Is the Milwaukee archdiocese too broke to pay its legal bills?

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

by Marie Rohde

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The Milwaukee archdiocese has filed for bankruptcy, but is it too broke to pay its legal bills?

Currently, the archdiocese has paid or owes just shy of $14 million in legal and professional fees related to the bankruptcy. As the debtor, the archdiocese is required by federal law to pay the legal expenses of those who have filed claims as well as its own lawyers. Lawyers for the archdiocese filed a 63-page statement to back up a $204,451 bill for the month of June alone.

The legal bills are far greater than the $4 million the archdiocese offered survivors of sex abuse before filing for bankruptcy on Jan. 4, 2011. That prompted Peter Isely, the Midwest director for the Survivors Network of those Abused by Priests and one of the Milwaukee claimants, to question whether the archdiocese's actions are consistent with what Pope Francis has said.

"Although it is unclear what this pope is doing or not doing on the issue, one thing that is perfectly clear is that paying lawyers three to four times what they have offered victims is directly opposite to this pope's pontificate," Isely said. "He has said that victims have a right to and must be justly compensated."

James Stang, a lawyer representing the committee of creditors, most of them survivors of sexual abuse, says professionals on his side of the case were owed more than $2.3 million as of July 1. He asserts the archdiocese has the money to pay its bills but suggested the diocese is holding back payment in an effort to force a settlement. Stang has asked U.S. Bankruptcy Judge Susan V. Kelley to reconsider her order that put payments to lawyers on hold nearly 18 months ago.

Kelley will hear Stang's request Wednesday.

According to court documents, Stang said the archdiocese routinely has more money on hand than the $1.5 million to $2 million needed to fund monthly operations. He suggests that the archdiocese is using payment as a cudgel to get the lawyers to convince creditors to accept the unpopular bankruptcy plan, particularly among survivors of sexual abuse, who make up the bulk of those who have filed claims.

"The Debtor's only effort to 'revisit' the matter [of payment] has been to offer payment to committee professionals conditioned upon confirmation of a highly controversial, hotly contested and presently unconfirmable plan," Stang wrote.

Stang also argued that the monthly financial reports show that the archdiocese has had enough cash on hand to pay the legal bills, and "it does not appear that this substantial excess is a temporary occurrence." He noted that the judge expressed concern about suspending payments, saying it could deepen the insolvency of the archdiocese.

Daryl Diesing, a lawyer for the archdiocese, said the committee for the creditors has filed fees and expenses totaling $6.44 million. "It is not a question of whether the professionals will be paid, but when," he said in court documents.

According to a fee summary filed by Diesing's law firm, the fees requested for those handling the archdiocese's side of the case amount to $7,538,172.

But in a brief filed with the court Monday, Diesing said the archdiocese is disputing some of the bills claimed by the other side, specifically mentioning the cost of claims that the archdiocese maintains are unenforceable. The committee's continued representation of those claims has jacked up costs, he said. The archdiocese asserts that an estimated 80 percent of the more than 570 survivor claims should be dismissed. Diesing also said the lawyers recycled work from other cases and are doing work on behalf of individual claimants rather than the group of claimants.

"Instead of negotiating with the debtor and the cemetery trust to resolve this case, the committee has used tactic after tactic to run up expenses to gain concessions that are nowhere contemplated in the bankruptcy code and have not legal merit," Diesing wrote.

According to many observers, the Milwaukee bankruptcy is the most contentious of the 11 dioceses and two religious orders that have filed for bankruptcy in the United States.

Citing a growing number of state lawsuits brought by victims of sexual assault, the Milwaukee archdiocese filed for bankruptcy on Jan. 4, 2011, just as the first abuse lawsuits were about to go to trial on the legal theory of fraud, allegations that archdiocesan officials knew of abuse but knowingly continued to place pedophile priests in parishes.

The bankruptcy filing put the fraud cases on hold.

Chapter 11 bankruptcy is usually filed to give a company time to restructure its debts and work out payments -- usually for a portion of what is owed -- in an attempt to continue operation and emerge on a stronger footing. Milwaukee was the eighth of 11 dioceses to file for bankruptcy in the United States. Stang, who has represented survivors in a number of other bankruptcies, said none has been as contentious or has been as mired in legal battles for as long.

In June, Kelley put the Milwaukee reorganization plan on hold until the 7th Circuit Court of Appeals rules on two matters: whether some $57 million that was moved into a trust fund for the perpetual care of cemeteries should be part of the bankruptcy estate and whether U.S. District Judge Rudolph Randa had a conflict of interest and should have stepped aside when he ruled that the cemetery money was off limits. Decisions in those matters are expected in October.

Meanwhile, the archdiocese and its creditors entered into mediation in an attempt to resolve their disputes. The mediation should be completed by mid-September.

[Marie Rohde is freelance writer based in Milwaukee.]

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