More links surface between bankruptcy case under FBI investigation and church reorganization | New Orleans

Links have continued surfacing between a bankruptcy case in Houston that forced a judge there to resign – while thrusting him under FBI investigation – and a contentious, costly financial reorganization being pursued by the clergy abuse-plagued Roman Catholic archdiocese of New Orleans.

Perhaps the most notable so far: a portion of a transcript from a March 2023 hearing that until now had largely gone unnoticed shows how – before corruption allegations prompted his resignation – David Jones exalted the wisdom of one of the most tendentious rulings made by fellow bankruptcy judge Meredith Grabill with respect to the New Orleans archdiocese’s chapter 11 reorganization.

Grabill months earlier had kicked four clergy abuse survivors off a committee advocating on behalf of molestation victims’ interests in the archdiocesan bankruptcy because of actions she attributed to their attorney.

Jones claimed he had not spoken with Grabill about her decision – and then cited it to justify forcibly removing a creditor involved in a bankruptcy protection case filed by a California biotech company named Sorrento Therapeutics, litigation that was then pending in his courtroom but has since ended.

What has raised alarm among multiple parties involved in the church bankruptcy and interviewed by the Guardian: statements made months earlier by an archdiocesan lawyer seemingly contradict Jones’s claims that he did not speak with Grabill about the committee removals in her case. That church bankruptcy attorney, Mark Mintz, remarked during what is known as a status conference that Grabill had spoken with Jones and another judge before deciding to enact the committee removals – a comment that Grabill left unchallenged, according to a separate, publicly available transcript.

Furthermore, the concerned parties – some of whom spoke with the Guardian on condition of anonymity to frankly discuss sensitive legal matters – took note of how Grabill later hired a number of bankruptcy professionals present for the March 2023 hearing in Jones’s courtroom to essentially consult her on resolving the New Orleans church’s years-long reorganization.

Those mentioned as present at the March 2023 hearing, according to the transcript, before later being hired by Grabill included national business turnaround expert Mohsin “Mo” Meghji as well as attorneys for the global Latham & Watkins law firm.

It has not been clear what if any direct role Jones had in Grabill’s decision to bring Meghji, his M3 Partners group and the Latham attorneys aboard the church bankruptcy at a cost of $350,000 – an amount that otherwise would have been available to help settle the proceeding. Neither Jones, Grabill nor Meghji immediately responded to attempted requests for comment.

Nonetheless, James Adams, whom Grabill removed from his role as chair of the abuse survivors’ committee in 2022 alongside three other fellow panel members, said the increasingly evident ties between the New Orleans church bankruptcy and the matter leading to Jones’s resignation left him feeling as if he and others similarly situated might not be “getting a fair shake”.

“It’s impossible to feel we are with these same characters showing up in both courts,” Adams said. “It seems like it’s a routine, a business model used by bankruptcy professionals. And it’s not just lawyers and consultants – it’s also judges who are part of this … little circle.”

Another clergy abuse survivor with a molestation claim ensnared in the church bankruptcy, Mark Vath, added that “the conflicting stories … and all the same players involved absolutely decrease my confidence in the integrity of this process.

“It’s obvious why to any logical or rational person,” Vath said. “It’s unfortunate … when you see them cross paths like that.”

Meghji, along with attorneys for Latham, ultimately issued a report in October with recommendations on how Grabill can compel those involved in the church bankruptcy to resolve a case where the archdiocese and clergy abuse survivors remained hundreds of millions of dollars apart in settlement negotiations.

Yet many awaiting the resolution of the church bankruptcy have noted how the FBI has reportedly sought information about Meghji, M3 Partners and Latham, among others, as well. As the Wall Street Journal wrote, that scrutiny came after Meghji and his associates hosted a banquet that listed Jones as a guest of honor at one of the priciest restaurants in Manhattan – and then, working for Sorrento, took steps to ensure the biotech firm’s bankruptcy case ended up in front of Jones.

Jones ultimately invited an FBI investigation into whether he had coordinated with bankruptcy restructuring professionals in a way that interfered with the fair administration of cases in front of him after a lawsuit revealed his sexual affair with former Jackson Walker law firm attorney Elizabeth Freeman. Freeman had worked on Sorrento’s bankruptcy and others that had been before Jones, who ultimately had to resign his post and is widely believed to be under the threat of criminal indictment.

The banquet hosted by Meghji and his associates to fete Jones was not the only reason they were drawn into the investigation. Jones had also authorized Sorrento to borrow $30m at Meghji’s urging to pay its employees and professional advisers, as the Journal also reported. Sorrento’s shareholders objected to the loan and its expensive terms – but to no avail.

There has been no public indication whether the investigation of Jones as well as the others could expand into Grabill, who appointed Meghji and his colleagues to work on the archdiocese bankruptcy in August. The Wall Street Journal broke news of federal agents’ interest in Meghji’s team in October, two weeks before it delivered its report to Grabill in the New Orleans church bankruptcy.

Whatever the case, there is no doubt one of the most consequential rulings that Grabill has issued in the New Orleans church’s reorganization reverberated across two bankruptcies.

Grabill imposed a $400,000 fine on clergy abuse survivors’ attorney Richard Trahant, who advised the principal of a New Orleans Catholic high school – who happened to be his cousin – that the institution’s chaplain had a stained past.

The church soon had to admit to the school that the chaplain – Paul Hart, who has since died – molested a teenage girl in the 1990s, though he avoided substantial punishment due to technicalities. Hart was compelled to quickly retire and publicly lied about how his health was the only thing influencing his decision to step down.

Grabill ruled that the episode violated a confidentiality order keeping much of the information associated with the bankruptcy shielded from public access. She fined Trahant $400,000 in October 2022. And she removed four of his clients – including Adams, the former chairperson – from the creditors committee tasked with protecting clergy molestation victims’ in the bankruptcy.

Trahant’s appeal of the punishment was still pending as of Thursday.

Multiple legal commentators have told the Guardian that Grabill’s punishment of Trahant and his clients was highly unusual, given its severity and the fact that ultimately an abuser was removed from a school campus.

But judges at the federal district level in New Orleans have left Grabill’s decision in place. And in March 2023, Grabill received a hearty endorsement from Jones before he cited her ruling in granting a request from Sorrento to remove a competitor from participating in a committee of unsecured creditors in Sorrento’s bankruptcy, as the Wall Street Journal reported. The removed committee member was NantCell, an immunotherapy company founded by billionaire Los Angeles Times owner Patrick Soon-Shiong.

Jones defended that action by citing one of Grabill’s stated justifications for the removals in New Orleans: as he described it, to protect “the ability of the committee to function”.

“Judge Grabill was actually pretty thoughtful in her analysis as to what ought to occur,” Jones said.

“There is no right to appear or to be on a committee, which I agree with. It’s a privilege.”

Jones asserted that he had not gotten “an opportunity to talk to her about it”.

But, during an April 2022 status conference, Grabill had allowed a statement from Mintz – the archdiocese bankruptcy attorney – saying she had indeed spoken with Jones as she mulled how to address the situation with Trahant and his clients.

“You’ve talked to judge Jones,” Mintz said, “I think, as you said before.”

Grabill’s only reply to Mintz referring to Jones came when the lawyer alluded to how “very little time” Jones gave federal investigators to examine claims that a participant in an unrelated case was abusing his position on a creditors committee to benefit himself.

“That’s the nature of things over there,” Grabill said. She did not elaborate, but that appeared to be a complimentary reference on Jones’s preference for quick, decisive work.

Adams vehemently disputes that Grabill’s removal of him and three of his fellow committee members had anything to do with the group’s functioning. He said he wondered whether the removals were instead driven by the embarrassing media coverage that the New Orleans archdiocese as well as its bankruptcy case in general endured thanks to Hart’s exposure.

“I can tell you that all the votes were unanimous,” Adams said of his time as the committee’s chair. “The committee was moving unanimously in the same direction. There was no discord whatsoever.”

Vath for his part said it would be “naive at best” to not suspect that there may have been “communication” between the two judges respectively over the Sorrento case and the New Orleans archdiocese’s unresolved chapter 11 filing.

Jones stepped down from the federal bankruptcy bench in Houston eight months after the March 2023 hearing. Another judge who was listed as a guest of honor for the Manhattan banquet hosted by Meghji, Christopher Lopez, oversaw the Sorrento case through its conclusion.

New Orleans archdiocese lawyers have since proposed to Grabill that the church and its affiliates – but not their insurers – should pay an average of $125,000 to each of more than 500 clergy sexual molestation claimants whose abuse drove the institution to seek bankruptcy protection in May 2020.

Survivors’ attorneys countered that their clients deserve – on average – about $2m per claim. Recently settled bankruptcy cases started by dioceses elsewhere have produced in the neighborhood of $600,000 for each abuse claim.

Meanwhile, since at least April, Louisiana state police have been investigating the New Orleans archdiocese for alleged child sex trafficking over the course of decades, a suspicion in part ignited by revelations in the bankruptcy. A state police search warrant alleges that “widespread sexual abuse of minors dating back decades” was “covered up and not reported to law enforcement”.

One of the city’s longtime Catholic priests, Lawrence Hecker, received a mandatory sentence of life imprisonment on Wednesday, a little more than two weeks after pleading guilty to charges of child rape as well as other crimes.