Diocese bankruptcy resolution remains elusive

Bankruptcy Judge Paul Warren has postponed his consideration of whether ballots on plan and disclosure statements might be ready to be mailed to abuse survivors in the Roman Catholic Diocese of Rochester’s Chapter 11 bankruptcy. He set another hearing for the end of January.

A vote by abuse survivors would be a first step toward bringing the more than four-year-old case to a conclusion. If survivors approve a plan, Warren’s approval would then be needed.

The main sticking point in the drawn-out case is how much Continental Insurance, also known as CNA, might contribute to a fund out of which survivors would be compensated for abuse suffered decades ago at the hands of priests and other church officials.

If Continental and other parties were to reach an agreement on the insurer’s contribution, the case might proceed relatively quickly. At present, such an agreement seems unlikely, however.

Seeking to deal with hundreds of abuse claims, the diocese asked for court protection in September 2019, a month after New York’s Child Victims Act took effect. The act created a temporary window for victims of long-past abuse to pursue abusers who otherwise were protected by a statute of limitations.

Early on, diocesan officials said they were counting on the diocese’s liability carriers to shoulder much of the more than $100 million in anticipated CVA claims. Led by Continental, several insurers balked, threatening to have some or all claims thrown out.

Warren shortly ordered the diocese, insurers and the bankruptcy’s official creditors committee into closed-door negotiations to hammer out an agreement. The committee is a body made up of abuse survivors charged by the U.S. Trustee with looking out for survivors’ interests. The talks didn’t go quickly or smoothly.  

Only this year, after the committee rejected a series of offers agreed to by the diocese and various insurers, did the diocese, insurers and the committee jointly agree to terms and file a plan. As written, that plan would create a $127.35 million trust out of which survivors would be paid.

To arrive at that sum, several insurers agreed to up their contributions to amounts totaling $27.5 million that were satisfactory to the committee. The diocese, meanwhile, agreed to add contributions by parishes, which it previously vowed to keep out of any settlement, to bring the church’s total contribution to $55 million.

Continental did not agree to a sum acceptable to the committee, leading the diocese to include a feature in its plan that would let survivors sue Continental in state court after the bankruptcy is resolved.

Objecting that such a feature could leave it open to incalculable costs, Continental responded by filing a rival plan under which it would make a $75 million contribution to the trust in exchange for immunity from future court actions against it by survivors. Complaining that amount still  falls far short of what other insurers have agreed to pay on a per-survivor basis, the committee spurned the Continental plan. Continental also objected to the diocese plan.

In a recent ruling, Warren called his recent attempts to bring Continental, the diocese and the committee to the table to work out a settlement “a perhaps naïve but well-intended effort.”

During a lengthy Dec. 19 hearing, the judge said his preference would now be to delay any definitive action in the case until as late as June 23, 2024, the last date at which the U.S. Supreme Court is expected to rule on an unrelated case that could bear on the diocese bankruptcy.  

Diocese attorney Stephen Donato repeatedly urged Warren not to wait that long but to let the 485 abuse survivors who are creditors in the bankruptcy vote on the plans as currently submitted.

While Warren said that there are many potentially complicating factors to be hammered out before plans can be sent out, Donato maintained that the diocese plan would be “100 percent” approved by survivors, obviating any such concerns.  

While Continental remains “the only dissatisfied customer” among the diocese’s insurance carriers, Continental and other parties have “come a heck of a long way” in negotiations, Donato told the court.

Though they are still at odds over how much Continental might contribute, the diocese attorney explained, Continental, the diocese and the committee are “99 percent there” on a plan to jointly present survivors with a single ballot that would let them vote for either Continental’s or the diocese’s reorganization plan or submit a ranked-choice vote favoring either as a first or second choice.

Citing concerns raised by the U.S. Trustee and others including himself over whether either plan would ultimately be confirmable, Warren referred the parties to a Dec. 14 letter to the court from an anonymous survivor who wrote that after closely following the case’s voluminous filings for years, he or she agreed with the U.S. Trustee’s motion urging that the court reject both plans.

Stating that it is “beyond belief … that we have entered the fifth year of this long-protracted court case,” the anonymous survivor called the Trustee’s motion to shelve both plans “a breath of fresh air.”

Neither the diocese plan nor Continental’s rival submission specifies how much or when individual survivors would be compensated, the anonymous survivor wrote.

“In a nutshell,” the survivor asked, “how is a survivor to vote on a plan when it is unsure how much the survivor will receive and when the survivor will receive the funds?”

Objecting to the impenetrable legal verbiage in the case’s voluminous filings, the survivor continued, “and here’s an idea, could we have a plan that’s written in plain language filed so that a survivor could understand the (plan)? A plan written by long-winded lawyers for other lawyers is not very helpful.”

His own concerns over both plans’ ultimate confirmability as currently written, as well as the U.S. Trustee’s, should be seen as “a yellow flashing light by the parties,” Warren warned.

Still, the judge ordered the diocese and Continental to turn in two-page, plain-language summaries of the plans each has submitted for him to consider prior to the Jan. 30 hearing.

Other matters remaining to be resolved include a bid by Continental to sue the diocese for expenses the insurer claims to have suffered and could bear in the future as a result of the diocese’s decision to pull out of a 2022 deal that would have had Continental contribute $63.5 million toward a settlement in exchange immunity from survivors’ state-court claims.

The diocese and the committee have each submitted papers seeking to have the insurer’s suit dismissed.

While survivors wait to be compensated as legal wrangling continues, the diocese had, as of Oct. 31, paid $12.5 million to lawyers, accountants and consultants working on the case. It continues to pay such expenses in monthly six-figure sums.

Will Astor is Rochester Beacon senior writer. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected].