Rockville Centre Diocese at crossroads in bankruptcy case linked to abuse survivors' lawsuits

The Diocese of Rockville Centre may be on the verge of making history as the first Catholic diocese in the nation to have its bankruptcy case dismissed amid the clergy sex abuse scandal.

After 3½ years and $100 million in legal fees, the diocese and hundreds of survivors of childhood sexual abuse by priests are in a standoff in negotiations that bankruptcy experts say have all but blown up.

Likening the situation to the two parties “playing chicken on the railroad tracks,” Penn State law professor Marie T. Reilly said the “train” — and the moment of reckoning — has arrived, and it might not end well.

“This case kind of went to the brink and it’s now about to go over the brink, and that has never happened before,” said Reilly, an expert on bankruptcies who tracks them in the Catholic Church nationwide.

“They are so far apart, and there doesn’t seem any way to bring them together,” she said. “They’re not even on the same page.”

Robert E. Gerber, a former U.S. Bankruptcy Court judge, said in a brief to the court that when survivors voted on the diocese’s “final offer” of $200 million this month, the 86% rejection rate was the most lopsided such vote he could recall seeing in his 15 years on the bench. He was so concerned he submitted the brief pleading for the two sides to reach a settlement.

“I can’t stand mute while this case barrels on toward disaster,” wrote Gerber, who as a private attorney is representing “future claimants” who may still file lawsuits against the diocese.

With negotiations at a stalemate, the diocese has asked the court to dismiss the bankruptcy proceedings. That would bring the diocese right back to where it started in October 2020, but with the sex abuse cases unresolved. The cases would then return to state civil court for individual trials — the same place they were before being transferred to bankruptcy court.

A court hearing on what happens next is set for May 9.

“The Diocese participated in a long, difficult mediation with the goal of compensating survivors while allowing the Church to carry on its charitable and religious mission,” the diocese said in a statement.

“The Diocese made the highest offer in the history of diocesan bankruptcies for settlement and the Creditors have rejected it,” the diocese said, referring to the survivors. “Currently, the Creditors are demanding an unrealistic amount of money that would cripple the Church and its ministries on Long Island.”

Diocese is largest in U.S. to declare bankruptcy

Attorneys for survivors contend the diocese has the money to fairly compensate people who underwent horrendous abuse as children. They say the church is stonewalling them and dragging out the case to get the survivors to accept a low offer.

“They’ve literally wasted around $100 million with this bankruptcy play and it hasn’t worked,” said Jordan Merson, an attorney representing some of the survivors. He noted that much of that money could have gone to survivors.

“It’s a terrible look and it’s just shocking that a diocese would act this way rather than just try to come to us and work together,” he said. He called the church’s approach “trench warfare.”

Gerber, in his brief, called for an end to the strife. He encouraged the church to take another path “to put this case back on a track toward sanity.”

“I’d urge the Diocese to abandon — or at least put on hold — this suicidal course, and to make a more realistic proposal that could lead to acceptance or real negotiation, and for the Creditors’ Committee to then meet it halfway,” he said.

The abuse cases stem from the state’s 2019 Child Victims Act, which opened a two-year window for survivors to file lawsuits regardless of how long ago the abuse occurred. By October 2020, the diocese declared bankruptcy, saying payouts from the cases could leave it financially ruined. It started negotiating with the survivors for a settlement.

Nationwide, 38 Catholic dioceses or religious orders have also declared bankruptcy in recent years as states opened similar “windows” to allow survivors to file lawsuits for abuse that happened even decades ago, Reilly said.

Twenty-four have concluded their bankruptcy proceedings, and 14 are still pending. Rockville Centre would become the first to have its proceedings dismissed without resolving the sex abuse issue, Reilly said. The diocese, home to 1.2 million baptized Roman Catholics, is the largest in the United States to declare bankruptcy.

At least 500 survivors have filed lawsuits against the diocese alleging they were sexually abused by clergy. Some cases date back to the late 1950s. Their lawyers have proposed a settlement of more than double the diocese’s final offer: $450 million.

If the diocese’s $200 million settlement were accepted, it would be among the largest for dioceses in bankruptcy in the United States. The diocese says the $200 million does not include insurance, which would provide additional money for survivors. Attorneys for the survivors contend the actual figure is not $200 million but under $135 million due to various deductions.

In 2018, the Archdiocese of St. Paul and Minneapolis reached a $210 million settlement with 450 survivors, though that figure included insurance payments. The largest non-bankruptcy settlement was in the Archdiocese of Los Angeles, which in 2007 paid $660 million — much of it provided by insurance companies — to 508 survivors.

U.S. Bankruptcy Court Judge Martin Glenn on May 9 could grant the diocese's motion to dismiss the bankruptcy proceedings, reject it or delay a decision.

“I suspect that it will get dismissed,” Reilly said. “A miracle would have to occur for these two sides to kind of come together over this big gap. But I’ve seen miracles happen before. I just don’t know.”

Uncertainty around judge's next step

Some lawyers for survivors don’t think Glenn will dismiss the bankruptcy and contend that the diocese’s attempt to do so is its latest move to intimidate survivors.

“I don’t think there is any chance the judge is going to do that now,” said Jeff Anderson, a Minneapolis-based attorney who represents 140 survivors on Long Island. “He uses the threat of dismissal, as any judge does … to get the parties to come closer together.”

The diocese’s “motion to file dismissal is just more of the same from them, just playing hard ball, trying to scare and/or pressure the survivors,” he said.

The diocese, though, insists its motion is not a negotiating tactic and that settlement talks have failed even though it offered a fair deal.

“It was hoped that a settlement would prevent a rush to the courthouse where survivors would compete in litigations, leaving many survivors with little or no compensation,” the diocese said in its statement.

Glenn has stated in court that he does not want to become the first judge in the nation to dismiss a diocesan bankruptcy linked to the sex abuse scandal, but that he'd do it if necessary. “He’s not happy,” said James Stang, the main lawyer representing the survivors' committee. “No one is happy with where we stand right now.”

The diocese also has another motivation to end the bankruptcy proceedings: It must pay all legal fees in the proceedings, including its own and for the survivors’ attorneys. The total is now $100 million.

“It’s just been running this meter the whole time,” Reilly said. “It’s at the point now where it really doesn’t have a choice. It can’t keep running this bankruptcy case if it’s never going to get to a confirmed plan.”

Rockville Centre, the eighth-largest Catholic diocese in the nation, contends its very existence is at stake. An outsized settlement, it argues, could leave it unable to carry on its mission of spiritual, educational and charitable work.

Church officials insist they have done everything possible to reach an agreement — selling off the diocesan headquarters and 200 acres of prime real estate at its seminary in Lloyd Harbor, cutting staff and streamlining expenses.

“The Diocese, along with the parishes and related parties, cut budgets to the bone to provide the best possible offer they could in good faith,” diocesan spokesman Sean Dolan said in a statement this month.

Rockville Centre is not the only diocese in the state struggling with the fallout from the Child Victims Act. Six out of eight have filed for bankruptcy, including Albany, Syracuse, Buffalo, Rochester and Ogdensburg. Only Brooklyn and the Archdiocese of New York have not. Some of the bankruptcies go as far back as September 2019, when Rochester filed.

If Glenn dismisses the bankruptcy and the cases go back to state court, attorneys for survivors contend the payouts would be far higher than a negotiated mass settlement. Survivors also would have their “day in court” with testimony and documentation detailing the abuse and the church’s alleged cover-up.

But Dolan said going back to state court carries the risk that the funds may run out and some survivors would get little or no money.

Another option is that Glenn refuses to dismiss the bankruptcy or defers a decision. The diocese said that would be a mistake.

“The case and its expenses would drag on with no end in sight and no settlement to compensate survivors. Money would continue to be wasted,” the diocese said. “Our goal is compensation for all survivors and carrying on the Church's mission, not endlessly feeding attorney fees.”

But not granting the motion to dismiss the bankruptcy could allow more time for a negotiated settlement, according to some attorneys.

Some cases are already in state court in Nassau County before Judge Leonard Steinman. Dubbed by attorneys the “Rocket Docket,” Steinman is known for moving cases along briskly.

Glenn has floated the idea in court that if some of these cases go to trial and the two sides see the results, it could prompt them to reach a settlement rather than do each of the 500 or more cases individually.

“There is a path, and I think the judge will give us time to follow that path,” Anderson said.