The Rochester diocese’s unique case

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The Roman Catholic Diocese of Rochester’s bankruptcy—the 20th diocesan Chapter 11  to be filed in the United States—is unlike its predecessors, parties in the case say. 

Where the previous U.S. church settlements came only after protracted battles, the Rochester case could shape up differently, Ilan Scharf, attorney for the Creditors Committee, said during a November court hearing.  

A bankruptcy lawyer with Pachulski, Stang, Ziehl & Jones LLP in New York City, Scharf has represented abuse survivors as a creditors committee attorney in Chapter 11s filed by the North American branch of the Ireland-based Christian Brothers Catholic teaching order and the Roman Catholic Diocese of Great Falls-Billings in Montana. 

“This case is unique,” Scharf said to the court in November. “It was not filed after years of litigation. The difference is the (Child Victims Act).”

Opening a floodgate

Signed into law by Gov. Andrew Cuomo in February, the CVA has unleashed a torrent of sex-abuse claims, many aimed at the Catholic church. 

The act temporarily lifts a statute of limitations that would have barred most of the roughly 1,000 sex-abuse claims the Rochester Diocese believes it will see this year. The statute of limitations previously required individuals claiming to have been sexually abused as children to file claims by their 23rd birthday. When the CVA kicked in last August, it raised the upper age limit to 55. The new limit remains in effect for one year.   

Speaking at an October meeting with the diocese’s creditors, a group overwhelmingly made up of abuse survivors, Bishop Salvatore Matano explained the Rochester diocese’s decision to ask for court protection as driven by “the number of claims that have come forward and our resources to satisfy those claims.” The costs of adjudicating those claims in state court would exhaust the diocese’s resources, leaving virtually no funds to compensate the survivors, he said. 

In an earlier court filing that month, made some three weeks into the case, the diocese tallied its CVA-claim debt at $22 million and estimated that additional claims totaling $90 million would be submitted. The filing states the diocese’s assets including real estate and legally restricted donations at $67.95 million.

By contrast, a Chapter 11 plan the Great Falls-Billings Diocese filed in August 2018 detailed a $20 million settlement reached with 86 abuse survivors. Montana abuse survivors first filed claims against the diocese in the state’s court in 2011. The diocese submitted its Chapter 11 plan 17 months after it filed for bankruptcy.  

Staying in bankruptcy court

How much the Rochester diocese’s relatively quick transition from the state court to Bankruptcy Court might shorten the case’s timeline remains to be seen.

Scharf’s November comments came during a hearing in which Bankruptcy Court Judge Paul Warren turned down an insurance company’s bid to put part of the diocesan case back into state court. 

State law governs insurance and state court would be the appropriate forum to say how much of the diocese’s abuse liabilities it should be forced to cover, the Continental Insurance Co. maintained. 

The insurer proposed to argue in state court that it be excused from paying any claim in which the church could be shown to have had prior knowledge of an accused priest’s malfeasance, a provision that could have excused it from a significant number of claims. 

In turning down the insurer’s bid, Warren made clear his hope that warring parties would agree to mediation, a hope that Scharf seconded.

“We will need mediation, and from the Creditors Committee’s perspective, the groundwork has been laid,” Scharf told the judge in November. “Bankruptcy Court brings everyone into the same room,” and thus would be a superior venue for opposing parties to iron out compromises in mediation, he added. 

Continental’s attorney, Craig Goldblatt of Wilmer, Cutler, Pickering, Hale and Dorr LLP in Washington, D.C., said he would present the mediation proposal to his client. 

“This is not an ordinary Chapter 11,” Warren said, setting an early January date for the parties to report back.

The questions the November hearing centered on—which parties should contribute what amounts to the ultimate payout the diocese agrees to make to survivors—are key but they are not the only ones. The Roman Catholic Church’s long and until recently often hidden global history of sexual abuse underlies the dispute and colors the case’s proceedings in ways that are seldom if ever part of bankruptcy proceedings. 

Designed to settle financial debts, the U.S. Bankruptcy Code is devoid of mechanisms to settle spiritual or moral obligations. 

Is a settlement possible?

Nevertheless, an interplay between the Rochester diocese bankruptcy’s financial, spiritual, moral and emotional dimensions emerged clearly in a roughly 20-minute dialogue between Creditors Committee chair James Cali, an abuse survivor and a CPA, and Matano. The interchange took place at the halfway mark of the diocese’s four-hour first meeting with its creditors. 

“I feel a certain discomfort in making this simply about finances,” Matano told Cali. “I want to take this opportunity Mr. Cali to thank you for your leadership position in chairing the committee, and I want to express most sincerely my sorrow and offer an apology for all that the survivors have endured. 

“While this is bringing us severe financial challenges, I am well aware of the severe spiritual challenges. You know as someone who grew up in the church, the mission of the church is to bring you to Jesus and this separated you from Jesus. And this separated you and the survivors from the life of the church.”

Cali did not scorn the bishop’s apology. But he was not content to leave it at that.   

“I share your sentiment and I agreed to come forward, make my claim and give up my time to serve on this committee so that this abuse never happens in the future as well as to help the victims get over their emotional scars, to put this process behind them,” Cali began. 

He then went on to politely pose a series of questions that made clear that while abuse survivors might not demand a pound of the church’s flesh, they want clear assurance that it is willing to put adequate skin in the game.

Why, wondered Cali, did the diocese include a disclaimer in its appeal for donations to its recently kicked off $6.7 million annual Catholic Ministries Campaign?

“You state in bold: All funds raised by CMA are used for programs, services and ministry and no CMA contributions are used for the settlement of legal cases,” Cali told the bishop. 

He asked: “Why? Why will you not allocate some of CMA funds, some of the $6.7 million, to the settlement of the cases and heal the scar that you just brought up?”

Diocese chief financial officer Lisa Passero interjected, stating that the drive’s proceeds are needed to fund the diocese’s ongoing operations.

Matano added: “Some of the CMA also funds our programs for the protection of children.”

Such programs, the bishop said, include abuse reporting mechanisms, counseling for abuse survivors, and support for an Office for Safe Environment that provides education and compliance advice to the diocese’s parishes. 

That office, the bishop added, “explains the code of conduct for all clergy, religious laity, lay volunteers in our parishes,” and does background checks as well. The diocese also maintains a review board to consider abuse claims. It consists mostly of lay volunteers including medical, social work, legal and law enforcement members. 

“All this happens through the Catholic Ministries Appeal and how they help us to reach the broad spectrum of the entire diocese for the purposes of education, compliance, reporting, pastoral, spiritual, psychological counseling and that is why the appeal is so important for certainly what I have tried to make a priority in my ministry,” Matano pointed out.

Cali pressed on.

“Would you not now under these unusual circumstances we’re facing in this fiscal year eliminate the disclosure that’s on your website that says: no gifts to the CMA are to be used to satisfy legal fee or settlement costs associated with abuse?” he asked. “Will you give serious consideration in the 2019-2020 CMA to remove that restriction and allow the funds generated from the $6.7 million campaign to be used for the settlement of claims under this bankruptcy proceeding?”  

The diocese’s chief bankruptcy counsel, Stephen Donato, a Bond, Schoeneck & King PLLC member in the firm’s Syracuse office, interjected, promising that a comprehensive settlement would be worked out among all parties—the diocese, the abuse survivors and insurance companies. An option for CMA contributors could be considered but could not be promised at that time, Donato added.

“I appreciate your willingness to consider it,” Cali said, before again pressing on.

Concerning retired priests guilty of past abuses, he asked: “Is there any consideration for suspending their pensions because of the crimes they committed?” 

Donato answered definitively in the negative, explaining that priests’ pension funds are not diocese property.  

Cali also wondered how teaching orders of priests and nuns whose members staff area parochial schools and whose ranks might have contained abusers would fit into the diocese’s bankruptcy. 

Matano responded that such orders are separate organizations with their own hierarchies, apparently indicating that they would not be a source of funds to pay diocesan creditors. 

Cali pointedly questioned Passero, seeking an accounting of financial relations between the diocese and the legally separate 86 parishes its territory covers.

In a light moment, Cali probed Matano and Passero as to whether the diocese had boosted Passero’s compensation or rewarded her with a bonus before asking for court protection. When the bishop and the CFO replied that it had not, Cali suggested to Matano that in light of all the work the bankruptcy is piling on her, perhaps the diocese should think about giving Passero a generous boost in pay. 

It is too soon to predict how successful Warren might be in moving the parties toward a mutually satisfying settlement, or how soon that might happen if he is successful. 

Speaking at the October meeting, Cali made it clear that for survivors of abuse at the church’s hands, the case’s finances matter. Perhaps more importantly, though, “we don’t want this bankruptcy to be viewed as an effort to hide documents or not make full disclosure of the resources that are available in these kinds of settlements to avoid the litigation.” 

Will Astor is Rochester Beacon senior writer.

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