Bankruptcy judge orders Milwaukee Archdiocese to pay attorney fees

By Bruce Vielmetti
Milwaukee Journal Sentinel
July 30, 2014

http://www.jsonline.com/news/religion/hearing-set-on-millions-owed-lawyers-in-milwaukee-archdiocese-bankruptcy-b99320983z1-269200781.html

The Catholic Archdiocese of Milwaukee, which faces more than a dozen civil fraud lawsuits over its handling of clergy sex abuse cases, filed for Chapter 11 bankruptcy protection in January. As the case proceeds, we'll have updates, analysis, documents and more.

The Archdiocese of Milwaukee must come up with $1.35 million to pay lawyers involved in its ongoing bankruptcy case, at least a portion of the many more millions they're owed, a judge ordered Wednesday.

The lawyers and other professionals involved haven't been paid since the archdiocese won a suspension of payments more than a year ago, saying it barely had enough money to continue operations.

At the same hearing Wednesday, U.S. Bankruptcy Judge Susan V. Kelley also granted the archdiocese's request late Tuesday to return the case to mediation for a possible consensual resolution to the long, complex and fractious proceeding.

"If the parties truly are sincere and willing to work issues out, we should explore that post haste," Kelley said. "Let's 'git 'er done,' to use the vernacular."

Kelley gave the parties 28 days to submit statements for the mediator, who ideally would begin the process in early September. A prior mediation effort in 2012 failed to reach a settlement.

The bankruptcy case has been at a standstill since June when Kelley ruled that she does not have jurisdiction to approve the archdiocese's bankruptcy reorganization plan while key questions in a related lawsuit over $60 million it holds in trust for the care of cemeteries are pending before the 7th Circuit Court of Appeals.

Kelley's jurisdictional ruling is now on appeal before U.S. District Judge Rudolph T. Randa. But lawyers for the creditors committee are seeking his recusal or a stay of his ruling until after the 7th Circuit renders its opinion.

The creditors committee, which is seeking to remove Randa from any proceedings related to the trust, argues that he has a financial interest in the cemeteries because he purchased plots for his parents and has numerous relatives buried in Catholic cemeteries, and that he is biased in favor of the archdiocese and the trust.

As part of the reorganization plan, the archdiocese is proposing to set aside less than $4 million to compensate 128 of the 575 men and women who filed claims in the bankruptcy alleging they were sexually assaulted as children by priests and other representatives of the archdiocese.

In arguing for some immediate payment of overdue legal fees, lawyer Ken Brown noted that the archdiocese's alternative of paying just once at the end of the case presupposes that its proposed plan will win court approval, which he suggested is far from certain.

The archdiocese filed for protection in bankruptcy court in 2011 after abuse victims began filing fraud claims against it in state court. The bankruptcy suspended those cases.

Entities that resort to the protections of bankruptcy court normally pay for the fees and expenses of not only their own attorneys, but also those for creditors. At Wednesday's hearing, an attorney for the archdiocese, Daryl Diesing, said that even though it now has more money on hand — about $5.3 million — than it had projected, it needed the cushion to get through the coming months of lower revenue, and to pay for notifications if the September mediation succeeds.

Lawyers for the creditors' committee said that, by withholding payments, the archdiocese could be seen as trying to force agreement with an unpopular reorganization plan as a means for the lawyers and other professionals to finally get paid.

Francis LoCoco, another attorney for the archdiocese, told Kelley he took great offense at even the suggestion that he would be a party to trying to coerce an agreement by withholding fees.

Kelley had earlier defended her decision to suspend fees for the 17 months and said she didn't see it as "blackmail" by the archdiocese, but was "just the nature of what this case has been — very expensive, complex and impassioned."

Still, she said, 17 months was long enough for the professionals to go without payment. She ordered the $1.35 million be distributed pro rata to all those who file fee applications by mid-August for services through July. Because the payments will likely work out to less than 20% of billings, she said the fees should be paid based on the application, and that any objections to fees be postponed until later.