It wasn’t entirely surprising that the Archdiocese of Milwaukee filed for Chapter 11 bankruptcy proceedings earlier this month. Indeed—former Archbishop Timothy Dolan floated the idea in 2003 shortly after he came to Milwaukee.

But Archbishop Jerome Listecki’s official announcement was a bit of a shock.

Despite the wealth of the archdiocese—it has recently raised $95 million for its Faith In Our Future trust fund—Listecki announced that the church simply cannot cover its operating costs in addition to potentially paying out millions of dollars to clergy sex abuse victims who are suing the archdiocese for fraud, since an appellate court ruled late last year that the archdiocese’s insurance wouldn’t have to cover its fraud cases.

That leaves the archdiocese itself responsible for its potential claims.

Settlement Talks Scuttled

The timing of the archdiocese’s Chapter 11 filing comes at a critical time for the survivors of clergy sexual abuse in Milwaukee. After years of rejection in court and inaction by the state Legislature, 23 victims of clergy sexual abuse were finally going to have their day in court in 14 fraud cases.

These cases weren’t merely about the sexual abuse of children. While the archdiocese has settled almost 200 claims of clergy sex abuse (and paid out more than $29 million over the years), these cases allege that church officials committed fraud because they knew about predator priests and concealed that information, putting other children at risk of abuse.

These victims and church representatives met twice in mediation to try to find an out-of-court resolution.

However, the victims wanted to discuss 13 non-economic issues before a financial settlement could even be broached. For example, they wanted the church to release the full list of names of all known clergy predators and their files and also to require all priests within the diocese, including the archbishop, to sign a statement under oath that they have never sexually abused a child and do not know of any other clergy members who have done so.

Talks fell apart after two meetings and communication outside of the sessions.

Julie Wolf, a spokeswoman for the archdiocese, said the church has been as transparent as it can be and has made some records public and released files to former Milwaukee County District Attorney Michael McCann and retired Judge Leander Foley for review. Some of the victims’ requests, Wolf said, would violate church law and practice, such as forcing the release of files belonging to priests in the religious orders, since, technically, the archbishop does not supervise these priests.

“Substantially, we have met those requests,” Wolf said.

But Jeff Anderson, attorney for the victims, said that the Milwaukee archdiocese isn’t as transparent as it claims to be.

“They have a long-standing pattern of deceit,” Anderson said.

The two sides also differ on the financial offer made by the church to the victims. Archbishop Listecki claimed that the victims had rejected a $4.6 million offer to settle the claims. But Anderson said that the money had not been requested and would not be discussed until the non-economic and child protection matters had been settled.

“We are united in this priority,” Anderson said.

Bishop Sklba’s Deposition Delayed

At the same time the mediation talks were under way, the 14 fraud cases were moving ahead in Milwaukee County Circuit Court.

In fact, Anderson said, Bishop Richard Sklba was to be deposed in January.

According to Anderson, Sklba has unique knowledge of the church’s handling of sex abuse claims, and plaintiffs saw his testimony as crucial to their cases.

But Sklba’s attorney had petitioned to have Sklba’s deposition blocked or sealed. Anderson said he objected to that. Sklba’s deposition was then scheduled for February, Anderson said.

The bankruptcy proceedings, however, have temporarily halted the fraud cases—including Sklba’s deposition.

“It is my belief that their bankruptcy filing is designed in part to prevent this information from coming out,” Anderson said.

A Silver Lining for Victims Shut Out of the Legal Process

While the fraud cases are in limbo right now, it’s almost certain that they will move forward eventually.

Milwaukee bankruptcy attorney Will Green said that the bankruptcy judge, Susan V. Kelley, will have to make a ruling on the fraud cases at some point. Kelley can find that the victims are entitled to a jury trial and allow them to continue their cases in state court. Or, Green said, Kelley can try to resolve them in bankruptcy court or move all of the proceedings to federal court.

“One way or another, somewhere down the line, the claimants are going to be allowed their discovery,” Green said. “They are going to have their day in court from the standpoint of fact-finding no matter what.”

Although the victims’ cases have been temporarily halted by the bankruptcy proceedings, their attorney Anderson said there’s a bright side for all victims of clergy sex abuse in the Milwaukee archdiocese, including those who have been denied their day in court because either the statute of limitations has run out or they couldn’t make a case for fraud.

Anderson said that all of these victims can be incorporated into the committee of creditors and become part of the bankruptcy settlement. Even Archbishop Listecki said that the Chapter 11 filing was a “last call” for victims to come forward.

“Bankruptcy opens the door in a new way,” Anderson said. “Survivors going back decades in silence can find resolution.”

Victims will also likely have a say in the archdiocese’s reorganization plan, since a majority of the archdiocese’s creditors in its bankruptcy proceedings—a large number of whom are the abuse victims—will have to sign off on it.

In some bankruptcy proceedings involving a Catholic diocese, the reorganization plan includes non-monetary issues such as the release of files. For example, the diocese in Portland, Ore., emerged from bankruptcy in 2007 when it came to a $75 million settlement agreement with sex abuse victims and opened relevant clergy files. Some victims also received letters of apology from the archdiocese and meetings with the archbishop.

“We are pursuing complete disclosure,” Anderson said.

University of Wisconsin Law School professor Jonathan Lipson said opening up the Milwaukee archdiocese’s records could be part of a settlement here. But it’s not certain that a bankruptcy judge could force a religious entity such as the Milwaukee archdiocese to do so.

“These [clergy sex abuse-related] cases push the bankruptcy system to its institutional limit,” Lipson said. “At some level these cases are not exclusively about money. Money is obviously important, but in many cases the plaintiffs want something more than money. They want the names. They want an apology. They want a commitment about future conduct. If the debtor agrees to it, that’s great. But I don’t think a bankruptcy court has the power to order the church to do any of those things.”

In addition, Lipson said that the bankruptcy judge would likely not be able to go to the limit and liquidate the archdiocese, since that would interfere with parishioners’ right to practice their religion.

What’s Next for Parishioners and the Church

Archbishop Listecki has stated that the Chapter 11 proceedings wouldn’t affect individual parishes and schools, since they are separately incorporated and are legally independent of the archdiocese. Listecki has also said that he hoped that the bankruptcy judge would recognize that the archdiocese’s recent fund-raising entity, the $95 million Faith in Our Future Fund, is independent as well. The fund is a separate 501(c)(3) charitable trust established in 2007 by then-Archbishop Dolan to support Catholic education and faith.

“The trust is a separate legal entity and is not part of the Archdiocese of Milwaukee,” a statement from its trustees reads. Two of its trustees, incidentally, are Listecki and Sklba.

Archdiocese spokeswoman Wolf said the archdiocese has not set up a trust fund for contributions to compensate victims of clergy sex abuse.

While the church is arguing that its parishes and the trust fund are separate and off-limits to the sex abuse victims and other creditors, UW law professor Lipson said that the bankruptcy judge may not agree.

“There are a variety of bankruptcy-specific mechanisms that can be used to, in essence, force those assets into the estate and therefore become available to creditors,” Lipson said.