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Longest Running Catholic Archdiocese Chapter 11 Case Finally Ends

posted by Pamela Foohey

The Archdiocese of Milwaukee filed its chapter 11 petition on January 4, 2011. Yesterday, four years and ten months later, Bankruptcy Judge Susan Kelley confirmed the dioceses' reorganization plan. During those four plus years, the most contentious issue regarded a $55 million trust fund established rather suspiciously prior to filing to care for a cemetery. The parties were sent to mediation repeatedly, but the cemetery issue seemed to remain the hold up -- until the 7th Circuit ruled that the cemetery trust fund was not shielded from the Code's avoidance provisions by the Religious Freedom Restoration Act. After the 7th Circuit's ruling, the archdiocese revised its plan to distribute $21 million in total to sex abuse claimants. $16 million is coming from that cemetery trust fund. 

In comparison, the archdiocese's initial plan proposed to distribute $4 million in total to these claimants. The $21 million primarily will be split among 355 people. Though it is difficult to compare settlement amounts across diocese chapter 11 cases because of unknowns about abuse severity, state laws that apply to the underlying claims, and available insurance monies and other assets, the $21 million still makes Milwaukee's settlement one of the smallest based on the number of people to receive compensation.

In other cases, such as the Archdioceses of Portland, Tucson, and Wilmington (DE), a simple division of the amount to be paid to abuse claimants via the plans by the number of such claimants shows that abuse claimants received, on average, well over six figures each -- anywhere from $225,000 to $700,000. (Of course, all of these plans award claimants money based on factors in each claimant's particular case.) During yesterday's confirmation hearing Judge Kelley allowed claimants to make statements on the record. None who spoke made legal objections to the plan, and the attorney for the unsecured creditors' committee also did not object. This truly seems to be the end.   

The broader impact of this case I think is unclear. The productive negotiations that were apparent in other archdiocese chapter 11 cases obviously broke down here. And I don't think it's a stretch to say that they broke down here because of the cemetery trust fund. Will the fact that what seems to be pre-bankruptcy planning resulted in a very long, very expensive chapter 11 cases dissuade other dioceses from filing in the future? Indeed, Milwaukee's case cost a total of $20 million in debtor and committee attorneys' fees and expenses. Are other dioceses planning to file and waiting to see what happened here or for other reasons, possibly having to do with their own pre-bankruptcy planning? Or have most of the dioceses that could have used chapter 11 resolved their issues such that reorganization will not be the solution? Regardless, the Archdiocese of Milwaukee's case likely will remain my go-to example of how negotiations in chapter 11 can break down and become very, very costly. 

Comments

Lawyers. Law. Yin yang. Bad. Worse. Miasma and unfathomable for john q public. And for me.

Lost in all the bitterness some displayed over the confirmed plan (someone should have told the abuse victims that unsecured creditors rarely come away with 100% in the best of circumstances) is the fine job the bankruptcy judge did with this case. Large chapter 11 cases are always hard on the judge, and this one had an emotional component that made it even harder. The WSJ reported that at the confirmation hearing Judge Kelley said ("with tears in her eyes"): "'I did the best I could.'" She did very well indeed. But then nobody watching the game ever notices the referee, not if the ref's done his job right anyway. Well done, Judge Kelley.

True. Nobody notices good trial judging. But everybody noticed Judge Renda.

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