ROCHESTER (NY)
Rochester Beacon [Rochester NY]
July 23, 2024
By Will Astor
Abuse survivors have overwhelmingly approved the Roman Catholic Diocese of Rochester’s plan of reorganization and just as overwhelmingly rejected the Continental Insurance Co.’s rival plan.
Adoption of a single plan could be a precursor to a resolution of the now nearly five-year-old case. But obstacles could still stand in the way.
In a final tabulation of the vote, 439 claimants in the bankruptcy voted to approve the diocese plan, which was jointly filed with an official committee representing survivors in the Chapter 11 case. Seventy-four claimants voted for the Continental plan.
Creditors’ approval of a plan of reorganization often opens the door to a final settlement in Chapter 11 cases. But where this vote leaves the Rochester diocese’s bankruptcy is not clear.
The case dates to September 2019 when the diocese, facing a virtually certain likelihood of being sued by hundreds of sexual assault survivors, asked for court protection.
The filing came a month after the New York Child Victims Act took effect.
The CVA opened a two-year window for people who had been molested as children to pursue perpetrators who otherwise would have been protected by a statute of limitations. Four hundred eighty-five individuals who say they were molested by priests and other church officials have filed claims in the diocese bankruptcy.
The case plodded through the court as the diocese, insurance carriers that the diocese hoped would cover much of its liability, and the survivors committee wrangled over who might pay what portion of a final settlement that was expected to top $100 million.
The settlement outlined in the diocese plan would total at least $127.3 million and could finally pay out millions more.
While the case has dragged on, the diocese has spent $14 million to pay lawyers, accountants and consultants working on the case. Those costs, which come on top of any final settlement, continue to mount in six-figure sums monthly.
Bankruptcy Judge Paul Warren has scheduled an early September hearing to consider the reorganization plan. But the U.S. Supreme Court’s ruling in Harrington v. Purdue Pharma LLP puts an obstacle in the way of the judge signing off on the diocese plan. The Purdue decision, wrote Warren in a recent filing, “casts a monumental shadow on these proceedings.”
In the Purdue Pharma case, the high court declared that bankruptcy judges cannot excuse so-called related third parties involved in bankruptcies from future liabilities.
The diocese plan calls for the diocese and its 86 parishes to jointly contribute $55 million to a fund to pay abuse survivors and in exchange be released from future liability. But since Catholic parishes in New York are registered as corporations legally separate from their parent dioceses, for bankruptcy purposes, they are related third parties.
Warren, CNA lawyers, attorneys representing the survivors committee and the diocese’s bankruptcy lawyers were to have conferred in a July 19 session to discuss how the reorganization plan as currently written might be squared with high court’s Purdue Pharma ruling. No fix has yet been announced,
A possible solution could be to have survivors agree to give up any claim they would have had on funds the parishes were to have contributed. How that might affect the $15 million amount the plan currently pledges as the parishes’ contribution is not clear.
Another possible obstacle to the bankruptcy’s resolution is an upcoming Bankruptcy Court trial in which CNA is suing the diocese over an alleged contract breach.
CNA, which is responsible for paying more than half of the diocese’s abuse-survivor claims, was the lone holdout in a deal reached among the diocese, the survivors committee and other insurers last year that set the contributions outlined in the diocese plan.
The plan calls for several of the diocese’s insurance carriers to jointly contribute $72.3 million to the fund to the survivor-compensation fund and in exchange be excused from future liability. In a provision that could see CNA tied up in multiple costly legal battles, the plan would allow survivors to individually sue CNA in state court.
The rejected CNA reorganization plan mirrored the diocese plan but proposed to add a $75 million CNA contribution that would have excused CNA from future liability.
In an earlier settlement deal worked out between the diocese and CNA, insurer and the diocese had CNA contribute $63.5 million as its share of survivors’ compensation.
Complaining that the $63.5 million amount was insufficient and that survivors were not consulted in negotiations to reach the deal, the survivors committee rejected the settlement, causing the diocese to withdraw from the settlement proposal.
The committee later characterized CNA’s $75 million as paltry, complaining that on a per-survivor basis it fell far short of what other insurers agreed to pay.
In the Bankruptcy Court action, CNA claims that in pulling out of the $63.5 million deal, the diocese breached a contract and thus owes CNA an unstated sum as compensation for time it spent and money it laid out to come up with the offer.
If CNA were to win substantial damages from the diocese, it could upend any settlement. The trial is scheduled to begin July 29.
In the meantime, Warren not for the first time is urging the parties to make every effort to come to terms.
“It is the Court’s expectation that the parties participating in the mediation will make a herculean effort to settle their differences and reach a global settlement,” the judge wrote in a July 3 order.
Will Astor is Rochester Beacon senior writer. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to Letters@RochesterBeacon.com.