Diocese asked to halt attorney fees

Catholic parishes in Eastern Washington have asked that payments to bankruptcy lawyers be suspended or at least held down until the clergy sex abuse case is settled.

With legal fees running in excess of $325,000 a month draining the cash reserves of the Roman Catholic Diocese of Spokane, parish members worry that the diocese could run out of money before the case is resolved.

There are 82 parishes within the diocese. Through donations to the Catholic Appeal, parishioners support the operations of the diocese.

This year, however, the annual appeal is collecting about 20 percent less. The drop in collections, added with the high fees, is causing a liquidity crisis, parish attorneys John Munding and Ford Elsaesser wrote in their motion. In fact, money paid out of diocese accounts is more than double the money flowing in.

The move should not come as a surprise.

Elsaesser has advised attorneys in the case that the parishes were contemplating such action unless a deal could be worked out.

In most Chapter 11 bankruptcies, lawyers are paid on an as-you-go basis. They are paid – usually about 80 percent of their fees plus full expense reimbursement – before anyone else, including the federal government for taxes owed, creditors such as vendors with unpaid bills, and bondholders.

Diocese attorney Shaun Cross insisted there was no dispute between the diocese and parishes regarding the lawyer fee issue. His firm, Paine Hamblen Coffin Brooke and Miller, has billed the diocese more than $530,000 for four months work.

“We have expressed concern, too,” Cross said, “particularly since we ended up with two creditor committees.”

In bankruptcy cases, attorneys representing creditors also are paid by the company, or in this case, the diocese.

Cross acknowledged that there is room for the attorneys in the case to compromise on fees.

If nothing is worked out, the diocese may have to begin selling properties such as the chancery building and the home of Bishop William Skylstad.

The diocese has so far resisted such moves, publicly stating that it wanted to preserve the assets to later pay abuse claims.

Mark Mains, a member of the creditor committee representing alleged abuse victims who have filed lawsuits against the diocese, said everyone in the case is concerned about saving money to settle claims.

But he sharply criticized the diocese for filing the costly Chapter 11 bankruptcy in the first place rather than hammering out settlements with victims.

“They knew what this was going to cost, and yet they filed anyway,” Mains said. “During talks, (the diocese) would say, ‘We don’t have money for settlements.’ And we said, ‘Then how are you going to pay for this kind of bankruptcy?’ “

If lawyer fees are suspended, Mains said, creditors’ attorney Jim Stang would continue on the case regardless.

“Our lawyers are committed and said they have a moral obligation,” Mains said. “They feel very strongly about the survivors and will do everything they can for us.”

The fee argument comes less than three weeks before the most important hearing yet in the bankruptcy, now seven months along.

On June 27, the creditors will ask U.S. Bankruptcy Judge Patricia Williams to rule that parish assets such as church buildings, equipment and cash are property of the diocese and should be available in the bankruptcy case to pay claims.

The diocese argues that parishes are separate, distinct entities. Assets of the parishes, the diocese will argue, are merely held in trust by the bishop – not owned.

It’s an important precedent-setting case that could influence how the U.S. Catholic Church uses federal bankruptcy courts to settle widespread clergy sex abuse lawsuits.