The Archdiocese of St. Paul and Minneapolis Files Chapter 11 Bankruptcy: A Review of the First Day Filings

For more detailed discussion on chapter 11 procedure, common issues and more, be sure to read Wartchow Law’s Chapter 11 Blog.

On January 16, 2015, the Archdiocese of St. Paul and Minneapolis filed a petition for relief under chapter 11 of the United State Bankruptcy Code. The partially complete chapter 11 filing today in the United States Bankruptcy Court for the District of Minnesota lists, among other claims, the contingent and unliquidated claims of at least twenty-one individual personal injury plaintiffs identified only as John Doe and in amounts unknown as of the date of the commencement of the bankruptcy proceeding. In its filings, the Archdiocese states its intent “to move this case forward as quickly as possible in order to minimize professional fees and to maximize the recovery to victims in this case.”

The first day filings also make mention that the 187 parishes within the Archdiocese of St. Paul and Minneapolis are separate and distinct legal entities which manage their own property and assets, and which have not otherwise sought bankruptcy protection as part of this proceeding.

As of the time of this post, the Archdiocese has yet to indicate on public record with the bankruptcy court what, if any, transfers of assets or cash it made outside the ordinary course of its business affairs in the past two years. Under federal law, preferential and fraudulent transfers and transactions made by a debtor within certain proscribed periods prior to filing bankruptcy may be avoided, essentially undone and “clawed-back” into the bankruptcy estate for the benefit of the creditors. Under the Bankruptcy Code, a preferential transfer is typically a payment or transfer made within a specific period of time prior to filing bankruptcy which conferred an unfair benefit on one creditor over other creditors of the debtor at that time. See 11 U.S.C. § 547. Fraudulent conveyances are defined as done with the actual intent to hinder, delay or defraud one’s creditors while insolvent, or for which the soon-to-be debtor received less than equivalent value in exchange for such transfer while insolvent, or for which the transfer was made to or for the benefit of an insider of the debtor. See 11 U.S.C. § 548.

While treatment of the alleged victims’ claims can hardly be gleaned from the mere first day filings in this chapter 11 case—as in most chapter 11 cases, first day filings seek to establish the procedure by which the case will proceed in the coming weeks and months—the Archdiocese’s papers do provide some indication that this purpose behind its reorganization proceeding will “focus on the creation of a mechanism for the payment of fair compensation to abuse victims… similar to bankruptcy cases commenced by other dioceses in the United States.” Such other cases may include the bankruptcy proceedings previously filed by the archdiocese in Portland (filed July 2004), Tucson (filed September 2004), Davenport, Iowa (filed October 2006), San Diego (filed February 2007), Milwaukee (filed January 2011), Gallup, New Mexico (filed November 2013), and most recently in Helena, Montana (filed February 2014). These cases also involved sex abuse cases whose aggregate compensation payments to date have totaled in the billions of dollars. (Source: http://en.wikipedia.org/wiki/Settlements_and_bankruptcies_in_Catholic_sex_abuse_cases)

In addition to the three-page petition, the list of Creditors Holding the 20 Largest Claims, and the Statement of Authority to File Petition signed by Joseph F. Kueppers, member of the Board of Directors, attorneys for the Archdiocese also filed several motions seeking expedited relief, including a motion authorizing certain documents and pleadings to be filed under seal to maintain the anonymity of uts alleged victims. The expedited motion essentially seeks to limit public access to several portions of the bankruptcy schedules and creditor matrix that would otherwise identify the names and addresses of potential and alleged victims of sexual abuse by clergy or other members of the Catholic entities, including both individual claimants already represented by counsel in Ramsey County actions as well as other potential claimants known to the Archdiocese who may still assert claims of misconduct. Section 107(b) of the Bankruptcy Code authorizes the protection by seal of documents containing such individuals’ identities due to the “scandalous or defamatory” public exposure that may be caused by naming them in the otherwise public bankruptcy filings. The Archdiocese has also requested that the deadline for filing proofs of claim to be established at a later date rather than within the standard one or two days of commencement of the case.

Additionally in its first day filings, the Archdiocese seeks for the court to waive the United States Trustee’s standard requirement mandating the closure of all prepetition bank accounts in favor of establishing new “debtor-in-possession” bank accounts. Instead, the Archdiocese seeks court authorization for it to maintain its various pre-petition accounts held at US Bank, Wells Fargo, Premier Bank and Bremer Bank, citing reasons of both administrative convenience in payment of future expenses, accounting and for investment purposes as well as “to protect the safety and integrity” of such accounts.

Unless and until such time that a trustee is appointed to administer its financial affairs, a chapter 11 debtor continues to possess its assets and operate and manage its business affairs as a debtor-in-possession of its own affairs. This means that the Archdiocese’s assets and operational income are at least temporarily protected from liquidation, attachment or execution to satisfy claims of its creditors while, simultaneously, the automatic stay confers protection from the continuance of most other legal proceedings and actions against it.

The Archdiocese is represented in its chapter 11 proceeding by the law firms of Briggs and Morgan and Lindquist & Vennum, LLP. As of the date of this post, the case has been assigned to Judge Robert J. Kressel of the U.S. Courthouse located in Minneapolis, the local Minnesota Office of the U.S. Trustee has yet to appoint an attorney to the matter and no trustee has been appointed.