Spokane diocese and law firm reach resolution, avoid trial

The Spokane, Wash., diocese and the law firm it sued for malpractice over the handling of a 2007 $48 million sex abuse settlement and bankruptcy plan have settled out of court "in a manner satisfactory to all parties," a joint press release announced Friday.

The public declaration came shortly after U.S. Bankruptcy Court Judge Frederick P. Corbit signed an order dismissing the case earlier in the day at the mutual request of the diocese and its former legal firm, Paine Hamblen.

"The settlement does not constitute an admission of wrong doing by any party," the press release stated. "Rather, it is a resolution of differences in an amicable manner which allows the parties to move forward with the important work that each conducts in the service of the common good."

Settlement terms are confidential, the release said, concluding: "There will be no further press releases or public comment by any party or their attorneys."

There were no court costs or attorney fee assignments in Corbit's ruling. In an email to NCR, Paine Hamblen's managing partner Jane Brown said the judge's "orders dismiss the cases completely," and she told the Spokane daily Spokesman-Review that her firm is "very happy with this result."

Robert Gould, the diocese's attorney in the malpractice suit, declined comment, as did the diocesan administrator, Fr. Michael Savelesky. Both forwarded by email a text of the joint press release.

The diocese and Paine Hamblen reached their resolution during mediation earlier this month overseen by retired U.S. Bankruptcy Court Judge Ralph Mabey.

Corbit's written order said "the Catholic Bishop and the [Bankruptcy] Plan Trustee have advised the Court that they have concluded, after investigation and discovery ... that Paine Hamblen and its attorneys and staff ... did not act in bad faith and did not engage in knowing or fraudulent misconduct in connection with their representation of the Catholic Bishop at any time."

"The diocese's lawsuit did not claim fraud, but rather legal malpractice," pointed out a legal expert consulted by NCR, "and legal malpractice does not require bad faith or knowledge of the malpractice. If a lawyer had knowledge of their malpractice, they would likely not commit it."

The ruling also stated "there is no basis for the Court to reconsider" the fees paid to Paine Hamblen by the diocese and that the Oct. 4, 2007, court order approving those sums "is confirmed in all respects."

In a suit filed Jan. 10, 2014, the diocese under leadership of then-Bishop Blase Cupich sought damages including the return of $3.6 million paid to Paine Hamblen for its work in the legal process begun in 2004, when the diocese filed for Chapter 11 bankruptcy, and culminating in April 2007 with a bankruptcy plan and settlement with 180 clergy sex abuse claimants.

The diocese accused Paine Hamblen of, among other things, grossly underestimating the extent of future sex abuse claims and hamstringing the diocese's ability to challenge payments out of a reserve fund.

A $1 million set-aside had been established by the bankruptcy plan to address future claims. Claims against the diocese after 2007 overwhelmed that amount.

Cupich inherited the fraying settlement situation when he succeeded now-retired Bishop William Skylstad in 2010.

To avoid the potential of a second bankruptcy as well as sale of parish and school properties that had been pledged as collateral, Cupich quarterbacked a complex, mediated agreement announced in 2012.

In September, Cupich was named to succeed Chicago's archbishop, Cardinal Francis George. Cupich was installed Nov. 18.

A Chicago archdiocesan official told NCR via email on Friday that Cupich would not comment on the Spokane case. "As Archbishop Cupich was not involved in this settlement, having left his office as Bishop of Spokane on Nov. 18, 2014, it remains for the legitimate authority in the Diocese of Spokane to issue any statement."

If the case had gone to trial next month as scheduled, it was likely Cupich would have returned to testify, Gould told the Spokesman-Review last month.

The January 2014 filing by the diocese was its second effort 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 (May 2013) because the diocese did not file in the federal bankruptcy court" as would have been required, Paine Hamblen's Brown told NCR in November.

In a motion filed Nov. 10, Paine Hamblen sought to have the diocese's suit dismissed.

Based largely on depositions of Skylstad and former diocesan vicar general Fr. Steven Dublinski, the law firm claimed that the diocese's lawsuit was "simply an attempt to throw mud at Paine Hamblen to try to get some insurance money."

The motion quoted Skylstad as saying Paine Hamblen "did a remarkable job" in its bankruptcy and sex abuse claim negotiations and that the retired bishop "does not feel differently today." The motion also charged that Dublinski had pointed out inaccuracies in the suit against Paine Hamblen to both Cupich and attorneys prior to its filing.

In its 37-page motion, Pain Hamblen accused the diocese and its new legal team of calculated delay and "forum shopping" to avoid having the case heard before Bankruptcy Judge Patty C. Williams "because they were concerned she would not view this matter favorably." Williams retired Sept. 18, 2013.

Corbit denied the motion Dec.17. According to a Spokesman-Review story at that time, "Corbit said it would be unfair to dismiss the malpractice lawsuit without allowing all actors to testify in open court."

"There has been a lot of time, money and anger involved in this case," the story quotes Corbit, adding that he was ruling as he did "to make sure that I get it right."

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 had 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."

In a declaration filed with the U.S. Bankruptcy Court in early December, Cupich disputed Dublinski. "At no time did I say that we were filing the case as a way to throw mud at this law firm or besmirch their reputation," Cupich stated.

Now pastor of St. Augustine Parish in Spokane, Dublinksi said Saturday he was "not really surprised" by the mediated resolution. He called it "in the best interests of the diocese."

Corbit added a personal comment during the proceeding Friday. He congratulated the parties for "working out an amicable solution" but said "the scholar in me would have been very interested in dealing with the issues you have presented."

"But knowing the turmoil" that surrounded the case, Corbit said his "intellectual curiosity" could take a back seat and that he was "pleased you have worked something out."

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