Bankruptcy judge questions Buffalo Diocese spending as legal fees soar to $12.5 million

Buffalo News [Buffalo NY]

June 27, 2023

By Jay Tokasz

Legal and professional fees paid by the Catholic Diocese of Buffalo have ballooned to $12.5 million, prompting the federal judge overseeing the diocese’s Chapter 11 bankruptcy case to remark that he was puzzled over how the diocese was able to afford such costs.

“The question is, ‘Where is the money coming from for these legal fees?’” Chief Judge Carl L. Bucki of the U.S. Bankruptcy Court in the Western District of New York asked the diocese’s lawyers at a recent hearing. “I’m just having trouble discerning how an entity can be profitable after paying over $12 million in legal fees, an entity of this size.”

Bucki based his comments on the diocese’s most recent monthly operating report, for the period ending April 30, which showed a $1.7 million cumulative profit over the course of the 39 months of bankruptcy proceedings. The report also showed a monthly loss of $91,735 in April.

“I’m just perplexed at how this entity can incur these types of expenses and still be generating a profit,” said Bucki, adding that he planned to review the operating reports further and may set up a conference to discuss the matter more fully with lawyers.

Since filing for bankruptcy protection on Feb. 28, 2020, in the face of more than 200 Child Victims Act lawsuits alleging that diocese priests and other employees sexually abused children, the diocese has spent $12.5 million on attorneys and other professionals, according to court papers. None of the more than 900 claimants who say they were sexually abused has been compensated. The diocese is in mediation to negotiate a settlement with them.

Diocese attorney Steve Donato said the diocese has “more than sufficient funds” to pay the legal fees but did not explain to the judge where exactly the money came from.

Donato said the diocese has investment accounts, and “those dollars are quite significant.”

Bucki was asked at a hearing last Thursday to approve an additional $1.7 million in payments to eight law firms and three professional firms for their work on behalf of the diocese or the bankruptcy creditors committee between Aug. 1, 2022, and Jan. 31.

Among them was a $369,150 bill submitted by multinational law firm Jones Day, which charges as much as $1,160 per hour.

Jones Day’s bill included $47,112 for time spent calculating how much money the diocese owed to the firm.

Multiple attorneys and paralegals for Jones Day billed for hours of talking with each other and reviewing fee statements and fee applications that must be submitted to the court for approval so the firm can be paid.

The billable hours related to figuring out fee statements and applications amounted to 12% of all legal fees charged to the diocese by Jones Day over a six-month period.

That’s much higher than the typical 6% to 7% of billing that’s associated with determining fees, according to Assistant U.S. Trustee Joseph W. Allen.

The U.S. Trustee’s Office objected in court papers that many of the charges were for “an administrative task in the nature overhead” and as such were “non-compensable.”

Jones Day lawyers ultimately agreed to lower their fee by $17,112.

John D. Goetz, a Jones Day attorney, defended the number of hours spent reviewing fee statements and applications, saying the work involved “a fair amount of time redacting information” in its time logs that was sensitive or privileged.

“We’re just making sure our monthly statements are right and responsive to issues the court has raised in the past,” said Goetz.

Allen acknowledged that Jones Day had written off more than $20,000 in hours and expenses prior to submitting its fee application.

Even with the adjustments, which were approved by Bucki, Jones Day pocketed $348,240 for its work.

Childhood sexual abuse survivors said the huge amounts in legal payments reflect the diocese’s prevailing interest in protecting its image and keeping a lid on details of its abuse cover-ups.

“Isn’t that just crazy?” said Wayne Bortle, who filed a Child Victims Act lawsuit in 2019 and is among more than 900 people with childhood sex abuse claims against the diocese in bankruptcy court. “It’s just so frustrating. You can’t even really put into words how ridiculous it all is.”

The irony, added Bortle, is that the diocese could have avoided bankruptcy altogether and moved on from its abuse scandals if it had worked “in an honest way” with victims from the very beginning.

“They could be rebuilding their image now,” he said.

The firm of Bond, Schoeneck & King, lead counsel for the diocese, has made the most so far at $3.7 million, followed by the Connors firm at $2.2 million and Jones Day at $2.1 million, according to the diocese’s monthly operating statement.

Bucki had questions about some other billing submissions, especially by Jones Day.

The firm billed roughly $10,000 for time preparing the diocese’s announcement last October of a settlement with the state Attorney General’s Office, which had sued in 2020 over the diocese’s handling of complaints of childhood sexual abuse and of clergy accused of such abuse.

Bucki asked why Jones Day was involved in such an announcement, given that the diocese had also employed a public relations firm.

“It sounds more like a public relations activity,” he said.

Goetz said the time cited in the bill submission was not related to public relations work but to making sure diocese officials properly understood and characterized the terms of the agreement with the Attorney General’s Office in any discussions with media.

“The bishop wanted to get it right,” said Goetz.

The diocese hired Jones Day in 2020 specifically to handle the Attorney General’s lawsuit, and since that’s been settled for more than six months, Bucki wanted to know when the firm planned to wrap up its work.

Goetz said the firm has ramped down and will continue to do so, but was not done yet because the terms of the agreement call for annual audits of the diocese’s compliance. Goetz said the firm’s work likely would ramp up again in December, at the end of the first-year audit period.

“I am concerned,” said Bucki. “It reaches a point where your specialty skill in resolving this dispute is one that could be handed off to less expensive counsel. It is an area that I’m going to be watching for.”