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Skirmishes start in diocese bankruptcy case

Early skirmishes among lawyers involved in the Catholic Diocese of Spokane’s bankruptcy may indicate the kind of adversarial case both sides had hoped to avoid.

The Chapter 11 bankruptcy was filed nine days ago and already attorneys representing alleged victims of sexual abuse by clergy want attorney Shaun Cross and his legal colleagues at Paine Hamblen Coffin Brooke & Miller off the case.

Representing a group called the Unofficial Committee of Clergy Sex Abuse Survivors, attorneys John Campbell, of Spokane, and James Stang, of Los Angeles, claimed in documents filed in Bankruptcy Court Tuesday that Paine Hamblen has conflicts of interest – namely that the firm is owed money by the diocese for earlier work defending against sex-abuse claims.

Rather than a “disinterested person,” Campbell and Stang contend that Paine Hamblen could find itself a creditor in the case and should therefore be disqualified.

So far the diocese has paid Paine Hamblen $432,192 for its legal work within the past 90 days, according to court papers filed by Campbell and Stang.

Neither lawyer returned phone messages left Tuesday seeking comment.

In an interview, Cross dismissed the suggestion that his firm has conflicts of interest.

“The issues that are raised in regard to any potential conflicts regarding past representation of the diocese prior to the filing – it’s all covered in pretty ad nauseam detail” in a declaration filed in Bankruptcy Court, Cross said.

The declaration says Paine Hamblen began working for the diocese in 2002 when sexual abuse claims began to be filed. So far, 19 lawsuits have been filed and the diocese has identified 125 potential claims in Eastern Washington spanning more than 50 years.

Although owed money for its defense work, Paine Hamblen opted to waive its claim for legal costs in the bankruptcy case in order to guide the diocese through that filing.

The law firm has not, however, waived its right to seek reimbursement of the claim from the diocese’s insurers.

Campbell and Stang argue it’s not so simple.

If insurers are successful in contending that they should be let off the financial hook regarding the sex-abuse claims, Paine Hamblen’s original claim may bounce back to the diocese, they said in the Tuesday filing.

The issue will likely be among the first resolved by federal bankruptcy Judge Patricia Williams.

Separately, Paine Hamblen is arguing in Bankruptcy Court to keep Stang and his firm from joining the case – at least temporarily, until creditors’ committees are appointed.

Stang is a partner in a firm recognized as one of the top bankruptcy practices in the nation. It is the same firm that examined Metropolitan Mortgage & Securities Inc. and found widespread abuses there.

Cross was cool to that firm’s efforts in the diocese case.

“They’re not involved yet, and whether they will be involved remains to be seen,” he said, “and other than that, I don’t want to comment.”

Sandpoint attorney Ford Elsaesser, who is advising Catholic parishes as the case unfolds, said the early posturing is worrisome and unusual.

“These are exactly the kinds of early skirmishes that need to be avoided,” he said. “We need to get into a mediation framework immediately and minimize the dollars spent on lawyers.”

Indeed, big bankruptcy cases cost millions of dollars to resolve, and many fear this new kind of church bankruptcy could rival the expense of large corporate reorganizations.

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