Lawyers in Milwaukee bankruptcy proceedings threaten to drag out litigation

This story appears in the Milwaukee bankruptcy feature series. View the full series.

by Marie Rohde

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Lawyers representing the Milwaukee archdiocese in bankruptcy proceedings indicated that they will continue to play hardball to protect some or all of more than $55 million that the archdiocese shifted into a trust fund for the care of nine cemeteries it operates.

Francis LoCoco, the lead lawyer for the archdiocese, said during a bankruptcy court hearing Wednesday that if the judge rules against maintaining the cemetery trust as he said the other side wants, the subsequent litigation could be protracted.

"Let's spend the money," LoCoco said. "Let's litigate the cemetery trust [issue] completely. Candidly, at that point it becomes cheaper, more efficient and easier to us to litigate every abuse survivor claim. ... [Do] they want us to start sending dozens and dozens of notices to every single abuse survivor and their family members and their doctors?"

In March, a federal appellate court ruled that the cemetery trust fund was not protected by the First Amendment or the federal Religious Freedom Restoration Act.

The Chapter 11 bankruptcy was filed nearly four and a half years ago and has accrued at least $16 million and perhaps more than $20 million in legal fees. A dozen lawyers representing the archdiocese, several insurance companies, the cemetery trust and Archbishop Jerome Listecki were in court for Wednesday's hearing; nine other out-of-state lawyers joined via telephone conference call.

The hearing was a status conference to discuss the archdiocese's lengthy proposed schedule, which begins with the release June 4 of a revised plan to settle the bankruptcy and ends with an approval of the plan sometime in mid-October.

Of the 11 dioceses and two religious orders across the country that have filed bankruptcy petitions since 2004, none has been in court as long or cost as much in legal fees as Milwaukee. That has prompted several bankruptcy judges elsewhere to caution that they would not want that to happen in their jurisdictions.

Lawyers for the claimants say they were not involved in developing the Milwaukee plan or its revision. Claimants in the other bankruptcies that have settled have signed on to the settlements, but in the Milwaukee case, claimants are adamantly opposed, leaving open the possibility of a "cram down," a term used in bankruptcy court to describe an imposed rather than mutually accepted agreement.

Still, the Milwaukee case could drag on for some time.

James Stang, lawyer for the committee of claimants in Milwaukee, filed a lengthy brief in early May asking for extensive information on the money in the cemetery trust fund, including documents that show how it was placed in the trust and how it was used. For example, the lawyers for the claimants questioned a 1984 transfer of $450,000 from the trust to the archdiocese to offset a deficit in the general fund. The transfer was characterized as a loan, but Stang asked for documentation. Lawyers for the archdiocese in almost every case said the requests were overbroad, unduly burdensome and not likely to lead to relevant evidence.

Stang also challenged the archdiocese's assessment that it will cost $248 million to maintain the cemeteries.

In its original plan, the archdiocese had proposed setting aside $4 million for survivors. Lawyers for the archdiocese did not indicate how much additional money would be contained in the revised plan.

Of the more than 500 survivor claims, the original archdiocesan plan only deemed 128 eligible for payments. Those claimants would get about $27,000 each, compared to an average elsewhere in the U.S. of about $400,000, according to a lawyers for the claimants.

Recently, Susan V. Kelley, the bankruptcy judge hearing the case, ruled that nine individuals were ineligible for payments but one other disputed by the archdiocese is eligible. Those individuals represented classes of claims, according to remarks made by LoCoco in court. Attorneys for both sides filed appeals of the eligibility decision this week.

The archdiocese also is demanding that claimants agree not to be allowed to bring lawsuits against individual parishes as part of the final plan. They say that insurance carriers had agreed to pay $11 million for legal fees and for the fund for survivors, but only if the parishes are protected from further lawsuits.

Lawyers for the claimants argued that the parishes, all incorporated separately, are not debtors in the bankruptcy and may not be covered by the insurance companies making the settlements.

The revised plan, according to LoCoco, may or may not include a requirement that the parishes be protected.

That prompted Stang to respond: "I feel like I am listening to Richard Nixon getting elected on a secret plan to end the war."

LoCoco accused Stang of wanting to delay progress on the plan. "Their end game is to stop this from ending," he said.

Kelley responded: "Isn't their end game to get the most money out of the cemetery trust to pay their clients?"

Kelley said she would rule on the issues later.

When the Gallup, N.M., diocese entered bankruptcy proceedings in 2013, presiding Judge David Thuma told lawyers at the initial hearing that he didn't want to see Gallup follow the contentious path of the Milwaukee archdiocese.

"We need to figure out a way to get the minimum facts before the committee and the debtor that they would need to settle this case, and we need to start thinking about how we get a whole lot closer to the end zone, to use a sports metaphor," Thuma said in a Feb. 14 hearing. "Because I don't want this case to be like the Milwaukee case, where the debtor says all the money that could have been paid to creditors has been spent on litigation. I would be pretty unhappy if that happens in this case."

[Marie Rohde is a Milwaukee-based freelance writer.]

A version of this story appeared in the May 22-June 4, 2015 print issue under the headline: Lawyer warns litigation could drag on.

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