Bankruptcy judge erred, diocese contends

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Bankruptcy Judge Paul Warren erred in letting abuse survivors’ individually filed claims against the Roman Catholic Diocese of Rochester’s parishes move ahead, the diocese argues in papers filed recently in the Western District of New York’s Rochester Division.

The diocese’s appeal brief comes some three months after it filed a notice of its intention to appeal Warren’s May ruling. In that decision, Warren said some 300 individually filed state court Child Victims Act claims against Rochester Catholic parishes that had been stayed since the bankruptcy’s filing could resume.  

The state passed the CVA in 2019. The act temporarily eliminated a statute of limitations on certain sex-abuse crimes, making it possible for victims—now middle aged and older—to seek redress for abuse they had suffered as children decades ago. A virtual tsunami of CVA claims followed, with many hitting the Catholic Church and the Boy Scouts of America.

Faced with its own flood of such claims, the Rochester diocese sought Chapter 11 bankruptcy court protection in September 2019, a month after the CVA took effect. Catholic dioceses in Buffalo, Syracuse and Long Island followed suit.

The Rochester case has since plodded through the court as settlement negotiations that Warren ordered three years ago have so far failed to yield an agreement. Parties to the talks are the diocese, its liability carriers and the official creditors committee, a body made up of abuse survivors with claims in the case.

The other three New York diocesan bankruptcies are likely to take their cue from the Rochester case. The same bankruptcy attorney, Bond, Schoeneck & King member Stephen Donato, oversees the Rochester, Buffalo and Syracuse diocesan cases.

The court fight over the Rochester state-court parish cases, meanwhile, could play an important  role in setting terms for any settlement the Rochester diocese might ultimately reach with abuse survivors.

The state court cases were originally frozen under an agreement inked between the diocese and the creditors committee. Before its cancellation in May, the pact had been renewed 11 times.

The Bankruptcy Code calls for all filers to enjoy a so-called automatic stay halting all state and federal court actions against them while their bankruptcies play out. Such stays are meant to halt proceedings like evictions to give filers time to resolve such issues without undue pressure. Because of the way New York’s Catholic dioceses have legally organized themselves, individual automatic-stay protection does not extend to parishes.

While church law puts a diocese’s parishes firmly under the control of each diocese’s bishop, New York’s Catholic dioceses have registered each of their parishes as individual corporations.

Each diocese’s bishop is president of each parish corporation, preserving the authority granted to bishops under church law. But when the Rochester diocese filed its bankruptcy, a special agreement was needed to keep its parishes out of court. 

For the church, that arrangement has proved to be a two-edged sword. Early in the bankruptcy, parishes’ legally separate status led Rochester Diocese Bishop Salvatore Matano to reassure parishioners that the bankruptcy would not affect their churches and to assure contributors to church charitable drives that their donations would not go toward settling court claims. That status also deprives parishes of bankruptcy court protection, however.

In May, the creditors committee, a body made up of abuse survivors with claims in the case, upended the parish-stay agreement, refusing to extend the pact. Survivors like creditors committee chair Jim Cali had long voiced frustration over lack of progress in negotiations toward a settlement. Reopening scores of cases against individual parishes would pressure the diocese to break what survivors see as a deadlock in the long-running settlement talks.

Survivors had previously turned down a diocese bid to settle some cases for $35 million. That offer—put forward in 2021—was a non-starter that would give survivors short shrift, creditors committee attorney Ilan Scharf told the Rochester Beacon at the time.

In July, the diocese put forward a $147.5 million offer in which it would pay $40 million, with insurance companies paying the rest. The creditors committee and lawyers representing survivors in state court cases spurned the offer, complaining that the deal had been worked out between the diocese and insurers with no input from survivors.

The creditors committee’s cancellation of parish agreement, meanwhile, had set up a court fight. With Warren’s May ruling, the diocese lost round one. With the appeal, it hopes to prevail in round two.

The diocese sees the committee’s move to upend the stay on parish cases as a negotiating ploy amounting to “an ultimatum that the diocese must either capitulate to the committee’s terms of settlement or else face a tidal wave of litigation,” Donato writes in the appeal brief.  

“Clearly,” he asserts, “the committee and many of the claimants view litigation against the Catholic corporations as a key point of leverage to extract a higher settlement value for prepetition claims against the Diocese through mediation in the chapter 11 case.”

Donato asserts in the brief that because the diocese’s and its parishes’ affairs are entangled, the Bankruptcy Code requires that the automatic stay be extended to the parishes as “related parties.” Warren erred in virtually every aspect of his decision to let the state court cases move forward, he argues.

Neither the creditors committee nor lawyers representing abuse survivors in state court cases have yet answered the appeal brief.

Will Astor is Rochester Beacon senior writer. The Beacon welcomes comments from readers who adhere to our comment policy including use of their full, real name.

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