Bankruptcy Settlement Talks Fail between Milwaukee Archdiocese, Creditors

By Annysa Johnson
Milwaukee Journal Sentinel
September 23, 2014

http://www.jsonline.com/news/religion/no-sex-abuse-settlement-reached-in-archdiocese-bankruptcy-b99357614z1-276771421.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 mediation involving the Catholic Archdiocese of Milwaukee and its creditors — aimed at bringing an end to its nearly 4-year-old bankruptcy — has concluded with no agreement on compensating the church's victims of childhood sexual abuse, the archdiocese said Tuesday.

Lawyers for the archdiocese, its $60 million cemetery trust, its insurance companies, the bankruptcy creditors committee and the largest group of victims met with a mediator in Minnesota on Monday for the second time this month. The latest mediation, requested by the archdiocese, was the third failed attempt at a negotiated settlement since 2010.

The failure means the parties will return to federal court for a new round of costly battles in a bankruptcy case in which legal fees have already topped $13 million.

Among the issues to be decided:

¦Whether U.S. Bankruptcy Judge Susan V. Kelley has the jurisdiction to schedule confirmation hearings on the archdiocese's proposed reorganization plan.

¦Whether forcing the archdiocese to tap its cemetery trust would violate its free exercise of religion under the U.S. Constitution and federal law. That issue is now before the U.S. 7th Circuit Court of Appeals, whose decision could dramatically alter the trajectory of the bankruptcy.

Ralph Anzivino, who teaches bankruptcy law at Marquette University Law School, said he was surprised by the parties' failure to reach an agreement, and predicted the case could drag on for a year or more — unless the 7th Circuit decision brings the sides back to the negotiating table.

"The only way to resolve this now is to litigate it, and it's going to go on and on," he said. "There aren't going to be more breakthroughs until they get more of these (legal) decisions."

Jerry Topczewski, chief of staff for Milwaukee Archbishop Jerome Listecki, declined to comment on the mediation or the reasons for its failure, as did attorneys for the cemetery trust, victims and the creditors committee.

Topczewski said the archdiocese would continue to evaluate its reorganization plan "to see if adjustments can be made to address concerns that have been raised," and look to the courts for decisions that would "keep the Chapter 11 proceeding moving forward."

Peter Isely of the Survivors Network of Those Abused by Priests voiced disappointment in the development.

"Survivors right now are really worn down," said Isely, one of the 575 men and women who filed claims in the bankruptcy alleging they were molested as minors by clergy and others related to the church. "At this point, they're struggling,"

A 'scorched earth' battle

Before entering bankruptcy, the archdiocese paid at least $33 million in settlements, therapy, legal fees and other costs associated with the sex abuse crisis, according to its website.

The archdiocese filed for Chapter 11 in January 2011 in an effort to deal with mounting sex abuse claims, several of which were heading to court and potentially devastating legal judgments.

The filing ignited what one court official called a "scorched earth" legal battle, as the archdiocese moved to throw out all of the sex abuse claims, and the creditors committee — composed of sex abuse survivors, but representing all creditors — pursued church assets.

The archdiocese filed a reorganization plan in February that would set aside less than $4 million to compensate 128 abuse victims — those assaulted by diocesan priests the archdiocese had reason to believe were a danger to children. An additional $4.5 million would go to legal fees, and $500,000 to set up a therapy fund for survivors.

Kelley had scheduled the plan's confirmation hearings for October. But she canceled them after ruling that she lacked jurisdiction to take up the plan — which would also settle the cemetery trust lawsuit — while key issues related to that lawsuit were pending before the 7th Circuit. The archdiocese has appealed Kelley's decision, in hopes of moving ahead with the confirmation hearings, and the jurisdictional issue is now before U.S. District Judge Lynn Adelman.

At issue before the 7th Circuit is whether forcing the archdiocese to tap the trust would violate its free exercise of religion under the First Amendment and the 1993 Religious Freedom Restoration Act.

Kelley had ruled it would not, but she was overturned by U.S. District Judge Rudolph T. Randa, who dismissed the cemetery trust lawsuit on appeal.

A decision by the 7th Circuit affirming Randa could prompt an appeal to the U.S. Supreme Court, or set the parties back on track for hearings on the reorganization plan. A decision overturning Randa could also prompt a Supreme Court appeal, or send the case back to Kelley for a new round of hearings on other issues related to the cemetery trust.