Church Bankruptcy Derails after Failed Mediation

By Elizabeth Hardin-Burrola
Gallup Independent
July 11, 2015

http://gallupindependent.com/

A month after the Diocese of Gallup entered court ordered mediation, the diocese’s bankruptcy case seems to have derailed.

Any hopes that the Gallup Diocese might be closer to a resolution of its Chapter 11 case were dashed this week with a flurry of motions filed in U.S. Bankruptcy Court by attorneys for the diocese and attorneys representing clergy sex abuse claimants.

On Monday, attorneys for the diocese filed notice of an expedited status hearing slated for July 17 and requested the bankruptcy court order the parties back into mediation with a new mediator. Two days later, attorneys representing clergy sex abuse claimants filed several motions asking the court to lift the bankruptcy case’s automatic stay that prohibits civil lawsuits against the diocese from moving forward. And in a surprising development related to those motions, an Arizona attorney revealed he recently filed a 14th clergy abuse lawsuit against the Diocese of Gallup in spite of the case’s automatic stay.

Failed mediation

U.S. Bankruptcy Court Judge David T. Thuma now has the challenge of getting the case back on track and moving forward during Friday’s upcoming hearing.

Exactly what went wrong during last month’s mediation is unclear. Retired U.S. Bankruptcy Judge Randall J. Newsome conducted the failed mediation June 10-11. Newsome also presided over the failed mediation in the Archdiocese of Milwaukee bankruptcy case, a case that has dragged on for more than four years.

“The Debtors believe that a change in mediator will facilitate the mediation process,” lead diocesan bankruptcy attorney Susan G. Boswell stated in her motion to the court Monday. Boswell declined to further elaborate in response to media questions.

“Mediation matters are confidential by law,” she said in an email Friday. “We will not be commenting on the mediation.”

However, in her motion, Boswell requested Thuma approve attorney Frank “Dirk” Murchison as the new mediator. According to Murchison’s website, he has been an attorney for more than 40 years and has offices in Texas and New Mexico. Since 2001, Murchison’s practice has been limited to arbitration and mediation of catastrophic personal injury litigation and complex commercial, estate, trust, employment and sexual abuse cases. His website states he has successfully mediated over 60 clergy sexual abuse cases.

New abuse lawsuit

When contacted Friday, Phoenix attorney Robert E. Pastor, who represents 17 sex abuse claimants in the bankruptcy case, also agreed he was “not permitted to speak about the mediation or settlement discussions.” However, in court documents filed this week, Pastor blamed the Diocese of Gallup and its insurance companies.

“I believe that the mediation failed because the Debtor and its insurance carriers, despite sworn depositions of individual Survivors, did not conduct a fair, independent, and reasonable claims evaluation,” Pastor stated.

Pastor did, however, email a copy of an amended civil lawsuit he filed in Arizona’s Coconino County Superior Court on June 24. The plaintiff in the case, identified as Jane L.S. Doe, alleges she was sexually abused by the late Brother Mark Schornack “when she was a young girl at the Catholic church and school located in St. Michael’s Arizona” on the Navajo Nation. The lawsuit does not specify a time period when the abuse allegedly occurred.

Schornack, a Franciscan friar who was assigned to Native American missions in the Southwest, died in 2012. He was named as a perpetrator in another lawsuit filed by Pastor previously.

The Diocese of Gallup was initially named as a defendant in this latest civil complaint, along with Franciscan provinces in New Mexico and Ohio, the Sisters of the Blessed Sacrament, St. Michael’s Mission and School and Schornack.

But should the Gallup Diocese have been named as a defendant while it is in bankruptcy? When the diocese filed its Chapter 11 petition in November 2013, that filing triggered an “automatic stay” that halted all litigation against the diocese from moving forward.

Pastor has since dropped the Gallup Diocese as a defendant. In a notice of voluntary dismissal without prejudice, filed with Coconino County Superior Court Tuesday, Pastor reserved the right to amend the complaint in the future and add the diocese back in as a defendant if the U.S. Bankruptcy Court lifts the automatic stay.

Lifting the stay

On Wednesday, Pastor and his co-counsel John Manly filed motions for relief from the automatic stay so three of their clergy sex abuse lawsuits could move forward in Arizona. The three cases include the recently filed lawsuit against Schornack, as well as earlier lawsuits alleging abuse by the late Rev. Clement Hageman and the Rev. Raul Sanchez, a former chancellor for the Gallup Diocese who is reportedly now living in Mexico.

Diocesan attorney Boswell declined to comment on the Schornack lawsuit or the motions to lift the automatic stay because they are matters pending before the court.

However, attorney James Stang, the legal counsel for the Official Committee of Unsecured Creditors that represents the interests of sex abuse claimants, has weighed in with his committee’s support for lifting the automatic stay. In a detailed 35-page memorandum also filed Wednesday, Stang laid out his legal arguments and cited dozens of court cases and bankruptcy law.

“Civil trials will provide valuations of abuse cases that will educate and inform all of the parties,” Stang argued. “Trials may also force the debtor and its insurance carriers to make a reasonable evaluation of the claims. Ultimately, trials will lead to a speedier conclusion of this bankruptcy process and the sooner payment of entitled creditors.”

Stang described the Diocese of Gallup’s bankruptcy case as being “at a near dead-stop,” and he cited the Diocese of Wilmington’s Chapter 11 case as an example of how allowing such civil trials can prove to be “a constructive way to break logjams” in church bankruptcies.

In an email Friday, Pastor said lifting the automatic stay was important to his clients who are survivors of clergy sex abuse.

“Over the course of the last five years, Bishop James Wall has had every opportunity to make good on his promise to help heal the wounds caused by clergy sexual abuse,” Pastor said. “Throughout that time the diocese has refused to disclosed (sic) the files of credibly accused priests, refused to publish a complete list of priests who hurt children, and refuses to acknowledge the severity of the harm these Gallup priests caused. The diocese has used our civil justice system and the bankruptcy court to delay and deny survivors of abuse the justice they deserve. We believe a civil jury made up of citizens of this community has the power to resolve these disputes in a fair and just manner.”