After a torturous three years in Bankruptcy Court and many months of talks, the Roman Catholic Diocese of Rochester and more than 400 sexual abuse survivors with claims in the diocese’s Chapter 11 bankruptcy have agreed to terms.
The settlement agreement is an important step but far from the final chapter in the Rochester diocese’s hard-fought bankruptcy.
“There’s still a long road ahead,” predicts James Cali, chairman of the bankruptcy’s official creditors committee.
Formed by the U.S. Trustee to represent survivors’ interests, the creditors committee worked out the settlement’s terms with the diocese.
Anticipating a flood of claims under the New York Child Victims Act, the diocese asked for court protection in September 2019, a month after the CVA took effect.
The CVA temporarily lifted a statute of limitations that had kept survivors of long-past abuse suffered as children from going after their abusers. A virtual tsunami of CVA cases filed against Catholic churches across the state followed. The Rochester diocese was the first to file for bankruptcy protection.
Dioceses in Buffalo, Syracuse and Rockville Center, Long Island, followed and remain to be resolved. The Rochester case could be a bellwether, providing a model for settling those equally hard-fought cases.
Filed Thursday in the Western District of New York Bankruptcy Court’s Rochester Division by the diocese, the agreement calls for the diocese and its parishes to jointly contribute $55 million to a fund to compensate survivors.
The bankruptcy will not be finally resolved until the diocese puts forward a reorganization plan that creditors agree to and Bankruptcy Judge Paul Warren signs off on.
Confirmation of such plans often takes four to six months. Creditors committee attorney Ilan Scharf predicts a slog of at least six months before a Rochester diocese plan can be finalized.
Whether or how much the church’s insurance carriers might agree to kick in remains a wild card. It remains to be seen whether the dozen or more insurers that could be on the hook might individually or as a group agree to payouts that would satisfy survivors.
In a bid rejected by a committee representing survivors in the bankruptcy last May, the diocese and its insurers proposed a $147.5 million settlement. That deal would have seen insurers contribute $107.5 million and the diocese kick in $40.5 million. Parishes and other so-called related entities would have contributed nothing.
The creditors committee said it nixed that plan because survivors had not been consulted. The committee had earlier turned thumbs down on a plan put forward by the diocese and several insurers that would have paid $35 million, an amount Scharf dismissed as woefully inadequate.
In a letter to the faithful published Thursday, Rochester diocese Bishop Salvatore Matano acknowledged that the deal the diocese agreed to this week breaks a promise he made to parishioners three years ago.
“As I indicated in my September 12, 2019 letter to the faithful,” the bishop wrote, “it was my hope that our parishes and related Catholic entities would not be directly affected by the Diocese’s Chapter 11 proceeding; however, this changed over the past three years.”
What changed was the creditors committee’s decision last spring to back out of a Bankruptcy Court agreement that had frozen some 300 state-court CVA lawsuits against parish churches and other related third parties like the church-run Camp Stella Maris and the Catholic Youth Organization.
Matano was able to make the 2019 promise because New York Catholic dioceses including Rochester’s have incorporated each parish and other third parties as entities legally separate from their parent dioceses.
Church law puts bishops firmly in charge of parishes and other such organizations. So, to reconcile the apparent breach between secular and church law, each New York diocese’s bishop is president of each parish corporation and related organization in his particular diocese.
Under the U.S. Bankruptcy Code, legally separate parishes cannot be parties to diocesan bankruptcies. On the upside for the church, that means parishes do not have to pay claims filed in a diocese’s bankruptcy. But they could still be targets of separately filed lawsuits and do not enjoy the Chapter 11 court protection afforded to a diocese.
In hopes of reaching a global settlement through the bankruptcy at the start of the Rochester diocese case, the creditors committee agreed to put a hold on hundreds of state court CVA cases filed against parishes and other third parties.
That pact was renewed 11 times. But, frustrated with the glacial pace of negotiations, the committee declined to agree to any further renewal last spring. That awakened state court cases, which have since then been proceeding in an Erie County court under Supreme Court Justice Deborah Chimes, one of several judges who received special training to preside over sensitive CVA cases. Terms of the settlement agreement call for those cases to be paused again until the bankruptcy is concluded.
As Matano explains the church’s dilemma in his Nov. 3 letter, “because individual parishes and other related Catholic entities were named in individual lawsuits and bear substantial risk of direct liability to claimants in individual state court actions, the parishes and other related Catholic entities understand that they will benefit from their participation in this agreement by obtaining a channeling injunction which will channel all existing and future claims to the trust established for this purpose.”
Terms of the channeling injunction call for the diocese, parishes and other third parties to surrender their right to collect insurance claims from their carriers to the trust set up to pay survivors, a feature that lawyers representing survivors hope will pressure insurers to agree to an acceptable settlement.
In exchange for surrendering those rights and agreeing to put $55 million into the trust, the diocese, parishes and other related third parties would end their own liability in the bankruptcy and in state court claims.
If insurers don’t reach an agreement in the bankruptcy, state court CVA cases could still proceed, but any judgments won by survivors against the diocese, a parish church or other third parties would have to be paid by whichever insurance company carried the relevant liability policy. Insurers would have little chance if any of fighting such judgments. Payouts could add up to hundreds of millions of dollars.
Survivors attorney Leander James represents 76 claimants in the Rochester diocese bankruptcy. He hopes the threat of having to pay out hundreds of state court judgments will induce insurers to reach a global settlement in the bankruptcy but concedes that such an agreement is not a given.
“Some insurers might agree. Others might not,” he notes. “It’s up to each company.”
At this point in the bankruptcy, a final outcome cannot be definitively predicted, says James. Other non-diocese-related parties like Catholic schools, teaching orders and individual abusers that were sued in CVA actions would not be covered by a diocese bankruptcy settlement, he says.
“The committee has sought a fair and reasonable resolution for Rochester’s survivors for over three years,” says creditors committee attorney Scharf. “It will continue to do so as we move into the next phase of this process, which will seek an appropriate payment from the diocese’s insurers.”
In the meantime, the diocese continues to pay high six-figure sums monthly to cover fees of lawyers, accountants and consultants working on the bankruptcy. As of Sept. 30, those costs came to $8 million.