After three agonizing years in bankruptcy court and many months of talks, the Roman Catholic Diocese of Rochester and more than 400 sex abuse survivors with claims in the diocese’s Chapter 11 bankruptcy case have agreed to terms.
The settlement agreement is an important step, but it is far from the final chapter in the hard-fought bankruptcy of the Diocese of Rochester.
“There’s still a long way to go,” predicts James Cali, chairman of the bankruptcy’s official creditors’ committee.
The Creditors’ Committee, formed by the US Trustee to represent the interests of the survivors, worked out the terms of the settlement with the diocese.
Anticipating a spate of lawsuits under the New York Child Victims Act, the diocese filed for judicial protection in September 2019, a month after the CVA went into effect.
The CVA temporarily lifted a statute of limitations that had prevented survivors of past abuse suffered as children from prosecuting their abusers. A veritable tsunami of CVA lawsuits against Catholic churches across the state ensued. The Diocese of Rochester was the first to file for bankruptcy protection.
Dioceses in Buffalo, Syracuse, and Rockville Center, Long Island followed and have yet to be dissolved. The Rochester case could serve as an example and provide a model for settling these equally hard-fought cases.
The agreement, filed Thursday in the Rochester Division of the Western District of New York Bankruptcy Court by the diocese, would see the diocese and its congregations jointly contribute $55 million to a fund to compensate survivors.
The bankruptcy will not be finally resolved until the diocese presents a reorganization plan, which is approved by creditors and bankruptcy judge Paul Warren signs off.
Such plans often take four to six months to be confirmed. Attorney for the creditors’ committee, Ilan Scharf, predicts at least six months of drudgery before a Rochester diocese plan can be finalized.
Whether or to what extent the church insurance carriers could step in remains a joker. It remains to be seen whether the dozen or more insurers who could be on the hook, individually or as a group, could agree on payouts that would satisfy survivors.
In an offer rejected by a committee representing survivors of last May’s bankruptcy, the diocese and its insurers proposed a $147.5 million settlement. In that deal, the insurers would have contributed $107.5 million and the diocese would have contributed $45 million. Parishes and other so-called affiliated institutions would not have contributed.
The creditors’ committee said it thwarted that plan because the bereaved were not consulted. The committee had previously rejected a plan submitted by the diocese and several insurers that would have paid $35 million, an amount that Scharf dismissed as grossly inadequate.
In a letter to the faithful published on Thursday, Bishop of the Diocese of Rochester Salvatore Matano acknowledged that the deal approved by the diocese this week breaks a promise he made to parishioners three years ago.
“As I indicated in my letter to the faithful of September 12, 2019,” the bishop wrote, “it was my hope that our parishes and related Catholic entities would not be directly affected by the diocesan Chapter 11 proceedings; However, this has changed in the last three years.”
What has changed was the decision by the creditors’ committee last spring to back out of a bankruptcy court agreement that had frozen about 300 CVA lawsuits in state courts 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 pledge because the Catholic dioceses of New York, including Rochester, incorporated each parish and other third parties as legally separate entities from their parent dioceses.
Canon law gives bishops firm responsibility for parishes and other such organizations. To smooth the apparent breach between civil and canon law, the bishop of each New York diocese is president of each parish and related organization in his respective diocese.
Under US Bankruptcy Law, legally separate congregations cannot be involved in diocesan bankruptcies. On the plus side for the church, this means congregations do not have to pay claims filed in a diocese’s bankruptcy. But they could still be the target of separately filed lawsuits and do not enjoy the Chapter 11 judicial protection afforded to a diocese.
Hoping to reach a global settlement by filing for bankruptcy early in the Rochester Diocese’s case, the Board of Creditors agreed to shelve hundreds of state court CVA cases filed against parishes and other third parties.
This pact was renewed eleven times. Frustrated by the icy pace of negotiations, however, the committee rejected any further extension last spring. This sparked state court cases that have since been tried 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. The terms of the settlement agreement provide that these cases will again be suspended until the bankruptcy is resolved.
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 face significant risk of direct liability to plaintiffs in individual state court cases, the parishes and other related Catholic entities understand Entities that they will benefit from their participation in this Agreement by obtaining an injunction transferring all existing and future claims to the Trust established for this purpose.”
The terms of the injunction require the diocese, parishes and other third parties to cede their right to collect insurance claims from their carriers to the trust set up to pay survivors, a function that attorneys representing survivors hope will that they pressure insurers to agree to an acceptable settlement.
In exchange for relinquishing those rights and agreeing to invest $55 million in the trust, the diocese, congregations and other related third parties would end their own liability in bankruptcy and state court claims.
If insurers fail to settle in bankruptcy, CVA cases could proceed in state courts, but any judgments won by survivors against the diocese, a parish church, or other third party would have to be paid by the insurance company that bore the appropriate liability Politics. Insurers would hardly have a chance to defend themselves against such judgments. The payouts could add up to hundreds of millions of dollars.
Survivors’ counsel, Leander James, is representing 76 claimants in the Rochester diocese bankruptcy. He hopes the threat of having to pay hundreds of state court judgments will prompt insurers to reach a global settlement on bankruptcy, but acknowledges that such a settlement cannot be taken for granted.
“Some insurers might agree. Others might not,” he notes. “It’s up to every company.”
At this stage of the bankruptcy, a final outcome cannot be definitively predicted, says James. Other parties unaffiliated with the diocese, such as Catholic schools, teaching positions and individual abusers sued in CVA lawsuits, would not be covered by a diocesan bankruptcy settlement, he says.
“The committee has been trying to find a fair and reasonable solution for the survivors of Rochester for over three years,” said attorney for the creditors’ committee, Scharf. “She will continue to do so as we move into the next phase of this process, where an appropriate payment will be sought from the diocese’s insurers.”
Meanwhile, the diocese continues to pay high six-figure sums a month to cover the costs of lawyers, accountants and consultants working on the bankruptcy. As of September 30, those costs totaled $8 million.
Will Astor is Senior Writer of Rochester Beacon. The Beacon welcomes comments from readers who follow ours comment policy including using their full, real name.
