Christian Brothers creditors want to control sale process
By Matt Miller
January 13, 2012
Creditors of bankrupt Roman Catholic order Christian Brothers of Ireland Inc. have filed a motion to seize control of the disposition of assets, marking the first time creditors will try to actively sell off church-related property in the decade-long saga of sex abuse-related Chapter 11 proceedings.
Lawyers, who represent approximately 100 victims through an official committee of unsecured creditors, submitted their motion on Jan. 11. A hearing on the motion is scheduled for March 1 before Judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York in White Plains. The order, which also includes Christian Brothers Institute, must file its objection by Feb. 23. Christian Brothers filed for Chapter 11 on April 28.
In their filings, lawyers for the creditors said that the order nine months into bankruptcy is under contract to sell only one of 20 properties, for $13 million, and has marketed only three others, all of which are small. The lawyers maintain that the order has failed to provide even a plan for the sale of all the real estate, which is necessary for restructuring. They say such a delay imperils the value of the estate.
The creditors' motion is unprecedented in the 10 Chapter 11 cases involving Catholic dioceses and orders that have been filed and strikes at one of the biggest fears - so far unrealized - that religious organizations and their congregants have involving the use of bankruptcy to settle abuse-related lawsuits: that active churches and schools are sold off to pay for compensation to victims.
Unlike the dioceses, which have had access to other sources of funds, Christian Brothers is almost wholly dependent on property-related assets, court filings show. The 20 parcels comprise 97% of noninsurance assets, according to the complaint. The debtor valued the real estate at $62.46 million. Almost all the property is located in New York, primarily Rochester and New Rochelle, where the order is based.
The creditors' lawyers have pinpointed the estate's two most valuable pieces of real estate and said doing so demonstrates the order's lack of openness. In one case, they point out, the order wants to sell the property on which a private school in New Rochelle is located to the school, instead of marketing the property openly. Creditors allege that selling the property to the school constitutes an insider sale, since Christian Brothers also founded the school. A private developer might come in with a higher bid, the creditors claim in court papers.
Another parcel cited by creditor lawyers in court filings is a Rochester property on which a Catholic high school is located. The school offered to buy the property. The debtor refused, creditor lawyers say, but hasn't begun to market it to others.
The two properties, by the order's own reckoning, are worth a total of more than $22 million. All that property is thousands of miles away from where much of the documented abuse took place. In a now-notorious revelation, members of the Christian Brothers, a teaching order, (they aren't priests) abused orphans in St. John's, Newfoundland, Canada, over more than two decades starting in the 1940s, as well as children in two defunct Washington state schools during the 1970s. Most of the victims were indigenous Canadians and Americans.
From 2005 until the order was filed, Christian Brothers and the Archdiocese of Seattle jointly settled 52 lawsuits totaling $25.6 million. An additional 16 suits in Washington and 40 in Newfoundland had been filed before the bankruptcy. The creditors' lawyers believe other abuse claims will be filed against the order as the bankruptcy process continues.
Christian Brothers operated in 13 other states and several Canadian provinces. New York-based Tarter Krinsky & Drogin LLP is debtor counsel. Los Angeles-based Pachulski Stang Ziehl & Jones LLP represents the creditor victims.