Next mission for Twin Cities archdiocese: Life after bankruptcy

The Archdiocese of St. Paul and Minneapolis is about to move a step closer to emerging from bankruptcy.

By the end of the month, the archdiocese will file a bankruptcy reorganization plan detailing how it expects to remain a financially viable organization while providing compensation for victims of clergy sex abuse.

The proposal will likely be controversial.

Explore the full investigation Clergy abuse, cover-up and crisis in the Twin Cities Catholic church

The archdiocese has been in bankruptcy for about 16 months and insurers, parishes, abuse victims and other parties have been in mediation during most of that time. The parties involved were told to keep talks confidential. But there are indications that critical matters, especially insurance coverage, remain unresolved.

At a late March court hearing, archdiocese attorney Richard Anderson told a federal judge that a plan would include financial contributions from the archdiocese and insurers. But he didn't offer details and said the church could file a plan without first securing the support of sex abuse victims.

That did not sit well with Mike Finnegan, an attorney for many of the victims.

"We would not look favorably at all on a plan that was filed without the survivors' approval and definitely without the survivors being able to see it first," he said. "If it is something that the survivors agreed to or that they thought we were going to agree, they would show it to the survivors first."

The roughly 430 abuse survivors who've filed claims against the archdiocese survivors will decide whether a reorganization proposal is approved. They account for the vast majority of claimants who'll vote to approve or reject the proposal.

The archdiocese has about $26 million in net assets. But much of that would not be available to abuse survivors and other creditors because of donor conditions and other restrictions.

The church has raised $8 million through the sale of the archbishop's Summit Avenue residence and other property. But that's about what the church has spent on legal and related costs of the bankruptcy.

If there's substantial money for victims, it'd likely have to come from insurance. But insurers have contested their obligation to pay claims for abuse that occurred because of the church's negligence.

"The insurers might have a very valid defense to the archdiocese claims on the policies," said University of Minnesota law professor Christopher Soper.

Rather than contest their liability, he added, insurers might agree to significant payouts if that resolves existing cases, but they would want guarantees there'll be no more insurance claims from the archdiocese and parishes for past clergy sex abuse cases. The insurance companies would rather resolve all the policies all their outstanding liabilities to both the archdiocese and the parishes.

That's worth some money, but how much? The archdiocese better have a firm idea when it presents a plan to the bankruptcy court, said Temple University law professor Jonathan Lipson.

"A court told, 'We think we can get X dollars in insurance but we really don't know' might be concerned about something called feasibility," Lipson said. "If you say, 'I'm going to fund the plan with X dollars from insurance, you better be pretty sure that that money is really going to come in."

The church could also face demands top tap local Catholic foundations, charities, schools, parishes and other entities to compensate abuse victims. But church leaders have long argued those are separate legal organizations, meaning their assets should not be touched by archdiocese creditors.

Creditors committee attorney Rob Kugler is asking the court to authorize the hiring of an accounting firm to hunt down assets inside and outside the archdiocese that should be available to creditors.

"They've said a lot of it entities are supposed to be separate," Kugler said. "The ones that we think there might be some question on, we've looked at. We have looked under every viable rock that we can look under so far."

Money isn't the only thing abuse victims will want out of a reorganization.

"They would like to see the archdiocese files opened on abuse cases. They'd like the world to see what the archdiocese knew and when they knew it," said Charles Zech, director of the Center for Church Management and Business Ethics at Villanova University.

But those files generally remain closed, he acknowledged, making that kind of relief harder to get than money.