Filing its Chapter 11 case in September 2019, Rochester was the first New York diocese to seek court protection. It filed the case a month after the state’s August 2019 implementation of the Child Victims Act.
The act opened a two-year window for adult survivors of child sexual abuse to pursue abusers who otherwise would have been protected by a statute of limitations. Thousands submitted CVA claims against Catholic parishes across New York. Hundreds filed such claims against Rochester parishes. Those state court cases were put on hold while diocesan bankruptcies proceeded.
After years of court-ordered talks among attorneys representing survivors, the Rochester diocese and insurance companies the diocese is counting on to pay much of any settlement amount, this year a settlement finally seemed within reach.
Then, an unrelated June 27 U.S. Supreme Court decision in the Purdue Pharma bankruptcy derailed the Rochester diocese’s and other New York diocese’s bankruptcies.
Following the June ruling, Bankruptcy Court Judge Paul Warren ordered parties in the bankruptcy into a new round of negotiations to seek a way around the high court decision.
In the meantime, Catholic dioceses in Rockville Centre on Long Island and Syracuse, which face the same Supreme Court headwinds, have proposed ways around the high court ruling.
At issue in the local case is a reorganization plan jointly submitted by the Rochester diocese and the bankruptcy’s creditors committee, and overwhelmingly approved by survivors. A key feature called for the diocese and its 86 parishes to jointly contribute $55 million to a trust to pay survivors and for insurers to kick in the balance of a proposed $127.3 million total.
In exchange for their contribution to the trust, that plan would have indemnified parishes from further liability. But the Supreme Court’s June 27 ruling forbids that action. As it now stands, despite their contribution to the trust, parishes could pay into a bankruptcy settlement but still face hundreds of state court CVA actions that were put on hold while the diocese bankruptcy ground on.
Prior to the June 27 ruling, bankruptcy judges were able to indemnify legally separate but closely related debtor entities like Catholic parishes through a maneuver called a channeling injunction. The June decision closed that avenue, declaring that bankruptcy judges do not have that power.
The problem for New York’s Catholic dioceses lies in a disjunction between canon law, the church’s legal code, and the state’s legal apparatus.
Canon law puts parishes firmly under diocesan control. But under New York law, the church has registered each of the state’s Catholic parishes as a corporation legally separate from its parent diocese. Each parish corporation is headed by the diocese’s bishop.
Encompassing 133 parishes, Rockville Centre is the largest Catholic diocese in the state. In September, it proposed a $323 million settlement in which its parishes would jointly file a new separate Chapter 11.
Like the Rochester diocese, Rockville Centre planned a settlement to which its parishes would contribute. Now, by separately filing a new bankruptcy for its parishes as a group, Rockville Centre aims to separately indemnify individual parishes against further CVA claims in state court.
The Syracuse diocese has proposed a different workaround, a feature added to an amended reorganization plan submitted in September that would automatically have claimants who accept a settlement in the diocese bankruptcy agree to not further pursue parishes.
“All holders of channeled claims, including consenting abuse claims … shall be deemed to provide a full release to the released parties and their respective property from any and all claims relating to the Diocese, the participating parties, the estate (and) the conduct of the Diocese and the protected parties’ businesses,” the Syracuse plan states.
Whether parties negotiating the Rochester diocese’s case will follow either of those paths or seek some third way is not clear. The mediation sessions are closed-door with participants under order to not disclose details.
A possible indication that the Rochester negotiators might attempt some version of the Syracuse plan is that the same law firm, Syracuse-based Bond, Schoeneck and King PLLC, represents both dioceses. In the past, however, Warren, the Rochester judge who would have a final say on any plan, has expressed doubts over whether such a measure would work.
Neither the Rockville Centre nor the Syracuse diocese plan has cleared the courts so far.
In the Rockville Centre parish bankruptcy, a creditors committee, appointed by the U.S. Trustee to represent abuse survivors’ interests, is urging survivors to approve the parish bankruptcy.
But in a 40-page objection to the parish plan filed Nov. 8, the U.S. Trustee asserts that the new bankruptcy will still run afoul of Purdue and unfairly deprives survivors of rights.
A Bankruptcy Court hearing on the Rockville Centre parish plan is slated for Nov. 18 in the U.S. Southern District of New York.
A Bankruptcy Court hearing in the Syracuse case was held earlier this month. No ruling has yet been issued.
Meanwhile, another significant issue in the Rochester diocese bankruptcy—the amount the Continental Insurance Co. might contribute to the trust—remains unsettled. Continental, also known as CNA, is responsible for paying well over half of the case’s abuse-survivor claims. As it now stands. CNA has refused to sign on to the diocese’s plan. It remains a lone holdout among the diocese’s insurers.
CNA previously offered to pay $63.5 million and later upped the offer to $75 million. The creditors committee roundly rejected both offers. Committee lawyer Ilan Scharf in filings disparages both offers as falling woefully short of what the other insurers have agreed to contribute on a per-survivor basis.
Instead of agreeing to the diocese/creditor committee plan, CNA submitted a rival plan in which it proposed the $75 million contribution. Survivors overwhelmingly rejected the insurance company’s plan while just as overwhelmingly approving the diocese plan. If CNA and abuse survivors cannot come to terms in the new round of negotiations, CNA has said that it will consider submitting a second rival plan.
Warren, meanwhile, has threatened that if CNA and attorneys representing survivors do not come to terms, he will impose terms that neither might like.
“Both CNA and the state court attorneys representing the abuse victims need to reexamine the lines in the sand they have drawn and find a way to move toward a realistic framework for settlement; if they can’t or won’t, then CNA and the abuse victims must be prepared to live with the consequences of their unwillingness to bend,” the judge warned in a recent order.
As of Aug. 31, the Rochester diocese had paid $14.8 million to lawyers, consultants and accountants working on the bankruptcy. Such expenses continue to mount monthly.