A federal judge has scheduled a Thursday hearing to gauge interest in trying to settle a contentious lawsuit over the Archdiocese of Milwaukee's now $66 million cemetery trust.

The trust is a key element in the archdiocese's plan to emerge from its 4-year-old bankruptcy in that it would be tapped both to compensate clergy sex abuse victims and fund the church's ongoing cemetery operations.

"There's always interest in settling litigation," said attorney Timothy Nixon, who represents Archbishop Jerome Listecki as the sole trustee of the trust. "However, we are just one part of a much larger picture."

James Stang, who represents the creditors committee, declined to say how it would view an offer of mediation. But he did say that any talks on the cemetery trust would likely be a de facto mediation in the bankruptcy case overall.

"The cemetery trust is the main moving part at this point," Stang said. "I can't imagine the parties going into a room to talk about that and not talk about the entire Chapter 11 case."

U.S. District Judge Lynn Adelman called the hearing to inquire whether the parties have any interest in mediation, according to the court record.

If they are, it would be the third attempt at a mediated settlement since January 2011, when the archdiocese filed for Chapter 11 bankruptcy protection to address its sexual abuse liabilities going back decades.

The cemetery trust lawsuit was remanded to Adelman's court in March by the 7th Circuit U.S. Court of Appeals. The appellate court ruled that the archdiocese could not use the First Amendment and a 1993 law aimed at protecting religious liberty to shield the fund, and that U.S. District Judge Rudolph T. Randa — whose decision it overturned — should have disclosed that he has family members in a cemetery maintained with funds from the trust.

The case could ultimately return to U.S. Bankruptcy Judge Susan V. Kelley's court. But the parties are awaiting a decision in a U.S. Supreme Court case that is expected to clarify that procedure.

Meanwhile, the bankruptcy case is proceeding in Kelley's court. On Friday, the archdiocese filed motions seeking to keep two other pools of money from being tapped for the bankruptcy: $459,388 received as charitable gift annuities and a $2 million account that funds continued religious training for priests, deacons and parish directors.

Single largest asset

The cemetery trust is the single largest asset currently in play in the archdiocese's bankruptcy. And it is a linchpin of the church's revised reorganization plan, which is expected to be filed this summer.

Under the original plan, the archdiocese would set aside under $4 million to compensate 128 sex abuse victims — only those assaulted by diocesan priests. It would create a $500,000 therapy fund and pay the balance of its legal fees, which have totaled $16 million to $20-plus million, depending on who's counting.

More than 400 others who filed sex abuse claims, alleging abuse by religious order priests and nuns, teachers and others the archdiocese does not consider its direct employees, would receive no financial compensation.

The reorganization plan would be financed with a $10.3 million payment by its insurance carriers and a $2 million loan from the cemetery trust. Victims have called that inadequate and insulting.

The archdiocese told Kelley last week that it expects to increase the amount of the money the trust will pay into the plan, but did not specify how much.

The trust would also pay about $2 million annually to the archdiocese to offset the cost of caring for its eight cemeteries.

Trust created in 2007

Then-Milwaukee Archbishop Timothy Dolan created the Catholic Cemetery Perpetual Care Trust in 2007, and in 2008 transferred nearly $57 million into it with the approval of the Vatican and his local finance board. Dolan, now cardinal of New York, had sought Vatican approval, saying the move would provide "an improved protection of these funds from any legal claim or liability."

The archdiocese maintains that the funds were always held "in trust" for the care of the archdiocese's cemeteries, and that this new instrument merely formalized that arrangement.

Listecki sued the creditors committee, seeking a ruling that the trust was not an asset of the archdiocese and was off limits for any sexual abuse settlement.

The committee, which is composed of abuse victims but represents all creditors in the bankruptcy, countersued, calling Dolan's action a fraudulent transfer barred by law.

That ultimately led to the appellate court ruling, considered a big win for the creditors.

Kelley has scheduled a November hearing on the new reorganization plan. But other legal battles loom before it 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.