Bankruptcy Judge Sets November Hearing on Archdiocese Reorganization

By Annysa Johnson
Milwaukee Journal Sentinel
May 7, 2015

http://www.jsonline.com/news/religion/bankruptcy-judge-sets-november-hearing-on-archdiocese-reorganization-b99495533z1-302845321.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 2011. As the case proceeds, we'll have updates, analysis, documents and more.

The judge in the Archdiocese of Milwaukee bankruptcy has scheduled a November hearing on the church's reorganization plan, now being revised, that if approved would allow it to emerge from its 4-year-old bankruptcy.

Attorneys for the archdiocese told U.S. Bankruptcy Judge Susan V. Kelley that the church will be putting more money from its disputed now $66 million cemetery trust into the bankruptcy estate in response to a recent decision by the 7th Circuit U.S. Court of Appeals.

They did not specify a dollar figure or say how much would go to attorneys vs. victims of clergy sexual abuse.

Other legal battles loom before any reorganization plan can be approved. Among them: whether Kelley has jurisdiction to grant parishes a blanket protection against future lawsuits — a key provision of the archdiocese's plan — and whether the archdiocese must provide its creditors committee with additional documents involving the cemetery trust.

"Is there any middle ground here?" a clearly frustrated Kelley asked the nearly 20 attorneys assembled, some by telephone, for a contentious status hearing on Wednesday. "We need to move this case forward," she said.

The Archdiocese of Milwaukee filed for Chapter 11 bankruptcy protection in January 2011 to address its sexual abuse liabilities dating back decades.

Legal fees in the case now total $16 million to $20-plus million, depending on who's counting. And they continue to mount, with several attorneys filing requests to increase their fees in recent months.

Jerry Topczewski, chief of staff for Milwaukee Archbishop Jerome Listecki, lauded Kelley for scheduling the hearing before the end of the year, saying church resources are limited and "the more money spent on lawyers, the less money that is available to survivors."

Creditors committee attorney James Stang said he has no problem with the November date, as long as the archdiocese complies with the committee's requests for additional documents related to a pending lawsuit over the cemetery trust.

"If the archdiocese cooperates, we could be ready in November," he said. "But if it continues this scorched-earth policy of denying that information, we hope the judge will move that process along."

Archdiocese attorney Frank LoCoco told Kelley on Wednesday that the church has provided documents but that some are "privileged."

Wednesday's hearing was the first since early March when the 7th Circuit U.S. Court of Appeals ruled that the archdiocese could not use the First Amendment or a federal law aimed at protecting religious liberty to shield the cemetery trust funds. That lawsuit now returns to Kelley's court.

The resolution of the cemetery trust litigation is a key element of the archdiocese's reorganization plan, which was first proposed in February 2014 and is now being revised.

The original plan called for the archdiocese to set aside just under $4 million to compensate 128 sex abuse victims of diocesan priests. It would be funded with $10.3 million in payments from its insurance carriers. They would in return get a waiver of legal liability from future lawsuits against some 200 Catholic entities including local parishes and schools. Insurers have made it clear that they would not fund the settlement without those waivers.

The creditors committee said it needs the additional church documents to prove its allegation that the 2008 transfer of then $57 million into the newly created trust was a fraudulent conveyance prohibited by law. As part of the reorganization plan, Kelley would have to determine the reasonableness of the cemetery trust settlement based in part on whether the committee would prevail on that argument.

The archdiocese has maintained that the funds were always held "in trust," but that the new instrument merely formalized that arrangement.

The creditors committee also argued Wednesday that Kelley lacks the jurisdiction to grant the broad waiver of liability sought by the archdiocese for its parishes and other entities.

Kelley appeared to agree, at least in cases where the victim's allegations aren't covered by the church's insurance policies.

"I just don't have the power to do that," Kelley said. "It's not related to the bankruptcy, and the parishes are not in bankruptcy," she said.