Creditors ask for dismissal of diocese bankruptcy

After two and a half years of attempts to negotiate a settlement in the Diocese of Rockville Centre’s bankruptcy case, lawyers representing more than 600 people who filed claims of sexual abuse against the diocese — known as the Committee of Unsecured Creditors — have requested that the case be dismissed, given the unlikelihood of reaching a consensus on a reorganization plan.

Represented by the law firm Pachulski, Stang, Ziehl and Jones, the committee stated in a motion filed in bankruptcy court that the diocese has been unable to propose a plan that the committee can agree to.

“The Committee moved to dismiss the bankruptcy because the Diocese abdicated its responsibility as a fiduciary to all creditors,” committee Chairman Richard Tollner stated in a release, “and is more interested in protecting its enterprise than fairly compensating its victims.”

In January, the diocese filed a plan without the support of the committee, proposing a contribution of $11.1 million from its parishes and affiliates, which Committee attorneys have stated is a minimal contribution, given the hundreds of claims. And, they say, it would rely largely on potential insurance policy payouts that are being disputed in four separate lawsuits.

The diocese filed for bankruptcy in October 2020, as a result of hundreds of lawsuits that were filed when former Gov. Andrew Cuomo approved the state Child Victims Act in 2019, extending the statue of limitations on sexual abuse claims.

In January, attorneys represent more than two dozen of the survivors presented the diocese with two potential reorganization plans. Under the first, the Catholic diocese would settle all of the claims for $450 million in restitution. The second plan involved the diocese and its parishes, which the Committee’s lawyers say they believe has “substantial assets” and should be made to provide “fair compensation to the children they hurt” in order to settle claims of child sexual abuse. Under both options, survivors would be able to continue to pursue claims of abuse in state court.

In response, the diocese made a counter-offer, proposing that it, along with its parishes, co-insured parties and other ministry members, contribute between $185 million and $200 million, not including insurance payouts.

The committee and its attorneys criticized the counteroffer, describing it as “business as usual.” “The Diocese has adopted a litigation path that ultimately will fail, and will have wasted millions of dollars,” attorney James Stang, bankruptcy counsel to the committee, stated. “The Committee always has stood for fair compensation and transparency. The (diocese) has fought the Committee at almost every turn. Committee members have devoted hundreds of hours over two-and-a-half years to getting the right result for all survivors.”

According to Rick Archer of Law360, a federal bankruptcy judge warned the diocese and the committee that neither of the suggested plans were fit to be submitted to the creditors as they stand.

In a virtual status conference held in February, U.S. Bankruptcy Judge Martin Glenn told both groups that they risked “spinning their wheels” with the plans they submitted, and that they contained too many unsupported estimates and undefined terms for the creditors to judge if either would work.

“Unless there’s some dramatic turnaround, you’re going to come out of this with two disclosure statements denied, rejected,” Glenn said.

He urged both sides to schedule additional mediations sessions. “There are too many uncertainties,” Glenn said. “It’s just not going to happen. I don’t know where you think you’re going.”

Attorneys for the committee claim that the diocese has an irreconcilable conflict between affiliate and creditor interests, in “derogation of its fiduciary duties,” and that before and during the bankruptcy proceedings, the diocese aggressively shifted assets to affiliates and sought to protect those affiliates from survivors’ claims.

They also stated that the diocese has started objecting to claims that would typically be handled through a consensual plan.

Representatives of the survivors said that the diocese is continuing its pattern of employing “aggressive legal strategies … to defeat and discourage lawsuits even though the Diocesan officials know they were meritorious.”

“This case poses the unique challenge that the (diocese) refuses to negotiate with the Committee and is attempting to bully survivors into submission,” Stang said. “The Committee filed its motion to dismiss to attempt to stop (the diocese’s) litigation tactics and to instead finally give survivors their day in New York Courts.”

In response to the committee’s latest action, Sean Dolan, the diocese’s director of communications, said, “The Diocese of Rockville Centre has no intention of following the lead of the Creditors Committee and abandoning the Chapter 11 process, which provides the most effective means of fairly compensating survivors and continuing the mission of the Church on Long Island.”