Bankruptcy judge: Creditors committee can’t sue parishes, schools for transferred funds

| January 14, 2017 | 0 Comments

A federal court judge ruled Jan. 12 that a committee representing creditors of the Archdiocese of St. Paul and Minneapolis would not be permitted to file lawsuits against Catholic entities, including schools and parishes, that received payments from the archdiocese in the two years before it filed bankruptcy in January 2015.

The Unsecured Creditors Committee, which represents approximately 450 clergy sex abuse claimants, filed a motion in December to commence those suits.

Judge Robert Kressel ruled that the UCC did not meet the legal requirements to be granted the standing it sought, and he denied its motion. He noted that the archdiocese acted reasonably in determining that it should not initiate the requested litigation, and added that the cost of trying to collect the funds would have been a “crap shoot.” He also questioned whether it was counterproductive for the UCC to seek more funds from parishes, since they fund much of the archdiocese’s operations through annual assessments.

Charles Rogers, an attorney with Briggs and Morgan who represents the archdiocese, said the ruling was “consistent with the goal of the archdiocese to provide fair compensation to sexual abuse claimants as quickly as possible without the unnecessary expenditure of further legal fees that should be available to promote healing and reconciliation.”

At the hearing, Kressel also asked attorneys for the archdiocese and UCC to work together to create a ballot that will be sent to the archdiocese’s creditors, including abuse claimants, to allow them to vote for two distinct plans for Reorganization that have been put forward by the archdiocese and the UCC. The ballots are expected to be mailed within the next month, and creditors will have 40 days to respond.

As The Catholic Spirit previously reported, the archdiocese’s plan, filed in May and amended in November, would provide more than $155 million in compensation for abuse claimants, with most of those funds coming from insurance settlements. A plan filed in August by the UCC seeks $80 million in victim compensation — almost half obtained via an archdiocesan loan secured by the Cathedral of St. Paul and several Catholic high schools — without the insurance settlements, while reserving the right to pursue insurance settlements following the Reorganization.  According to Rogers, the archdiocese is not well positioned financially to obtain such financing.

Under the proposed ballot design, creditors will be able to vote for one plan, both plans or neither plan. The votes inform but do not determine the court’s decision about which plan, if either, will be approved, said Rich Anderson, a Briggs and Morgan attorney who represents the archdiocese.

After the votes are tallied, “everyone reconvenes and we decide how to go forward,” he said.

The archdiocese hopes the case is resolved by June, Rogers said, adding that “spring and summer will be very informative.”

“During the two years of these proceedings, many sexual abuse claimants have sadly passed away without benefitting from resolution of the case. With the possibility of a $155 million resolution already in our sights, we’re hoping that we’ll be able to see the remaining claimants receive fair compensation.”

Negotiations continue, Rogers said. “We will see if we can get a consensual plan arising out of the vote and other developments,” he said. “If we can’t get a consensual plan, eventually there will be hearings and arguments over which plan is confirmable, and under what circumstances. As a result of that, at the end of the day, the court may confirm one plan over the other, or neither plan, in which case you start over.”

He added: “The cost, delays and potential loss of sexual abuse claims associated with starting over would be most unfortunate.”

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