Judge denies both Reorganization plans, directs parties to return to mediation

| December 29, 2017 | 9 Comments

The Archdiocese of St. Paul and Minneapolis said a bankruptcy judge’s Dec. 28 decision that the archdiocese should return to mediation with the other involved parties “bolsters our resolve to move forward in the bankruptcy process.”

“We look to engage with all participants in mediation as directed by the judge to bring a prompt and fair resolution,” Tom Abood, chairman of the archdiocese’s reorganization task force, said in the statement.

Judge Robert Kressel denied Dec. 28 two competing plans that attempted to resolve the archdiocese’s bankruptcy. He stated that he expected all of the parties to return to mediation.

In a joint memorandum issued to the archdiocese and the Unsecured Creditors Committee, which includes clergy sexual abuse claimants, Kressel said he expected them “to mediate in good faith and I expect [all parties] to reach a resolution which will result in a consensual plan providing appropriate and timely compensation to those who have suffered sexual abuse at the hands of those employed by or affiliated with the archdiocese.”

Abood said the archdiocese is “guided by [Kressel’s] words from earlier this year, that the longer this process continues, the less money will be available for those who have been harmed.”

He added: “We note and are gratified that Judge Kressel has once again directly dismissed the assertions by creditors’ counsel that the archdiocese has acted or is acting in bad faith regarding the reorganization.”

In the memorandum, Kressel expressed concern about the number of abuse claimants who have died since the archdiocese entered bankruptcy in January 2015, and that others may die as the Reorganizations process “drags on.”

According to Kressel, at least eight claimants have died, “essentially depriving them of meaningful compensation for the pain that they have endured.” He emphasized that the bankruptcy case affects actual people, especially those who suffered abuse and those who have to pay for others’ actions.

“While the creditors committee seeks retribution for the wrongs suffered by victims, none of the people who committed the abuse in the first place or exacerbated it in the second place will suffer,” he wrote. “The financial cost of compensation falls not on any of these people, but a completely different group of people. It falls on current employees, including priests, teachers, coaches, and on retired school librarians and others who have worked for the archdiocese and the parishes and earned a modest retirement. The cost may fall on students at Catholic schools and their parents. It will fall on thousands of parishioners. And the cost will be born by beneficiaries of the charity and other good works by the archdiocese and the parishes.”

Kressel said the archdiocese, victims, parishes and insurers must come to an agreement and “put aside their desire to win, and decide to put together a resolution that is fair to all of the people involved.”

“The committee [of unsecured creditors] must put aside its desire for retribution. After all, whatever else the archdiocese is, it is a corporation. Corporations do not suffer; only people suffer,” he wrote. “The archdiocese must put aside its desire to minimize pain, realizing that the personal pain its employees inflicted upon victims is inevitably going to result in financial pain being suffered by a new generation of parishioners and employees.”

Kressel also said that the parishes in the archdiocese might have an obligation to contribute to a final plan, but not because of a legal requirement.

“The fact that the abuse may not be the legal responsibility of the parishes, which they vociferously argue, is hardly the point, any more than their work to help the hungry and homeless are motivated by legal responsibilities,” he said.

Although more than a dozen insurers reached settlements in the archdiocese’s plan for reorganization, they will also need to return to mediation, Kressel said, “in particular, those that reached settlements with the debtor without the agreement of the creditors committee.”

“While there is nothing nefarious about what they did, those settlements have certainly contributed to the creditors committee’s animosity,” he added.

He added that funds for victims’ compensation could also come from their lawyers. All but 39 of the 453 claimants hired an attorney, he said, and “virtually all of them agreed to pay their lawyers one-third or so of their recovery.” He estimated that the attorneys’ fees could run between $30 million and $40 million or more, depending on the final plan.

The plan proposed by the archdiocese would have provided $156 million to victims of abuse, and it would have protected parishes and several Catholic high schools from further lawsuits from past claims of sexual abuse.

In his order denying the confirmation of the unsecured creditors’ plan, Kressel indicated that the plan had unrealistic expectations for funding sources and would protract the bankruptcy, adding that “reliance on litigation is not a realistic method of repayment to creditors.”

“It is not clear whether the committee’s plan is a plan of reorganization,” he wrote. “It is definitely a plan of future litigation. This future litigation will unnecessarily prolong the bankruptcy case, waste the estate’s resources, and delay payments to creditors, the debtor’s discharge and the successful reorganization of the debtor.”

Both plans were presented to creditors for a vote in March. The majority of clergy sexual abuse claimants voted for the Unsecured Creditors Committee’s plan. The majority of the other creditors voted for the archdiocese’s plan.

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