Bankruptcy judge rejects jury-trial motion, insurance settlement

Jennifer Burke/Catholic Courier    |    07.12.2021
Category: Local News


The U.S. Bankruptcy Court July 9 denied a motion by the Official Committee of Unsecured Creditors that would have allowed 21 sexual-abuse lawsuits against the Diocese of Rochester to proceed in state court. The motion was filed June 8 by attorneys representing the Committee, which was appointed by the Office of the United State Trustee and comprises several survivors of childhood sexual abuse who had filed claims against the diocese under New York state’s Child Victims Act.

Also during the hearing, the court denied the diocese’s motion for approval of a $35 million settlement with several insurers involved in its bankruptcy case, which began in September 2019.

After denying both motions, Judge Paul R. Warren of the United States Bankruptcy Court, Western District of New York, ordered all involved parties to return to mediation via face-to-face discussions.

The motion to approve the insurance settlement had been filed May 27 by diocesan attorneys, who sought approval of the $35 million agreement with underwriters at Lloyd’s of London, certain London market companies, Interstate Fire & Casualty Co. and National Surety Corp. According to a statement released by the diocese shortly after it filed the motion, proceeds from the settlement were intended to be the initial contribution to a fund to compensate survivors of sexual abuse.

“While the funding provided under this settlement is only a portion of the eventual ‘Survivors Fund’ to be established to settle those claims, it is a significant and substantial one,” the diocesan statement said.

During the July 9 hearing, Stephen A. Donato, an attorney representing the Diocese of Rochester, said the settlement would likely lead to an average recovery of $220,000 per survivor. This is “a significant amount of money,” he said, noting that recovery amounts demanded by the Creditors Committee had been unreasonably high.

Ilan Scharf, an attorney representing the creditors’ committee, argued that lifting the automatic stay in the bankruptcy case and allowing the 21 cases — which he stated in a court filing are representative of the more than 475 sexual-abuse claims filed in the Chapter 11 case — to obtain jury verdicts following state-court trials would help to establish values for all of the survivors’ claims.

But Warren ruled that, among other reasons, attorneys for the creditors’ committee failed to prove sufficient cause for allowing the 21 cases to go to state-court trials. Earlier in the hearing he also approved a motion to employ The Claro Group, a consulting firm that lists valuation among its areas of expertise, to provide an expert opinion about the valuation of sex-abuse cases.

After delivering his rulings on the two motions, Warren had strong words for attorneys for all parties, ordering them all to participate in mediation in Reno, Nev. before the Honorable Judge Gregg Zive, a federal bankruptcy judge for the District of Nevada who serves as mediator in the Rochester case. Zive has been serving as mediator in the case since 2020, when Warren appointed him with the agreement of all involved parties.

On July 9, Warren reminded the attorneys that this case is at its core about people, not about money. He read portions of a decision written by U.S. Bankruptcy Judge Robert R. Kressel to parties in a similar case involving the Archdiocese of St. Paul and Minneapolis in December 2017.

In the memo, Kressel emphasized that while attorneys for various parties “battled for victory,” real people were suffering. Not only were the sexual-abuse survivors suffering — with some of them dying before the case was resolved — but the cost of the case and victim compensation would fall on a completely different group of people than those who perpetrated or exacerbated the abuse, much of which took place decades before the case even began, Kressel wrote.

“It falls on current employees, including priests, teachers, coaches and on retired school librarians and others who have worked for the Archdiocese and the parishes and earned a modest retirement. The cost may fall on students at Catholic schools and their parents. It will fall on thousands of parishioners. And the cost will be born by beneficiaries of the charity and other good works by the Archdiocese and the parishes. So for all of the discussion about ‘the Archdiocese,’ ‘the creditors committee,’ ‘the parishes,’ ‘the insurance companies,’ this is really a case about people,” Kressel wrote.

In order to resolve the case, he wrote, all parties involved needed to put aside their desire to win and work together to reach an agreement that was fair to everyone.

Warren echoed Kressel’s words when he addressed the attorneys involved in the Diocese of Rochester’s bankruptcy case July 9.

“Set aside the desire to win and instead focus on how to find a way to a resolution that is fair, reasonable and acceptable to all of the people involved in and affected by this,” Warren said just before ordering all parties back to the mediation table.

“You are not to go to the mediation with your former position in hand and seek to rehash this position with Judge Zive,” he said. “Rather, you are to wipe the slate clean and participate in the mediation with fresh eyes. … I will accept no excuses for failing to participate in the mediation with Judge Zive.”

Diocesan representatives previously had expressed a desire to continue with mediation.

“The Diocese has acted in good faith over the course of multiple mediation sessions and is committed to continuing those good faith negotiations with its insurers and the Creditors Committee,” said a diocesan statement released in early June. “The Diocese believes that continued dialogue and negotiation among the Diocese, its insurers and the Creditors Committee that is guided by reasonable and realistic expectations on the part of all concerned and a dedication to swift and just resolution for survivors is the best and proper course to benefit survivors.”

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