Move to dismiss Diocese of Rockville Centre bankruptcy case denied

A federal judge on Wednesday denied a motion by the Diocese of Rockville Centre to dismiss its bankruptcy case and appointed two high-powered mediators in an effort to break a 3½-year logjam of negotiations involving clergy sex abuse survivors.

U.S. Bankruptcy Court Chief Judge Martin Glenn, expressing his irritation at the case remaining unresolved, issued the ruling after some survivors spoke in court of the pain they have endured and their frustration after more than $100 million in legal fees have been paid to attorneys but nothing to them.

Glenn said he was appointing retired U.S. Bankruptcy Court Judge Shelley Chapman and Paul Finn, a lawyer with deep experience in resolving sexual abuse claims, to try to get the diocese and lawyers for the survivors to reach an agreement. As a judge, Chapman oversaw the 2008 Lehman Brothers Holdings bankruptcy case — the largest bankruptcy case in U.S. history — and other Chapter 11 mega-cases.

Fresh look helpful

After a 90-minute hearing in Manhattan, Glenn pulled lawyers for both sides into his chambers where he privately gave them the news.

“I expressed my disappointment … that this case has not been successfully resolved consensually,” Glenn said later in open court. “I think that a fresh look and a fresh push can be helpful.”

Glenn said Chapman and Finn have cleared their schedules to work on the Rockville Centre case.

The judge also said he was, in effect, freezing any further legal actions in the case involving the two sides filing motions and counter motions. Instead, he will deal only with minor “housekeeping” items while the two sides and the mediators try to reach an agreement.

Glenn indicated he was reluctant to grant the church’s motion to dismiss the bankruptcy proceedings in part because it would mean hundreds of cases being returned to state civil court. He theorized the diocese could be hit with several mega-awards by state court juries in the first cases, leaving little or no money for hundreds of other survivors.

Nationwide, some 38 Catholic dioceses or religious orders have declared bankruptcy amid the sex abuse scandal that broke in 2002. Rockville Centre, one of the largest dioceses in the nation, would be the first to have its bankruptcy proceedings dismissed.

'Major development'

The church argued negotiations have failed and are no longer worth pursuing.

James Stang, the main lawyer representing the survivors in the proceedings, said in an interview the appointment of Chapman and Finn was a “major development.”

Finn “probably has mediated more sexual abuse cases than anyone in the country,” Stang said, while Chapman “is considered to be an excellent mediator.” He referred to them as “big guns.”

“I think it was a necessary move by the judge” given the stagnation of negotiations, Stang said of the judge's decision to bring on the mediators.

Lawyers for the survivors have proposed a $450 million settlement.

The diocese, in a statement provided after the publication of this story, said it "will participate in this renewed mediation effort and sincerely hopes that the Creditors will abandon their demands for an additional quarter of a billion dollars above the Diocese’s $200 million offer (the highest ever made by a diocese in bankruptcy). Absent a more realistic approach which does not threaten to destroy parishes, schools, and other vital ministries throughout Long Island, the Diocese is prepared to revive the motion" to dismiss the case.

Resolution remains uncertain

Stang said he did not know if Chapman and Finn, despite their skills, could break the stalemate.

“I think it depends on whether the diocese drops the position that their last offer was their last and final offer,” Stang said. “If they drop that position then I think there is a possibility of this getting resolved. But so long as they take a position that there is nothing more to offer I think it’s going to be a very challenging job for both Chapman and Finn.”

In court, Stang said this week there had been a major development that was “highly confidential” but could help lead to a resolution of the standoff. He did not offer details, though in the interview he said he was not referring to the appointment of the new mediators.

The diocese declared bankruptcy in October 2020 in the wake of New York State passing the Child Victims Act, which allowed survivors of childhood sexual abuse to file lawsuits regardless of how long ago the abuse occurred. The church contended potential payouts from the 2019 law could leave it in financial ruin. The law opened a two-year window starting in August 2019 for people to file lawsuits.

When the diocese declared bankruptcy, hundreds of civil suits that had been filed against it were transferred to Glenn’s bankruptcy court. Lawyers say there are at least 500 sex abuse lawsuits against the diocese, some of them dating back decades.

If Glenn dismisses the bankruptcy proceedings, the abuse cases would return to state civil court — where they were in October 2020.

Some have already returned there for various reasons, and Glenn noted trials and verdicts might be coming soon in a handful of them cases heard in Nassau County.

On Wednesday, Glenn allowed several survivors to address the court.

“All these intelligent people in this courtroom cannot come to an agreement to help us,” said one survivor, Bobby Smith.

The pain of being sexually abused as a child by a priest “runs deep to the point, do I want to live anymore?” said Smith, who said he still has nightmares of the priest. “Being abused and being taken advantage of at such a young age has crippled me as a person.”

He complained that “no one is looking to help us,” as he pleaded to the judge: “This is your time to help us.”