Bankruptcy experts say time could be right for settlement in Milwaukee archdiocese case

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MILWAUKEE — The Archdiocese of Milwaukee is returning to mediation with hundreds of sexual abuse victims, and experts say it wouldn't be surprising if they reached at least a partial deal that would help resolve the archdiocese's long and costly bankruptcy case.

The archdiocese filed for bankruptcy in 2011, saying it wouldn't have the money to pay if it lost lawsuits filed by victims of clergy sexual abuse. The two sides tried mediation in 2012 but couldn't reach an agreement.

In February, the archdiocese proposed a reorganization plan that would set aside a total of $4 million for the roughly 130 people who were abused by priests who worked directly for the archdiocese, but nothing for hundreds of others abused by religious order priests or laypeople.

Victims have vowed to oppose the plan in court. Many of them still hope to tap into a $55 million trust fund created by New York Cardinal Timothy Dolan when he was the Milwaukee archbishop. The trust fund will be the focus of two days of talks scheduled to begin Monday in Minneapolis, with both sides having an incentive to settle before the 7th U.S. Circuit Court of Appeals in Chicago issues a decision that could affect cases in other dioceses that also have money in trusts.

Victims in Milwaukee believe Dolan set up the fund to shield the money from them. The archdiocese maintains the money was given and always used to maintain Catholic cemeteries and the trust simply formalized that understanding. Both sides have had single victories at lower court levels and are awaiting a tie-breaker ruling from the 7th U.S. Circuit Court of Appeals in Chicago.

"This is probably an appropriate time to sit down and mediate that issue because it looks like everybody has a reasonable basis for their position, but do we really want to risk it all in getting a winner-take-all decision out of the 7th Circuit?" said Ralph Anzivino, a bankruptcy expert at Marquette University Law School in Milwaukee.

The loser could appeal to the U.S. Supreme Court, but the high court wouldn't have to take up the case.

Attorneys also may feel pressure to settle because legal fees are now estimated at nearly $14 million. Bankruptcy rules require the archdiocese to pay legal fees for itself and its creditors, but those fees must be approved by Bankruptcy Judge Susan Kelley, who has expressed dismay over the cost. Kelley would prefer the money to go to sexual abuse victims, who make up the bulk of the creditors.

"I think all the people involved in the case have realized attorneys' fees are a problem and we don't want it to continue to run," Anzivino said.

Archbishop Jerome Listecki lamented the bankruptcy cost Wednesday during a question and answer session with reporters.

"Do I wish the money were going to victim-survivors? Yes, absolutely," Listecki said, expressing hope that mediation would yield "a consensus plan."

Kelley would have to approve any settlement, which would be worked into a new reorganization plan.

Indiana University law professor Pamela Foohey said mediation would be successful even if a partial deal was reached. Along with the trust fund, there is still disagreement over how money would be divided among abuse victims, as well as some insurance-related issues to iron out.

"If they can come to some agreements, I think the creditors' committee can stand in front of the judge and say, 'This was fruitful. We didn't get everything completed that we hoped to address, but we feel better about certain issues,'" Foohey said.

Kelley might then confirm the plan since bankruptcy rules do not require agreement from everyone who is owed money. But, Foohey added, it would not be alarming if that didn't happen immediately since reorganization plans are often revised several times.

"This case is proceeding very much like other big bankruptcies with lots of tort victims have progressed in the past," she said. "And the mediation is an important step forward, and hopefully, there'll be some headway made."

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