Endgame may be near in Twin Cities archdiocese bankruptcy case

The bankruptcy reorganization of the Archdiocese of St. Paul and Minneapolis is about to enter its third year. But there is a chance that the church could reach a settlement with hundreds of sex abuse victims and emerge from bankruptcy by summer.

A court hearing scheduled for Thursday will focus on how well the archdiocese and creditors can explain their separate plans to the people who would vote on them, including some 450 sexual abuse victims seeking compensation. There will also be a discussion about voting procedures and counting the results.

The archdiocese envisions a vote by spring and a conclusion of the bankruptcy by mid-year, said Charles Rogers, an archdiocese attorney.

"We have $155 million, potentially more than $160 million, set aside at this time for a victim fund," Rogers said. "We have the parameters of a plan that we believe is eminently workable. It is now for the court to determine what plan is voted on and how we proceed."

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The plan also seeks a court order protecting parishes and their insurers from future lawsuits by victims who've filed claims in the archdiocese bankruptcy.

Archdiocese attorney Richard Anderson says insurers want that legal shield in exchange for contributing most of the money that would compensate abuse survivors.

"The insurers agreed to contribute over $122 million, and they will make that contribution only if they believe that they're fully protected going forward," Anderson said.

In short, they want to put an end to their liability for past sex abuse involving the church and parishes.

But the creditors committee and attorneys for abuse victims contend the archdiocese could come up with more money itself and insurers could be squeezed for more cash, too. That's reflected in the competing plan pushed by the creditors' committee, which represents abuse victims.

"We feel that the archdiocese plan lets them off the hook for next to nothing," said Mike Finnegan, an attorney representing abuse victims.

He says the creditors' committee plan calls for the archdiocese to contribute $80 million from its own assets, up from the some $15 million that church has proposed. Finnegan says the archdiocese could have extracted more money from insurers.

"They didn't have the survivors involved and we feel those are extremely inadequate and unreasonable settlements that they engaged in," Finnegan said. "The survivors plan, the survivors still get the right to go after the insurance companies."

That means Twin Cities parishes could face some 300 lawsuits.

The judge overseeing the bankruptcy, Robert Kressel, will decide if either — or both — plans go to a vote.

"Both sides have filed objections to each other's proposed plans," said Temple University bankruptcy law expert Jonathan Lipson.

Lipson expects each side will try to convince the judge that the opposing plan shouldn't even go out for a vote, "arguing that the plan is not confirmable and therefore it's a waste of everybody's time to approve a disclosure statement."

However, the plan that gets the most votes may or may not be the plan eventually implemented.

After a vote, there would be confirmation hearings — essentially a mini-trial — to determine the viability and legality of any plans approved by creditors, Lipson said.

"The court will in essence have to decide which it believes to be the better plan. The judge would have the discretion, and some would say the duty, to approve the plan that he or she believes to be the more feasible one," Lipson said.

The archdiocese has argued that the parishes are separate legal entities, contending, for instance, that their assets should not be tapped to compensate creditors in the archdiocese bankruptcy.

But that raises the issue of how can an entity that's not part of the bankruptcy be granted protection from lawsuits, said University of Minnesota law professor Christopher Soper.

"This is one area where it might be a part of the plan that the court could find does not comply with the bankruptcy code. It's not always easy to get a release for a non-debtor third-party," Soper said.

If neither plan gets confirmed, the judge could send both sides back to the drawing board to come up with new plans. But Soper suspects that a resolution is in the cards by the middle of next year.