Creditors Committee have been working to identify potential diocesan financial assets.

The Gallup Diocese owns considerable property in Arizona and New Mexico, some of which will be sold. Quarles & Brady stated it has been identifying “property that is not critical to the continued mission and ministry” of the diocese that could be sold to fund a plan of reorganization.

Thuma also approved the diocese’s hiring of the Insurance Archaeology Group, a New York company that specializes in the forensic review of insurance assets.

In his diocese’s application to the court to hire the company, the Gallup bishop stated Insurance Archaeology Group “has a team with the required expertise, experience, and resources to locate and recover documentation of missing liability coverage and other historic insurance issues.”

According to Wall, the company “will be able to review the earliest available insurance records, research top priority internal records, investigate related internal record sources, and identify potential outside sources.”

Some of those potential outside sources most probably include other Catholic dioceses and religious orders that allowed their sexually abusive clergy to serve in the Gallup Diocese.

Currently, the Unsecured Creditors Committee has a motion before the court requesting the Diocese of Corpus Christi in Texas be compelled to produce a number of documents concerning the Rev. Clement A. Hageman, a sexually abusive priest who left Corpus Christi and served in the Gallup Diocese for more than three decades. The Corpus Christi Diocese is objecting to the motion, and Thuma has scheduled a final hearing on the matter Wednesday.