Bankruptcy

Bankruptcy Mediation: An Effective, But Difficult, Tool for Resolving Mass Tort Disputes

Bankruptcy mediation has been an effective tool in resolving mass liability cases.

This efficiency has benefited all parties involved, such as:

  • help maximize recoveries for tort claimants;
  • help distribute limited funds among competing tort plaintiffs and other creditors; and
  • help keep an otherwise valuable business alive for everyone who benefits from its existence, including employees and their families, suppliers, others who benefit from the value the business provides, etc.

But bankruptcy mediation does not pretend to provide an easy solution. No. The reality is this: it’s hard. And positive results, when they occur, are the result of an intense and difficult struggle between competing interests, all pursuing the goal of maximizing their own interests.

Illustrating this difficulty are the following three news reports appearing in the space of a few days, involving disputes in New York.

Figure 1: Diocese of Albany

On June 29, 2022, The Daily Gazette published an article titled “Albany Diocese Offers Mediation for Clergy Sex Abuse Victims Suing It.” The article reports as follows.

The Roman Catholic Diocese of Albany on Wednesday proposed non-bankruptcy mediation to seek financial settlements for survivors of clergy sex abuse, as an alternative to court battles or the diocese declaring bankruptcy.

The diocese faces a potentially huge cost due to more than 400 claims pending against it in court, both in legal bills and judgments. In an open letter, he said bankruptcy mediation would result in a fairer distribution of the limited pot of funds he has for this purpose.

But a law firm representing two dozen people who claim they were sexually assaulted by clergy in the Diocese of Albany decades ago called it a bogus and cynical maneuver to avoid transparency and accountability.

Three years ago in New York, the long-running clergy pedophilia scandal took an abrupt turn from a shocking revelation about one of society’s most respected institutions to a major financial threat: the The state’s Child Victims Act briefly authorized civil lawsuits for decades-old incidents that had been — and again are — well beyond the normal statute of limitations for a civil trial.

Four of New York’s eight Catholic dioceses – Buffalo, Rochester, Rockville Center and Syracuse – subsequently filed for bankruptcy under the financial weight of possible legal settlements or trial verdicts.

The letter to abuse survivors released Wednesday by the Bishop of Albany also acknowledged the prospect of a Chapter 11 bankruptcy filing by the Diocese of Albany.

Figure 2: Madison Square Boys & Girls Club

On July 1, 2022, Reuters publishes an article titled “New York youth club seeks to arbitrate 140 bankrupt sex abuse claims.” The article reports as follows.

The Madison Square Boys & Girls Club, which operates six youth centers in New York, told a bankruptcy judge on Friday it intended to use its Chapter 11 case to arbitrate more than 100 complaints. for sexual abuse involving a doctor who volunteered at the centers for decades. from.

Madison Square, which filed for Chapter 11 protection in New York on Thursday, told a U.S. bankruptcy judge in a hearing on Friday that bankruptcy mediation was the only way to bring sexual abuse plaintiffs and insurers at the negotiating table before the nonprofit runs out of funds.

Debtor’s attorney says:

  • “We are here to fairly and equitably compensate the survivors of what they describe as hideous sexual abuse that took place many years ago at the former Madison premises”; and
  • Without bankruptcy protection, the 138-year-old youth organization would likely run out of money in 60 days and be forced into liquidation.

Almost all of the abuse allegations stem from the conduct of a single doctor who volunteered in Madison Square from the 1940s through the 1980s. This doctor, who died in 2007, also worked as a pediatric endocrinologist at University Hospital Rockefeller, who revealed his history of sexual misconduct in a 2018 investigation.

Madison Square reached settlements with nine abuse plaintiffs, spending $3.9 million on settlements and legal costs. It could not survive a piecemeal approach to resolving the remaining 140 claims.

Madison Square will ask the bankruptcy court to:

  • approve a relatively quick mediation process with abuse claimants and insurers; and
  • suspend the case during mediation, stopping almost all non-mediation related activities in an effort to minimize costs and litigation.

Rockefeller University Hospital will oppose both requests, arguing that its exclusion from the proposed mediation and bar from suing Madison Square would impair its ability to defend itself against the abuse allegations.

Victims of abuse have also expressed skepticism about the proposed stay of the case. Madison Square’s approach could limit abuse victims’ ability to investigate assets that Madison Square or the wider Boys and Girls Club of America might contribute to a bankruptcy settlement.

Figure 3: Diocese of Rochester and Diocese of Buffalo

On July 3, 2022, The Buffalo News published an article titled “Diocese of Rochester bankruptcy mediation stalled as Diocese of Buffalo negotiations begin in earnest.” The article reports as follows.

A controversial $148 million settlement offer in the Diocese of Rochester, along with recent settlements of $87.5 million and $121.5 million, respectively, in bankruptcy cases in the Diocese of Camden, NJ , and the Archdiocese of Santa Fe, NM, provide insight into where the negotiations were mediated. could head to the Diocese of Buffalo, its parishes and schools and more than 900 people who have filed sexual abuse complaints in federal court.

Nearly 2½ years after a flood of Child Victims Act lawsuits prompted the Diocese of Buffalo to file for Chapter 11 bankruptcy protection, attorneys said this week that They were still at least several months away from being able to reach an agreement compensating victims of abuse.

Any optimism could be dashed, if the Rochester Diocese case is any guide. Rochester was the first diocese in the state of New York to file for bankruptcy, five months before the Diocese of Buffalo.

The Diocese of Rochester is represented in its bankruptcy by the same attorneys the Diocese of Buffalo hired. The official committees of unsecured creditors in both cases also use the same lawyers, as do the committees in both cases which represent Catholic parishes.

The Diocese of Rochester engaged in mediated settlement talks in March 2020. More than two years later, the parties remain at odds.

In May, the Diocese of Rochester offered a $148 million settlement for 475 sexual abuse claimants and asked the court to extend the stay of litigation against parishes and other entities.

Lawyers for the sex abuse plaintiffs blasted the offer, saying it was a tiny fraction of the value of the Diocese’s insurance coverage, estimated at $2 billion or more, and that It had been made without any input from the creditors’ committee.

Conclusion

Although bankruptcy mediation has been an effective tool in resolving mass tort litigation, it is not an easy process. Instead, it is a highly competitive situation in which various interests are working hard to maximize their own interests under current circumstances.