After three torturous 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 a significant step but far from the final chapter in the hard-fought bankruptcy of the Diocese of Rochester.
“There is still a long way to go,” predicts James Cali, chairman of the official bankruptcy creditors’ committee.
Formed by the US trustee to represent the interests of survivors, the creditors’ committee worked out the terms of the settlement with the diocese.
Anticipating a flood of claims under New York’s Child Victims Act, the diocese sought court protection in September 2019, a month after the CVA took effect.
The CVA temporarily lifted a statute of limitations that had prevented survivors of long-time childhood abuse from going after their abusers. A virtual tsunami of CVA cases filed against Catholic churches across the state followed. The Diocese of Rochester was the first to file for bankruptcy protection.
The dioceses of Buffalo, Syracuse and Rockville Center, Long Island followed and remain to be resolved. The Rochester case could be an indicator, providing a template for settling these equally hotly contested cases.
Filed Thursday in the Western District of the Rochester Division of New York Bankruptcy Court by the Diocese, the agreeis lying asks the diocese and its parishes to jointly contribute $55 million to a compensation fund for survivors.
The bankruptcy will not be finally resolved until the Diocese proposes a reorganization plan accepted by creditors and approved by Bankruptcy Judge Paul Warren.
Confirmation of such plans often takes four to six months. Creditors’ committee lawyer Ilan Scharf predicts a drag of at least six months before a plan for the Diocese of Rochester can be finalized.
Whether or how much church insurance companies might agree to step in remains a wildcard. It remains to be seen whether the dozen or more insurers who may be on the hook could individually or as a group accept payments that would satisfy survivors.
In a bid rejected by a committee representing bankruptcy survivors last May, the diocese and its insurers offered a $147.5 million settlement. That deal would have seen insurers pay out $107.5 million and the diocese pay out $45 million. The parishes and other so-called related entities would have contributed nothing.
The creditors’ committee said it canceled that plan because survivors had not been consulted. The committee previously rejected a plan proposed by the diocese and several insurers that would have paid $35 million, an amount Scharf dismissed as woefully insufficient.
In a leave aloneuh at the faithfulPublished Thursday, the Bishop of the Diocese of Rochester, Salvatore Matano, acknowledged that the agreement reached by the diocese this week breaks a promise he made to parishioners three years ago.
“As I indicated in my September 12, 2019, letter to the congregants,” the Bishop wrote, “I hoped that our parishes and related Catholic entities would not be directly affected by the Diocese’s Chapter 11 proceedings; however, this has changed over the past three years.
What changed was the decision of the creditors’ committee last spring to withdraw from a bankruptcy court agreement that had frozen some 300 lawsuits against parish churches and other related third parties like Camp Stella. Maris and the Catholic Youth Organization.
Matano was able to make the 2019 pledge because Catholic dioceses in New York, including that of Rochester, incorporated each parish and other third parties as legally separate entities from their parent dioceses.
Church law places bishops firmly in charge of parishes and other similar organizations. Thus, to reconcile the apparent rift between secular law and ecclesiastical law, the bishop of each New York diocese is president of each parochial 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 positive side for the church, this means that parishes do not have to pay claims filed when a diocese goes bankrupt. But they could still be the target of lawsuits filed separately and don’t have the Chapter 11 court protection afforded to a diocese.
Hoping to reach a comprehensive settlement through the early bankruptcy of the Diocese of Rochester case, the creditors’ committee agreed to stay hundreds of CVA cases in state court filed against parishes and other third parties.
This pact has been renewed 11 times. But, frustrated by the icy pace of the negotiations, the committee refused to accept any new renewals last spring. That roused state court cases, which have since been unfolding in an Erie County court under Supreme Court Justice Deborah Chimes, one of several judges who have received special training to presiding over sensitive CVA affairs. The terms of the settlement agreement provide for these matters to be further suspended 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 have been named in individual lawsuits and bear substantial risk of direct liability to plaintiffs in actions individuals, 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.
The terms of the channeling injunction call on the diocese, parishes and other third parties to cede their right to collect insurance claims from their insurers to the trust set up to pay survivors, a feature that lawyers representing the survivors hope to pressure insurers into agreeing to an acceptable settlement.
In exchange for giving up these 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 the lawsuits of the state.
If the insurers fail to reach an agreement in the bankruptcy, CVA’s cases in state court could still proceed, but any judgment won by the survivors against the diocese, a parish church or other third parties would have to be paid. by the insurance company that bears the relevant liability. Politics. Insurers would have little, if any, chance to fight such judgments. The payments could amount to hundreds of millions of dollars.
Survivor attorney Leander James is representing 76 claimants in the Diocese of Rochester bankruptcy. He hopes the threat of having to pay hundreds of state court judgments will spur insurers to reach a comprehensive bankruptcy settlement, but admits such an agreement is not a given.
“Some insurers might agree. Others might not,” he notes. “It depends on each company.”
At this point in the bankruptcy, an end result cannot be definitively predicted, James says. Other non-diocesan parties like Catholic schools, colleges of teachers and individual attackers who have been sued in CVA actions would not be covered by a diocesan bankruptcy settlement, he says.
“The committee has been seeking a just and reasonable solution for the survivors of Rochester for more than three years,” creditors’ committee attorney Scharf said. “He will continue to do so as we move into the next phase of this process, which will require appropriate payment from Diocesan insurers.”
In the meantime, the diocese continues to pay high six-figure sums every month to cover the fees of lawyers, accountants and consultants working on the bankruptcy. As of September 30, edare costs amounted to $8 million.
Does Astor is the Senior Writer of Rochester Beacon. The Beacon welcomes feedback from readers who adhere to our comments policy including the use of their full real name.