Milwaukee Archdiocese Owes Millions in Legal Fees

By M.L. JOHNSON | July 31, 2014

Is the Archdiocese of Milwaukee too broke to pay its legal bills?

The church says yes, but attorneys for those owed money by the archdiocese say no – and they want to get paid.

Bankruptcy Judge Susan Kelley was to decide the issue Wednesday. Kelley agreed more than a year ago that the archdiocese would not have to pay legal fees while its bankruptcy case was pending so it could keep enough cash on hand to cover at least one month’s bills.

The archdiocese filed for bankruptcy in 2011, saying it would not have the money to pay if lawsuits filed by sexual abuse victims went against it. More than 500 victims have since filed claims in federal bankruptcy court.

Bankruptcy rules require the archdiocese to pay legal fees for itself and its creditors. In this case, most creditors are victims of clergy sexual abuse. The creditors’ attorneys say the archdiocese has more cash than it anticipated when Kelley halted payments, they’re owed more than $2 million and they’d like to get paid.

The archdiocese told Kelley in January 2013 that its monthly expenses typically totaled $1.5 million to $2 million. It asked her to halt payments to its attorneys and those representing sexual abuse victims and other creditors so that it could keep roughly $2 million on hand and avoid cash flow problems. Kelley agreed.

But in a motion filed last month, victims’ attorneys said the archdiocese’s bank accounts regularly contain more money than the archdiocese predicted. They accused the archdiocese of withholding payment in order to pressure them into agreeing to its bankruptcy reorganization plan.

The plan proposed earlier this year would give 128 victims roughly $4 million from an insurance settlement. Others who have filed claims would receive nothing.

The archdiocese would use the other half of the $8 million insurance settlement and $2 million borrowed from a cemetery trust fund to cover attorneys’ fees and other bankruptcy costs. Victims who had hoped to tap into the $55 million cemetery trust fund have been outraged by the plan.

A separate, but related lawsuit over the cemetery trust fund is pending before the 7th U.S. Circuit Court of Appeals in Chicago, which heard arguments in June. It’s not clear when it might rule. Kelley has put the archdiocese’s bankruptcy case on hold until that lawsuit is resolved because the outcome could affect the archdiocese’s finances.

Archdiocese spokesman Jerry Topczewski said Tuesday that the extra cash in its accounts reflected slightly better-than-expected income and a small cut in costs. He estimated the archdiocese owed about $5.8 million in legal fees at the end of June, a sum greater than its bank balances and one that will increase with more litigation.

The victims’ attorneys expressed concern in court documents that if they must wait until the bankruptcy case is resolved, they might never get paid. They suggested the archdiocese instead borrow now from the cemetery trust fund.

“… there can be no legitimate dispute that the Archbishop, as the sole trustee of the Cemetery Trust, can make a loan to the Debtor from the Cemetery Trust anytime he wishes,” they said.

The archdiocese filed a motion Tuesday asking Kelley to send the case to a mediator to resolve.

“This seems to be the most sensible, practical and economical way to reach a resolution in the now nearly 4-year-old proceeding,” Topczewski said in an email.

A previous attempt at mediation in 2012 failed. James Stang, an attorney for the creditors, had no comment on the latest mediation request.

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