Judge laments $15M in legal fees in St. Paul-Minneapolis archdiocese bankruptcy

The judge overseeing the bankruptcy of the Archdiocese of St. Paul and Minneapolis expressed concern Thursday over the legal fees being racked up in the case — about $15 million to date.

"It bothers me so much that all these attorney fees are being run up," U.S. Bankruptcy Judge Robert Kressel said at a hearing Thursday, adding that legal fees are consuming funds that could be directed to survivors of archdiocese clergy sex abuse.

In an attempt to curb the spending, Kressel ordered that no expert witnesses be hired for the time being. He also ordered a tighter schedule for both parties to argue their legal objections to each other's compensation plans.

"I'm trying to save money and time and get this decided," Kressel said.

Kressel's remarks came in response to the archdiocese's proposal to "retain certain experts" to advise on the competing victim compensation plans before the court, on the value of parish contributions to the settlement, on insurance settlements and other issues, according to a motion before the court.

During the first three months of this year, the archdiocese bankruptcy rang up $1.28 million in attorney and professional fees, according to documents filed with the court. The bills are from three law firms representing the archdiocese, one representing parishes and one representing victims, according to operating budgets filed with the court.

Average monthly legal and professional fees were $420,000 from January to March, the last month for which figures were available.

The fees are high compared to other bankruptcies nationally, and the process in the Twin Cities has been long, said Chuck Zech, a church finance expert at Villanova University in Pennsylvania. The Milwaukee Diocese, considered the "mother of all bankruptcies," spent $23 million in a protracted battle to settle with abuse victims, plus $7 million for the victims' attorneys, he said.

"Milwaukee is the poster boy for a disastrous way to do a bankruptcy," said Zech. "It seems to me that St. Paul is approaching that status."

The fee issue surfaced during what was supposed to be a routine hearing to schedule the next steps in the two-year-old case, including approving a compensation plan and insurance settlements.

But this bankruptcy settlement is far from routine. Unlike other archdiocese bankruptcies, in which the church's plan is the vehicle for reaching a settlement with victims, the court allowed the victims to present a compensation plan as well.

"Survivors have never had a vote before," said Jeff Anderson, an attorney representing the victims. "We're in uncharted territory."

Last week, 94 percent of the survivors voted against the archdiocese's plan. The plan included a victims' compensation fund of at least $155 million — about $120 million from insurance payments — and a court order to prevent victims from filing future lawsuits against the parishes and insurers involved.

The abuse victims voted in favor of their creditors' committee plan, which would have the archdiocese paying $80 million of its own money into the fund. The plan also seeks far bigger settlements from the insurance companies covering the abuse.

Victims' attorneys argue there are millions more dollars available from insurance assets that the archdiocese could tap.

Anderson said he was pleased with the judge's efforts to speed up the bankruptcy process, and to try to curb escalating fees.

The archdiocese declined to comment.

The archdiocese filed for bankruptcy in January 2015, citing the number of clergy abuse claims made possible through the Minnesota Child Victims Act, which opened a three-year window for older abuse cases to be heard in civil court. That window closed in 2016.

Jim Keenan, chairman of the creditors' committee, was among more than a dozen clergy abuse survivors sitting in the courtroom Thursday. "I think the judge sent an incredibly clear message," said Keenan, "that any money spent on lawyers today is money taken from survivors' pockets."

The judge set a status conference for June 15.

Jean Hopfensperger • 612-673-4511