Attorney’s fees in diocese’s bankruptcy mount

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Bankruptcy Judge Paul Warren is scheduled next week to consider bills totaling $1.6 million in the first round of attorney’s fee requests in the Roman Catholic Diocese of Rochester’s Chapter 11 bankruptcy.   

Five firms have submitted bills. Their billing meters started ticking with the case’s inception in mid-September. Slated to be considered by the court at a May 13 hearing, the first-round fee requests reflect bills for services rendered through Jan. 31. 

Filed in the Western District of New York’s Rochester Division, the Chapter 11 case began as the state’s Child Victims Act opened a one-year window temporarily lifting the statute of limitations on sex-abuse claims. The case continues to rack up expenses and promises to keep generating hefty legal bills for months to come.

New York’s statute of limitations ordinarily requires survivors claiming childhood sexual abuse to file civil claims by a survivor’s 23rd birthday. The act extends the top age to file complaints to 55 during a one-year window that started in mid-August of last year and is set to close Aug. 14. 

In court filings, the diocese has estimated that survivors’ claims could total as much as $100 million. It hopes to see much if not all of the amount abuse survivors ultimately collect covered by insurance. 

Currently conducted through written submissions to the court, telephonic proceedings and online conferencing, bankruptcy proceedings could continue well past the CVA’s Aug. 14 sunset. 

Negotiations are ongoing among diocesan officials, a committee made up of abuse survivors and insurance companies that at various times wrote liability policies for the diocese. Such talks, plus a steady stream of legal pleadings, make for many billable hours. 

The money to pay lawyers, accountants and other professionals providing services in bankruptcies is drawn from the filing party’s assets, so higher fees means less to split among creditors.

Citing the size and complexity of the diocese’s bankruptcy, Assistant U.S. Trustee Kathleen Schmitt in March asked Warren to appoint an independent examiner to monitor and analyze attorneys’ billings. 

Schmitt runs the Rochester office of the U.S. Trustee, a Justice Department agency tasked with keeping tabs on bankruptcy proceedings. 

“Given the sensitive nature and public interest of the case, the appointment of a fee examiner will help ensure public confidence in the bankruptcy system,” Schmitt wrote in a Mar. 20 motion asking for the independent examiner appointment. 

“The diocese believes that the appointment of a fee examiner is neither necessary nor appropriate at this time and may not be necessary or appropriate at any point in this Chapter 11 Case,” wrote diocese attorney Stephen Donato of Bond, Schoeneck & King PLLC in an Apr. 10 motion opposing Schmitt’s request. 

Reviews of monthly billing statements, which are being done by the diocese’s finance officials and Schmitt’s office, should be sufficient. Adding an independent reviewer who inevitably would hire his or her own staff would add cost but not value to the case, Donato argued. 

Donato asked Warren to hold off on ruling until after the May 13 hearing, but the judge, in a decision handed down in mid-April, sided with the diocese, concluding that Schmitt’s office has adequate resources including billing analysis software to keep tabs on fee applications. 

“This case is not so complex as to justify piling on an additional layer of administrative expense (multiplied by the expenses generated by the many other professionals a fee examiner is likely to seek to have appointed), with the potential to negatively impact the amount of recovery otherwise available for each sexual abuse claimant,” Warren states in the ruling.

In a separate matter, the Rochester diocese along with the Roman Catholic Diocese of Buffalo, which filed a Chapter 11 case in February, are fighting the federal Small Business Administration over the SBA’s denial of loans the dioceses sought under the Coronavirus Aid, Relief, and Economic Security Act.

As part of the CARES Act, Congress set aside $349 billion to go to small businesses impacted by COVID-19 shutdown orders in a Paycheck Protection Program meant to give small businesses money to retain workers. 

The dioceses’ court complaint states that they applied for PPP loans on grounds that they, “like many other businesses, have been financially affected by the COVID-19 pandemic in ways that could not have been foreseen.”  

Church services canceled by New York’s stay-at-home orders and rules limiting public gatherings have turned off the spigot on donations that normally replenish diocesan coffers, the court complaint states.

Donations collected during weekly services are a “primary source of income,” the brief states. The pandemic shutdown’s timing, which fell during the Catholic faith’s Holy Week, meant that churches had to be shuttered for Easter Sunday Mass, an event when “a significant portion of the offertory collections occur.”

In the court complaint, the dioceses argue that while religious organizations are supposed to be eligible for PPP loans, the SBA denied their applications under a rule excluding businesses in bankruptcy. That rule was in effect for the program’s first day, but was eliminated only days later, the court complaint states. And in any event, the church organizations contend, the rule violates federal law. They are asking for a preliminary injunction ordering the SBA to reverse their loan denials. 

How much a court victory in the case would profit the dioceses is not clear.

The initial round of PPP funding was gone within two weeks of the program’s Mar. 27 kickoff. Critics complained much of the money went to large public companies like restaurant chains with better access to other funding sources than scores of smaller businesses that were pushed out of the way.

The SBA and banks began out a second $310 billion round of PPP funding Apr. 27. According to Pymnts.com, more than half of that money was claimed by May 4, leaving on that date $135 billion in the fund. How much more such funding Congress will appropriate if any remains to be seen. 

Will Astor is Rochester Beacon senior writer.

One thought on “Attorney’s fees in diocese’s bankruptcy mount

  1. Given First amendment proscription of separation of church and state what is the rationale for churches being given ‘bailout’ money under PPP funding? Granted $ not going to clergy, yet $ going to support of church.

    An e-mail was sent Mr. Morelle – with no response

    Best
    Jerry Cheplowitz

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