With a second attempt at mediation failing to produce resolution in the Archdiocese of Milwaukee’s Chapter 11 reorganization, attorneys for the archdiocese and for the Official Committee of Unsecured Creditors (the committee) were back in the court of Judge Susan V. Kelley of the U.S. Bankruptcy Court of the Eastern District of Wisconsin, Friday, Oct. 3.

Expressing her disappointment that mediation was not successful, Kelley told the attorneys, “If it is not going to be settled amicably, then it’s time to litigate the remaining issues.” 

During the course of the status hearing, which lasted an hour and 45 minutes, Kelley identified the issues as “assets” and “claims.”

The assets included: reasonableness of insurance settlements; fixed income accounts; the Cousins Center; Faith in Our Future settlement; and whether the reorganization plan submitted by the archdiocese is “fair and equitable.”

The claims portion included “claim objections summary judgment motion” and classification and impairment of claims.

Insurance settlements key

Frank LoCoco, one of three attorneys present on behalf of the archdiocese, said a settlement with London Market Insurers (LMI) is already part of the reorganization plan, and they are close to reaching settlements with other insurers, OneBeacon and Stonewall.

According to Jerry Topczewski, chief of staff for Archbishop Jerome E. Listecki, the insurance is a critical component in getting the reorganization plan approved.

“It’s key in the sense that the release of parishes is essential to any agreement with the insurance companies,” he said. “No insurance company will settle anything with the archdiocese if they aren’t given a full release for all of the insured. The insured were the archdiocese, parishes and some other Catholic entities; the insurance company wants finality.”

To execute a release, Topczewski explained, the insurance companies buy back policies from the insured entities who relinquish all rights to the insurance companies in exchange for being “released” from the threat of future litigation.

“That’s what they receive in exchange for giving up their insurance rights,” he said, noting that all of the insurance companies “demand the same thing – a complete buyback of the policies.”

“At this point, the only way to get more money into the plan is through these settlements with these insurance companies. So we have $8 million from Lloyd’s of London, which will be lost without such a release,” Topczewski said. “So without a release, we’re not going to have a settlement and that $8 million goes away and now abuse survivors have even less money in the pot and the archdiocese has less money to pay the administrative fees of the proceeding which means we’re not going to get out of bankruptcy anytime soon.” 

Following civil, church law

When committee attorneys raised questions about $11 million in “fixed income accounts,” Daryl Diesing, an attorney for the archdiocese, noted there were “donor restrictions” on 85 percent of the accounts, and the archdiocese had provided this information to the committee more than two years ago.

Topczewski said that in managing those accounts, the archdiocese is following civil and church law in using the money for the purpose for which it was given.

“These accounts that we’ve maintained and have been in our financial reporting for years are restricted accounts for whatever purpose they were established,” he said. “And the restrictions have been honored and we have the paperwork to show they have been managed that way.”

Value of the Cousins Center

Regarding the Cousins Center as an asset, Kenneth Brown, an attorney for the committee, told the court, “We are looking hard at the Cousins Center to determine irrespective of what the legal merits are to the claims that this is really an asset owned by the diocese rather than one of its related entities for which the bishop is president.”

Topczewski used the committee’s attention to the Cousins Center to illustrate why legal fees – now more than $15.5 million – are so high. 

“Every time you take discovery, it’s expensive. The lawyers for the creditors take the discovery, and we pay the lawyers for the archdiocese to be part of the discovery,” he said. 

“These are the kind of things that drive up the cost of the proceeding when you pursue things that have no end value to the estate.”

Discovery is a procedure through which attorneys, in this case attorneys for the committee, can request documents related to the work and finances of the entity it is facing in court.

“The Cousins Center is encumbered by a loan from Park Bank, so whatever the value of the Cousins Center could be, the proceeds of a sale would go to Park Bank to pay off the loan,” Topczewski said. Balance on the loan is $4.3 million.

In lieu of rent, the archdiocese pays operating and maintenance costs for the Cousins Center – anywhere from $700,000 to $800,000 annually.

Avoiding a drawn out court battle

Even though Faith in Our Future is a trust separate from the archdiocese, the creditors have sued that trust.

“They’re looking anywhere they can to look for money; Faith in Our Future has a large amount of pledged money to support Catholic education,” Topczewski said. “From the beginning it was very clear on every piece of paper and every pledge card that this money was solely dedicated to this specific intent: Catholic education and faith formation.”

He said that rather than go through the process of paying attorneys and going through a drawn-out court process, the Faith in Our Future Trust has agreed to its part in the Plan of Reorganization “to grant up to $200,000 of donations for programs selected by the archdiocese that are within the restricted charitable purposes (Catholic education and faith formation) of the FIOF Trust. 

“In exchange for a release from the debtor and the estate, the FIOF Trust has agreed that the debtor may designate up to $200,000 of grant requests, and so long as the FIOF trustees determine that such requests are within the restricted charitable purposes of the FIOF Trust, the selected grant requests will be automatically approved without the FIOF trustees exercising their discretion.” 

Claims eligibility still a concern

In the discussion as to whether or not the reorganization plan was fair and equitable, James Stang, an attorney for the committee, said “the diocese has an enormous capacity to raise funds,” and suggested that the archdiocese undertake a campaign on behalf of abuse survivors.

Topczewski said that there is no indication that such a campaign would be successful.

“The monies that people are going to be attracted to support are not clergy sex abuse; some might, if they know it were going to victims, but they certainly won’t do it if it is going to lawyers,” he said. 

He continued that the reorganization plan is “fair and equitable” for those who are eligible for claims. The claims number 570, but Topczewski said that people have heard that number “without really drilling into it.”

 “One way to get at this is we have to get decisions on claims. People who were abused by religious order priests have to go to the religious order for satisfaction, people who were abused by a lay person – they’re not the responsibility of the archdiocese,” he said. “People who have a previous settlement shouldn’t get another settlement; it takes money away from people who haven’t received any financial compensation.”

In the course of the claims discussion, attorneys for the committee asked that they be given access to parish financial reports. 

After a heated exchange between attorneys on both sides, the court ordered the committee to identify 15 parishes and the archdiocese to release the most recent financial information it has regarding those parishes, “especially those parishes that will be receiving releases under the settlements,” according to court minutes.

Kelley told attorneys, “We’re going to get these claims determined and we’re going to do it on a bankruptcy court pace. We’ve gotten off that pace; we’re going back on it.”

The sides will return to court on Wednesday, Oct. 22, 10 a.m.