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January 5, 2011 6:00 PM

The Bankruptcy Files: Another Diocese Descends into Chapter 11

Posted by Brian Baxter

Before we get to the latest new bankruptcy filings to begin 2011, we wanted to share some of the information from a report last month by The New York Times on the drop-off in big Chapter 11 filings as 2010 came to a close.

The Times reported that the mid-December bankruptcy filing by The Great Atlantic & Pacific Company (A&P) was the ninth largest of 2010. In all, only 15 filings last year involved companies with assets of more than $1 billion, compared to 45 such filings in 2009.

In a follow-up to that story on December 27, Seton Hall bankruptcy professor Stephen Lubben, writing for The Times's DealBook, notes that a revitalization of the junk bond markets and changes in the capital structures of distressed firms have helped cut down on the number of large filings.

As for the A&P filing, since we last reported on it, Milbank, Tweed, Hadley & McCloy financial restructuring group leader Dennis Dunne has snared the role as lead counsel to A&P's official committee of unsecured creditors. Lowenstein Sandler bankruptcy chair Kenneth Rosen is serving as conflicts counsel to the committee, while Kirkland & Ellis partner Paul Basta is lead debtor's counsel. We reached out to all three lawyers to see if there was a Mesa Air-esque frenzy for the creditors committee work in the A&P case, but didn't hear back.

But on to 2011! Below are some recent and noteworthy bankruptcy filings that landed on our desk:

CATHOLIC ARCHDIOCESE OF MILWAUKEE

The Milwaukee Archdiocese filed for bankruptcy on Tuesday, citing an inability to pay claims and other legal bills stemming from civil suits filed by plaintiffs alleging sexual abuse by priests and other church employees when they were minors. Bloomberg reports the filing makes Milwaukee the eighth Catholic diocese facing sex abuse claims to seek Chapter 11 protection.

Wisconsin firm Whyte Hirschboeck Dudek is serving as general bankruptcy counsel to the archdiocese in its Chapter 11 case. Daryl Diesing, a former chair of the firm's real estate and commercial law team, is advising the archdiocese, along with managing director Bruce Arnold.

Both lawyers are billing $475 per hour for their services and associates from their firm are billing between $165 and $275 per hour. Court filings by Whyte Hirschboeck show that the firm was paid $228,191 by the archdiocese in the year prior to its bankruptcy filing. The firm has also received an advance of $432,352 for the bankruptcy case.

Leverson & Metz, a Milwaukee bankruptcy boutique that opened in 2007, is serving as conflicts counsel to the archdiocese. Name partners Leonard Leverson and Mark Metz have requested a $25,000 advance to cover their expected fees in the bankruptcy case.

Robert Buikema, president of Waukesha, Wis., firm Buelow Vetter Buikema Olson & Vliet, and employee benefits head Matthew Flanary are serving as special union and collective bargaining counsel to the archdiocese. The firm has received a prepetition fee advance of $25,000 and estimates that its total fees will not exceed $50,000.

Partners John Gehringer and Seth Dizard from Milwaukee firm O'Neil Cannon Hollman DeJong & Laing are serving as special real estate counsel to the debtor. The firm states in court filings that it's received a $25,000 advance from its client and estimated its total fees at no more than $100,000.

Court records show that Quarles & Brady real estate cochair David Muth and litigation partner John Rothstein have also been advising the archdiocese. Milwaukee solo practitioner Joseph Fenzel is representing Park Bank, a secured creditor for the archdiocese.

The unsecured creditors of the archdiocese predominantly consist of personal injury plaintiffs represented by Jeff Anderson of Minneapolis firm Jeff Anderson & Associates. Anderson questioned the motives behind the archdiocese's bankruptcy filing in an interview with The Associated Press. (Anderson's firm has carved out a national reputation for representing victims of sexual abuse, providing documents to The New York Times last year showing that the Vatican declined to defrock a priest in Milwaukee who abused nearly 200 deaf boys.)

Late last year, the Catholic Diocese of Wilmington filed for bankruptcy in Delaware the day before a civil trial over sex abuse allegations was supposed to start. The Chapter 11 filing postponed those proceedings indefinitely, putting more than 100 civil suits, many of which were filed by Anderson, on the back burner.

Lawyers for the Wilmington diocese--represented by Delaware firm Young Conaway Stargatt & Taylor--said in bankruptcy court on Tuesday that their client would file an amended reorganization plan next week, which would give sex abuse victim creditors the choice of continuing with litigation or pursuing a settlement. Young Conaway partner Anthony Flynn, Sr., told Bloomberg that the average maximum payment to victims will now exceed $349,000 under the new reorganization plan.

LTAP US LLP

An Atlanta-based purchaser of life insurance policies in the life settlement market, LTAP cited longer life expectancies and unrelenting pressure from lenders as a reason for its bankruptcy filing in Delaware on December 22, Bloomberg reports.

Adam Landis, a name partner at Delaware firm Landis, Rath & Cobb, is advising LTAP on its bankruptcy case, along with partner Kerri Mumford. Court records show that partners from the firm are billing between $415 and $650 per hour, while associates are billing at hourly rates ranging from $255 to $395. Landis Rath received a $150,000 retainer from LTAP on December 17.

Three law firms appear on a list of creditors holding the seven largest unsecured claims against LTAP. The debtor owes the largest amount to Locke Lord Bissell & Liddell at $376,057. Clifford Chance is owed $47,181 and Baltimore firm Ober, Kaler, Grimes & Shriver is owed $1,437.

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If you are an attorney who is following the Milwaukee Archdiocese bankruptcy, you may want to read about the Wilmington, Delaware case. The schools and other organizations thought their money was safe too - it is not.

Also, a significant issue in many church bankruptcies is the lay employee pension plan. So-called "church plans" are not usually protected by the Pension Benefit Guaranty Corporation (unless they elect for coverage; most do not) and are not subject to ERISA, which would require financial disclosure of the plan's financial condition to its participants.

In Delaware, we had no idea how poorly underfunded -- 93% -- our plan was until the diocese filed its first financial disclosure in the case. The pension fund is still in flux, but it doesn't look good at this point. The Milwaukee financial audit, posted on their website, does not speak to the funding status of the plan; it does mention that there is a plan.

The Pension Rights Center in Washington is following the "church plan" issue very closely. A quick primer is here: http://www.pensionrights.org/action/gaps/church-plans.html

More on the Delaware case is available at:
http://www.cdowreorganization.com
http://www.cdowlayemployees.com
http://www.facebook.com/home.php#!/profile.php?id=100000870145647
http://www.npr.org/templates/story/story.php?storyId=126745377

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