A judge on Wednesday questioned the validity of the Roman Catholic Diocese of Davenport's $37 million bankruptcy settlement, in part because of concerns over the relationship between the diocese and its 83 parishes.At a hearing in U.S. Bankruptcy Court for the Southern District of Iowa, Judge Lee Jackwig did not approve the disclosure statement that explains the diocese's reorganization plan to emerge from Chapter 11 bankruptcy protection. The statement must be OK'd before the plan can be voted on by the diocese's creditors.
Though they were surprised by the decision, attorneys for clergy sexual abuse victims said they were confident the plan was not in jeopardy.
"The bottom line of it is, it doesn't impact the settlement," Hamid Rafatjoo, the Los Angeles-based attorney for the committee representing abuse victims in the case, said after the hearing.
The diocese also was hoping to have the disclosure statement approved, and it and the creditors committee were in effect on the same side at the hearing.
The various parties involved in the case will now try to work out the issues by an April 2 court hearing.
Craig Levien, the Davenport attorney who represents about half of the 156 alleged abuse victims who have filed claims in the case, urged swiftness.
"We are dealing with the mental, physical and emotional health of individuals," he said.
The diocese filed for bankruptcy in October 2006, saying it did not have the money to settle the claims stemming from its clergy sexual abuse scandal.
The diocese and the creditors committee negotiated a $37 million settlement in November that calls for the diocese to pay $17.5 million, with the other $19.5 million coming from its insurance carrier, Travelers Cos. of St. Paul., Minn.
The plan releases all diocese schools and parishes from liability for abuse that happened before the bankruptcy filing. Four parishes will contribute $2.65 million of the diocese's portion, including $650,000 from St. Mary's Church in Iowa City.
Because the parishes are incorporated separately from the diocese, Jackwig questioned whether the court then had jurisdiction over the parishes and said they might need to "stand alone" in the case.
"I think it could be a problem here," she said.
Rafatjoo said the creditors were going to try to prove the diocese, in reality, controls the parishes, which could have forced the parishes to liquidate their property, including church buildings, to assist in paying creditors. But because of the amount of time and money the issue would have taken, the creditors and the diocese reached a compromise.
Jackwig said the nature of that compromise needs to be clearer in the disclosure statement, something the attorneys said they would do.
Jackwig also upheld objections to the disclosure statement by Philadelphia-based ACE American Insurance Co. and Iowa City Regina High School.
Regina argued the disclosure statement suggested it was part of the negotiations, which was not the case. Diocese attorney Richard Davidson of Davenport said that point would be amended and was no problem.
ACE has succeeded a company that may have issued an insurance policy to Sacred Heart Cathedral in Davenport before 1970. The company said it is concerned the bankruptcy plan doesn't protect its rights.
Davidson and Rafatjoo said the plan adequately addresses the issue but that they would work to include language to satisfy ACE.
"Their concern is just being difficult," Rafatjoo said. +++++++++++++++++++++++++++++++++++++++++++++++++++
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