Lack of settlement in Diocese case frustrates judge Thuma warns he may remand abuse cases back to state court By Elizabeth Hardin-Burrola Gallup Independent correspondent religion@gallupindependent.com Oct. 17, 2015 ALBUQUERQUE – As the Diocese of Gallup’s Chapter 11 case nears its second year in bankruptcy court, U.S. Bankruptcy Judge David T. Thuma expressed frustration that the case has yet to be settled. “I’m trying to figure out the best way to get this case resolved,” Thuma told nearly a dozen attorneys during a court hearing Thursday. “I’m not sure it’s anybody’s fault, but we’re here two years in the case and we don’t have a settlement, and the parties are very much at odds at the moment.” Attorneys for the Gallup Diocese requested the hearing Thursday to address an emergency motion to continue a final hearing slated for Nov. 10. That final hearing, which was also referred to as a trial, centered on motions to lift the bankruptcy case’s automatic stay that prohibits civil lawsuits against the diocese from moving forward. Phoenix attorney Robert E. Pastor, who represents 18 clergy sex abuse claimants in the case, had filed the lift stay motions. Prior to the Diocese of Gallup filing its Chapter 11 petition, Pastor had filed 13 clergy sex abuse lawsuits against the diocese in Flagstaff’s Coconino County Superior Court. With the lift stay motions, Pastor was requesting Thuma to allow two or three of his lawsuits to be remanded back to state court for trial. The Official Committee of Unsecured Creditors, which advocates on behalf of the interests of clergy sex abuse claimants, is supportive of Pastor’s efforts. Both Pastor and attorneys for the committee have argued that trying the cases before a Flagstaff jury will “educate” the diocese and its insurance companies about the value of the claims. “If I believed that letting these cases go forward would prompt settlement, I wouldn’t be standing in front of you,” Susan Boswell, the lead bankruptcy attorney for the diocese, told Thuma. Boswell said the Gallup Diocese had an obligation to oppose lifting the stays because diocesan officials believe there would be a detrimental impact to the estate as a whole, including to all the claimants and other creditors. Settlement roadblocks During the hearing, Thuma heard opposing statements from Boswell, Pastor and Ilan Scharf, an attorney for the committee, about discovery requests concerning documents and depositions of witnesses related to the lift stay final hearing on Nov. 10. Thuma, however, seemed more interested in the larger picture of what roadblocks were continuing to impede a settlement among the various parties. Throughout the hearing, the judge asked a number of questions of the attorneys, particularly questions about negotiations with insurance companies. According to Boswell, the diocese had no insurance coverage before 1965. From 1965 until Dec. 1, 1977, the diocese was covered by a company that later went into receivership. Claims under that company are now covered by the New Mexico Property Casualty Insurance Guaranty Fund. And since Dec. 1, 1977, the diocese has been covered by insurance from Catholic Mutual. Boswell told Thuma the diocese was attempting to resolve a dispute with the New Mexico Guaranty Fund over insurance coverage. However, the possibility of filing a declaratory judgment action against the Fund was still a possibility. Thuma questioned why the three cases named in Pastor’s lift stay motions include one claim that is not covered by insurance and two claims that are under the limited coverage of the New Mexico Guaranty Fund. He expressed reluctance to allow Pastor’s first case, which was four months away from trial when the Gallup Diocese filed its Chapter 11 petition, to be the “test case” since it is the claim not covered by insurance. Scharf explained the case involved a perpetrator who abused many claimants, and the other two cases were representative claims with respect to particular abusers or co-defendants. Warning to attorneys At the hearing’s conclusion, Thuma agreed to the diocese’s request to grant a continuance on the final hearing on the stay relief motions. In its place he scheduled a status conference Nov. 10. Because another session of formal mediation talks is scheduled for Dec. 3-4, and both Boswell and Scharf agreed that informal mediation discussions continue to be ongoing, Thuma stressed the importance of achieving a settlement of the case by the end of the year. If that doesn’t happen, Thuma warned the attorneys, he will consider granting stay relief for two cases — but two cases with insurance coverage — so the diocese’s estate won’t be burdened with the defense costs. “What I want to do is to have a status conference shortly after mediation, and if the thing isn’t moving toward settlement, I want Mr. Pastor and the committee to go through their list of claims and tell me which claims against New Mexico Guaranty or Catholic Mutual can get teed-up the quickest,” Thuma said. “And I’m inclined to grant stay relief just to try it out … I’m ready to try something if we’re not palpably closer to settlement in December than we are today.” “There’s so much very expensive litigation we can do in this case before the net recovery to the abuse victims is zero,” Thuma said. “Everyone needs to think about that a little bit harder than they have been because you’re not doing a service to your clients if that’s your result.”

.