Don’t Let This Happen to You: Milwaukee Archdiocese Bankruptcy – Part Three, The In-Court “Slugfest”

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Ali v. Frazier “Slugfest”

By: Donald L. Swanson

Sometimes “a slugfest” must occur “before people get serious” about settlement possibilities. This is definitely true in the Archdiocese of Milwaukee bankruptcy. So says James I. Stang, attorney for the Official Creditors Committee in that case—and in at least a half-dozen additional cases of a similar nature.

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Ali v. Frazier “Slugfest”

The Archdiocese of Milwaukee “slugfest” occurs on many levels. But one of the most important levels is the fraudulent transfer litigation over a cemetery trust fund. Here is a chronology of such litigation:

1. Origin of the fraudulent transfer claim:

–By the end of 2006, the Archdiocese of Milwaukee had paid many millions of dollars in settlements to people abused by priests.

–On April 2, 2007, the Archdiocese of Milwaukee establishes the Milwaukee Catholic Cemetery Perpetual Care Trust (the “Cemetery Trust”) for the perpetual care of Catholic cemeteries.

–In March of 2008, the Archdiocese funds the Cemetery Trust by transferring $55 million to a Cemetery Trust bank account.

2. Bankruptcy Court litigation over the fraudulent transfer claim:

–On January 4, 2011, the Archdiocese of Milwaukee files its voluntary Chapter 11 Petition in the Milwaukee Bankruptcy Court, at Case No. 11-20059, while facing  multiple lawsuits from sex abuse claimants.

–The Official Creditors Committee says the transfer of funds to the Cemetery Trust is a fraudulent transfer.

–On June 28, 2011, the Cemetery Trust files an adversary proceeding in the              Bankruptcy Court (A.P. No. 11-02459) against the Official Creditors Committee,        seeking a declaration that its $55 million Cemetery Trust fund is not available to pay sex abuse claims because of, (1) the Religious Freedom Restoration Act of 1993 (42  U.S.C. § 200bb et. seq.) (“RFRA”), and (2) the First Amendment to the United States Constitution.

–On May 25, 2012, the Committee files its Motion a summary judgment, asking the Court to reject the RFRA and First Amendment positions asserted by the Cemetery Trust (Doc. 57).

–On January 17, 2013, the Bankruptcy Court grants the Committee’s Summary      Judgment Motion, rejecting the Cemetery Trust’s RFRA and First Amendment          positions.

3. District Court proceedings over the fraudulent transfer claim.

–Then, the Cemetery Trust appeals to the U.S. District Court in Milwaukee.

–On July 29, 2013, the U.S. District Court reverses the Bankruptcy Court’s Ruling.

4. Seventh Circuit proceedings over the fraudulent transfer claim,

–Then, the Official Creditors Committee appeals to the Seventh Circuit Court of    Appeals.

–March 9, 2015, the Seventh Circuit Court of Appeals reverses the Bankruptcy         Court.

5. Appeal to the United States Supreme Court

–May & July, 2015, deadlines to file a petition for a writ of certiorari are extended.

–July 7, 2015, The Archdiocese files its Petition for a writ of certiorari (Response due August 7, 2015).

–July & August, 2015, deadlines for filing a response to the petition are extended.

[November 13, 2015: Bankruptcy Court confirms the Chapter 11 Plan of Reorganization for the Archdiocese of Milwaukee]

–December 3, 2015, a Stipulation to dismiss the Archdiocese’s petition for writ of certiorari is filed and granted.

 

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James I. Stang — founding partner of the Pachulski, Stang, Zeihl & Jones law firm of Los Angeles

According to James I. Stang, it is the Seventh Circuit’s ruling on March 9, 2015, that finally ends the “slugfest” and brings the parties together in mediation to construct a consensual plan of reorganization. Until such ruling, the parties are far apart in their positions.  Prior to such time, any hopes of an agreed resolution are unfounded.

The “slugfest” simply had to occur. It is unfortunate. In hindsight, it should have been avoided.

But when occurring, the “slugfest” seemed to be a pre-condition for the disputes to become ripe for mediation.

The “slugfest” and its results serve as a hard-lesson-learned for subsequent cases to avoid.

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