Judge rules Milwaukee archdiocese must pay $1.35 million in legal fees

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

Milwaukee — U.S. Bankruptcy Judge Susan V. Kelley on Wednesday ordered the Milwaukee archdiocese to use $1.35 million in surplus cash to partially pay legal and profession fees that have been accruing over the past 17 months.

The archdiocese must pay lawyers representing the creditors in the case, most of whom are survivors of sexual abuse, as well their own legal experts. So far, the archdiocese has amassed close to $14 million in legal fees since the Chapter 11 bankruptcy was filed in January 2011.

While the mounting legal bills are a matter of concern to Kelley, a quick end is not in sight. Eight lawyers were in court and four others attended via a telephone hookup for a two-hour hearing Wednesday, further driving up the bills.

The $1.35 million would probably result in a payment of about 20 cents on the dollar, said lawyer James Stang, the lead lawyer for the creditors. Lawyers for the other side restated that everyone would be paid in full once a reorganization plan is approved, a notion that seems distant.

Kelley put the approval process for the archdiocesan-proposed reorganization plan on hold until the 7th Circuit Court of Appeals decides other issues, including whether some $57 million in a trust fund for the perpetual care of nine cemeteries could be used for claims. That decision is not expected until October.

Under the proposed plan, most of the more than 570 who filed claims because of alleged abuse would be dismissed. An estimated 120 would share $4 million, which would amount to the smallest settlement for abuse survivors in the country. That proposal, Stang said, is "unconfirmable" by the creditors. If the creditors do not agree, Kelley has the option of forcing a settlement or dismissing the case.

The current plan would also absolve parishes of legal responsibility in the sexual abuse by priests. Kelley noted that some survivors are not willing to sign off on that. One case is pending in state court against a parish served by a priest with a long history of abuse. Other such cases are in the wings.

Initially, the archdiocese had been paying 80 percent of the legal bills on a monthly basis and the other 20 percent quarterly after disputes over billing were resolved. That ended when the archdiocese told Kelley that there might not be enough money to make payroll and other operational costs. At the time, they said they needed to have $1.5 to $2 million on hand for those expenses. Lawyers for the creditors argued that after more than a year, the archdiocese had far more than that available each month.

Frank LoCoco, a lawyer for the archdiocese, argued that the money might be needed if just-ordered mediation results in a plan that would resolve the case. He also took offense at the suggestion that his team was using the outstanding legal fees as a cudgel to get lawyers for the creditors to settle the case in mediation. Saying such a tactic would be criminal, LoCoco said. "I would never do something that is criminal or unethical. I resent even a sniff of that."

Kelley said while she did not see the refusal to pay until a plan is approved as "blackmail," the amount of time that has passed is "long enough for these professionals not to have gotten paid."

As for the mediation, Kelley said she remains committed to the belief that both sides must come to an agreement on a plan.

Kenneth Brown, one of the lawyers for the creditors, argued: "It's not right and it's not fair that the committee professionals are financing this case," adding that the pressure is on them to get the claimants to sign off on a plan.

"We are at risk here," Brown said. "If there is a dismissal [of the bankruptcy], we don't get paid."

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

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