2014 - Reorganization Plan Q&A

The filing of a Plan of Reorganization moves the archdiocese into the final phase of the Chapter 11 proceeding.  First, the Plan provides abuse survivors the assurance of lifetime therapy assistance.  Second, the Plan takes the limited unrestricted assets of the archdiocese and gives them to abuse survivors of diocesan priests.  Third, it pays the administrative/legal fees as required by the Court.

Susan V. Kelley, the bankruptcy judge in the Chapter 11, has affirmed through her ruling that parishes and their assets are separate from the archdiocese and so they are not included in the Chapter 11 proceeding.  No monies will come from parishes, schools or other Catholic institutions in the archdiocese.  The same is true for the former Parish Deposit Fund, which many parishes and schools had used as an investment vehicle for their money.

The donations you make to your parish can only be used by your parish.  The archdiocese must fulfill its educational, spiritual and charitable mission – including the money to fund the Plan of Reorganization – by living within its means.

The Catholic Stewardship Appeal monies are restricted donations that may only be used for the purposes, ministries and mission outlined in the annual Appeal materials, which includes support and service to Catholic parishes, schools and charities.  The donor card used by the Catholic Stewardship Appeal specifically states that no gift will be used to satisfy legal fees or settlement costs associated with clergy sexual abuse.

It is very important to assure any abuse survivor that they will receive therapy and counseling, so the Plan creates a Therapy Fund which Archbishop Listecki made clear was a priority back in November 2011.  This Fund will provide therapy for all who were abused by diocesan priests for as long as they need it.  In addition, the archdiocese is committed to assisting those abused by religious order priests and will work with them and the appropriate religious order to make sure therapy is provided.  Those individuals who were abuse survivors of lay people or other individuals not the responsibility of the archdiocese will also be able to receive therapy from the appropriate entity.  A permanent part of the Church’s ministry will be our ongoing support of abuse survivors.  We’ve started to see some healing these past years.  It’s going to take much more time and the archdiocese is committed to continued progress.

The Archdiocese of Milwaukee will place $500,000 in a lifetime Therapy Fund to provide therapy for abuse survivors of diocesan priests.

Nearly $4 million is being set aside in the Plan to distribute to abuse survivors and to pursue litigation for the recovery of additional funds from the archdiocese’s insurance companies.

The money comes from the non-restricted assets of the estate of the archdiocese, including the archdiocese’s rights under its insurance policies, as well as from property, which will be used as collateral for a loan.

For as far back as our records go, we can determine that through June 30, 2013, abuse survivors have received more than $33 million through settlement agreements with the Archdiocese of Milwaukee.

Prior to Chapter 11, the archdiocese has spent $8.4 million on attorney fees related to clergy sexual abuse.  This includes the work attorneys did with mediation and settlement agreements, as well as responding to demands in lawsuits filed against the archdiocese.  Some of these costs were reimbursed by insurance policies and the archdiocese anticipates that any money spent on legal fees objecting to filed claims during the Chapter 11 proceeding will be reimbursed by insurance companies.

The Plan provides for payments from funds set aside for abuse survivor claimants.  Individuals are eligible for a financial settlement if their claims are not barred by the court decisions made in this case or by law, and assuming, without investigation, that all allegations are true.

Not all abuse survivors will receive money; for example, abuse survivors who have filed a claim, but who were not abused by a diocesan priest are not eligible for a financial settlement.  Claimants who already received a previous settlement from the archdiocese, will not receive additional financial consideration under the Plan.

Approximately 125 abuse survivors will be eligible for a financial settlement.  These claimants and other abuse survivors of Archdiocese of Milwaukee priests will receive therapy from the Therapy Fund for as long as they need it.

Many of the claims involve religious order priests, brothers and sisters.  A number of the claims bring allegations against lay people who worked at a parish or school or elsewhere.  Some claims don’t allege any sexual abuse.  Others, do not involve minors. The archdiocese has objected to these claims and cannot satisfy claims involving individuals outside its responsibility.  Because the archdiocese has limited money, it is important that financial payments are reserved for those sexually abused by Archdiocese of Milwaukee priests.

The bankruptcy judge has recognized the different categories of claimants and the Plan follows the categorization of claims recognized in court proceedings.  Making distinctions between the various situations represented by different claimants is necessary to settle all the claims.  The archdiocese has maintained all along that none of the claims is legally allowable because of the statute of limitations.

No amount of money could ever compensate abuse survivors and, for decades, abuse survivors have told the Church it is not about receiving money.  It is about making sure individuals that were harmed receive the therapy and care they need and for the Church to do everything in its power to make sure that nothing like this ever happens again.  The Therapy Fund will make sure people have access to therapy and counseling when they need it.

The Plan of Reorganization helps as many people as the legal system and archdiocesan resources allow.  Prior to Chapter 11, we were providing a financial component to abuse survivors through the independent mediation system.  The archdiocese worked diligently through that mediation system to try to resolve claims from abuse survivors.  That independent mediation system was established in 2004 and nearly 200 abuse survivors reached a resolution with the Church, including therapy provisions and a financial settlement.  Once lawsuits caused the archdiocese to file for Chapter 11, the mediation system was forced to stop.  Before Chapter 11 the archdiocese had the flexibility to respond to abuse survivors, but in Chapter 11, the legal system and the limited resources dictate our ability to respond.

In bankruptcy, we have to follow the established rules, which means only objective criteria can be used to categorize claims.  So, for example, it doesn’t seem fair that people who have already received a settlement from the archdiocese, but now have also filed a claim, should receive more money.  If a person was abused by a religious order priest, then their claim is not against the archdiocese.  Providing people in those circumstances a financial settlement that uses diocesan money would not be fair to those individuals abused by diocesan priests who could then receive more compensation.  

The claimants’ attorneys have proposed a theory of fraud; claiming the archdiocese knew about certain abusive priests who went on to commit more abuse because the archdiocese did not act quickly enough to warn potential victims.  Although the archdiocese disputes that it ever defrauded anyone, it would be difficult to put the fraud claims aside without individual trials, case-by-case.  That would cost the archdiocese a fortune and would probably use up any money left for claimants.  These trials would also cause great pain to abuse survivors and their family members.  Everyone is better off if that money could be used to compensate the abuse survivors who fall into that class, knowing that the archdiocese will never have enough money to satisfy the creditors’ attorneys.

Although many of the claims allege sexual abuse by diocesan priests, not all the claims can be substantiated.  That is why the archdiocese filed legal objections to these claims.  Some claims did not hold up to investigation.  Others were not able to be substantiated because they date back many years or because the priest against whom an allegation was made is dead and there is no other indication or allegation he committed abuse.

The archdiocese is trying to get approval to do what it can for as many of the eligible claimants as practical.  But, as the “Debtor” in a Chapter 11 proceeding, the archdiocese is only allowed to pay legally enforceable claims so that other creditors with valid claims are not harmed.  Those are the rules of the bankruptcy proceeding.  In addition, there are also legal defenses to all of the claims, so claims objections were filed on these grounds:

• People who had already received a previous settlement from the archdiocese;
• People who claimed fraud when there is no evidence fraud was possible;
• People who were abused by someone who was not the responsibility of the archdiocese (like a religious order priest or parish employee);
• Claims that were past the statute of limitations;
• Claims that had no connection to the archdiocese;
• Claims that were not sexual abuse of a minor.

The archdiocese settled nearly 200 claims through the independent mediation system, which was put into place in 2004.  But some abuse survivors chose to file lawsuits.  In October 2010, the archdiocese participated in a mediation to settle those lawsuits involving 23 abuse survivors.  The archdiocese made an offer of $4.6 million in an attempt to reach a resolution, but that offer was rejected in December 2010.  At that point it was clear that the only way to bring about some closure and finality would be to do so under Chapter 11 reorganization.

Through the Chapter 11, the archdiocese is able to bring finality to all historic or pre-existing claims of sexual abuse of a minor and move forward with confidence with its works of prayer, evangelization, education and charity.

When the Chapter 11 was filed, people had a deadline of seven months to file a claim.  This Plan of Reorganization resolves all the claims that were filed by that deadline and even makes accommodation for the remote possibility of anyone else eligible to file a claim in the future if there is a reason that the deadline to file a claim would not apply.

In a chapter 11 proceeding, anyone can file a claim.  In addition, tort attorneys solicited claimants by advertising for clients.  Those lawyers spent more than $1 million recruiting claimants by placing more than 17,500 radio and television ads, which is part of the reason so many claims were filed.

Not all claims are eligible for compensation and not all claims are the responsibility of the archdiocese.  In Chapter 11, the law only allows the division of the archdiocese’s limited assets among claimants that have legally enforceable claims.  The archdiocese wants to provide help to those abuse survivors who suffered sexual abuse by diocesan priests.

The archdiocese has limited financial resources.  In justice, we remain committed to compensating those abuse survivors who are eligible for compensation in the bankruptcy proceedings.  A large financial settlement for every claimant is just not possible with the archdiocese’s remaining resources.  The Plan provides some compensation to eligible claimants while also making sure the archdiocese can continue ministering to those who rely upon the Church for services and support.  

The Archdiocese of Milwaukee had multiple insurance policies throughout the decades abuse occurred.  Insurers are claiming they are not responsible for any claims because attorneys are claiming individuals were defrauded.  Insurance does not cover fraud.  However, one of the major insurers is interested in buying back all its policies.  That policy buy back is part of the plan and the archdiocese will receive $7.4 million to be used for abuse survivors and to pay the expenses of the Chapter 11.

One of the conditions established by London Market Insurers before engaging in settlement negotiations was that neither the attorneys for the Creditors’ Committee nor for abuse survivors be part of the process.  Although the archdiocese may have preferred their involvement, in order to obtain a meaningful settlement offer from LMI, it decided to move forward, but only after establishing that the archdiocese was permitted to share the results of the negotiations with those attorneys.  The end result is the archdiocese used the negotiations to obtain as much money as possible from one of its insurance policies.

The policies with other insurers are assets of the archdiocese and, in the Plan, are placed in an Insurance Litigation Trust that will pursue legal action or settlements with the other insurers.  After the archdiocese emerges from this bankruptcy proceeding, the Insurance Litigation Trustee (an independent party) will continue to pursue these insurance rights for the sole benefit of the abuse survivors.  It will be up to the Insurance Trustee what portion of the money will be immediately distributed to abuse survivors and what will be spent pursuing other insurance payouts.  Any additional proceeds from insurance will also go to abuse survivors.

The archdiocese simply doesn’t have any other resources to draw upon.  Once the archdiocese filed for bankruptcy, the money offered in 2010, began being spent on lawyers and accountants.  Other remaining funds are restricted or designated for specific purposes and cannot be legally used for something other than their intended purpose. 

The archdiocese’s efforts to move quickly through this process were blocked by the Creditors’ Committee attorneys.  The archdiocese was upfront about its finances and provided access to all records, financial statements and other materials that showed the creditors exactly what belonged to the archdiocese.  Still, the attorneys made exorbitant demands for hundreds of millions of dollars and insisted upon investigating every restricted fund and accounting spreadsheet for the past 10 years.  In the end, all those efforts added nothing to the archdiocese’s estate and cost millions of dollars in legal and accounting fees.

Lawyers and accountants for the Creditors Committee have billed the archdiocese more than $5 million in fees.  Lawyers and accountants for the archdiocese have billed the archdiocese approximately $6.4 million in fees.  One third of that total -- almost $4 million – was spent because the creditors’ attorneys tried to take assets that clearly did not belong to the archdiocese, including parish property and parish investments.  Even though the judge ruled in favor of the archdiocese and the attempt to raid these funds was a waste of time and money, as the Debtor, the archdiocese is left to pay all of the attorney fees.

Besides taking care of all the customary issues that arise in a Chapter 11 proceeding, lawyers for the archdiocese had to respond to the Creditors’ Committee’s allegations about the ownership of assets, even though the court came to the same conclusion consistent with the straightforward explanation provided to the tort attorneys by Archbishop Listecki during mediation in October 2010.

By the rules of bankruptcy, the archdiocese has to pay the bill for the creditors’ committee attorneys, so they get paid for every hour they spend pursuing actions, no matter how frivolous or tenuous, like questioning Judge Randa’s ability to rule on the Cemetery Trust just because he has relatives buried in a Catholic cemetery.  So, even though the archdiocese has been forthcoming with information regarding finances since the beginning, the creditors’ attorneys took a tack of “over-lawyering” by hiring forensic accountants to scour the archdiocese’s books from the past 20 years, as well as filing motions to try and take funds belonging to individual parishes and and schools, getting paid by the archdiocese all along the way.  So when the creditors’ attorneys fly in from Los Angeles and stay at the Pfister, the archdiocese is required to pay the bill.  This “over-lawyering” cost the archdiocese nearly three years and $11 million in archdiocesan dollars to prove that what the archdiocese said all along was true, namely that it doesn’t have the money the lawyers were looking for.

Some of the legal bills (approximately $4.5 million) have already been paid.  That’s where the money offered for settlement in 2010 has been spent.  The money needed to pay the rest (approximately $6 million) will come from part of the insurance settlement and from a loan.  In addition, the archdiocese has filed a lawsuit to recover $2.6 million in legal fees from one of the insurance companies that was bound to cover those costs under the insurance policies.

OneBeacon, the insurance company that sold the archdiocese the insurance policy, has a “duty to defend” the archdiocese against lawsuits.  That means money recovered from the insurer for those defense costs is money that the archdiocese does not have to pay to the lawyers.

The U.S. Bankruptcy Code states that all professionals working on a case (lawyers, accountants, consultants, etc.), representing both the Debtor (the archdiocese) and the Creditors’ Committee must be paid in full at the time a Plan is confirmed by the Court.  The Bankruptcy Code requires the Debtor (the archdiocese) to pay the bills for both sides.

The personal injury attorneys who represent individual survivors are not paid by the archdiocese.  Those attorneys usually have a fee arrangement that allows them to be paid a percentage – usually 40 percent, plus expenses – of whatever settlement amount is received by their individual client(s).

In good conscience, the archdiocese cannot take money from funds that do not belong to it in order to meet the demands of lawyers.  The archdiocese has been open and honest about what it owns and what it does not own.  Confidence would never be restored if money was taken from funds that don’t belong to the archdiocese.  These are not personal monies belonging to the archbishop, but rather the archbishop is the steward of these funds and people trust him to honor the designations and restrictions in place.  Funds received with a donor restriction are legally and morally required to be used solely for the purpose designated by the donor.

The entire clergy sexual abuse crisis has had an impact on the archdiocese.  During the past 10 years, the archdiocese has cut 40 percent of its staff.  Cutbacks have also been made in programs and available resources for the archdiocese to provide services and outreach to parishes, schools and those who rely upon the Church for support.  In 2002, the archdiocesan budget for operating expenses, including staff, programs, services, etc., was $39 million.  In 2013, that same budget was $24 million.  

The Plan is grounded upon the archdiocese’s belief it can continue to fulfill its educational, spiritual and charitable mission by operating on a balanced budget supported by the continued generosity of Catholic parishioners and benefactors.  The hope is that no further cuts would be made to service levels and that once the burden of the legal expenses is lifted, the archdiocese can renew and grow its ministries in the community.

There are several pension funds that have filed claims in the Chapter 11 proceeding on behalf of their members.  The priest and the lay employee pension funds are held in a trust that also holds pension funds from more than 200 other employers. These multiple-employer plans are not an asset of the archdiocese and are not part of this bankruptcy filing.   All contributions made by the employers – including the Archdiocese of Milwaukee – are irrevocable and may only be used to pay benefits under the applicable plan.  As required under civil law, the archdiocese will continue to meet its obligations under the plans as they become due.

The Cousins Center property has been for sale since 2006 and there have been no offers to purchase the property that would benefit creditors.  The Plan allows the archdiocesan offices to remain at the Cousins Center and avoid the added expense of a move and rental of new property.

In addition to having to pay rent for alternative office space, the cost of moving the offices, including sacramental records and archive material, could be more than $1,000,000.

In 2006, the archdiocese took out a loan of $4.6 million from Park Bank in order to pay off its share of a settlement agreement with clergy abuse survivors who filed lawsuits in California against priests of the Archdiocese of Milwaukee, who abused individuals while living, vacationing or working in California.  Although the archdiocese does not own the land and buildings, with the help of its landlord, the archdiocese mortgaged the Cousins Center property.  If the Cousins Center were sold, the proceeds would go first to Park Bank to pay back that loan.

It would be similar to selling your house and using all of the proceeds to pay off the mortgage.  If you do, you still have to find somewhere else to live.  If the Cousins Center were sold, the archdiocese would have to find somewhere else to locate its offices.  Right now, it is far less expensive to stay at the Cousins Center than it would be to rent office space elsewhere.

In exchange for using the Cousins Center property, the archdiocese pays for the upkeep and maintenance of the property.  That amount is approximately $700,000 a year.  In comparison, even modest office space with a smaller amount of space would cost more than that each year.  There would also be the expense of moving the archdiocesan offices and records.

The Cousins Center property is owned by De Sales Preparatory Seminary, Inc., the corporation that has owned the property since it was built in the 1960s.

The Milwaukee Bucks are a tenant of the Cousins Center and use the gym as their practice facility and for offices for their basketball operation.  The lease with the Bucks was renegotiated and the archdiocese will receive additional income to defray costs under the new lease terms.

The Creditors’ Committee has targeted the Cemetery Perpetual Care Trust because the Trust holds a large amount of money.  This money was always held in trust for the perpetual care of the archdiocesan cemeteries, a commitment dating back to the late 1800s.  The money was not nefariously transferred out of other diocesan funds, but was always held in a separate account designated for perpetual care of the cemeteries.  The creditors’ attempt to raid the Trust was dismissed by Federal District Judge Rudolph Randa, but the creditors’ attorneys are still spending archdiocesan money in an attempt to appeal that decision.

The Cemetery Trust is a totally separate entity from the archdiocese.  Even though Archbishop Listecki is the sole trustee of the Cemetery Trust, when acting in his capacity as trustee, he must fulfill his fiduciary obligation to the trust and the trust beneficiaries, namely, the people who purchased graves, crypts and mausoleums, and their loved ones buried or interred in archdiocesan cemeteries.

The lawsuit against the Cemetery Perpetual Care Trust is currently on appeal.  The Plan of Reorganization settles that lawsuit and avoids the increasing expense of litigation through a loan from the Trust to the archdiocese.  

First, it is a secured loan, meaning that properties owned by the archdiocese are being used as collateral for the loan that could not be obtained elsewhere.  Second, the benefit to the Cemetery Trust is that such a loan settles the lawsuit that is currently on appeal in the U.S. Court of Appeals in Chicago.  The loan from the Cemetery Trust puts an end to any speculation about those funds.  It also avoids the expense of a lengthy appeal process, which could take several more years.  It would also run up additional legal fees for the archdiocese, which would be required to pay the lawyers for the Creditors’ Committee.  The Cemetery Trust would also incur further legal expenses.

The archdiocese already sold off most of its real estate to fund the independent mediation system settlements. Most of the few remaining properties are vacant land and have been actively marketed for a number of years.  With an unstable real estate market, instead of liquidating the properties at “fire sale” prices, using them as collateral for a loan makes sense because it allows the archdiocese to convert the properties into cash right now for a higher value than what could be realized by selling the properties today.

No bank would lend the archdiocese the amount of money needed to pay the expenses of the Chapter 11.  The properties being used as collateral are simply not enough or are not the type of property to justify a bank loan.  However, because the Cemetery Perpetual Care Trust is getting something in return – the settling of the appeal of a lawsuit already decided in favor of the Trust – it is willing to make such a loan in order to close the door on the litigation.

The money in the Cemetery Perpetual Care Trust comes from people who bought perpetual care since the late 1800s.  Plus, in the last several decades, a portion of the purchase price of graves and crypts was set aside in trust to provide for perpetual care.  The archdiocese’s practice of setting aside money to provide for perpetual care follows the same requirements under Wisconsin law for non-religious cemeteries.

The archdiocese will honor its obligations to future purchasers of cemetery plots, crypts or mausoleums by providing care for the cemeteries.  The archdiocese will also honor its obligation under Church law to provide perpetual care for those buried prior to the bankruptcy proceeding.  The agreement with the Cemetery Trust provides an annual payment to the archdiocese to cover the expense of this ongoing perpetual care.

In the past year, the archdiocese used an outside professional, consulting firm specializing in evaluation of such funds to review the question about the amount needed for perpetual care of the cemeteries. Their professional opinion stated that the perpetual care fund is not over-funded. 

No, the money in the Faith In Our Future Trust can only be used for the purposes for which it was given, namely Catholic education and faith formation.

The Faith In Our Future Trust is not part the archdiocese and its assets are not available to the archdiocese, but the creditors’ committee attorneys attacked it anyway.  To avoid the expense of litigation and to settle any potential claim against the Trust, the Trust has made a contribution of $200,000 to fund an archdiocesan education or formation program that matches the purpose of the Trust.

The Archdiocese of Milwaukee is committed to making sure to the best of our ability that children are kept safe from any kind of abuse.  For years now, and continuing with Archbishop Listecki’s unyielding commitment, rigid protections have been put in place, which are strictly followed.  Education, training and safe environment initiatives have been implemented.  Stringent policies and procedures have been rigorously observed and audited annually for compliance.  Documents and information about abusive priests have been publicly shared.  The archbishop has pledged to remain vigilant to those commitments and that pledge is written directly into the Plan.

Even an attorney for many abuse survivors, stated in a court document that the archdiocese never expected anyone would be harmed, nor intended any abuse to occur, especially when it relied upon medical professionals for advice and counsel.  But today, there are many more safeguards in place.  The safe environment programs have trained more than 50,000 priests, deacons, parish and school staff and volunteers, and have provided age-appropriate awareness training to our students in Catholic schools and religious education programs.  There is never a guarantee; all you have to do is read the morning paper to see allegations of abuse in various institutions in our society, but the Church has taken steps to educate people and increase awareness of the warning signs of sexual abuse.  The Church must remain vigilant, so within the Plan, the archdiocese outlines nearly 20 specific items it commits itself to implementing to ensure children are safe.

The Plan was developed by attorneys for the archdiocese who understood what assets of the estate were available for abuse survivors and other claimants.  They also analyzed how much debt the archdiocese could absorb and remain viable during the years it will take to pay back the loans.

The Plan of Reorganization is a complex document addressing many issues involved in the Chapter 11 proceeding.  During the past three years, many of these issues have been discussed with attorneys for the Creditors’ Committee and abuse survivors.  Trying to come to consensus on all aspects of the Plan could be very difficult, so the archdiocese decided to put together a realistic Plan that addressed the necessary issues in light of the resources it has available, and submit it to the court.

As required by canon (Church) law, the Archdiocesan Finance Council and the priest College of Consultors were both consulted about the Plan throughout the process of its development and submission to the court.  Both groups gave their consent. Because the filing of such a plan also requires a review at the Vatican, the Congregation overseeing such matters also approved the Plan moving forward.