Diocese Bankruptcy Hits a Snag

By Elizabeth Hardin-Burrola
Gallup Independent
December 13, 2016

http://gallupindependent.com/

U.S. Bankruptcy Judge David T. Thuma spent nearly an hour listening to and sorting through the legal arguments of two Arizona attorneys — opposing lawyers in a clergy sexual abuse lawsuit — in an effort to resolve a legal dispute that has stalled the Diocese of Gallup’s exit from bankruptcy court during a hearing Monday.

The dispute centers on a lawsuit Phoenix attorney Robert E. Pastor filed in 2015 in Arizona’s Coconino County Superior Court. Pastor represents a Navajo woman who said she was sexually molested as a child by Brother Mark Schornack, a Franciscan brother who allegedly abused her during his employment as a school bus driver and maintenance man at St. Michael Indian School in St. Michaels, Arizona. Schornack, a former resident of Little Sisters of the Poor in Gallup, died in 2012.

St. Michael Indian School and the Sisters of the Blessed Sacrament, the founders of the school, are named as defendants in the lawsuit. The Diocese of Gallup and the Franciscans were also previously named as defendants, but because they were participating parties that contributed funding toward the Gallup Diocese’s Chapter 11 settlement agreement with sex abuse claimants, they were removed as defendants and are now protected parties with no legal liability in the case.

St. Michael Indian School and the Sisters of the Blessed Sacrament were not participating parties and did not contribute any funding toward the settlement; therefore, they are not protected parties under the plan of reorganization.

The lawsuit became a matter of concern in U.S. Bankruptcy Court because the Sisters filed a claim against the Diocese of Gallup while the diocese was concluding its Chapter 11 reorganization case. Attorneys for the diocese have objected to the Sisters’ claim because it was not filed in a timely manner and because, they assert, it is disallowed under the Bankruptcy Code.

Scott B. Cohen, the Sisters’ Phoenix attorney, has said the Sisters did not know of the Diocese of Gallup’s bankruptcy case until Dec. 4, 2015, more than two years after the diocese filed its Chapter 11 petition Nov. 12, 2013.

In contrast, diocesan attorneys have stated the Sisters were sent legal notices regarding the bankruptcy since November 2013. In addition, throughout the case, the Sisters’ lack of participation in the mediation and settlement process has been noted in bankruptcy court documents.

Liability arguments

During Monday’s hearing, Susan Boswell, the lead bankruptcy attorney for the Diocese of Gallup, expressed frustration that the Sisters’ claim is “the only thing that’s keeping this case open.” Boswell, who told the judge the matter was costing the diocese money for U.S. Trustee fees, as well as for professional fees, requested Thuma enter an order and disallow the Sisters’ claim so the case could be closed.

“If somebody wants to keep this case open because they think that they need the assistance of this court for interpretation of the plan,” Boswell added, “I’d be happy to do that provided they also paid the costs of keeping this case open.”

Much of the hearing was devoted to Pastor’s and Cohen’s opposing interpretations of the language in Pastor’s lawsuit regarding various legal definitions of liability. Noting the Diocese of Gallup and the Franciscans have been dropped as defendants, Cohen argued, “But despite the dismissal of these two protected parties … the plaintiff still attempts to hold the Sisters liable for the alleged wrongdoing of others, including these protected parties.”

In particular, Cohen said Pastor and his client were trying to hold the Sisters liable for the actions of Schornack’s religious order at the time of the alleged abuse, the Franciscan Province of St. John the Baptist, one of the protected parties in the plan of reorganization.

Pastor disputed that assertion. “It’s only an attempt to hold the Sisters and the school liable for the bad acts of its employee, Brother Mark Schornack,” he said.

In a document filed in U.S. Bankruptcy Court Nov. 28, Pastor said Schornack had been a patient at Via Coeli, the notorious clergy treatment center once operated in Jemez Springs by the Servants of the Paraclete. In their comments to the court Monday, both Cohen and Pastor indicated it was likely the Franciscan Province of St. John the Baptist withheld information regarding Schornack’s history from the Sisters.

Through questioning both attorneys, Thuma managed to sift through their arguments and finally solicit some common agreement around the legal concept of comparative fault, where the Sisters would only be held liable for what a jury decided was their fault.

“Isn’t that a way to do this that is consistent with the confirmation order and consistent with what Mr. Pastor’s client’s rights still are?” Thuma asked.

The judge requested Cohen and Pastor submit proposed language within 10 days that he could enter into an order that would be helpful to the Arizona state court judge assigned to Pastor’s lawsuit against the Sisters.

Thuma concluded the hearing by approving two requests from Boswell, the attorney for the Diocese of Gallup. Boswell asked for an order disallowing the claim by the Sisters, and she asked to be allowed to file a motion for a final decree, which will move the diocese a step closer to having its bankruptcy case closed.