Rockville diocese seeks dismissal; survivors reject Chapter 11 plan

By Sarah Lizee

Olympia, Wash., April 15 – The Roman Catholic Diocese of Rockville Centre, New York is seeking dismissal of its Chapter 11 bankruptcy case now that a super-majority of abuse survivor claimants has rejected the diocese’s plan of reorganization, according to a press release from Pachulski Stang Ziehl & Jones LLP.

A hearing on the motion to dismiss is scheduled for May 9.

The official committee of unsecured creditors, which said it opposed the plan because it does not provide adequate compensation for survivors and lacks any child protection measures, is represented by Pachulski Stang Ziehl & Jones and Burns Bair LLP.

“The diocese repeatedly threatened survivors that it would seek dismissal of the bankruptcy if survivors did not accept a woefully inadequate plan that included non-consensual releases for parishes and affiliates,” James Stang, partner at Pachulski Stang Ziehl & Jones, said in the release.

“In rejecting the plan, survivors demonstrated strength and unity and demonstrated that they would not be intimidated by the diocese.”

Stang noted that the diocese has paid its bankruptcy professionals nearly $60 million since the case started in 2020.

The firm said the landslide rejection of the plan is unprecedented in the history of Chapter 11 abuse cases, as the choice for survivors was between the debtor's plan and the debtor's threat to dismiss the bankruptcy case. In other cases in which a diocese has proposed a non-consensual plan, survivors had a choice between the diocese's plan and their own plan.

“In this case, the survivors rejected the only plan on the table demonstrating that they would not be cowed into accepting an offer that was inadequate by any measure of the diocese, parishes and affiliates' ability to fairly compensate survivors,” the firm said.

Plan terms

As a reminder, the diocese had said the plan offers a total of $200 million in compensation as its best and final proposal for settling with survivors of abuse.

Under the plan, the $200 million settlement fund included a diocesan contribution of $50 million and a contribution of $150 million from parishes, co-insured parties, and other Catholic ministries.

In addition, the diocese and all affiliate parties are contributing the value of their rights against third-party insurance companies as part of the plan.

The plan offered an immediate minimum cash payment of $100,000 to each claimant with a lawsuit against a non-debtor contributor.

It offered other claimants without qualifying lawsuits an immediate minimum cash payment of $50,000.

The balance of the remaining settlement funds would be paid to settlement trusts and allocated to creditors based on trust distribution protocols.

Funds from insurance coverage proceeds would be added to these settlement trusts to fund additional payouts to survivors.

Priority claims, secured claims, lay pension claims and priest pension claims were unimpaired by the plan.

General unsecured claimholders would receive their pro rata share of the GUC plan distribution, which would be GUC plan distribution less amounts paid on account of convenience claims.

Holders of convenience claims would receive cash in an amount equal to 100% of their claims.

The Rockville Centre, N.Y.-based diocese filed bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York on Oct. 1, 2020 under Chapter 11 case number 20-12345.

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