A multimillion-dollar lawsuit pitting the Catholic Diocese of Spokane against the lawyers entrusted to shepherd it through its 2004 bankruptcy is set for a February trial.

Bishop Blase Cupich quit using the legal team at the Paine Hamblen law firm after he arrived in 2010. He has since directed a malpractice complaint that accuses the firm – and specifically attorneys Shaun Cross and Greg Arpin – of failing to use a strategy that could have saved the diocese millions of dollars and prevented a new round of priest sex-abuse claims from continuing to threaten Eastern Washington parishes.

Those claims reached 230 in the past year, according to court documents, and bring urgency to the dispute.

That’s more than double the number of victims who came forward during the initial phase of the bankruptcy. More importantly, in terms of the malpractice suit, the number of so-called “future claims” vastly outstripped what the diocese’s lawyers made accommodations for in the original settlement.

Those new claims could have plunged the diocese back into bankruptcy with little hope of marshaling enough support and cash to continue the Church’s current ministry, according to people involved in the legal actions.

During the past several months, however, more than 150 of those 230 people who filed future claims had their cases rejected by a former federal judge tasked with reviewing the claims and awarding payouts. Many of those people alleged they were abused by Jesuit priests at a Catholic boarding school in Omak, not by Spokane diocese priests, according to reports and people familiar with the issue.

About two dozen more of those claims were settled as part of a larger deal with the Morning Star Boys Ranch.

Court records disclose that at least three other claims were settled separately, including $400,000 to one man.

Details of the claims – including the allegations and payouts – are kept secret from the public by a court order. Some of those details, however, are trickling out as the malpractice suit unfolds.

Bishop Cupich declined to be interviewed about the case against Paine Hamblen.

Jane Brown, Paine Hamblen’s managing partner, said on behalf of Cross and Arpin that the two lawyers and the firm stand by their work.

Cupich is pressing a conflict-of-interest claim against Paine Hamblen for representing the diocese during its bankruptcy while the firm also defended former Bishop William Skylstad against claims of negligence and covering up decades of sex abuse by now-defrocked priest Patrick O’Donnell.

Skylstad never had to testify in front of a judge or jury about his tenure 40 years ago as a priest at North Spokane’s Assumption Parish, where O’Donnell admitted to molesting scores of boys – in large part because Paine Hamblen helped the diocese file for bankruptcy days before the first trial.

Paine Hamblen investigated the earliest claims – including 19 lawsuits – in the years before the bankruptcy, and even held mock trials to assess possible jury verdicts and awards.

Cross, the Paine Hamblen attorney who led the diocese bankruptcy case, said in a deposition the diocese faced in excess of $100 million in potential judgments. It made bankruptcy the best alternative for the diocese, which had about $10 million in assets.

He called the sex abuse crisis “a disaster.”

The diocese bankruptcy eventually drew about 180 claims of clergy sex abuse. It took several years of difficult negotiating and lawyering to finally pool together $48 million to settle those cases and pay the lawyers.

“Our sole, laser focus from an ethical standpoint was the Catholic Bishop of Spokane … we crawled over broken glass to help that client survive,” Cross said in a deposition.

The bankruptcy settlement, however, left open what Paine Hamblen and the diocese considered at the time to be a very narrow possibility of new claims. In fact, worries that significant new claims would be filed were so minor that the diocese set aside just $1 million to pay for them. If enough future claims arose to drain that fund, the diocese would have to raise more money or foreclose on parish properties, including the Cathedral or Our Lady of Lordes in downtown Spokane and several other large parishes.

Instead, that narrow possibility has been converted into an opportunity that has left the diocese scrambling once again to cope with sex abuse claims and parishes concerned about the possibility of paying more cash for settlements or property foreclosures, according to court documents.

Cupich said in court documents that Paine Hamblen failed to adequately address that risk, even though a study estimated the diocese could have between $8 million and $20 million in future claims exposure.

Albert Kennedy, a bankruptcy lawyer and expert witness for Cupich with experience in other Catholic bankruptcy cases, said Paine Hamblen should have offered the diocese an alternative to the mediated settlement that could have closed off the possibility of “future claims.” Called a “cramdown,” the strategy basically means pushing through a bankruptcy settlement, even over the objection of creditors.

“It is my opinion that Paine Hamblen LLP … did not exercise the degree of care, skill, diligence and knowledge commonly possessed and exercised by a reasonable, careful, and prudent bankruptcy lawyer in the Pacific Northwest,” Kennedy wrote in a court document.

But Ralph Cromwell, an attorney representing Paine Hamblen, said a cramdown would have been expensive to push through and would have violated a central tenet of Bishop Skylstad’s dual mission of reconciliation with sex abuse victims and preservation of the Catholic ministry in Eastern Washington.

As the case unfolds, Cupich announced a shakeup of his own diocese administrative team.

The Rev. Steve Dublinski, who served as Skylstad’s adviser during the bankruptcy and was involved in many of the strategies and decisions made at that time, resigned as vicar general last month.

Dublinski likely will be questioned by lawyers regarding his recollections and opinion of how the bankruptcy was handled.

In a letter Dublinski wrote to Cupich and then circulated to confidantes, he noted, “over the past couple of years, some differences regarding several policies have arisen between us and they have proven to be irreconcilable.”

He declined an interview request.

Cupich offered effusive praise for Dublinski in a letter published Thursday in the Catholic newspaper, the Inland Register.

“Father Dublinski served the diocese as Vicar General with great wisdom and charity during very difficult and demanding times,” Cupich wrote.

Dublinski will remain with the diocese as pastor of St. Augustine Parish in Spokane.

In the reorganization, the position was split. The Rev. Michael Savelesky is the new Vicar General for Internal Matters, and the Rev. Patrick Kerst is the Vicar General for External Matters.