James Cali is losing heart.
The chairman of the creditors committee in the Roman Catholic Diocese of Rochester’s Chapter 11 bankruptcy believes negotiations between the diocese and insurance companies it hopes will cover the heavy liabilities it expects to incur could be stalled, perhaps fatally.
If the talks fail, he fears, the case will collapse, and he and other abuse survivors could see their hopes of an end to pain they have carried with them for decades evaporate.
A CPA who has worked as a forensic accountant for plaintiffs’ attorneys in two class actions that ended with plaintiffs winning sizable settlements, Cali is not unfamiliar with court proceedings.
Rather than try to wait out what he fears is an irretrievably stalled negotiation, Cali says he believes that he and other abuse survivors might be better served by taking their complaints back to where they were originally filed, in state court.
The Rochester diocese asked for court protection in September 2019, about a month after New York’s Child Victims Act took effect. In the period between the act’s February 2019 passage and its going into effect in August, the diocese had quietly settled a few claims of long past abuse without going to trial.
But by temporarily lifting a five-year statute of limitations on sex-abuse claims, the CVA opened a virtual floodgate, allowing thousands across the state whose claims would have otherwise been time barred to sue. By August 2019, 200 individuals had hit the Rochester diocese with abuse complaints in state court.
“The costs of adjudicating those claims in state court would exhaust the diocese’s resources, leaving virtually no funds to compensate the survivors,” Bishop Salvatore Matano explained at the time, testifying in a Bankruptcy Court proceeding to the diocese’s need for the court’s protection.
Bankruptcies put all other court cases debtors face on hold, freezing them in time until the bankruptcy is settled. Creditors have ways around that rule. They can ask a bankruptcy judge to lift the automatic stay on a case, unfreezing the hold while the bankruptcy case continues, or they can ask a judge to dismiss the bankruptcy case entirely, removing the debtor’s court protection.
Cali would like to see one of those two options applied to the diocese’s Chapter 11. He has yet to propose either to fellow committee members but says he is getting closer to doing so.
In the nearly two years since the Rochester diocese bankruptcy was filed, the number of individuals alleging that they were sexually abused as children by priests and other church functionaries who have registered as creditors in the case has more than doubled, standing now at 485.
Survivors alleging long past sexual abuse can still file state court claims until August, when the CVA is set to expire. (The state, in a bow to COVID-19, extended the original August 2020 deadline by a year.) Because the Rochester Bankruptcy Court honored the original deadline, no new claims have been filed in the bankruptcy since August 2020.
In late 2020, when claims stood at 200, Rochester Diocese chief financial officer Lisa Passero testified that the diocese could be on the hook for as much as $100 million. The diocese was counting on insurance to cover most if not all its liabilities, she said.
Chapter 11 bankruptcies are supposed to give debtors, most of which are businesses, breathing room instead of forcing them to fold operations.
While court actions are held at bay, debtors are supposed to come with a plan to fairly pay creditors. Without knowing the outcome of the mediation with its insurers, the diocese has not been ready to submit a plan.
The Rochester diocese was the first in the state to seek court protection. Three others—the Roman Catholic dioceses of Syracuse and Buffalo and Rockville Centre, Long Island—have since followed suit, filing Chapter 11 cases last year.
Rockville is the largest Catholic diocese in the state. The Southern District of New York Bankruptcy Court lists the Long Island diocese’s case as one of 82 “mega cases” now swelling its docket. At its outset, Rockville faced the same number of claims as Rochester, 200.
With the Catholic Church facing payouts that could total in the high hundreds of millions of dollars across the state, authorities above Matano in the church hierarchy could be making decisions and taking a more hard-headed stance than Matano might be inclined to take, Cali fears.
Asked for comment on the status of negotiations with insurers and whether Matano has the final say in the Rochester diocese bankruptcy, Douglas Mandelaro, director of the diocese’s Office of Stewardship and Communication, says “the Diocese of Rochester has been committed to fully cooperating in our bankruptcy proceedings with all concerned parties. As we stated when we filed in September 2019, the Diocese’s goal is to bring this matter to a conclusion as soon as possible in order to continue the work of healing and reconciliation, both for victims and our diocesan family. We decline further comment.”
What options the church might have if insurers manage to avoid or substantially reduce their payout is not clear. The question of how much of the abuse-claim burden insurance companies might bear is supposed to have been worked out in the talks that Cali fears are stalled.
Parties directly involved in the Rochester case’s mediation are lawyers for the diocese, insurance company lawyers and an attorney representing the creditors committee. Citing a need to maintain confidentiality in the court-ordered talks, all declined to comment on the mediation’s status or divulge particulars under discussion.
Going into the mediation, lawyers on all sides were optimistic.
“This case is unique. It was not filed after years of litigation. The difference is the (Child Victims Act,” creditors committee attorney Ilan Scharf declared during a court session in November 2019. Bypassing time-consuming state-court arguments and consolidating claims in a single court action could speed the process considerably, he predicted.
Diocese attorney Stephen Donato nodded in agreement. Craig Goldblatt of Wilmer, Cutler, Pickering, Hale and Dorr LLP, an attorney then representing the Continental Insurance Co., which was balking at making payouts, said he saw no reason why insurers would object.
In predicting a possibly easier slog than past diocesan bankruptcies, Scharf looked to his prior experience.
A bankruptcy lawyer with Pachulski, Stang, Ziehl & Jones LLP in New York City, Scharf has served as 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. In addition to the Rochester diocese, he is currently representing creditors committees in the Buffalo and Rockville Centre diocesan bankruptcies.
A key difference between the cases Scharf is handling now and the ones he previously navigated: Payouts in the previous cases were a lot smaller than are expected in the current round. In the Montana case, some 400 claimants split $20 million. Eighty-six abuse survivors were awarded $16 million in the Christian Brothers case.
Mediation sessions between the Rochester diocese and insurers began in the fall of 2019. The trigger for starting talks was a complaint filed in Bankruptcy Court by the diocese targeting more than a dozen insurers.
The AP factor
The diocese’s complaint, a type of Bankruptcy Court action known as an adversarial proceeding or AP, cites various grounds for insurers’ claims to not be liable for abuse claims. It seeks to stop them from entirely begging off of or limiting their payouts.
In an example of a complaint against the diocese it proposed to submit if Bankruptcy Court Judge Paul Warren allowed the case to be filed in state court, one company maintained that it should not have to pay in cases where the diocese could be shown to have been aware of abusive priests’ proclivities. In light of church records detailing transfers of accused priests among parishes or being sent into treatment, such a condition could excuse insurers from a substantial share of payouts.
Warren denied the insurer’s request to take its beef to state court and put the AP on hold, telling the parties to try to work out their differences in mediation.
In the last year and a half, the Catholic dioceses of Syracuse and Buffalo and Rochester have all filed APs seeking court declarations to force balking insurers to make sex-abuse claim payouts.
Donato, the Syracuse-based head of Bond, Schoeneck & King PLLC’s bankruptcy group, represents all three upstate dioceses. Some insurers have written coverage for two or three New York Catholic dioceses.
Cali wants to see abuse survivors fairly compensated, but for him the case is not strictly a matter of money. At the diocese’s first meeting with creditors in October 2019, Cali laid out his priorities in an extended dialogue with Matano.
“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 told the bishop.
Matano responded: “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.”
A history of abuse
Like many abuse survivors, Cali, 65, did not openly speak of the abuse he suffered as a child until he was well into his adulthood. One of his chief fears now is that if the case continues to stall, some survivors could die before it is resolved.
A July 30, 2020, state court CVA claim in Monroe County that, like all CVA claims, allows plaintiffs to file anonymously, identifies the plaintiff only as LG 71 DOE. The priest named the cause is Father William Lum, the same man Cali names as his abuser.
LG 71 DOE’s complaint describes its plaintiff, who was 43 when the complaint was filed last year, as “the child (who) suffered, and continues to suffer great physical and emotional pain of mind and body, shock, emotional distress, physical manifestations of emotional distress, flashbacks, embarrassment, loss of self-esteem, disgrace, humiliation, and loss of enjoyment of life.”
In 1997, local news organizations reported that Lum pleaded guilty to misdemeanor charge of sexual abuse, admitting to having engaged in sex with a then 16-year-old boy five years earlier.
The abuse victim lost a 1997 civil action filed against Lum and the diocese. The diocese offered the victim a cash settlement, anyway. But the victim’s lawyer said his then 21-year-old client, whom he described as traumatized and destitute for reasons including abuse suffered at Lum’s hands, was “not happy.”
Diocesan records list Lum among priests found to have been abusers, who have been barred from contact with parishioners and as of 2002 assigned to a life of prayer and penance.
In February, Lum’s lawyer, Rochester attorney Charles Schiano, filed motions in Cali’s and LG 71 DOE’s cases seeking to have the words child molester stricken from LG 71 DOE’s complaint and seven paragraphs identified only by numbers stricken from Cali’s complaint. Those two words “are not necessary or pertinent as to proof and have no place in a pleading,” Schiano argued in LG 71 DOE’s case. He used identical language in Cali’s case.
State Supreme Court Justice Deborah Chimes agreed, ordering the LG 71 DOE’s lawyer to write a new complaint with the offending words stricken. No decision is on file on the motion in Cali’s case.
Cali says he believed Matano was sincere in offering him words of comfort in 2019 and believes now that the bishop still means what he said then. Still, given the swath of claims the Catholic Church faces across the state, Cali wonders whether the final word might reside with an authority higher in the state’s church hierarchy who might see protection of church assets as a top priority.
Cardinal Timothy Dolan is the highest-ranking church official in New York. Documents released in 2013 by Milwaukee Archbishop Jerome Listecki revealed that in 2007, when Dolan was archbishop of Milwaukee, he secretly arranged to move $57 million into a church cemetery fund, effectively shielding the funds from going to settle abuse claims.
Dolan, who has since publicly expressed sympathy with and support for abuse survivors, has denied having moved the money to keep it out of abuse survivors’ hands. But letters he wrote to church officials as an archbishop that were among the trove of documents Listecki released told a different story. They revealed the transfer and showed that Dolan made protection of the church’s funds and reputation in the face of abuse claims his top priority.
A 2013 New York Times report described communications between Dolan and Vatican officials and contained excerpts at odds with the stance Dolan was taking publicly. Links to Dolan’s letters that were included in the Times story now appear to have been removed from church archives.
In a 2007 letter seeking the Vatican’s permission to move $57 million into the cemetery fund, the Times reported, Dolan wrote: “I foresee an improved protection of these funds from any legal claim and liability.” In an earlier letter written in 2003 to the then head of the Vatican office dealing with abuse, Cardinal Joseph Ratzinger, who later became Pope Benedict XVI, Dolan warned that “as victims organize and become more public, the potential for true scandal is very real.”
In 2018, the Catholic Bishops of New York sold Fidelis Care, a health insurer whose founders include Rochester Diocese Bishop Emeritus Matthew Clark, to the publicly traded insurance company Centene Corp.
The church used proceeds from the $3.75 billion sale to set up the Mother Cabrini Health Foundation, a nonprofit focused on providing care to vulnerable populations.
In a February interview, Scharf, who also represents creditors committees in the Buffalo and Long Island diocese’s bankruptcies, told the Albany Times-Union that the sale “is certainly a transaction that is on our radar. The fact that they are hiding behind what they claim are legal structures that protect these assets is no excuse for them to avoid using that money to help the victims of these dioceses.”
Are the Rochester talks, as Cali fears, hopelessly stalemated?
“Anything can always be worked out,” says Scharf in an echo of his initial optimism.
Still, he adds, “what we’re seeing in bankruptcy cases across the country in negotiations with insurance companies and dioceses and other entities that are responsible for abuse is that they are really digging in their heels on a settlement at a reasonable amount.
“If people want to settle incredibly cheaply, I think we could do that overnight. But realistically, we’ve seen insurance companies digging their heels in, and dioceses digging their heels in and other defendants digging their heels in in terms of coming to fair value. There’s probably a variety of reasons for that, but that’s really what we’re seeing.”
Will Astor is Rochester Beacon senior writer.