Law firm files motion to dismiss Spokane diocese's claims of mishandled bankruptcy

The law firm accused by the Spokane, Wash., diocese of mishandling a 2007 bankruptcy and settlement with clergy sex abuse victims filed a motion to dismiss the diocese's claims on Monday in federal bankruptcy court.

Based in part on depositions from retired Bishop William Skylstad and Fr. Steven Dublinski, the diocese's previous vicar general, the Monday filing charges that "the current claims are simply an attempt to throw mud at Paine Hamblen to try to get some insurance money."

For its work leading to the 2007 settlement, the law firm of Paine Hamblen was ordered to be paid about $3.5 million by U.S. Bankruptcy Judge Patty Williams.

On Wednesday, the Spokane daily newspaper, The Spokesman-Review, reported that the diocese "is asking for at least $4 million in damages from the firm after alleging attorneys failed to disclose a conflict of interest in the case and were wrong about how many claims would be made against the church by abuse victims."

"The diocese sought to change the terms of its bankruptcy settlement after a flurry of abuse allegations, most of them outside of Spokane, depleted the $1 million fund the church had set aside to pay future claims," wrote Spokesman-Review reporter Kip Hill, adding that Spokane Bishop Blase Cupich "and the diocese say Paine Hamblen undershot the amount that would be necessary to pay future claimants because lawyers failed to conduct an independent study of potential cases and limited the diocese's ability to challenge payments out of the victim fund."

Paine Hamblen's motion to dismiss was in response to a second effort by the diocese seeking return of bankruptcy attorney fees. A suit was filed in state court in 2012, but it was "removed to federal court and dismissed by a federal judge because the diocese did not file in the federal bankruptcy court" as would have been required, said Jane Brown, managing partner of Paine Hamblen.

That first suit was dismissed in May 2013. The current suit was filed in January 2014.

Responding to the news report, Cupich on Wednesday sent a message to priests of the diocese, telling them "how sorry I am if this development is causing you or your parishioners any distress" and that the "reasons and factors still stand" for the diocesan lawsuit as described in an Oct. 13, 2012, open letter to parishioners.

Forwarded to NCR Thursday by diocesan communications director Eric Meisfjord, Cupich's letter to priests concluded: "I also noted that since this matter is being handled by the courts, no further comment will be made. There is no reason to alter that approach, but I do want to assure you that I am confident that the truth will come out and that the fiduciary responsibility for the good of the diocese, which I wrote about, continues to occupy my attention and be the sole motivation of my decisions."

Brown disputed Cupich's assertion that the law firm eschewed mediation. "The diocese did not offer to mediate any dispute, or even notify us of any dispute prior to sending us the complaint," she wrote in an email to NCR Thursday. "The original complaint showed up in my email one morning with a demand that we talk with them about their allegations and pay money. They filed suit almost immediately after that demand. We had no notification that the diocese was unhappy about anything that had occurred prior to the complaint appearing in my email."

Named bishop of the Spokane diocese in June 2010, Cupich was recently selected to succeed Cardinal Francis George as archbishop of Chicago. Installation is scheduled for Nov. 18. Requests for comments from Cupich have been sent to the archdiocese.

In Monday's motion, Paine Hamblen accuses the diocese and its new legal team of calculated delay and "forum shopping" to avoid having the case heard before Williams "because they were concerned she would not view this matter favorably." Williams retired last year.

The new filing states that in a deposition, now-retired Skylstad referred to Paine Hamblen as "very capable legal counsel" during the bankruptcy proceedings and said he "does not feel differently today."

"Bishop Skylstad feels that his goals in filing the bankruptcy -- fairness for the victims and ensuring the continuation of the Church's mission -- were largely achieved," the document states, adding: "He feels that Paine Hamblen 'did a remarkable job' in negotiating a Plan that protected Parish assets given the potential liability."

The document says Dublinski pointed out inaccuracies in the diocese's suit against Paine Hamblen to both Cupich and attorneys prior to its filing. Dublinski was vicar general from 2002 until August, when he resigned because of " 'irreconcilable differences' with Cupich on several matters," The Spokesman-Review reported.

In his deposition, Dublinski said Cupich told him "that we are throwing mud at Paine Hamblen to see if any mud sticks" and that "we had to say all these other things to activate their insurance."

Messages for Dublinski left at St. Augustine Parish in Spokane, where he is pastor had not been returned as of Thursday.

"It's unknown right now," said Brown when asked if the law firm's insurance would pay if the diocese wins its suit.

Monday's 37-page filing by Paine Hamblen claimed that "substantive errors alleged by the diocese often boil down to a difference of opinion between ... Bishop Cupich and former Bishop Skylstad over judgment calls where there was no clear right answer."

The motion also:

• Repeatedly points to the seven years elapsed between the 2007 bankruptcy settlement and the current diocesan suit as violating legal "reasonable time" guidelines for filing and that "all of the alleged errors and conflicts have been in plain view for years" without legal action;
• States that Cupich "broadly attacks the work done by defendants in the underlying bankruptcy" but that "the defendants worked for Bishop William Skylstad, not Bishop Cupich";
• Argues that the diocese's charge of conflict of interest misrepresents the facts.

According to The Spokesman-Review: "The conflict of interest allegation centers on Paine Hamblen attorney Greg Arpin, who was working on cases involving allegations of priest abuse and the discovery of pornography in the apartment of another priest. The diocese says Paine Hamblen was representing former Bishop William Skylstad as an individual in the cases and should have informed the bankruptcy judge of the potential conflict of interest before finalizing the settlement."

"Arpin was originally named as an individual defendant in the lawsuit. The diocese has since dropped its claim against him," the newspaper reported.

The court document itself states: "As for the conflicts of interest, assuming they exist, they are subtle and no one has been able to identify any harm they caused because there is none."

Attempts to contact the diocese's attorney, Robert Gould, were not successful as of Thursday.

According to Brown, Monday's motion is scheduled to be heard along with any potential Spokane diocese response by mid-December. If the motion to dismiss is not granted, a trial could take place in February, according to the Nov. 10 filing. 

[Dan Morris-Young is an NCR West Coast Correspondent. His email address is dmyoung@ncronline.org.]