Archdiocesan reorganization plan raises fairness questions

By Annysa Johnson
Milwaukee Journal Sentinel
February 16, 2014

The Catholic Archdiocese of Milwaukee, which faces more than a dozen civil fraud lawsuits over its handling of clergy sex abuse cases, filed for Chapter 11 bankruptcy protection in January. As the case proceeds, we'll have updates, analysis, documents and more.

When Archbishop Jerome Listecki announced that the Archdiocese of Milwaukee was filing for bankruptcy three years ago, he said it was the only way to ensure the local church could continue its mission and operations, and treat childhood victims of sexual abuse — many of whom had begun to sue — "equitably."

The archdiocese last week filed its reorganization plan, essentially its proposed road map for exiting bankruptcy. Except for an additional $2.4 million in debt, the plan would allow the 10-county archdiocese — home to some 600,000 Roman Catholics — to emerge for the most part unscathed, from an operational standpoint. Although the archdiocese will have spent an estimated $18 million in legal fees before the bankruptcy is over, the plan calls for it to sell no property; pay all of its vendors (although some would get less than they sought);and continue to fund all of its pension and health care plans.

Whether it treats abuse survivors equitably is another matter. Although all victims would have access to church-funded therapy, whole classes of survivors would receive no financial settlement. Those sexually assaulted as a child by, say, a Catholic schoolteacher or parish choir director would receive nothing. Victims of religious order priests and nun would receive nothing.

In all, 128 of the 575 men and women who have filed sex abuse claims in the bankruptcy would receive a financial settlement — about $27,000 each on average, unless additional funds are secured by suing insurance companies. But even victims of the same priest could be treated differently under criteria proposed by the archdiocese, survivors and their lawyers said Friday.

"That is our understanding," said Michael Finnegan, who with fellow Minnesota attorney Jeffrey Anderson represents 350 of the sex abuse claimants in the bankruptcy.

"The only people this archdiocese and Archbishop Listecki has chosen to treat horribly in this bankruptcy are abuse survivors," Finnegan said. "And those are the only people they promised to treat equitably and fairly."

Church's response

Jerry Topczewski, chief of staff for Listecki, said Friday that the archdiocese already had paid $33 million in settlements to abuse survivors and cut staff and programming over the years before entering bankruptcy. He declined to comment on how individual victims would be treated under the plan, saying their cases were under seal.

"The alternative," the archdiocese says in the reorganization plan, "is years of litigation where none of the parties is able to reach closure and the assets of the debtor are further reduced."

The Archdiocese of Milwaukee filed for Chapter 11 bankruptcy protection in January 2011 to address its mounting sexual abuse claims. Archdiocesan officials have repeatedly noted that the bankruptcy filing came after 23 survivors rejected a $4.6 million settlement in a failed mediation. Lawyers for victims said they didn't reject the financial offer — but refused to consider it unless the archdiocese would commit to releasing documents detailing the church's handling of the abuse crisis. Many of those documents have since been released as part of the bankruptcy.

Under the bankruptcy, the archdiocese must pay its own legal fees and those of its creditors committee. Each side blames the other for aggressive and costly legal tactics: victims for pursuing assets the church argues are off-limits, such as the trust that funds its cemetery operations; the archdiocese for trying to throw out all of the sex abuse claims regardless of the circumstances.

The reorganization plan, which still needs the approval of U.S. Bankruptcy Judge Susan V. Kelley, offers a first glimpse at the financial costs of the bankruptcy and the mechanism for compensating at least some of the victims.

Attorneys for victims and the creditors committee, which represents all creditors but is made up entirely of survivors, said Friday that they were still reviewing the plan and that it was too early to determine how they would respond in court.

Victims have sought compensation arguing the archdiocese defrauded them by exposing them to sex offenders church officials knew or could have known were a danger to children. The archdiocese has argued that it is not liable for any of the claims because they were beyond the statute of limitations for fraud; involve religious order priests and others it does not consider its employees; involve victims who already signed settlement agreements; or did not constitute fraud.

According to the plan:

■ The archdiocese would make available about $10 million to resolve the bankruptcy case. That includes a little under $8 million paid by London Market Insurers to buy back its insurance policies in return for the archdiocese waiving LMI's liability, and a $2 million loan from the $57 million trust that funds the archdiocese's cemetery operations. The archdiocese has argued throughout the bankruptcy that the cemetery funds could be used only for perpetual care. However, it has borrowed from the fund in the past.

■ Of the $10 million, at least $4.5 million would go to pay the remaining legal and professional fees and expenses, although they are projected to be as high as $5.5 million. It already has paid $12.5 million to date.

■ $500,000 would be used to establish a lifetime therapy fund available to all survivors with claims in the bankruptcy case. Victims historically have objected to church-funded therapy, saying it causes them to seek help from the organization they believe wronged them.

■ About $3.7 million would go into an Insurance Litigation Trust to pay settlements to 128 survivors. Up to $1 million of that could be used to sue other insurers in an effort to increase the funds available for victims. However, the trustee could choose to distribute much of the money to victims right away.

■ All claims not involving diocesan priests would be eliminated from consideration.

■ Of the 377 individuals who accuse diocesan priests of abuse, only 128 would be compensated. In those cases, there is evidence to suggest the archdiocese knew or could have known that the priest had a history of abuse. The archdiocese has said it would rather settle than face costly trials on the merits of those cases and further traumatize victims. The remaining claims involving diocesan priests include 84 who have signed prior settlement agreements, and 165 in which the archdiocese argues there is no evidence of fraud.

Survivor's concern

Survivors say the church's criteria — that the priest had previous allegations against him — would exclude an offender's first victim.

Monica Barrett who says she was raped by Father William Effinger when she was 8 in 1968, believes that's why she's excluded. In its objection to her claim, she says, the archdiocese has said it had no prior notice of him ever molesting children. Effinger died in prison, where he was serving time for sexually assaulting a boy.

"They asked all victims to come forward in an effort to resolve this matter, in Listecki's words 'to bring healing.' And now they turn around and tell people that your assault, your rape, your molestation doesn't matter," Barrett said.

"You ask people to trust you...and then you reinjure them," she said. "That doesn't sound like healing to me."



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