Judge orders Twin Cities archdiocese bankruptcy into mediation

The bankruptcy filing of the Archdiocese of St. Paul and Minneapolis was ordered out of the courtroom and into the conference room Tuesday when a judge sent the case to mediation.

The archdiocese, its insurance companies and attorneys for abuse victims will attempt to reach a mediated settlement under an order from U.S. Bankruptcy Judge Robert Kressel.

Both church and victims' attorneys welcomed the decision, which Kressel called the most efficient way to settle the bankruptcy.

Mediation also will help keep attorney fees in check, both sides stressed.

However, mediation will be held behind closed doors, removing most bankruptcy actions from the public eye.

Kressel named Magistrate Judge Arthur J. Boylan to oversee the mediation.

"If he can settle an NFL strike he can settle most anything," said Kressel, referring to Boylan's mediation of the 2011 labor dispute between the National Football League and its players.

The archdiocese and victims' attorneys praised the decision.

"It's an extremely positive day for the faithful," said Charles Rogers, an attorney representing the archdiocese. "A prolonged bankruptcy case doesn't serve the best interests of anyone."

Victims' attorney Jeff Anderson called the move "brilliant."

"This is much more likely to bring a speedy resolution," said Anderson.

Insurance companies, which have been sued by the archdiocese to force them to pay some victims' claims, were less effusive about the arrangement but also will participate.

"My clients have done it in other cases successfully," said David Christian, a Kansas-based attorney representing several insurance firms.

The order came during the archdiocese's first hearing in U.S. Bankruptcy Court. The church filed for Chapter 11 bankruptcy last week, saying it did not have the money to pay for the flood of child abuse lawsuits stemming from the 2013 Minnesota Child Victim's Act. The law temporarily lifted the statute of limitations on older abuse claims.

Kressel granted a half-dozen archdiocese motions that would allow it to continue normal operations and continue to pay its priest and employee wages, medical and dental benefits, pensions and other benefits.

That includes an average of $4,800 a month for housing and other supports to 18 "inactive priests," including three facing allegations of child sex abuse.

The judge also granted motions for the archdiocese to maintain existing bank accounts. Archdiocese attorneys reported more than $10 million in Premier Bank accounts, ranging from $3.5 million in an unrestricted savings account to $550,000 for its Venezuelan mission.

Another $10 million is held in various accounts at Wells Fargo, including an $8.5 million archdiocese medical claims account. Various investment accounts also topped $10 million.

Kressel rejected the archdiocese's motion to seal confidential settlement documents, saying the standards were "too vague." Star Tribune attorney John Borger had challenged the seal. Kressel said future motions to seal documents could be addressed to the court.

For the time being, what will be sealed are the names and identifying information about the abuse victims in the lawsuits, as well as 60 other victims who have contacted the archdiocese directly.

In ordering the mediation, Kressel said if the bankruptcy goal is settlement, it should come sooner rather than later.

"The question becomes, is it three to four years and $17 million in attorneys' fees?" he said.

The archdiocese's vicar general, the Rev. Charles Lachowitzer, said he appreciated that mind-set, in particular the greater focus on cooperation.

"The judge set the tone," Lachowitzer said. "I like the way he said it: Shorter. Cheaper. Fair."

Although other dioceses have turned to mediation during bankruptcy proceedings, it is rare for mediation to be ordered so quickly, said Anderson. Mediation usually is ordered later, "after a lot of attorneys' fees have been incurred and had to be paid by the archdiocese to the bankruptcy lawyers," he said.

"That's fairly unusual," added Ralph Anzivino, a bankruptcy law professor at Marquette University in Milwaukee. Mediation can work, he said, if the parties are reasonable and the issues clear-cut. At the very least, the process could "sharpen the issues somewhat" and cut down on the time spent in court.

"If the creditors' attorneys believe that there are more assets available, then they are going to litigate for those assets and then it would be much more difficult to come to some sort of mediation settlement," Anzivino said.

The mediation reflects the more cooperative spirit between the archdiocese and Anderson. Both parties have said they want to find a "new way" to settle the bankruptcy filing.

"We have a lot of work ahead of us, but this is much more likely to bring a speedy resolution," Anderson said.

Rogers, meanwhile, said the move "could potentially save millions of dollars."

Staff writer Jennifer Bjorhus contributed to this report. Jennifer Bjorhus • 612-673-4683 Jean Hopfensperger • 612-673-4511