Archdiocese of Milwaukee Settles Sexual Abuse Claims for $21 Million

By Annysa Johnson
Milwaukee Journal Sentinel
August 4, 2015

Milwaukee Archbishop Jerome Listecki answers questions at a news conference at the Cousins Center in January 2011 when he announced that the archdiocese will file a petition for Chapter 11 bankruptcy. The archdiocese Tuesday announced a settlement with sexual abuse victims, which will allow the archdiocese to emerge from bankruptcy.

The Archdiocese of Milwaukee announced Tuesday that it has agreed to pay $21 million to compensate victims of childhood sexual abuse — a deal that clears the way for it to emerge from its nearly 5-year-old bankruptcy.

Under the terms of the agreement, 330 of the estimated 570 men and women who filed sex abuse claims in the bankruptcy would receive financial settlements of varying amounts, to be determined by an administrator appointed by the bankruptcy court.

The $21 million far exceeds the $4 million the archdiocese offered victims as part of its initial reorganization plan filed in February 2014. And it more than doubles the number of survivors who will be compensated. A revised reorganization plan is scheduled to be filed Aug. 24.

The settlement needs the approval of U.S. Bankruptcy Judge Susan V. Kelley. It would be among the smallest offered victims in a Catholic Church bankruptcy filed to address sex abuse claims.

The plan would be financed with $16 million from the $70 million the archdiocese holds in a trust for the care of its cemeteries, $11 million from its insurance carriers and at least $2.3 million from archdiocesan sources that have not yet been determined. Of that, $7.8 million will go to legal fees and $500,000 to a fund for counseling for victims.

The agreement was hammered out over three days in mid-July with the help of Paul Finn, the Massachusetts-based mediator who brokered the $85 million settlement the Archdiocese of Boston offered sex abuse victims in 2003, and numerous other multimillion-dollar deals over the years.

Tuesday's settlement paves the way to conclude what has become the longest-running and most contentious of the 14 U.S. Catholic Church bankruptcies filed since 2004 to address sexual abuse liabilities dating back decades.

In an interview, Archbishop Jerome Listecki said the settlement allows the 10-county archdiocese to "put an end to this terrible period in the history of the archdiocese and at the same time address the needs and compensate those who were victims."

"And it allows us to go forward and continue the mission of the church, and that's what's really important," he said.

Attorneys respond

James Stang, who represents the creditors committee, said he is recommending that all creditors, including abuse survivors, approve the reorganization plan, which is scheduled for confirmation hearing in November.

Michael Finnegan, whose St. Paul, Minn., firm represents most of the survivors in the bankruptcy, called the settlement inadequate given the archdiocese's resources and the pain victims have endured. But he praised the creditors committee for "standing up for survivors."

"They were put in the horrible spot of having hundreds of claims thrown out in court or reaching the best resolution they could at this point," Finnegan said.

He said some survivors may vote against the reorganization plan because they consider the settlement too small.

Peter Isely, Midwest director of the Survivors Network of those Abused by Priests, agreed.

"The average settlement (in church bankruptcies) around the country is about $300,000," he said. "Milwaukee victims are again being treated differently and I think vindictively."

Among the provisions of the agreement:

¦The settlement would cover victims of priests — diocesan and religious order — sisters, teachers and others who served in diocesan facilities. It would not cover several categories of victims, including those who sued the church previously or who received prior settlements from the church.

¦In addition to the $21 million for survivors, the archdiocese would establish a $500,000 therapy fund, which parishes would help finance.

¦In return, all of the archdiocese's parishes, schools and other Catholic entities would be released from liability for lawsuits arising out of claims that precipitated the bankruptcy. Religious orders would still be liable for lawsuits.

¦An additional $7.8 million would be set aside for legal fees, on top of the $12 million already spent for the archdiocese and creditor committee attorneys.

¦And the creditors committee would agree not to file suit over the archdiocese's Cousins Center headquarters building in St. Francis or the Faith in Our Future trust, which was created to hold the proceeds of a $105 million capital campaign launched by then-Archbishop Timothy Dolan in 2007.

The agreement, if approved, would settle a related lawsuit filed by Listecki in an effort to protect an estimated $70 million the archbishop oversees in a trust established in 2007 to maintain the archdiocese's eight cemeteries. It also ends separate lawsuits against its insurance companies.

Dolan, who publicly raised the specter of bankruptcy as early as 2006, created the cemetery trust in 2007 with Vatican approval, saying it would protect those funds from legal liability, according to court records. The archdiocese and trust said they had a duty to protect those funds for the families that paid the money for upkeep of their loved ones' burial places.

Even with the settlement, the legal battles could go on for years, based on church bankruptcies around the country.

The agreement brings the total amount spent by the Milwaukee Archdiocese on its sexual abuse crisis over the years to more than $70 million, including settlements, legal fees, therapy and other costs, based in part on figures available on its website. Under federal bankruptcy law, the debtor — the archdiocese in this case — pays the legal and professional fees for itself and its creditors committee. Individual plaintiffs attorneys are paid by their clients, usually based on a percentage of their settlement.

In all, there are more than 50 lawyers listed in the court records as representing some party in the bankruptcy, though most of those would not be paid by the archdiocese.

It's not clear how much the cemetery trust spent on fees for its attorneys. Listecki, who is sole trustee of the trust, said that would be divulged in the reorganization plan.

Pitched battle

Listecki announced the Chapter 11 filing on Jan. 4, 2011 — the one-year anniversary of his installation in Milwaukee — saying there were "financial claims pending against the archdiocese that exceed our means." The archbishop said at the time that it was the best way to "fairly and equitably fulfill our obligations" to victims with unresolved claims while continuing the archdiocese's ministries.

The filing came as a dozen lawsuits involving 17 victims were moving toward trials in state courts. Those suits were automatically stayed by the bankruptcy.

Victim advocates and attorneys criticized the Chapter 11 as a ploy to protect the church from revelations likely to emerge in trials, and to continue delaying justice and closure for victims.

The filing initiated a pitched legal battle in federal courts that has included numerous appeals.

Ultimately, 570 men and women filed claims alleging they were sexually assaulted as minors over the years by priests, nuns, teachers and others affiliated with the local church. The lawsuits alleged the archdiocese defrauded victims by moving abusive priests from post to post without telling families about their sexual abuse histories.

At the time it filed for Chapter 11, the Archdiocese of Milwaukee was the ninth Catholic entity — eight dioceses and one Jesuit religious order province — to seek bankruptcy protection in the face of sexual abuse liabilities. All of the debtors that filed before Milwaukee reached multimillion-dollar settlements or confirmed their reorganization plans, or both, in less than three years. Two settled in less than a year.

At least four more dioceses and one religious order entered Chapter 11 after Milwaukee. Two of those also have since settled.

The Milwaukee case was particularly combative, in part because of Wisconsin's unusual legal landscape, which put parish assets off limits and made it impossible for the archdiocese to tap its insurance policies at that time for an abuse settlement. But it was also contentious because the case evolved more like a bitterly fought lawsuit than a Chapter 11 proceeding, said Temple University law professor Jonathan Lipson.

"Bankruptcy is not supposed to be litigation in a different venue. It's supposed to be a forum in which the parties engage in good faith negotiations to compromise and settle their differences," said Lipson, who teaches bankruptcy law and has written on church bankruptcies.

"In this case, the parties were unusually adversarial and hostile to one another, and I think they brought that into the bankruptcy court."

From the beginning, the two sides charted divergent legal strategies. The archdiocese filed motions to throw out every sex abuse claim, a first for a Catholic Church bankruptcy. And the creditors committee, which is composed of abuse victims but represents all creditors in the case, pursued church assets to fund a potential settlement.

In every church settlement to date, proceeds from insurance policies have been a major component. All but two of the 10 that have settled included significant contributions, ranging from $14.4 million to $118 million. In Milwaukee, without access to insurance funds, attorneys for the church and creditors committee battled endlessly over what assets would be included in the financial pool and which victims should be compensated.

The limitations on the archdiocese stem from its success in fighting negligent supervision lawsuits by victims in state courts decades earlier.

In 1995, the archdiocese persuaded the Wisconsin Supreme Court that judicial meddling in its staffing decisions — even those regarding pedophile priests — would abridge its free exercise of religion under the First Amendment. The landmark decision in Pritzlaff vs. the Archdiocese of Milwaukee effectively barred victims from the state courts for more than a decade.

Victims began suing under the state's fraud statute, and in 2007, a new Supreme Court ruling said those cases could move forward. That opened the door for victims. However, insurers — whose policies might have covered negligence — argued they were not liable for fraud because it is an intentional act. The courts have concurred.

The archdiocese did sue its insurers, including Lloyd's of London and Stonewall Insurance Co., in an attempt to draw them into a potential settlement. As part of the reorganization plan, the insurers negotiated a deal to pay $10.3 million to buy back their policies and obtain liability waivers from parishes, schools and other Catholic entities — essentially cutting a check to make their role in the dispute go away.

Victims attorneys blasted the insurance settlement as paltry, insisting the policies were worth hundreds of millions of dollars. And they criticized the waiver, saying it would bar them from holding other entities accountable for their actions in the abuse crisis.

Kelley, the bankruptcy judge, suggested in May that she may not have jurisdiction to grant such a broad waiver.

Kelley sent the parties to mediation twice — in 2012 and in 2014, after the reorganization plan was filed — without success. Kelley frequently voiced frustration at their inability to compromise and more than once intimated she should dismiss the case entirely and leave the sides to either settle or fight it out in state court.

In recent months, according to sources, fractures had begun to appear even among attorneys and clients on the same sides.

Archdiocesan victories

In its bankruptcy petition, the archdiocese estimated its assets between $10 million and $50 million, and liabilities between the same amounts. Listed as creditors in the petition — above victims — were its own employee and retiree pension and health care plans, which the archdiocese said were owed at least $18 million.

The archdiocese's audited financial report for 2010, the year before it entered bankruptcy, listed assets of about $100 million, but the church has maintained that most of that is restricted. Victims have noted that insurance documents from the 1990s put the value of church property at $1 billion.

Through the course of the bankruptcy, the archdiocese has been largely successful in dismissing claims and in fending off creditors attorneys' efforts to pursue assets.

Several claims have been dismissed to date, though most of those are on appeal. And at the time of the settlement, the archdiocese was moving ahead to dismiss more than 70 others, all involving victims who signed earlier settlements with the archdiocese but now allege they were misled in those negotiations.

Kelley has ruled that creditors could not pursue assets of the archdiocese's 200-plus parishes, which are separately incorporated, or the more than $35 million in investment funds the archdiocese previously held for parishes before moving them off its books in 2005.








Any original material on these pages is copyright © 2004. Reproduce freely with attribution.