Judge orders mediation in Milwaukee archdiocese bankruptcy case to control legal bills

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MILWAUKEE — A federal judge ordered mediation Wednesday in the Archdiocese of Milwaukee's bankruptcy case, saying she believed it was the best bet for resolving the hard-fought case and keeping more money from going to lawyers rather than sexual abuse victims.

The archdiocese filed for bankruptcy in January 2011, saying it would not have the money to pay if it lost lawsuits filed on behalf of victims of clergy sexual abuse. More than 500 abuse victims have since filed claims in bankruptcy court.

A reorganization plan proposed by the archdiocese earlier this year would give 128 victims roughly half of an $8 million insurance settlement. Others who have filed claims would receive nothing. Meanwhile, attorneys' fees are now estimated at $13.7 million, and victims have been outraged by the idea that attorneys would receive more money than them.

Bankruptcy Judge Susan Kelley said during a morning hearing that she would likely issue a written order later in the day for mediation to take place in early September.

"The point of this is to try to negotiate a resolution quickly and stop the legal fees," she said.

A mediation attempt in 2012 failed, in part because the archdiocese maintained there were too many issues to hash out. A sticking point this time could be whether the archdiocese's former insurers participate.

But discussions will likely focus on a $55 million cemetery trust fund created by New York Cardinal Timothy Dolan when he was the Milwaukee archbishop. Victims have hoped to tap into the fund for compensation, but the archdiocese says the money was given for cemetery maintenance and can only be used for that purpose.

A district judge's decision making the trust fund off-limits in the bankruptcy case has been appealed to the 7th U.S. Circuit Court of Appeals in Chicago, which heard arguments in June. It's not clear when the appeals court might rule.

The archdiocese's reorganization plan included a proposal to borrow $2 million from the cemetery trust fund to help cover its unpaid legal bills. Bankruptcy rules require the archdiocese to pay legal fees for itself and its creditors. In this case, most creditors are victims of clergy sexual abuse, but the archdiocese also has a mortgage on its headquarters and owes money to pension and health care plans.

Kelley halted payments to attorneys last year when the archdiocese expressed concern about having enough cash on hand to cover monthly expenses that typically total $1.5 million to $2 million. Nearly $6 million of the estimated $13.7 million in legal fees in the case remain unpaid.

Kelley agreed Wednesday to divide about $1.4 million among attorneys for both sides. The creditors' attorneys had asked for payment, saying the archdiocese's bank accounts have regularly had bigger balances than it anticipated in January 2013.

Archdiocese spokesman Jerry Topczewski said the extra cash reflected slightly better-than-expected income and a small cut in costs. He expressed satisfaction Wednesday with the mediation order, referring to a comment he made Tuesday when the archdiocese requested mediation.

"This seems to be the most sensible, practical and economical way to reach a resolution in the now nearly 4-year-old proceeding," he said then in an email.

Monica Barrett, an abuse survivor who now speaks for others, said success in mediation will depend how the archdiocese approaches it.

"If Archbishop (Jerome) Listecki comes to the table with a realistic and compromising mentality, indeed this might be able to get resolved," Barrett said. "... However if Archbishop Listecki continues to use this bankruptcy action as a hammer to use against survivors, nothing will get resolved. Up until this point, the only people who have been asked to compromise anything have been the victim-survivors."

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