Diocese files reorganization plan

Rochester Beacon [Rochester NY]

March 25, 2023

By Will Astor

With a reorganization plan in its Chapter 11 bankruptcy, the Roman Catholic Diocese of Rochester and abuse survivors seeking compensation for sexual abuse they suffered as children decades ago have entered the final stretch of a nearly four-year slog. The plan was filed today.

The bankruptcy, first filed by the diocese in September 2019, has been the forum the diocese chose to come to terms with more than 400 abuse survivors. It sought court protection as many survivors were filing or planning to file state court claims as a state law opening a temporary window for them to do so took effect.

“Today’s filing represents an important first step towards reaching a settlement for all the survivors,” says James Cali, who chairs the bankruptcy’s official Committee of Creditors, a body appointed by the U.S. Trustee to look out for the rights of abuse survivors in the Chapter 11.

“The Chapter 11 Plan sends a clear message to the world that clergy sexual abuse victims are determined, courageous and strong,” says Mitchell Garabedian, a Boston lawyer representing 99 abuse survivors in state court claims against the Rochester diocese,

More months are likely to pass before the long and expensively fought case is finally laid to rest. As of Dec. 31, the diocese had paid $9.3 million to lawyers and other professionals working on the bankruptcy. Such expenses have continued to mount monthly by six-figure sums. In December, such fees came to more than $300,000, a court filing shows.

The long-awaited reorganization plan calls for a minimum payout of $75.6 million. Significantly more money could be added to the pot.

Before the plan becomes official, it needs to be approved in a vote by at least 70 percent of the approximately 485 survivors who account for almost all the diocese’s creditors in the bankruptcy. If survivors approve, Bankruptcy Judge Paul Warren would also have to sign off on the plan.  

Once the case is finally settled, the pot of money available to pay survivors could grow by tens of millions of dollars. Exactly how much might be added will be known only after weeks or months of further court proceedings or negotiations.

The $75.6 million so far agreed to consists of $55 million the diocese says it will put into a trust from which abuse survivors would be paid. The remaining $20.6 million would be contributed by two insurers—LMI and Underwriters—that have agreed to also contribute into a trust from which survivors would paid.   

Further payments into that trust have yet to be determined. Those payments would come from insurers that have not agreed to settle. The bankruptcy’s creditors committee previously turned down settlement offers of $63.5 million and $26 million from two companies, CNA and Interstate, the plan states.

The value of claims against such companies would be determined by two processes: amounts the diocese would stipulate be paid for certain claims and judgments the survivors’ trust might win against the diocese in state court, and claims for which the diocese would assign rights to go after insurers to the survivors’ trust.

In the latter case, the trust would sue the diocese in state court to win a judgment and then press insurers for an amount awarded.

The exact amounts of stipulated claims would be determined by negotiations that have yet to take place. Insurers that wrote liability policies for the diocese during periods when the abuse occurred would automatically be on the hook for amounts awarded to the trust by state court juries or judges.

In the weeks before the plan’s filing, CNA filed a flurry of Bankruptcy Court actions that could delay or even derail a final settlement. One day before the diocese filed the plan, it also filed more than two dozen objections to claims by survivors, seeking to the get some claims thrown out on grounds that other Catholic organizations than the Rochester diocese are liable.

Several weeks ago, the insurance company asked for permission to grill lawyers representing survivors in state court cases on loans they might have taken out with third parties. It also separately asked that such attorneys file financial disclosures with the bankruptcy court.

Hearing dates are set for the court to consider the insurance company’s claim objections and requests to probe state-court attorneys.

Lawyers representing survivors in some 300 state-court claims against the Rochester diocese are not officially part of the bankruptcy. Nearly all such attorneys are working on contingency and would only be paid out sums the survivors they represent collect. New York law sets such fees at 30 percent of amounts awarded.

Leander James, a lawyer representing 76 survivors in state-court cases against the diocese, called the claim objections and probes of his and other state-court lawyers’ finances “a sideshow” that might slow but would not derail the plan.