Diocese Paid $15.8 Million in Bankruptcy Fees

By Beth Miller
New Journal
August 14, 2014

http://www.delawareonline.com/story/news/local/2014/08/13/wilmington-diocese-paid-almost-m-bankruptcy-fees-sex-abuse-scandal/14035217/

Francis DeLuca

The Catholic Diocese of Wilmington paid $15.8 million in fees and expenses to lawyers, financial advisers and other professionals involved in its 2011 bankruptcy, according to its final report filed in U.S. Bankruptcy Court this week.

As other dioceses have done around the nation, the Diocese of Wilmington sought Chapter 11 protection in 2009 after a flood of civil lawsuits were filed by survivors of clergy sexual abuse under provisions of Delaware's 2007 Child Victim's Act.

The 2007 law opened a two-year window for child sexual abuse cases that would otherwise have been barred by the statute of limitations.

The diocese emerged from bankruptcy in 2011, paying $77.4 million into a trust fund to resolve all claims by abuse survivors and another $10 million into a pension fund for lay employees that was found to be underfunded during financial disclosures.

Several religious orders throughout the diocese – the Oblates of St. Francis de Sales, the Brothers of the Holy Cross, the Capuchins – also settled cases by adding to the trust fund, which eventually totaled about $110 million.

Attorneys for the 152 survivors got about 30 percent of that settlement money, with the rest distributed to survivors.

The final filing in the bankruptcy case revealed $15.8 million in administrative costs – a total diocese attorney Anthony Flynn said was the third highest of about 10 diocesan bankruptcies nationwide. Flynn's firm, Young Conaway Stargatt & Taylor, got about $6.2 million of the total.

"The cost is extremely high," Flynn said. "However you slice it, it was an extremely expensive process. But it was the only process we could use to make sure whatever assets were available could be apportioned among the survivor claimants."

Wilmington attorney Tom Neuberger, whose firm represented 99 of the 152 claimants, disagreed sharply, saying all of the "outrageous" bankruptcy costs could have been saved and distributed to survivors and lay employees' pension funds if the diocese had agreed to appropriate settlement amounts in mediation.

But the diocese filed for Chapter 11 protection in Oct. 2009, the day before a series of eight trials was to begin – all related to abuse by former priest Francis DeLuca. Mediation had failed.

"We were ready to go to trial and all the dirty linen was going to come out," said Neuberger. "The diocese played this game instead of trying to negotiate settlements. Another $15 million would have been available – but all of this was wasted. The diocese was not interested in mediating for fair value."

Flynn said if that series of DeLuca cases had gone to trial, the diocese would have run out of money quickly and the first person to get a verdict would have received a disproportionate share of the diocese's available assets. Indeed, the first award in that DeLuca series produced a $3 million verdict.

Attorneys' fees and expenses accounted for about $12.3 million of the $15.8 million administrative total, with the rest going to financial advisers, consultants, accountants, a pension specialist and the U.S. Trustee.

In addition to the diocese attorneys' $6.2 million in fees and expenses, Pachulski Stang Ziehl & Jones got almost $4.9 million for representing the survivors' committee. Attorneys representing lay employees in the pension issue got just under $1 million.

In all, six law firms were involved, two financial consultant firms, three sets of accounting firms, a pension specialist, a fee examiner and the U.S. Trustee.

"However costly it was," Flynn said, "it was successful in the sense that survivors got their compensation, the assets that were available were fairly apportioned among all the people, the diocese survived, and the parishes. None had to be closed. If those are the measures of success, those were achieved – at a high price."