Creditors’ Lawyers Press Archdiocese of Milwaukee to Pay up

By Peg Brickley
Wall Street Journal
July 17, 2014

http://blogs.wsj.com/bankruptcy/2014/07/17/creditors-lawyers-press-archdiocese-of-milwaukee-to-pay-up/

The Archdiocese of Milwaukee has been running a tab when it comes to professionals working on its Chapter 11 bankruptcy case, and lawyers for unsecured creditors—chiefly survivors of sexual abuse—say it’s time to pay the bills.

Court records show the archdiocese has stacked up more cash than it projected back in January 2013, when it petitioned the bankruptcy court to suspend monthly professional fee payments on the grounds money was tight, according to papers filed by creditor lawyers led by James Stang. Mr. Stang represents the official committee of unsecured creditors in the Archdiocese of Milwaukee case. With a few exceptions, bankruptcy professionals have not been paid in 17 months, court papers say.

As of the end of June, the archdiocese reported it had run up $5.8 million worth of fees, court records show. Whyte Hirschboeck Dudek S.C., the lead lawyer for the archdiocese, is owed the most, $2.9 million. Lead creditor firm Pachulski Stang Ziehl & Jones is owed $1.9 million, court records show. Lawyers for survivors contend that the archdiocese has the money, and it should pay.

“The Debtor can and should be required to play by the rules and pay for its operating expenses, including professional fees during the bankruptcy process. After all, through that process and by its plan, it is seeking to obtain extraordinary relief,” such as getting out from under litigation over alleged clergy sexual abuse, creditors’ attorneys wrote.

Debtors in Chapter 11 cases are required to pay the fees of professionals representing creditors. The archdiocese says the lawyers will get paid, but its funds are limited.

“The more important question is why the creditors’ committee attorneys are spending more of the Archdiocese’s money on themselves in making such a motion when it simply continues to drain the money available for abuse survivors. It’s not like the lawyers won’t get paid…eventually, but they want to spend more money to try and get paid first, at the expense of the creditors they are supposed to be representing,” said Jerry Topczewski, the chief of staff of the Office of the Archbishop.

Robert Keach, a bankruptcy attorney and sometime fee examiner who is not involved in the Milwaukee case, said it’s not unusual for professionals in small or mid-sized cases to wait to collect their fees “as long as there is a certain source of payment.” As in many cases, the Archdiocese of Milwaukee Chapter 11 proceeding started out with monthly partial payments of fees. That typical pattern was broken when the archdiocese reported it was running short of money.

Creditors tracked the actual cash from the start of 2013, when the archdiocese moved for permission to suspend fee payments. They found the actual funds were always greater than projected in papers supporting the motion. This year, instead of the $2 million the archdiocese said it needed to keep on hand for operating expenses, it has had from $3.5 million to $4.2 million, according to creditors.

The matter has been set for a hearing July 30 in the U.S. Bankruptcy Court in Milwaukee, where the archdiocese joined the ranks of Catholic dioceses that took cover in Chapter 11 against litigation involving child abuse by clergy. That was in 2011.

No diocese or religious order yet has been able to win confirmation of a Chapter 11 plan over the protests of abuse survivors at a court fight, creditors’ attorneys say. But that’s what the Milwaukee diocese intends to attempt. The plan proposes to settle litigation over $60 million that the archdiocese has in a cemetery trust fund, money that creditors’ lawyers say should be available to abuse survivors.

Bankruptcy Judge Susan Kelley ruled in favor of creditors, but a federal court judge reversed, finding that allowing survivors of sexual abuse to tap the cemetery funds violated the archdiocese’s religious freedom. The cemetery trust dispute has been appealed.

Under the Chapter 11 plan, the Archdiocese has offered $2 million to settle the litigation, in addition to insurance funds and a $500,000 therapy fund. Abuse survivors say that’s not enough. They have other objections to the proposed Chapter 11 plan, including questions about the voting scheme. Judge Kelley has delayed the confirmation hearing on the archdiocese’s Chapter 11 plan until there’s a ruling on the cemetery trust litigation.

In court papers, creditors’ lawyers said the archdiocese has been “’dangling’ payment of outstanding fees and expenses only on the condition that a highly controversial and hotly contested plan which is repugnant to the committee and the survivors, is confirmed.”

Mr. Topczewski said the Bankruptcy Code rules require the archdiocese to pay all professional fees once the Chapter 11 plan is approved. He denied offering to pay the creditors’ committee’s lawyers if the committee agreed to support the plan.

Write to Peg Brickley at peg.brickley@wsj.com