At bankruptcy’s two-year mark, creditors will soon vote on plan

| January 24, 2017 | 0 Comments

As the Archdiocese of St. Paul and Minneapolis marks the two-year anniversary of entering Chapter 11 bankruptcy, it anticipates that two different plans for Reorganization will be put before creditors for a vote in February. A court order is expected to establish a 30-day timeline for ballots to be mailed to creditors, including more than 450 sexual abuse claimants. The archdiocese’s bankruptcy proceedings are the first among more than a dozen bankruptcies of U.S. dioceses that involve competing plans for Reorganization.

After receiving ballots and the plans, creditors — which also include trade vendors and parishes — will have a court-determined window during which to vote. The non-binding vote is intended to inform the court’s decision about which — if either — plan to confirm, said Charles Rogers, an attorney representing the archdiocese.

As The Catholic Spirit previously reported, the archdiocesan plan, filed in May 2016 and amended in November, would provide more than $155 million in compensation for abuse claimants. Under the archdiocesan plan, the funds would be placed in a trust for prompt distribution to creditors.

The alternative plan filed by attorneys for the Unsecured Creditors Committee, which represents creditors including sexual abuse claimants, seeks
$80 million in victim compensation. The UCC’s plan rejects as inadequate most of the more than $115 million in insurance settlements that are included in the archdiocesan plan, preferring that creditors be free to pursue insurance settlements following the Reorganization. Almost half of the funding for the UCC’s $80 million proposed plan is premised on the idea that the archdiocese could take out a loan, which would be secured by the Cathedral of St. Paul and several Catholic school sites. The loan would then be repaid through future collections. According to Rogers, the archdiocese, in its present financial condition, is not positioned to secure such a loan.

After completed ballots are returned, U.S. Bankruptcy Court Judge Robert Kressel, who has been overseeing the case, is expected to hear arguments from attorneys on the merits of both plans before accepting one or rejecting both. If both are rejected, the archdiocese would have to start the process over, a scenario that would significantly delay resolution of the bankruptcy and, in turn, payments to creditors, Rogers said.

Archdiocesan leaders and others hope the case will achieve a just resolution soon. Tom Abood, chairman of the Archdiocesan Finance Council and an advisor who helped negotiate the settlement of the civil lawsuit and the dismissal of criminal charges brought by the Ramsey County Attorney’s Office, expressed a desire to resolve the bankruptcy in the coming months “so that victims and all creditors can be fairly compensated sooner rather than later.”

Amid the ongoing costs of litigation, he would prefer that “money be used to compensate victims and not attorneys,” he said.

His goal is to get “this archdiocese back to a position where it can better serve Catholics and our communities, as well as those harmed, through a just resolution,” he said.

He noted that some sexual abuse claimants have died in the past two years without benefiting from compensation, and he doesn’t want to see others excluded as a result of further delays. “With at least $155 million now available, we’re hoping to see those harmed receive fair compensation very soon,” he said.

‘Complex insurance issues’

Archdiocesan insurance coverage has been extensive and complicated, the archdiocese’s attorneys said. The archdiocese has had more insurance carriers than any other diocese that has filed for Chapter 11 Reorganization. Some policies reach back many decades and involve tens of millions of dollars in potential coverage. These complexities have made mediation to resolve coverage disputes challenging at times.

Mediation with the many carriers began shortly after the archdiocese filed bankruptcy Jan. 16, 2015. Initially, progress through mediation was slow. However, in the time since Archbishop Bernard Hebda was installed archbishop of St. Paul and Minneapolis in May 2016, “we’ve made substantial progress,” Rogers said. All insurance companies have now settled with the archdiocese, providing more than $115 million in coverage to settle claims. Those settlements are predicated on court approval of a bankruptcy plan.

With additional insurance settlements, the archdiocese has been able to increase the amount for victim compensation from the $65 million it offered when it first filed a plan in May to more than $155 million in its present plan. Included are funds from the sale of four properties, including the archbishop’s residence and chancery buildings that housed its longtime offices on Cathedral Hill in St. Paul.

According to Archbishop Hebda, the archdiocese still hopes for a consensual plan with the UCC.

“We are committed to a fair and just resolution of claims,” he said. “Of course, our commitment to victims of clergy abuse must go well beyond the financial compensation achieved through bankruptcy. We have tried to demonstrate that commitment in many ways, including through the child protection measures that have been embraced under the settlement agreement with the Ramsey County Attorney’s Office.”

Separate assets

In May 2016, attorneys for the UCC filed a motion in bankruptcy court for “substantive consolidation,” seeking to include assets from Catholic charities and schools to pay for claims against the archdiocese. In July 2016, Kressel denied that motion. The judge said that the assets of parishes and other independent Catholic entities were separate from those of the archdiocese and could not be included in the archdiocese’s compensation for creditors. UCC attorneys appealed that decision to the U.S. District Court, and that was denied as well. The UCC is now appealing that decision to the 8th Circuit Court of Appeals.

In December 2016, attorneys for the UCC filed another motion in bankruptcy court seeking to bring actions against Catholic charities and schools that had received payments from the archdiocese in the two years prior to the bankruptcy. Kressel denied that motion Jan. 12.

Archbishop Hebda is encouraged by the recent movement toward a fair resolution. In light of the increased funding in the archdiocesan plan and the judge’s clarification of legal issues, he said he is “hopeful that sexual abuse claimants can be compensated as quickly as possible without the unnecessary expenditure of further legal fees that should instead be used to promote healing and reconciliation.”

Abood agreed. “It is time to move beyond endless litigation,” he said. “In some dioceses the legal process lasted over five years and, in the end, creditors received very little. We are doing our best to achieve a fair result for all.”

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