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Law firm, diocese reach settlement

The law firm of Paine Hamblen has settled a bankruptcy malpractice case regarding its multimillion-dollar representation of the Catholic Diocese of Spokane.

A settlement signed Friday by the law firm and the church ends the acrimonious lawsuit and closes a bankruptcy case that was first filed in December 2004.

The settlement amount and some other terms were not disclosed, though neither side was awarded lawyer fees and court costs.

The two sides reached the agreement with the help of retired U.S. Bankruptcy Judge Ralph Mabey, who led a mediation effort in mid-January.

“The settlement does not constitute an admission of wrongdoing by either side; rather, it is a resolution of differences in an amicable manner which allows the parties to move forward with the important work that each conducts in the service of the common good,” the two sides said in a joint press release.

The wording was stronger in court records: “Paine Hamblen lawyers and staff did not act in bad faith and did not engage in knowing or fraudulent misconduct in connection with their representation of the Catholic Bishop at any time.”

Jane Brown, the managing partner of Paine Hamblen, said her firm is “very happy with this result.”

Robert Gould, an attorney hired by the diocese to pursue the malpractice case, declined to comment on the settlement.

In most Chapter 11 bankruptcy cases, such financial settlements are open to public inspection. The legal transparency helps ensure that the terms are in the best interests of creditors.

In this matter the settlement included a confidentiality clause agreed to by the diocese and Paine Hamblen. Presiding U.S. Bankruptcy Judge Frederick Corbit agreed to the secrecy provision in part because the bankruptcy case was settled years ago with a sweeping $48 million plan that already has paid creditors, which in this case were victims of clergy sex abuse.

The malpractice issues erupted several years ago as the leadership of the diocese changed after the bankruptcy. Incoming Bishop Blase Cupich – who has since been appointed Archbishop of Chicago – reviewed the bankruptcy and determined that Paine Hamblen mishandled important aspects of the case, including underestimating how many more victims of clergy sex abuse would continue to come forward after the case was closed. A central tenet of bankruptcy is to collect all outstanding financial claims and attempt to reach acceptable payment terms.

In this case claims kept coming after the case was closed. The new claims threatened foreclosures of some parishes, including Our Lady of Lourdes Cathedral parish. Cupich opted to drop Paine Hamblen and hired new lawyers who eventually negotiated a second all-encompassing settlement that kept the church from insolvency and preserved its Eastern Washington ministry.

As Cupich and Gould pressed the malpractice case, Paine Hamblen argued that its years of work guided the diocese through uncharted legal territory and ultimately saved it from financial ruin. Although the diocese had to sell some assets, raise money from parishioners and leverage some churches as collateral, the diocese did not have to shutter any parish or ministry.

The malpractice claim was headed for a February trial.

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