April 03, 2020

4-3-20 As Seen in the Buffalo News - Buffalo Diocese urges parishes to retain bankruptcy lawyers

By Jay Tokasz
Published 3:00 p.m. April 3, 2020

The Buffalo Diocese is advising its 161 Catholic parishes to hire bankruptcy attorneys from Idaho and Rochester to represent them collectively, as the diocese moves ahead with Chapter 11 bankruptcy proceedings.

More than 250 Child Victims Act lawsuits against the diocese were put on hold in the state court system as a result of the diocese’s filing in federal bankruptcy court in February.

But at least 80 parishes across Western New York have been named as defendants alongside the diocese, and because the parishes are separately incorporated legal entities, they are not part of the diocese’s Chapter 11 filing and the lawsuits against them are continuing in state courts.

Until now, the parishes for the most part have relied heavily on the diocese for legal help, including having diocese-hired lawyers prepare the legal paperwork answering Child Victims Act complaints.

But diocese officials have strongly recommended that the parishes band together and retain their own attorney to represent them going forward, as has been done in the Rochester Diocese bankruptcy case.

“The parishes and the diocese need to have separate attorneys so that the attorneys may act without a conflict of interest,” diocese officials wrote to area pastors and parish administrators in a March 9 memo.

Parish pastors, trustees and finance councils were being asked to consider hiring J. Ford Elsaesser, a bankruptcy expert in Idaho who has been involved with at least six other diocese bankruptcies, and Timothy P. Lyster of Woods Oviatt Gilman in Rochester. Lyster also represents the Rochester Ad Hoc Parish Committee in the Rochester Diocese bankruptcy.

If hired, Elsaesser and Lyster would play major roles in negotiations with abuse plaintiffs and insurers and in efforts to seek from the bankruptcy court a “channeling injunction,” which would allow the diocese, its parishes and other nondiocese entities to settle all current and future abuse claims through a pooled trust fund, according to the memo.

“Parishes named as co-defendants will need an attorney,” the memo reads. “Parishes not currently named could be named up to the time of closure to file as established by the bankruptcy trustee and the court. Therefore, all parishes are at risk of liability. Hiring one attorney now to represent all the parishes is in the best interest of all the parishes.”

Elsaesser met by teleconferences last week with many area pastors, administrators and trustees and made it clear that even though the Buffalo Diocese parishes are separate legal entities, they likely will have to contribute to the settling of the CVA claims through the bankruptcy process, according to two sources familiar with the meetings.

In other diocese bankruptcy cases, settlement funds have consisted of three primary sources: diocese assets, insurance policies of the diocese and parishes, and parish contributions.

Elsaesser said in an interview this week that he had not yet been retained by parishes, but that “retention agreements” were being sent out to them.

“They obviously have to make their own independent decision on hiring counsel,” he said. “I can’t really say much more because we’re not retained at this point.”

It’s unclear what percentage of parishes will sign on with Elsaesser.

But sources said some pastors have expressed reluctance about paying for the representation and having to contribute to the settlement pool, because they blame diocese mismanagement for the crush of lawsuits.

The Child Victims Act created a one-year window suspending the civil statute of limitations on childhood sex abuse, allowing abuse victims from decades ago to sue their alleged abusers or the institutions that employed them. The window runs through Aug. 13, although there are calls for it to be extended longer due to the impact of the coronavirus pandemic.

Abuse victims seeking to make a claim against the diocese must now go through a bankruptcy court process, rather than through the state court system. Parishes, however, can still be sued during the window period, and some parishes who currently are not defendants could be named in future suits.

If those parishes don’t join the channeling injunction, they potentially could be exposed to huge litigation costs.

The diocese memo said that Elsaesser required a retainer fee of $40,000 and that his total cost of representation could be as much as $200,000. A follow-up letter to parishes said the fees would not exceed $300,000 "assuming no extraordinary events occur in the bankruptcy that would change that estimate."

So, divided equally, if every parish signed on, hiring Elsaesser would cost each parish about $1,200 to $1,900. It's unknown at this point what each parish would have to contribute toward a settlement pool.

Elsaesser’s diocese bankruptcy work includes Great Falls, Mont.; Agana, Guam; Helena, Mont.; Duluth, Minn.; and Santa Fe, N.M. He also represented parishes in the Spokane Diocese bankruptcy proceedings

Diocese officials said in the memo that no local attorneys were available who had the expertise and experience required and “are free from a conflict of interest either individually or through their law firms.”