Rochester Beacon [Rochester NY]
April 18, 2022
By Will Astor
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Known as adversarial proceedings or APs for short, such trials look to have a bankruptcy judge resolve differences between parties in a case. Parties not satisfied with a bankruptcy judge’s ruling can appeal the ruling to a federal district court.
As the Rochester Beacon previously reported, the expiration of a Bankruptcy Court stipulation putting the state court sexual-abuse claims against the church on hold came after one of the two parties who struck an agreement some two years ago to halt the state court cases declined to renew the pact.
Previously, parties to that pact—the bankruptcy’s official creditors committee and the diocese—had renewed the March 2020 agreement 11 times. Late last month, one party balked.
Creditors committees are appointed by the U.S. Trustee in Chapter 11 cases to represent interests of cases’ largest stakeholders. Typically, they are made up of large lenders and other parties with a significant financial state in the bankruptcy. In the diocese bankruptcy, the 12-member creditors committee is entirely made up of abuse survivors.
In an April 6 court filing seeking to reinstate the freeze, the diocese puts the blame for the pact’s expiration entirely on the creditors committee.
“This action has been commenced solely because of the (creditors) committee’s refusal to agree to extend the stipulation and order while negotiations and mediation in this Chapter 11 Case are ongoing,” the diocese’s complaint states.
In previous interviews, creditors committee chair James Cali had expressed his own and other abuse survivors’ growing frustration with an apparent lack of progress in a now nearly three-year-old mediation between the diocese and insurance companies it hopes will bear most of a settlement’s cost.
Last July, the diocese announced an agreement that would have seen some insurers kick in $35 million toward a settlement. The creditors committee rejected the deal as woefully inadequate. The amount would be insufficient to satisfy claims of the 485 abuse survivors seeking compensation in the bankruptcy and could be financially ruinous for the diocese, creditors committee attorney Ilan Scharf maintained in an interview at the time.
The sudden reactivation of state-court claims against parishes adds several levels of complication to the bankruptcy.
The pact’s midnight March 23 expiration started a 45-day countdown for parishes, church officials and other diocese affiliates to start defending themselves against an untold number of previously filed state-court abuse claims.
The 2020 stipulation lists 226 parishes across a 12-county span as parties that could be targeted by sex-abuse claims in state court. It also names Catholic Charities of Rochester and Catholic Charities’ Catholic Youth organization as potentially affected organizations.
The diocese’s April 6 complaint lists 86 parishes along with Matano and other unspecified diocese affiliates as parties that would be pulled into state court if the cases are allowed to proceed. The parish total includes those that have been merged into other parishes, the filing states.
Arguing in the complaint that letting the state court cases be revived would add costs and confusion to its already costly bankruptcy, the diocese asks for Bankruptcy Judge Paul Warren to issue an order putting the revived state court cases back to sleep.
Stating that it lacked assets to settle what could amount to $100 million or more in claims, the Rochester diocese filed its September 2019 Chapter 11 petition one month after the New York Child Victims Act went into effect.
The CVA opened a temporary window for adults alleging that they had been sexually molested decades ago to file complaints against their alleged abusers. Such complaints otherwise would be barred by a seven-year statute of limitations on sex-abuse crimes.
In asking for court protection, the diocese also sought to avoid the possibility of having to separately defend itself against hundreds of individual abuse claims.
In standing orders known as automatic stays, bankruptcies normally halt all court actions against debtors like the Rochester diocese. Such stays are meant to give debtors breathing space to work out a reorganization plan or a plan to liquidate assets.
The diocese bankruptcy halted abuse claims filed against the diocese itself. But because of how the church chose to legally organize itself in New York, parishes are not affected by the diocese’s stay.
In New York, the church legally incorporated diocesan parishes and other diocese affiliates as separate entities. That separation serves to protect assets held by parishes from being used to settle the diocese’s bankruptcy. But it also means the diocese’s automatic stay provides no shield against legal claims against parishes.
The state’s Catholic parishes’ legal status contrasts with diocese’s status under Canon Law, the church’s own legal code. Canon Law puts parishes and other diocese affiliates firmly under the control of a diocese’s bishop. To reconcile that discrepancy, Matano and other New York Catholic Bishops are appointed as presidents of each parish under their diocese’s control.
Part of the reason the diocese wants to keep its parishes out of state court is to avoid what promises to be a messy process of providing documents and records in discovery to plaintiffs’ attorneys in each of the dozens of reawakened cases.
“Litigating the CVA Cases during this critical stage of the Chapter 11 Case will be burdensome and time consuming and will disrupt and delay the ongoing mediation and negotiations toward a plan of reorganization for the Diocese, to the detriment of all creditors,” the filing asserts.
Under an arrangement called the Protected Self Insurance Program or PSIP, the diocese’s insurers would also responsible for damages the diocese or related parties might incur, the April 6 filing explains.
If the state court cases were to resume, argues the diocese’s chief bankruptcy lawyer Stephen Donato in the April 6 filing, “the Diocese will be required to expend time and money responding to the CVA Cases both in its capacity as the insurance coordinator for the PSIP and simply to protect the Diocese’s own legal interests which could be jeopardized by the CVA cases.”
As of Jan. 31, the diocese had spent $6 million to pay lawyers, accountants and consultants working on the bankruptcy, a court filing shows. The case’s expenses mount by six figures every month.
Two days after the pact freezing state-court claims expired, Idaho attorney Leander James, who represents more than 40 abuse survivors in the bankruptcy and in state court claims, sent letters apprising an attorney representing area Catholic parishes of the revived deadline for answering state court complaints.
“The ball is now in the parishes’ court,” James told the Rochester Beacon then.
James says he is currently declining comment on the April 6 complaint, but he and other plaintiffs’ attorneys plan to submit a written response to the Bankruptcy Court within the next week.
Will Astor is Rochester Beacon senior writer. The Beacon welcomes comments from readers who adhere to our comment policy including use of their full, real name.