212-267-6868 516-608-2400 VERITEXT REPORTING COMPANY

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   Case No. 09-13560-CSS

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   In the Matter of:



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                  United States Bankruptcy Court

                  824 North Market Street

                  Wilmington, Delaware

                  October 21, 2009

                  9:44 AM

   B E F O R E:




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 1      HEARING re Voluntary Chapter 11 Petition Package -Catholic

 2      Diocese of Wilmington, Inc.

 4      HEARING re Declaration of the Reverend Monsignor J. Thomas Cini

 5      in Support of Chapter 11 Petition and First-Day Relief.

 7      HEARING re Debtor's Motion for Order Pursuant to 28 U.S.C.

 8      Section 156(c), Fed. R. Bankr. P. 2002(f) and Del. Bankr. L.R.

 9      2002-1(f) Authorizing and Approving the Employment and

10      Retention of The Garden City Group, Inc. as Claims, Noticing

11      and Balloting Agent.

13      HEARING re Debtor's Motion for Order Authorizing (I) the

14      Continued Use of Existing Cash Management System and Corporate

15      Bank Accounts; (II) Continued use of Existing Business Forms

16      and Records; and (III) An Interim Waiver of Section 345 Deposit

17      Guidelines.

19      HEARING re Debtor's Motion for an Order Pursuant to Sections

20      105(a), 363(b), 507(a)(4) and 507(a)(5) Authorizing (I) Payment

21      of Prepetition Employee Wages, Salaries and Other Compensation;

22      (II) Reimbursement of Prepetition Employee Business Expenses;

23      (III) Contributions to Prepetition Employee Benefit Programs

24      and Continuation of Such Programs in the Ordinary Course; (IV)

25      Payment of Workers' Compensation Obligations; (V) Payments for

                        VERITEXT REPORTING COMPANY
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 1      Which Prepetition Payroll Deductions Were Made; (VI) Payment of

 2      All Costs and Expenses Incident to the Foregoing Payments and

 3      Contributions; and (VII) Payment to Third Parties of All

 4      Amounts Incident to the Foregoing Payments and Contributions.

 6      HEARING re Motion of James E. Sheehan for Relief from the

 7      Automatic Stay.

24      Transcribed by:   Pnina Eilberg


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 2      A P P E A R A N C E S :


 4              Attorneys for Debtor

 5              1000 West Street

 6              17th Floor

 7              Wilmington, DE 19899

 9      BY:     ROBERT S. BRADY, ESQ.

10              JAMES L. PATTON, JR., ESQ.

11              MARIS J. FINNEGAN, ESQ.

12              PATRICK A. JACKSON, ESQ.

13              SEAN M. BEACH, ESQ.


17              Attorneys for Creditor

18              2 E. 7th Street

19              Suite 302

20              Wilmington, DE 19801


23              STEPHEN J. NEUBERGER, ESQ.

24              RAEANN WARNER, ESQ.


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 3              Attorneys for Unofficial Committee of Abuse Survivors

 4                  and James Sheehan

 5              10100 Santa Monica Boulevard

 6              11th Floor

 7              Los Angeles, CA 90067

 9      BY:     HAMID R. RAFATJOO, ESQ.

10              JAMES I. STANG, ESQ.


14              Attorneys for Unofficial Committee of Abuse Survivors

15                  and James Sheehan

16              919 North Market Street

17              17th Floor

18              Wilmington, DE 19899

20      BY:     CURTIS A. HEHN, ESQ.


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 3              Office of the United States Trustee

 4              844 King Street

 5              Suite 2207

 6              Wilmington, DE 19801

 8      BY:     DAVID KLAUDER, ESQ.



13              Attorneys for Claimants

14              4220 Van Karman Avenue

15              Suite 200

16              Newport Beach, CA 92660

18      BY:     JOHN C. MANLEY, ESQ.

19              J. MICHAEL RECK, ESQ.


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 3              Attorneys for Creditors

 4              2 East 7th Street

 5              Wilmington, DE 19899

 7      BY:     THOMAS C. CRUMPLAR, ESQ.


11              JOHN CUSACK, Allied Irish Bank (Telephonically)


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 1                                P R O C E E D I N G S

 2                  THE CLERK:    All rise.

 3                  THE COURT:    Please be seated.    Mr. Patton, good

 4      morning.

 5                  MR. PATTON:    Good morning, Your Honor.     Thank you very

 6      much for taking some time.

 7            (Phone ringing)

 8                  THE COURT:    Okay.   Are there people on the phone?      For

 9      people participating --

10            (Phone ringing)

11                  THE COURT:    Will you have Court Call kill that line,

12      please.

13                  THE CLERK:    Court Call operator?

14                  COURT CALL OPERATOR:      That line is now muted.

15                  THE CLERK:    Thank you.

16                  THE COURT:    All right.    If you're appearing by

17      telephone please mute your phones.         Thank you.   Mr. Patton, I

18      apologize.

19                  MR. PATTON:    No problem.    Thank you very much for

20      giving us some time this morning.

21                  Jim Patton for the Catholic Diocese of Wilmington and

22      with me today, Your Honor, from the diocese is Monsignor Cini,

23      the vicar general of administration and the moderator of the

24      curia of the diocese.

25                  THE COURT:    Good morning, sir.

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 1                  MR. PATTON:    Also with me today are quite a number of

 2      folks from Young Conaway and I think you know most of them and

 3      I apologize in advance for the cast of thousands.       We will be

 4      thinning our crowd as this case moves forward and we get a bit

 5      more focused.

 6                  THE COURT:    Could you move the microphone a little

 7      closer please?

 8                  MR. PATTON:    Yes, sir.

 9                  THE COURT:    Thank you.

10                  MR. PATTON:    Your Honor, this case arises out of a

11      backdrop of terrible pain and profound breach of trust.

12      Members of clergy sexually abused children entrusted to their

13      care and that sin was compounded in many cases by the failure

14      of other church officials to take appropriate action.       It's

15      difficult for me to even imagine the suffering of the victims

16      of these actions.

17                  For years now the Catholic Diocese of Wilmington has

18      been working with victims and families to address these

19      injuries and to redress these wrongs.       The Catholic Diocese of

20      Wilmington, over the past many years, has been a leader among

21      Catholic dioceses in taking responsibility quickly and in

22      seeking to do what it can to help and compensate the injured

23      and to initiate policies to insure that these kinds of actions

24      to do not happen again and to provide a safe environment for

25      everyone within the dioceses.

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 1                  Most recently, following Delaware's enactment of the

 2      Child Victim Act, the Catholic Diocese of Wilmington has been

 3      named in 131 sexual abuse civil actions involving 142

 4      plaintiffs.

 5                  The diocese has continued to work hard to settle as

 6      many of these as they can.    They have had some success but

 7      ultimately and unfortunately the Catholic Diocese of Wilmington

 8      just does not have enough money to satisfy the demands of the

 9      plaintiffs and the needs of the victims and all of its

10      creditors.

11                  The only way for the diocese to treat these victims

12      fairly and equitably and to treat its creditors fairly and

13      equitably is to seek bankruptcy protection.       In a circumstance

14      where we have insufficient assets to meet all of the demands, a

15      fair distribution can only be achieved through a bankruptcy

16      process.

17                  We have two fundamental goals here.    The first is to

18      run a completely open, fair and effective bankruptcy process.

19      We will be making available all of the information that any

20      creditor committee or other party needs to fairly represent

21      themselves in these proceedings and to assist us in our goal of

22      running an effective bankruptcy process.

23                  Our second goal, which is perhaps paramount to the

24      first, is to run a bankruptcy process that is as speedy as

25      possible.    For purposes of this bankruptcy case and for

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 1      purposes of the goal of the diocese, I think it's fair to say

 2      that all of us believe that the only way to fairly compensate

 3      the victims and the creditors is to compensate them as quickly

 4      as possible.

 5                  We will be making information available, as I said, to

 6      the creditors' committee and to other parties to help them

 7      address what we believe will be the central issue in this case.

 8      That issue will be a determination of exactly what assets

 9      belong to the Catholic Diocese of Wilmington and are therefore

10      available to pay creditors.     And what assets do not belong to

11      that diocese and are therefore outside of this bankruptcy

12      estate.

13                  Rest assured, we will brook no delay either caused by

14      our own internal restrictions and impediments or by outsiders

15      in accomplishing this process.     A swift and speedy resolution

16      and a swift and speedy payment to creditors and to victims is

17      our primary goal.

18                  We will be engaging the committee and other creditors

19      in this debate about what constitutes the size of this estate,

20      what constitutes the assets of this estate immediately

21      following the conclusion of today's hearings and going forward

22      throughout this bankruptcy case.     And it will be our goal to

23      resolve as many of these issues as possible.     Where we can't,

24      Your Honor, we will be back here before you to ask you to try

25      to resolve those issues for us as effectively as possible so

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 1      that we could move through this process.

 2                  With the cooperation of the creditors and with the

 3      cooperation of other parties in these proceedings, we believe

 4      we can accomplish a very speedy resolution of these bankruptcy

 5      proceedings, a very speedy conclusion and payment to the

 6      victims and creditors of this estate with a minimum of

 7      distraction.    That's our sincerest goal and wish for the

 8      outcome of this bankruptcy case.

 9                  With that, Your Honor, I'll turn the podium over to

10      Mr. Brady.

11                  THE COURT:    All right.   Quickly, Mr. Patton, you

12      discussed the asset side of the bankruptcy process; what is the

13      plan, if any, in the context of this case to deal with the

14      size, allowance and amounts -- liquidation of claims against

15      the estate?

16                  MR. PATTON:    Your Honor, our first and most hoped for

17      outcome would be that we could accomplish a negotiated to

18      solution to that where there's a process that is agreed upon by

19      all of the plaintiffs and all of the other creditors for the

20      sizing of the various claims.

21                  There is, ongoing right now, although subject to the

22      automatic stay, a mediation process that's been imposed by the

23      State Court for the vast majority of these claims.        Our goal is

24      to accomplish, through the bankruptcy process, something akin

25      to the mediation process that has been implemented in the State

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 1      Court proceeding.     We think that only through some form of

 2      alternative dispute resolution model can we effectively marshal

 3      the assets of this estate and pay creditors.       We do recognize,

 4      of course, that these are tort claims and they enjoy certain

 5      rights in the bankruptcy process that cannot be overridden.

 6      For example, they have a right to a jury trial, ultimately.

 7      This estate, however, cannot afford and the plaintiffs

 8      themselves will be injured by an excess of an exercise of that

 9      right.      We simply have too few assets.

10                  We believe that ultimately reason will prevail and we

11      will be able to achieve a solution to this problem that creates

12      a process that enables the parties to have their claims aired,

13      determined and resolved in something that represents a process

14      that's less cumbersome, less expensive then the jury trial

15      process itself.     We've certainly accomplished that in other

16      bankruptcy cases that face this kind of massive tort

17      litigation.     We have models from the asbestos world, for

18      example, as well as other mass tort cases where the use of this

19      kind of process for resolving tort claims has been very, very

20      effective.     We certainly hope we can do the same here.

21                  THE COURT:    The mediation that's going on in Superior

22      Court, obviously the result is not -- it's not arbitration it's

23      mediation.

24                  MR. PATTON:    That's correct.

25                  THE COURT:    Is participation in the mediation process

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 1      mandatory?     Has it been ordered by the Superior Court for those

 2      cases?

 3                  MR. PATTON:    My answer is yes but I'll turn to a

 4      Superior Court lawyer to ask the question whether that's

 5      exactly right.     Yes.

 6                  THE COURT:    Yes.   Okay.   Thank you.   All right.   Mr.

 7      Brady?      Thank you, Mr. Patton.

 8                  MR. BRADY:    Good morning, Your Honor.

 9                  THE COURT:    Good morning.

10                  MR. BRADY:    For the record, Robert Brady of Young

11      Conaway on behalf of the Catholic Diocese of Wilmington, Inc.

12      Just three motions, Your Honor, up for today as far as first-

13      day filings.

14                  The first is the Garden City Group retention.       We have

15      discussed all of these, Your Honor, by the way, with the United

16      States Trustee's office and we have resolved all of their

17      issues and we believe I can put a number of matters on the

18      record that I hope will resolve the vast majority if not all of

19      the unofficial committee's objections to these motions.

20                  But first, beginning with the Garden City Group

21      retention --

22                  THE COURT:    I'm sorry; just so the record's clear, I

23      assume as evidence in support of these motions you're going to

24      rely on the declaration of the Reverend Cini?

25                  MR. BRADY:    That is correct.    Monsignor Cini is our

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 1      declarant.    Your Honor, the affidavit is very robust as part of

 2      the transparency Mr. Patton spoke of.        We wanted to get a lot

 3      of information out early but the Monsignor Cini affidavit, as

 4      it relates to these motions, are the specific facts we would

 5      seek to rely on for these.

 6                  THE COURT:   Okay.

 7                  MR. BRADY:   Again, the Garden City Group retention,

 8      there's been no objection to their retention.        The United

 9      States Trustee's office had two requests.        One, confirmation

10      that the retainer provided is not an Evergreen retainer and I

11      can confirm that on the record that it will be used to satisfy

12      their invoices.    And second, that Garden City Group will

13      provide the United States Trustee and the official committee

14      with copies of their invoices and allow for a ten day review

15      and objection period.

16                  Garden City is agreeable to that, Your Honor.     And I

17      have a blacklined form of order that reflects that provision.

18                  THE COURT:   All right.   Please approach.   Thank you.

19      Let me just quickly look at the order and then I'll hear any

20      comments.    Do you have any further statements on the record

21      that you hope will resolve the objection?

22                  MR. BRADY:   I do, Your Honor.    Obviously the

23      unofficial committee has indicated that this order should be

24      subject to further order to protect the identity of victims who

25      request confidentiality.      That is, obviously, acceptable to the

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 1      debtor.

 2                  The debtor has already filed its creditor matrix in

 3      this case and the debtor protected the identity of the victims.

 4      In fact, Garden City Group has not received any information

 5      with respect to those victims.        And the debtor intends to

 6      address the confidentiality issue in both its bar date motion

 7      and its solicitation procedures motion once those are filed.

 8                  THE COURT:   So nothing in this order is neither --

 9      you've neither requested nor does this order address any relief

10      in connection with the bar date motion or with the publication

11      or even sharing of confidential information concerning the

12      claimants -- the tort claimants?

13                  MR. BRADY:   That is correct, Your Honor.

14                  THE COURT:   All right.    So Garden City will not

15      receive this information, if at all, unless otherwise order to

16      the Court after motion and an opportunity for a hearing?

17                  MR. BRADY:   That is correct.

18                  THE COURT:   Very good.    Does anyone wish to be heard?

19                  MR. STANG:   Thank you, Your Honor.    James Stang,

20      Pachulski Stang Ziehl & Jones.        The firm represents the

21      unofficial committee of abuse survivors and James Sheehan in

22      connection with his stay relief motion.

23                  Your Honor, I'm stepping back for a moment from the

24      Garden City application.      I'd like to make a few comments to

25      the Court about the committee's perspective on the case.          And

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 1      there are two groups of law firms that represent substantially

 2      all of the plaintiffs in the State Court litigation.        Both

 3      groups of law firms are here today and they would appreciate

 4      the opportunity to address the Court regarding the background

 5      of the State Court litigation.        They probably would take less

 6      than five minutes.

 7                  THE COURT:   All right.    Well I have read, thoroughly,

 8      all the papers including the response and I understand the

 9      request for a status conference on the State Court litigation.

10      I will allow statements in that connection, basically to the

11      brevity that's set forth in the response.        I don't want to get

12      into -- I don't think it's appropriate at a first day hearing

13      to get into a lengthy recitation of the facts, circumstances,

14      etcetera, in connection with those cases.

15                  MR. STANG:   I don't --

16                  THE COURT:   And I certainly understand the need -- the

17      statements -- well, I certainly understand the desire to do

18      that and you'll have a full and fair opportunity to do that but

19      I don't think today's the day but I'd be happy to hear --

20                  MR. STANG:   Okay.

21                  THE COURT:   -- the perspective of what Mr. Patton

22      acknowledges is the overwhelming creditor group in the case.

23                  MR. STANG:   Thank you, Your Honor.    I'll just take a

24      few minutes and then -- but the comment regarding Garden City

25      satisfies the committee's concern.

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 1                  THE COURT:   Very good.

 2                  MR. STANG:   First of all, Your Honor, my firm filed a

 3      2019 statement this morning and it does not identify the

 4      members of the committee because of the confidentiality

 5      concerns.

 6                  The members of the unofficial committee who will

 7      respond to the solicitation by the U.S. Trustee for official

 8      committee status understand that their names would be disclosed

 9      or likely to be disclosed in connection with that and they're

10      prepared for that when the time comes.

11                  Your Honor, just as background, for me personally this

12      is the sixth time that I've appeared for a Bankruptcy Court in

13      connection with, if you will, a Catholic related Chapter 11

14      case.   My firm was committee counsel in the Spokane Diocese

15      case.   There were actually two tort committees in that case for

16      reasons that hopefully will never be repeated.      But we

17      represented one group, an official committee, in that case.

18                  We represented the committees in the Davenport, Iowa

19      case.   That firm had a consensual plan confirmed as did

20      Spokane.    In the San Diego case, that case was dismissed

21      between a motion -- a sua sponte motion by Judge Adler and then

22      the diocese's own motion when it reached a settlement with the

23      plaintiffs, if you will, because there was no bar date issued

24      in that case.

25                  I currently represent the committee in the Fairbanks,

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 1      Alaska Diocese.     And I also represent the committee in the

 2      Society of Jesus, Oregon Province Religious, order unlike

 3      diocese, exist on a province level and that province consists

 4      of five states and those two cases are pending.

 5                  I also have consulted with survivors who have claims

 6      against the Arch Diocese of Milwaukee because it threatened to

 7      file bankruptcy some years ago, as well as the Franciscan

 8      Religious Order in Santa Barbara.

 9                  These cases all have certain differences.   They also

10      have some very substantial similarities and I hope that if I

11      have a continuing role in this case that I can be of assistance

12      when the time comes to say well what has happened in other

13      cases.      But each case is different, you're a different judge, I

14      recognize that but I do have that background.

15                  Your Honor, this case will be different from probably

16      any other case you've had so far and it's not just because

17      these claims arise from sexual abuse.      That is a very important

18      factor, State Court counsel can address that much more

19      competently then I can but there are, just by virtue of the

20      kind of institution you have in front of you, there are going

21      to be some unique issues.      And those would include the

22      application of the First Amendment to this case.      The diocese

23      invariably invoke the free exercise clause regarding your

24      jurisdiction or Bankruptcy Court jurisdiction, I should say.        I

25      don't want to get ahead of myself as to what Mr. Patton may do

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 1      in this case.    And also separation of church and state vis-a-

 2      vis your jurisdiction.    Other dioceses have invoked something

 3      called the Religious Freedom Restoration Act.     It is the

 4      federal statute that supposedly has an effect on all other

 5      federal law.

 6                  You'll be confronted with the relevance of Canon Law

 7      as to whether it is a rule of law that you should follow.       And

 8      I think the fact that the debtor gave you a primmer of eight to

 9      nine pages on Canon Law in Father Cini's first-day affidavit

10      indicates that -- how that concept applies in a U.S. court may

11      be of relevance.

12                  You're going to hear terms that don't exist under

13      Delaware law, don't exist under federal law, juridic entity.

14      Administrator of property and not the kind of administrator you

15      might be used to seeing in your civil practice and your --

16      before you got on the bench and today.

17                  The statue of limitations in Maryland and Delaware are

18      subject to concepts of repressed memory.     How does a future

19      claims representative, if one is applicable in a case like

20      this, work with people who simply don't remember what happened

21      as opposed to people who do remember what happened but don't

22      relate it to the issues they're facing such as alcoholism,

23      marital problems, inability to connect emotionally with people.

24                  Probably the most important thing that we will present

25      in the course of plan negotiations will be what we call non-

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 1      monetary undertakings.     These would be commitments by the

 2      diocese to insure that no child is ever sexually assaulted

 3      again.      Because if you go to survivors, and I don't care where

 4      they're situated, and you ask them what is the most important

 5      thing to you, why did you bring your litigation?      Invariably

 6      most of them say because I never want another child hurt.       And

 7      if that can be achieved in this case, we will have made a real

 8      difference in this state and frankly around the country.

 9                  As far as bankruptcy issues are concerned, on the

10      property of the estate issue the diocese says well this case is

11      different than most of the other cases because our parishes are

12      incorporated.     Well, they were incorporated in Davenport, Iowa

13      and that wasn't a bankruptcy strategy.      In Iowa they've been

14      incorporated for almost a hundred years.      We negotiated a plan

15      in Davenport that included a return of very substantial monies

16      that were ostensibly held by the parishes as part of a

17      consensual plan.

18                  But even in those other cases where the parishes were

19      unincorporated and religious orders don't have parishes so

20      these would just be the dioceses cases, they all claimed to

21      have separate status.     They claimed them as unincorporated

22      entities.     Those unincorporated entities were recognized under

23      their various state laws as separate legal entities and legal

24      entities capable of holding real property interest.      So the

25      fact that the parishes here are incorporated and the fact that

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 1      the parishes in the other cases were unincorporated doesn't

 2      make that much difference when we talk about property of the

 3      estate issues.

 4                  THE COURT:   Well, there's a separate issue between

 5      property of the estate and piercing the corporate veil in

 6      connection with seeking assets that may not technically be

 7      property of the estate.

 8                  MR. STANG:   Yes.

 9                  THE COURT:   But which can be brought into the estate

10      pursuant to litigation.

11                  MR. STANG:   Yes.

12                  THE COURT:   But we'll get to that, I'm sure.

13                  MR. STANG:   There will be issues about trusts,

14      especially in the context of personal property because of --

15      avoidance actions tend to be strong armed, if you will, in

16      connection more with real property than personal property.         But

17      you're going to hear about actual trusts.

18                  THE COURT:   Okay.

19                  MR. STANG:   You're going to hear about constructive

20      trusts.     You're going to hear about resulting trusts.    And I

21      think that theme already comes out in the debtor's papers when

22      they talk about where the money is in their cash management

23      system and who donated it and whether those people have a

24      beneficial interest.

25                  THE COURT:   Okay.

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 1                  MR. STANG:    There will be -- and I don't know, I

 2      didn't look at the sign-in but one of the important people who

 3      may not be in the room today or at least didn't make an

 4      appearance yet, are the insurance companies.

 5                  In the Spokane action one of the insurance companies,

 6      in connection with the coverage, declaratory relief action,

 7      filed twenty specific insurance coverage related affirmative

 8      defenses.    And I don't know who all the carriers are in this

 9      case but if they're not here today they'll be here next time

10      because they are probably one of the most important players.

11                  Finally, Your Honor --

12                  THE COURT:    My memory from the affidavit is that the

13      insurance coverage is in the hundreds of thousands of dollars,

14      not the millions.     Mr. Patton?

15                  MR. PATTON:    Directionally you're correct, Your Honor.

16      I'm not sure exactly how much but it's not going to be the

17      issue that Mr. Stang believes it will be.

18                  THE COURT:    Okay.   Thank you.

19                  MR. STANG:    Your Honor, the coverage charts that I've

20      seen --

21                  THE COURT:    Well, we'll see.

22                  MR. STANG:    -- claim to reflect the primary coverage

23      not necessarily excess or umbrella coverage.

24                  THE COURT:    Okay.

25                  MR. STANG:    And there are limits in -- but typically

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 1      insurance is a very significant factor.

 2                  Finally Your Honor, and you mentioned this about the

 3      liquidation of the claims.       I don't know if the debtor intends

 4      to try to remove the State Court actions.       That was attempted

 5      in San Diego and the District Court judge there, who presides

 6      in the Southern District of California, remanded the matters

 7      back to Judge Adler for her to -- I'm sorry; there was a

 8      withdrawal of reference issue in connection with who decided

 9      the remand.    Judge Adler decided the remand and in the context

10      of that motion plus a pending relief from stay motion to let

11      matters go back to trial, that case settled.

12                  How these have been resolved in most of the other

13      cases is that a pool is negotiated and then in the context of a

14      plan the creditors' committee and survivors, not victims Your

15      Honor but survivors, negotiate really kind of an ADR system so

16      that they divide up the money.

17                  In the Portland Arch Diocese case it was done

18      differently.    There was a survivor by survivor mediation.

19      Every claim was -- almost every claim was resolved in that case

20      before the plan was confirmed.       From the survivor's approach,

21      and I was not counsel in that case but I know a lot of

22      attorneys who were, they viewed that as abusive as how they

23      viewed the litigation tactics of the diocese pre-bankruptcy.

24      It was a very, very tough process.       Survivors were deposed --

25                  THE COURT:   Okay.

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 1                  MR. STANG:   Anyway, so it's been done mostly through,

 2      kind of, an ADR system.

 3                  Finally Your Honor, my last comment about the speed.

 4      Speed is an issue here; Mr. Patton must have said the word four

 5      times.      State Court counsel can talk about how speedy the State

 6      Court proceedings were but we have to be careful here about

 7      haste making waste.      There is a balance for us.    You have, on

 8      the agenda today, an application for order shortening time so

 9      Mr. Jimmy Sheehan's matter can go to trial next month.        And Mr.

10      Sheehan is in the courtroom in the second pew.        He doesn't have

11      the benefit of a long period of time but we have to be careful.

12      These issues are complex and survivors must have an opportunity

13      to be empowered in connection with how this reorganization

14      process is going to go along.

15                  So Your Honor, I appreciate the time you gave me and I

16      know that at least two State Court counsel would like to be

17      very brief in their presentation to you, if this is the right

18      time to do it.

19                  THE COURT:   That's fine.   I'll hear brief statements.

20                  MR. NEUBERGER:   May it please the Court.    Your Honor,

21      I'm Thomas Neuberger.      This is my first time before your court

22      and thank you.

23                  I represent ninety survivors of childhood rape and

24      abuse by dozens of dioceses priests and over a dozen survivors

25      who have claims against religious orders operating at

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 1      Salesianum and at Archmere Academy.       So I represent over --

 2      approximately 115 of the plaintiffs in these cases.       And I also

 3      represent Mr. James Sheehan who's here on our motion to

 4      expedite this morning.

 5                  THE COURT:   Hello, sir.

 6                  MR. NEUBERGER:   With me, Your Honor, are my co-

 7      counsel, my partner Stephen Neuberger, my co-counsel Tom

 8      Crumplar, my associate Raeann Warner and others from our firms.

 9                  THE COURT:   Okay.

10                  MR. NEUBERGER:   I have been shepherding this

11      litigation since 2004 through the State Court decisions dealing

12      with statute of limitations issues and then the birth of the

13      Child Victims Act which resulted in the majority of this

14      litigation.    I have spent my career in the area of the religion

15      and speech clauses.

16                  Last week President Judge Vaughn issued various merits

17      rulings in the litigation.       Judge Scott has been managing all

18      the litigation pretrial, okay, all the discovery issues,

19      motions to dismiss, all the motions practice.       And the

20      individual judges have been setting the trial dates.        Judge

21      Vaughn denied all the motions for summary judgment by the

22      individual parishes who had been sued and separately by the

23      dioceses which had been sued.       Your normal case is the diocese

24      and its particular parish.       There are about seven cases which

25      are just parish cases and then there are the religious order

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 1      cases which join the religious order and then the diocese for

 2      licensing the particular priest.

 3                  THE COURT:   I'm sorry; Judge Scott's doing the

 4      administration but not the substantive trial?

 5                  MR. NEUBERGER:   Well, he has a case load of about

 6      fifty of the trials himself.

 7                  THE COURT:   All right.

 8                  MR. NEUBERGER:   Okay.

 9                  THE COURT:   Okay.   I'm just trying to be clear.

10                  MR. NEUBERGER:   Yes.    The cases are distributed

11      throughout the three counties, okay.        Probably about two-thirds

12      of the cases -- well, maybe fifty percent of the cases in New

13      Castle County and the other twenty-five percent in the other

14      two counties.

15                  THE COURT:   How many Superior Court judges?    Half a

16      dozen?

17                  MR. NEUBERGER:   Well, did you say judges?

18                  THE COURT:   Yeah, how many judges are handling cases

19      substantively?

20                  MR. NEUBERGER:   Seven to nine.

21                  THE COURT:   Seven to nine, oaky.

22                  MR. NEUBERGER:   We had a meeting earlier in the year

23      with at least seven judges attending.

24                  THE COURT:   Okay.

25                  MR. NEUBERGER:   Your Honor, a management meeting,

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 1      okay.   Judge Vaughn, after extensive briefing and the close of

 2      discovery ruled that there was sufficient evidence of gross

 3      negligence in the supervision of priests for a reasonable jury

 4      to return a verdict against the diocese and against the parish

 5      entities separately.      And he went beyond that and said that

 6      there was sufficient evidence for judgments to be returned

 7      against the parishes for fraud on the parents of these children

 8      and the same fraud against the diocese.       He upheld the trial --

 9      the record on conspiracy to engage in a conspiracy to hide the

10      knowledge of the danger of these priests presented.

11                  THE COURT:   Okay.   So --

12                  MR. NEUBERGER:   He also --

13                  THE COURT:   I'm sorry; go ahead.

14                  MR. NEUBERGER:   He also ruled that there was evidence

15      of aiding and abetting that a reasonable jury could return a

16      verdict against those theories.       And then more importantly, he

17      found that the conduct of the individual parishes separately,

18      and/or the conduct of the diocese separately was sufficiently

19      reckless, intentional and malicious so that a reasonable jury

20      could return a verdict for punitive damages.       And so they filed

21      for bankruptcy.

22                  Judge Vaughn had also spent the entire week hearing

23      forty motions in limine and Daubert hearings on the various

24      experts who would be involved in these cases, various

25      evidentiary questions and Monday morning was set to rule -- was

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 1      set to rule and is still set to rule on those matters because

 2      the universe of 190 cases in State Court is not solely limited

 3      to claims against the Roman Catholic Church, okay.        There are

 4      claims against Baptist institutions, there are claims against

 5      Methodist institutions, there are claims against a dozen public

 6      schools, there are claims against neighbors, people of that

 7      nature in the universe of cases as well as claims against the

 8      Arch Diocese of Philadelphia, the Diocese of Trenton, the Arch

 9      Diocese of Washington, D.C. and other religious entities.

10      Judge Vaughn is set to rule on the experts and the Daubert

11      questions to set the precedent for all of those cases.

12                  THE COURT:   All right.

13                  MR. NEUBERGER:   Okay.    So we're here in this court --

14      we've looked at the extensive affidavit of Monsignor Cini and I

15      have deposed him on two occasions and he's been deposed on two

16      other occasions by other counsel.        And there are a couple

17      things I at least want to point out that are in effect disputed

18      and are somewhat self-serving, okay, because we were told that

19      they rely heavily on that today and for other matters.        For

20      example --

21                  THE COURT:   Well just to be clear, I mean, they rely

22      on the declaration in support of the three motions in front of

23      the Court today.    Obviously it's a sworn statement that can --

24      that is a sworn statement filed with the Court so it'll have

25      evidentiary effect going forward in connection with admissions

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 1      if there are any, etcetera.        But I understand you take --

 2                  MR. NEUBERGER:   Well, my point is that there are many

 3      matters in there that we can impeach him on, okay.

 4                  THE COURT:   Well --

 5                  MR. NEUBERGER:   Just as an example, when they say that

 6      they have in the forefront of transparency for many years,

 7      okay, and that they've released the names of the perpetrators,

 8      there's at least two perpetrators, diocese and priest, Father

 9      Harney (ph.) and others who they know of that they haven't

10      released.    It came out in the depositions, okay.

11                  When they say they've released -- that they're in the

12      forefront, they have the authority to make the religious orders

13      release the names and they didn't.

14                  THE COURT:   Right.

15                  MR. NEUBERGER:   So all I'm saying is that there's

16      another side and we just want the Court to know that.

17                  THE COURT:   I fully expect there's -- there are two,

18      probably vigorously different interpretations of what's going

19      on.

20                  MR. NEUBERGER:   That's fine, Your Honor.    Okay.    There

21      are representations made about the need for a global process.

22      There are representations made about how counsel conducted

23      themselves during the recent negotiations.        And I want the

24      Court to know that we're prepared, at any time, to turn the

25      correspondence record on all of those proceedings over to the

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 1      Court.

 2                  THE COURT:   I didn't see any representations about

 3      conduct.

 4                  MR. NEUBERGER:   Well, maybe it's because I was

 5      involved in it and I've been very sensitive to it.       There were

 6      discussions about the last minute negotiations.       And I think

 7      there's at least a paragraph or so about the history of the

 8      negotiations.     I believe what happened is directly counter to

 9      what has been represented and I want the Court to know that

10      we're more than willing to turn all that over to the Court.

11                  We have conducted the negotiations and the litigation

12      in accord with the highest standards of the Delaware bar.         We

13      are experienced attorneys, we are respected attorneys.        I

14      served on the Lawyer's Advisory Committee appointed by Chief

15      Judge Scirica of the Third Circuit; I just came off a term

16      there.      There have been accusations made that we are somehow

17      selling out some clients for the benefit of other clients and

18      therefore there's a need for a fair and equitable process here,

19      meaning everybody gets the same recovery.       And I think the

20      Court can understand, just conceptually, that if you've been

21      anally raped a hundred times versus someone who was maybe

22      masturbated one time, the lifelong damages could be different.

23                  THE COURT:   I understand.

24                  MR. NEUBERGER:   Okay.   And the point is they're not

25      fungible.     Each person is particularized.

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 1                  THE COURT:   Oh, absolutely.   Every person is unique.

 2                  MR. NEUBERGER:   Yes.   And that would factor into

 3      whatever process we put in place.

 4                  THE COURT:   Understood.

 5                  MR. NEUBERGER:   That having been said, Your Honor, I'd

 6      like to turn the podium over to Mr. Manly, John Manly, who will

 7      identify himself and the nature of the clients he represents.

 8                  THE COURT:   Thank you very much, Mr. Neuberger.     Good

 9      morning, Mr. Manly.

10                  MR. MANLY:   Good morning, Your Honor.   I hesitate to

11      say this but I'm from California and I know in Delaware that

12      always makes me a little nervous but I am.

13                  THE COURT:   Don't worry; it won't be an issue by about

14      midnight tonight.     It will resolve itself.

15                  MR. MANLY:   Fair enough.   I'll try and restrain myself

16      in the meantime.

17                  THE COURT:   It could be worse; you could be from New

18      York.

19                  MR. MANLY:   It's almost that.   I'm licensed there,

20      Your Honor.

21                  May it please the Court.    Thank you, Your Honor, for

22      letting me make a statement, I'll be brief.       This is my sixth

23      Roman Catholic bankruptcy.      I've been doing this work for

24      fifteen years and I want to just ask the Court to, and I

25      certainly appreciate everything everybody said this morning but

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 1      in this process I would ask the Court to consider, more than

 2      any other case you've probably ever had, the tort claimants.

 3      These people are frequently in really rough shape emotionally

 4      and psychologically.    And so I would ask that in doing your

 5      work that you must do that you just consider that and

 6      especially on how the claims are liquidated.     It just -- it's

 7      very hard on people who think they have trial dates and Your

 8      Honor the first set of trials was supposed to go in February

 9      and they fell like they've had the rug pulled out from under

10      'em.

11                  Now I understand the diocese needed to do what it

12      needed to do but this process can be a really great process for

13      everybody involved or it could go very poorly and I've seen it

14      happen both ways.    And even though, you know, we're lawyers and

15      you're a judge, I think if this is done well a modicum of

16      healing can come out of this for these people and frankly for

17      the diocese and that would be my goal.

18                  I want to put on the record that I'm disappointed the

19      Bishop isn't here.    These are his flock and these people have

20      been terribly damaged by his priests and I really feel, from my

21      heart, that he should have been here but that's just my

22      opinion.

23                  The issues in these cases frequently come down to who

24      owns what and valuation.    And in my view ADR is an excellent

25      way to go and we've been very successful with that.     But also,

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 1      I really feel like there ought to be a dual track process where

 2      both sides select a certain number of cases, maybe six, maybe

 3      nine or maybe twelve and put those cases on a fast track to a

 4      trial maybe with a high/low just to bring some discipline to

 5      the mediation process.    Trial dates settle cases, Your Honor

 6      and especially with this defendant.

 7                  The other thing that's complicated here, and I'm not

 8      sure if the Court knows this, is that Delaware in a lot of ways

 9      is like a lot of other small dioceses, they have difficulty

10      getting enough priests from Delaware to become priests.       When

11      that happens, and it happened in Fairbanks for example, they'll

12      bring in religious orders.    So you have religious order priests

13      staffing dioceses and parishes who have a canonical and moral

14      duty of loyalty and obedience to their provincial and to the

15      bishop.     So you have, really, two supervisors in those cases

16      and what do we do with those cases?

17                  And in this case we don't have one religious order I

18      think we have four, maybe five.     Do those cases proceed?    Do

19      they not proceed?    How are they wrapped in the mediation and

20      how does that plan valuation?     That's a very complicated issue

21      and the case -- almost every religious order case we have, we

22      have the diocese, so we have the Brothers of the Holy Cross who

23      ran these schools.

24                  So my point is, is that it's -- you almost need a

25      primer in church administration to get a handle on this.       I'm

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 1      not envious of your position, Judge.      But I do appreciate you

 2      listening to me and I'm pleased to have the opportunity to

 3      address you.     Thank you.

 4                  THE COURT:   Thank you, Mr. Manly.    Mr. Brady, it

 5      appears that -- well, do you wish to respond to the various

 6      statements?

 7                  MR. BRADY:   Your Honor, I would just say that as Mr.

 8      Patton said in his opening, obviously the tort claimants are at

 9      the forefront of our minds and our goal is to provide an

10      efficient and equitable process for them.

11                  As for the specifics about the rulings in the State

12      Court litigation, the conduct of mediation and the like, I'm

13      sure my colleagues who have been involved in the State Court

14      litigations would have a lot of things to say in response to

15      comments by Mr. Neuberger but it's not my understanding that

16      the Court wants to go through that today.        We'd prefer to focus

17      on the matters before the Court today and address those at the

18      appropriate time in the case.

19                  THE COURT:   Well, context is important and certainly

20      happy -- well, I'm not happy about anything in this case but

21      willing to listen to statements.      So if you want to respond,

22      you may.     You're certainly not required to.     I don't think it's

23      necessary but I leave it to the parties.

24                  Okay.   Let's turn to the motion; I believe the

25      statement by Mr. Stang was the representations on the record

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 1      resolved the motion or their issues.          Let me just look at the

 2      order.

 3            (Pause)

 4                  MR. KLAUDER:   Your Honor?

 5                  THE COURT:   Yes.

 6                  MR. KLAUDER:   David Klauder for the United States

 7      Trustee.

 8                  THE COURT:   Oh, sorry.    Yes?

 9                  MR. KLAUDER:   That's fine.    I just want to make it

10      clear for the record that the changes to the order resolved any

11      of our issues and questions with regard to the claims agent

12      order.

13                  THE COURT:   Thank you, Mr. Klauder.

14                  MR. KLAUDER:   Thank you.

15                  THE COURT:   Just to clear up one issue, just to make

16      it sure.     It's not in the order but I understand that it's in

17      the agreement and just to be clear, there will be no

18      termination of the claims agent absent further order of the

19      Court.      Usually the agreement says they can terminate for cause

20      or lack of, immediately or for no cause whatsoever on ninety

21      days, etcetera.     There needs to be a further court order, is

22      that understood?

23                  I just have one change, then, to the order, two

24      changes.     Did you hand up a clean?

25                  MR. BRADY:   No.    I will, Your Honor.

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 1                  THE COURT:    All right.   Please approach.   And they're

 2      not controversial.       I'm going to limit the first statement,

 3      which is the motion is granted, to make it clear and just add

 4      the words as set forth herein, that's a standard change of

 5      mine.   And then just at the very end I'm going to add a Rule

 6      6003 finding.    I'll just state that the debtors have satisfied

 7      Rule 6003.

 8                  MR. BRADY:    Thank you, Your Honor.

 9                  THE COURT:    The debtor, excuse me.   Subject to those

10      changes and the representations on the record, I'll approve the

11      motion and sign the order.

12            (Pause)

13                  THE COURT:    Okay.

14                  MR. BRADY:    Your Honor, if I may take up the employee

15      wage motion next.     Your Honor, this is a routine motion on the

16      first day.    I do recognize that in this case there may be no

17      such thing as a routine motion but we did have a conversation

18      with the United States Trustee's office.        They had a few

19      questions, we answered them and they did not request any

20      changes to the order.       I'd like to walk through the comments of

21      the unofficial committee because I think I can address a number

22      of them, if not all.

23                  First, Your Honor, they indicated the Court should not

24      make any findings of fact or conclusions of law with respect to

25      the relationship between the diocese, the parishes and the

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 1      nondebtor Catholic entities.      We are fine with that, Your

 2      Honor.      We're not asking for any findings or conclusions of law

 3      with respect to that, just an order on the specific issues

 4      we've requested.

 5                  Second, they ask that the Court not allow any direct

 6      or indirect payments or consideration to any person identified

 7      by the diocese as an admitted, substantiated or credibly

 8      accused abuser.     We can do better then that, Your Honor.     We

 9      can put on the record that this motion does not seek authority

10      to make any payments or provide any consideration to any person

11      who is an alleged abuser.

12                  Now, the debtor may need to address that issue at some

13      point, based on its obligations.      But the debtor will not pay

14      any alleged abuser without first seeking Court approval.

15                  THE COURT:   Under a separate motion?

16                  MR. BRADY:   Under a separate motion.

17                  THE COURT:   All right.

18                  MR. BRADY:   The unofficial committee asks that as a

19      condition to approving this motion, the diocese should be

20      required to update the list of admitted, substantiated or

21      credibly accused diocesan and religious order priests as well

22      as non-clergy employed by the debtor.      Your Honor, religious

23      order priests are not the debtor's employees and therefore not

24      covered by this motion.      And again, this motion does not seek

25      authority to pay any alleged abuser and the debtor will seek

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 1      separate Court authority if it determines it needs to do so.

 2                  THE COURT:   Now, as those persons will not be

 3      identified or at least some of those persons will not be

 4      identified, how do we -- how do we track whether -- I fully

 5      expect, although I've known you for almost twenty years, I

 6      fully expect that your client will adhere to its

 7      representations to the Court.      Is there going to be a process

 8      once we have, for instance, a committee to monitor whether that

 9      is actually occurring or not?

10                  MR. BRADY:   Yes, Your Honor.   We can certainly put

11      that process in place.      And again, we, as opposed to the

12      request of the unofficial committee which is to limit it to

13      those that have been identified by the diocese, we're willing

14      to accept, for purposes of this, any alleged abuser meaning all

15      of the plaintiffs (sic) in all of the pending cases.

16                  THE COURT:   All right.   Is that correct?

17                  MR. BRADY:   Yeah, that's correct.

18                  THE COURT:   Okay.

19                  MR. BRADY:   Your Honor, the unofficial committee has

20      indicated the debtor should not be allowed to continue to

21      provide services in the future to any of the parishes or

22      nondebtor Catholic entities unless they file an affidavit that

23      they do not provide payments to admitted, substantiated or

24      credibly accused abusers.

25                  Point of clarification, Your Honor, we're not seeking

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 1      authority under this motion to continue to provide these

 2      services.    We believe they are ordinary course.     We believe the

 3      code permits us to continue to provide services to the parishes

 4      and the nondebtor entities.       What we're seeking approval for

 5      today is to pay prepetition amounts that are due so as no harm

 6      comes to our employees.

 7                  THE COURT:   Now, just to be -- are you limiting these

 8      payments do diocese employees or would it also include parish

 9      employees?

10                  MR. BRADY:   The only time it would include, it is my

11      understanding, a parish employee is if they've paid premiums

12      into the health plan and then their claims are paid.

13                  THE COURT:   Okay.   So to the extent they're covered by

14      health insurance which is -- my memory from the affidavit is

15      there's, in effect, one Blue Cross plan that covers the diocese

16      and gives parish employees the right, well the opportunity, to

17      participate.

18                  MR. BRADY:   That's correct.

19                  THE COURT:   Okay.   But there's no direct wages?

20                  MR. BRADY:   That's correct.

21                  THE COURT:   Okay.

22                  MR. BRADY:   Although I should indicate, Your Honor, as

23      the motion, I think, makes clear there are certain employees of

24      certain nondebtor Catholic entities where the Catholic Diocese

25      of Wilmington, Inc. fully funds those entities.       In effect, by

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 1      funding those entities we are funding the payroll for those

 2      entities.

 3                  THE COURT:   And you'll continue to fund those entities

 4      on an ordinary course basis postpetition?

 5                  MR. BRADY:   That's correct.   And I can indicate that

 6      no one, no employee of those entities is an alleged abuser.

 7                  THE COURT:   All right.

 8                  MR. BRADY:   Next, Your Honor, the order should be

 9      without prejudice to reconsideration by the official committee.

10      I believe that's covered by the local rule which makes all

11      first day orders subject to reconsideration upon thirty days.

12      We're fine, we fully expect the creditors' committee to have

13      questions about this motion, we're happy to deal with them once

14      formed.

15                  Next Your Honor, the order should be conditioned on

16      every related entity having paid all prepetition obligations

17      related to benefits processing.       As indicated in the Monsignor

18      Cini affidavit, Your Honor, the marginal costs of providing

19      these benefit processing we think is de minimus.       In fact, the

20      cost of dismantling this process would be more expensive.        The

21      debtor itself received benefits from processing these claims

22      because it participates in a larger risk pool which lowers the

23      cost.

24                  This motion, again, its purpose is to pay prepetition

25      claims.     The debtor wants to continue to operate these programs

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 1      in the ordinary course postpetition.      And obviously any

 2      concerns of the creditors' committee can be addressed at the

 3      next hearing.

 4                  So with that, Your Honor, we think we've addressed the

 5      concerns of the unofficial committee.        We would ask that the

 6      Court enter the form of order.

 7                  THE COURT:   Do you have a blackline or is it would be

 8      as proposed?

 9                  MR. BRADY:   I think the only changes we made to the

10      form of order were in connection with certain relief we

11      requested where we have deducted from employee payroll for

12      taxes and other reasons.      We indicated in the initial draft

13      that we could pay those back at our sole discretion, we've

14      taken that out.    We obviously will remit any funds to the state

15      and other governmental entities where we've deducted it from

16      payroll accounts.

17                  THE COURT:   Yeah, government's picky about that.

18                  MR. BRADY:   I have a clean and a blackline.

19                  THE COURT:   You may approach.    Mr. Stang?

20                  MR. STANG:   Thank you, Your Honor.

21                  THE COURT:   Thank you.

22                  MR. STANG:   The first question I have that I don't

23      think has been addressed is whether the debtor in fact funds

24      the payroll for the religious order priests.        Because often

25      what happens is that while no compensation is paid to a

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 1      particular clergy or whichever order we're talking about, the

 2      diocese, a diocese will fund a payment to the province, to the

 3      religious order, and then the religious order compensates its

 4      individual priests.      And so while a given priest may not be on

 5      the diocese payroll, the diocese may be funding the

 6      compensation of that priest and that is why the disclosure

 7      regarding the religious order priests is necessary in the

 8      context of this motion.

 9                  We think it's necessary because these religious order

10      priests are operating in the diocese and some of them may be,

11      and this is their terminology Your Honor, accused, admitted,

12      corroborated or credibly accused.      That's a different issue,

13      that's the protection of children.      This is, unfortunately,

14      pedestrian wages.     So the question is, is the diocese using its

15      resources to fund the religious orders who then compensate.        So

16      that's question number one on the religious order priests.

17                  THE COURT:   Well, we'll address them as they arise.    I

18      believe it was clear that the representation was that nothing

19      would be funded or paid in connection with anyone who had been

20      accused, including any member of a religious order.      Is that

21      correct, Mr. Brady?

22                  MR. BRADY:   That is correct, Your Honor.

23                  THE COURT:   Okay.

24                  MR. STANG:   Okay.

25                  THE COURT:   I don't think at this time it should be

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 1      required nor am I going to require an updated list of the

 2      accused priests or the admitted priests or however you want to

 3      put it, and I shouldn't limit it to priests, persons.

 4                  MR. STANG:   Right.

 5                  THE COURT:   Obviously that'll be an issue the

 6      committee can take up at a given time.      I intend to make this

 7      an interim order in any event.      So I don't think that's

 8      required at this time.

 9                  MR. STANG:   And I'm going to try to stay focused, Your

10      Honor, on what's before you as opposed to what's the survivors

11      may want when the motion's not been presented here.

12                  THE COURT:   No, you raised it in connection with the

13      motion; I'm just overruling the objection.

14                  MR. STANG:   The second issue is to the parishes then.

15      We are going to talk about cash management in a few minutes and

16      we only have, in our view, the tip of the iceberg presented in

17      the affidavit.    But in a lot of diocese parishes who are not

18      raising enough funds from the collections that they make

19      directly from the parishioners, essentially subsidize a parish.

20      They may call it a loan to the parish we view it as just an

21      intercompany transfer.      But the question is are they

22      subsidizing any parishes who are compensating these abusers

23      because it's clear from, at least the way I read the

24      declaration, priests are paid by the parishes but they are

25      employees of the diocese.      I think that's probably a cash

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 1      management issue.

 2                  THE COURT:   Well, I thought I heard, and let me double

 3      check, that there'll be no funding or payment of wages --

 4      there'll be no payment of wages or funding for payment of wages

 5      for any accused or admitted or identified abuser.

 6                  MR. BRADY:   That is correct.

 7                  THE COURT:   All right.   So that issue's addressed.

 8                  MR. STANG:   Two more, Your Honor.

 9                  THE COURT:   That's okay.

10                  MR. STANG:   I don't think counsel actually told you

11      whether these parishes or nondebtor related entities in fact

12      owe any money to the diocese.      He said dismantling would be too

13      expensive, the diocese gets a benefit but I don't think he

14      actually told you whether or not there are any obligations

15      owing back because sometimes, and maybe this is just a cash

16      management system, you get ahead of the fact and you make the

17      payroll and then they catch up and they pay for the services or

18      they pay for whatever they're paying for.

19                  Some of these things were pass-throughs but I just

20      want to make sure that the diocese isn't extending

21      consideration to people who owe the diocese money.       That's, I

22      guess, number three.

23                  THE COURT:   Well --

24                  MR. STANG:   They reimburse the diocese -

25                  THE COURT:   No, let me -- understood.   I'm just trying

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 1      to come up with an example.

 2                  MR. STANG:   I'll give you one, Your Honor.

 3                  THE COURT:   Well --

 4                  MR. STANG:   There's a monthly charge for processing

 5      payroll.    I'm going to say it's a hundred bucks.     The diocese

 6      is owed that money and now it's asked to process another

 7      payroll and the parish hasn't made the payment.

 8                  THE COURT:   Not at all unremarkable.

 9                  MR. STANG:   Not at all unremarkable.

10                  THE COURT:   And any well, no.   I mean in any case

11      where you've got more than -- usually it would be other debtor

12      entities but not necessarily.      So for example, we often have

13      cases where we have nondebtor foreign entities that are being

14      supported by the debtor, the U.S. debtor.       And that is allowed

15      to continue certainly on a postpetition basis as being in the

16      ordinary course.    Although again, usually addressed through the

17      cash management order.

18                  But here we're only talking about wages, benefits,

19      fairly narrow relief designed to prevent irreparable harm or,

20      frankly, unfair or prejudicial funding of the case on the backs

21      of employees who I fully expect are not the most richly

22      compensated persons in our economy.      So I don't view it as

23      particularly remarkable.

24                  MR. STANG:   Well, what's different about this case

25      then all the other cases is that these folks act like never

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 1      heard of the parishes.      I mean, they run from them --

 2                  THE COURT:   Well, I haven't seen that.

 3                  MR. STANG:   Well, Your Honor, we're not related, we're

 4      separate corporations, we don't manage.       I mean, frankly, it

 5      kind of depends on the issue but that's why we're asking.

 6      These are nondebtors.      They are not part -- depending on the

 7      motion you read they're not really part of the diocese and we

 8      just wanted to know if there are outstanding obligations and we

 9      think they should be current.

10                  THE COURT:   There are two issues, okay, there's source

11      and use.    This motion is about use of funds, the cash

12      management motion is about source of funds.

13                  MR. STANG:   All right, we'll leave it.

14                  THE COURT:   So we'll address it in that motion.

15                  MR. STANG:   The last question I have, and it was

16      something counsel said and it's not really driven by this

17      motion, are they paying the legal fees for clergy who are

18      defendants in these lawsuits?

19                  THE COURT:   Does the wages and benefit motion include

20      the payment of legal fees for nondebtor entities?

21                  MR. BRADY:   No, Your Honor.

22                  THE COURT:   Okay.

23                  MR. STANG:   Okay.   You didn't quite ask him the

24      question I was asking but that's -- you're the judge.

25                  THE COURT:   No, but you were asking a question that

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 1      didn't deal with the motion.

 2                  MR. STANG:   I understand.

 3                  THE COURT:   All right.

 4                  MR. STANG:   Are you curious?

 5                  THE COURT:   No.

 6                  MR. STANG:   All right.

 7                  THE COURT:   Not in the context of this motion I'm not.

 8                  MR. STANG:   Okay.   Thank you, Your Honor.

 9                  THE COURT:   I mean, it may come up at a later time and

10      I'm -- I'm not prejudging anything.       I came into this case with

11      a completely open mind.

12                  MR. STANG:   I understand, Your Honor.   Thank you.

13                  THE COURT:   All right.   I had two changes to the

14      order.      Mr. Klauder, you're resolved?

15                  MR. KLAUDER:   We are.

16                  THE COURT:   Okay.   I'm going to change paragraph 1 to

17      add as set forth herein.       This is going to be an interim order.

18      It makes sense, after these comments, it may make sense to

19      submit a revised order under certification because we'll need

20      to set a final hearing date.

21                  Mr. Klauder, do you have an idea on a committee

22      formation date?

23                  MR. KLAUDER:   Very good question, Your Honor.

24                  THE COURT:   All my questions are good, Mr. Klauder.

25                  MR. KLAUDER:   No, not as I stand here right now.

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 1      Obviously there's some sort of unique issues here, especially

 2      related to solicitation of committee members.        We've spoken

 3      briefly about the debt -- to the debtors about that.         We're

 4      going to talk to this side of the table, the plaintiff's side,

 5      and get their thoughts and hopefully do this soon but it's

 6      going to be a little longer then, I think, the usual process

 7      where we do it within about ten days.       So we're hoping, I

 8      think, in a couple weeks but I don't want you to hold me to

 9      that.

10                  THE COURT:   All right.   We'll address that at the end

11      because the cash management order is going to be interim as

12      well.

13                  MR. KLAUDER:   It already is.

14                  THE COURT:   Okay.   It already is.   Okay.   Well,

15      subject to setting -- making it an interim order -- oh, I'm

16      sorry, there was one other issue.

17                  In accordance to my usual practice, in the interim

18      order I'm not going to authorize the payment of accrued

19      prepetition vacation pay to the extent someone is terminated or

20      quits postpetition and they would be paid ordinarily for their

21      accrued vacation without a further consideration at the final

22      order date.    Obviously employees who have accrued vacation can

23      take that vacation postpetition.       I'm talking about payment for

24      that vacation either in the ordinary course in the event

25      employment is terminated for whatever reason.        That's a normal

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 1      change.     So I'd like to carve that out of paragraph 7, make

 2      that clear.

 3                  So I think I'm going to want a revised order under

 4      certification of counsel and in connection with the cash

 5      management order we'll set the final hearing date.        So subject

 6      to those statements, I will approve the motion.

 7                  MR. BRADY:   Thank you, Your Honor.    And, Your Honor,

 8      our last motion as part of our first day filings is the cash

 9      management motion.

10                  The United States Trustee requested two changes, which

11      we have made.     One, to clarify this order is entered on an

12      interim basis, we have done that.       And in connection with the

13      Section 345 waiver, they've asked us to reduce our requested

14      extension from forty-five days to thirty days.        We've done

15      that, obviously subject to further extension by order of the

16      Court.      I have a blackline if I may approach?

17                  THE COURT:   Yes.   Thank you.

18            (Pause)

19                  THE COURT:   Some statements?

20                  MR. BRADY:   Yes, Your Honor.    In connection with the

21      unofficial committee's response --

22                  THE COURT:   I'm sorry; I can't hear you, Mr. Brady.

23                  MR. BRADY:   I'm sorry.   In connection with the

24      unofficial committee's response a couple of comments.        One,

25      they've indicated, I believe, there's a lack of disclosure with

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 1      respect to the pooled investment account.        I can confirm that

 2      the pooled investment account is not the subject of this

 3      motion.     To alleviate any concerns, the debtor will not deposit

 4      or withdraw any funds from the pooled investment account for at

 5      least the next thirty days absent court order.        That way the

 6      committee can be formed and we can discuss the program with

 7      them and this can be addressed, since this is an interim order,

 8      that can be addressed at the final order.

 9                  THE COURT:    Okay.   So nothing here authorizes anything

10      in connection with the pooled investment account and the debtor

11      is further representing that no monies will go in or out for at

12      least thirty days.       And I understand you probably take the

13      position that that would normally be in the ordinary course of

14      business and wouldn't require Court approval.        But you're, in

15      effect, agreeing to a thirty-day stay of your own actions or

16      maybe an earlier modification pursuant to court order.

17                  MR. BRADY:    That's correct, Your Honor.   It's to

18      address the concern that the official committee's not in place

19      yet and we're going to voluntarily stay any activity with

20      respect to the pooled investments.        And indeed we intend to

21      file a specific motion with respect to --

22                  THE COURT:    I think you said that, actually, in the

23      affidavit, I seem to remember.

24                  MR. BRADY:    We will be filing that shortly and that

25      will address, specifically, the pooled investment program.

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 1                  Second, Your Honor, the unofficial committee has asked

 2      that the debtor be required to disclose information regarding

 3      the accounts of other nondebtor entities.      We are not seeking

 4      any relief with respect to accounts held by nondebtors.      We,

 5      obviously, based on the comments today expect that to be part

 6      of any official committees' analysis or discovery but we don't

 7      believe that’s a today issue.

 8                  The unofficial committee has asked that the Court not

 9      allow comingling or allow the debtor to distribute any monies

10      from the pooled investment account.      Again, we've agreed not to

11      do that.    The debtor's cash management system, Your Honor, like

12      many businesses can fully trace all funds so payments that go

13      out are fully traceable, monies received are fully traceable.

14      And again, we will seek Court approval before any funds are

15      withdrawn from the pooled investment account.

16                  THE COURT:   Do you have an idea if the amount of money

17      that my go out of the estate, other than the pooled investment

18      account, in the next thirty days?

19                  MR. BRADY:   Your Honor, we've been working on a budget

20      for our internal purposes.      As you can imagine, all budgets, to

21      some extent, are speculative, perhaps in this case a little

22      more so then normal.      Obviously receipts are based, in large

23      part, by donations and that can be variable.      And with respect

24      to the operating expenses of the Catholic Diocese of

25      Wilmington, Inc. we have a very good idea of what the monthly

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 1      operating expenses are.

 2                  As far as the charitable work that the diocese does,

 3      the ministry, the help for the aged, the youth, schools,

 4      etcetera, that varies on a month to month basis.       But I think

 5      we probably could come up with a number to give the Court an

 6      estimate of what we would expect.

 7                  THE COURT:   Yeah, I'd like a cap in the motion on a

 8      net basis in the next thirty days.      And leave yourself wiggle

 9      room and a cushion but I'd like a cap.      And that's, again, not

10      unusual in an interim order.

11                  MR. BRADY:   That's fine, Your Honor.   We should be

12      able to come up with a number.

13                  Your Honor, there was a request for additional

14      disclosures on internal manuals and norms adopted.       We're not

15      exactly sure what the unofficial committee's talking about.

16                  THE COURT:   Me neither.

17                  MR. BRADY:   In that regard, we obviously have policies

18      and practices.    The parishes have policies and practices as

19      well.   All this motion is doing is asking to use our existing

20      bank accounts in the ordinary course.      Obviously now the

21      payments going out will be subject to a cap for the next thirty

22      days and to operate the business in the ordinary course.       We

23      fully expect and intend to turn over to the official committee

24      all of our policies and practices but we don't have what I

25      would call a manual on our financial system.

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 1                  The committee has asked, the unofficial committee, has

 2      asked for additional information on the pooled investment

 3      account and asked the Court to continue this hearing to allow

 4      the official committee to investigate.        Again, the order is

 5      interim Your Honor.      There's now a cap on monies going out.

 6      We've agreed not to have any activity with the pooled

 7      investment account for at least thirty days.         There'll be a

 8      final hearing and the committee appointed between then.           We

 9      think we've put all the safeguards in place but to deny the

10      debtor the right to use its cash management system would be

11      highly prejudicial and would be burdensome to the estate.

12                  THE COURT:   Okay.   Thank you.   Mr. Stang?   Mr.

13      Klauder, you're resolved?

14                  MR. KLAUDER:   We are, Your Honor.     Based on the

15      interim nature and some of the things that we discuss we

16      certainly reserve all of our rights.       We discussed with Mr.

17      Brady some of these issues that we're talking about today, I

18      think mainly the pooled investment account and the transfers

19      between the diocese and nondebtor entities, we're going to be

20      heavily involved in that as well.       We certainly reserve all of

21      our rights for the final hearing with regard to those issues

22      but we'll be looking into that as well.

23                  THE COURT:   Very good.   Thank you.    Mr. Stang?

24                  MR. STANG:   Thank you, Your Honor.

25                  Your Honor, my focus is on -- well, let me focus on

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 1      this non --

 2                  THE COURT:   Can I interrupt?   Can I interrupt for a

 3      moment?     Mr. Brady, on the pooled investment account I

 4      understand the diocese no money in or out, what about nondebtor

 5      entities taking money out?

 6                  MR. BRADY:   That's going to be the subject of our

 7      separate motion to file before the Court.

 8                  THE COURT:   All right. So that won't happen until

 9      otherwise ordered by the Court?

10                  MR. BRADY:   That is correct.

11                  THE COURT:   Thank you.

12                  MR. STANG:   That's what I understood counsel to say,

13      Your Honor, so I wasn't going to get back to that.        He said no

14      funds are in and out of the account.

15                  THE COURT:   Ms. Werkheiser   (ph.) wanted me to be more

16      specific.

17                  MR. STANG:   She has good background.

18                  Your Honor, I typically don't call these nondebtor

19      entities, I usually call them related entities because that's

20      what they are.

21                  If you look at Monsignor Cini's declaration at page

22      11, he says that these nondebtor Catholic entities are managed

23      either directly or indirectly by the bishop.        And so our

24      concern is that there must be accountability and transparency

25      as to what's going on in the bank accounts of these entities.

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 1                  Now, we're going to now get into, dare I say it, canon

 2      law issue.    They're going to tell you the debtor doesn't

 3      manage, directly or indirectly, these accounts the bishop does

 4      and the bishop isn't the debtor and the debtor isn't the

 5      bishop.     But the fact of the matter is that, these religious

 6      corporations take different forms around the country but in the

 7      context of what the Catholic ecclesiastical entities use, they

 8      always use something where the buck stops with the bishop.     And

 9      in fact Father Cini, in one of his depositions, I think or

10      maybe it was -- I'm sorry; counsel at one of the State Court

11      hearings said the buck stops with the bishop.     This is a one-

12      member entity that member is the bishop, it's not his vicar

13      general and it's not the moderator or the curia, it's him.     And

14      that's what Mr. Manly was alluding to when he said he was

15      disappointed.

16                  And so this distinction between the civil entity and

17      the ecclesiastical entity and the two shall never meet is

18      frankly a fiction.    Because at the end of the day, in the

19      context of the corporation, it's the bishop.     So when he

20      manages directly these funds it's really the debtor who's

21      managing these funds.    And when he's indirectly managing them

22      it's really the debtor that's doing it.     And so there's monies

23      going, and a lot of money especially to Catholic charities just

24      because I know Catholic charities handles most of the

25      government money that comes into this diocese for its social

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 1      service programs that the diocese takes credit for.       All of

 2      these, A through I, are -- I'm not going to say they're

 3      property of the estate; I'm not prepared to go there today.

 4      Well, I am but you probably aren't, but they're definitely

 5      controlled by him.    And if they're controlled by the debtor

 6      they should be reported to by the U.S. Trustee and they should

 7      be reported to the public.

 8                  We're not asking them don't pay prepetition

 9      obligations.    We're not investigating their capital structure

10      right now.    And this has happened in other cases; in Fairbanks

11      we get monthly bank statements and reports from the wealthy

12      parishes.    Fairbanks, because of its economic circumstances

13      most of the parishes are more ice than real estate and so we

14      focus on a few.

15                  I believe in San Diego the parishes were reporting.

16      And I just can't remember all the other cases, Your Honor.         But

17      it's not unusual to at least have them report.     And even give

18      us reports, give the U.S. Trustee reports that they maintain in

19      the ordinary course of business.     They don't have to file the

20      monthly operating report but to not know what's going on in

21      accounts controlled directly or indirectly by the bishop is not

22      the kind of accountability that Mr. Patton was so proud of when

23      he came up before the Court and addressed you initially.       And

24      so, I think in the cash management context that is essential.

25                  The other thing, and this is --

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 1                  THE COURT:   Well, let me address these as they go.

 2                  MR. STANG:   Okay.

 3                  THE COURT:   That very well may be an issue that is

 4      ordered at the final hearing.       I view first day hearings in

 5      effect to be the Hippocratic oath, first do no harm.       And I

 6      mean that both to the debtor and the creditors.       By putting a

 7      cap on the net amounts that are going to flow from the diocese

 8      out the door.    I'm comfortable, for the next thirty days, that

 9      will be all right and that a tremendous amount of money isn't

10      going to leave.

11                  I expect that the accountability -- well, that the

12      information that'll be provided in the future, if it is, will

13      be provided to an official committee.       And I think Mr. Patton

14      made it clear on numerous occasions that he was very specific

15      that information would be shared with the committee and not

16      necessarily more broadly or publicly.       So for today's purposes

17      I'm satisfied.    But I certainly understand your issue.

18                  MR. STANG:   I guess my question --

19                  THE COURT:   And I'm not prepared, today, to collapse

20      the debtor and the bishop.       I don't think I have sufficient

21      evidence to do that.

22                  MR. STANG:   Okay.   My question to someone is then will

23      this cap include the distributions coming out of these

24      identified entities or are we talking about the administrative

25      account at the chancery which is a very limited aspect of the

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 1      debtor's operations?

 2                  THE COURT:   No, I --

 3                  MR. STANG:   And I don't know what this cap is now

 4      meant to cover because we have A through I.

 5                  THE COURT:   Well, I think this order covers monies

 6      that go in and out of the diocese at this point.      If monies are

 7      being funded, either monies that already exist in these

 8      entities that are not debtors today that are being sent out at

 9      the direction of the bishop, they would not be covered, at

10      least for today's purposes.

11                  MR. STANG:   Right.

12                  THE COURT:   If there's money that's flowing, for

13      instance, from the government through the diocese to these

14      entities, it would be covered.

15                  MR. STANG:   Okay.

16                  THE COURT:   But if they already have the money or they

17      have independent sources of funds, at least for today's

18      purposes, it would not be covered.

19                  MR. STANG:   Okay.

20                  THE COURT:   But again, I think -- I don't know how

21      much money is going to go out in the next thirty days but in

22      the context of this case I would be surprised it would be that

23      large.      And if it's a million dollars that shouldn't have been

24      sent out, it sounds to me like it would be outside the ordinary

25      course of business, a non-authorized transfer of funds and be

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 1      avoidable under the Bankruptcy Code as an unauthorized

 2      postpetition transfer.      And that's something the committee can

 3      address.

 4                  MR. STANG:   Thank you, Your Honor, and you've helped

 5      me with this issue.

 6                  The second issue is, and I apologize for asking

 7      questions up here but just given the timing and the extensive

 8      declaration I think it's warranted and might even help with the

 9      U.S. Trustee's job.      This issue of the bonds that were issued

10      in connection with the construction of what I believe is a

11      school and the Allied Irish Bank underlying letter of credit

12      that backstops the bonds.      They're listed, both Wilmington

13      Trust and Allied Irish are listed on the twenty largest

14      creditor list.    And I guess my question is do the bonds have

15      any collateral, other than the letter of credit, if that's

16      collateral?    And is the letter of credit collateralized beyond

17      the covenant that requires the debtor to maintain, I think it's

18      thirty-five million dollars of unencumbered cash?      Because

19      there's no cash collateral motion which makes me think the

20      answer is no.    But I didn't know if there was any real estate

21      collateral for those bonds or real estate collateral for the

22      letter of credit obligation if in fact the letter of credit is

23      drawn.

24                  Your Honor, you're looking down like you don't know

25      what I'm talking about and it is in the declaration for what

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 1      it's worth.

 2                  THE COURT:   Well, no.   I --

 3                  MR. STANG:   Okay.

 4                  THE COURT:   Well, I may not know what you're talking

 5      about --

 6                  MR. STANG:   I may not know what I'm talking about.

 7                  THE COURT:   -- but it's quite possible.   Well, I'm

 8      trying to figure out the relevancy, again, to cash management.

 9      The question -- maybe I don't understand it completely.

10      There's a letter of credit hosted by, is it Irish?

11                  MR. STANG:   Allied Irish Bank.

12                  THE COURT:   Allied Irish Bank for the benefit of

13      certain parishes and schools.

14                  MR. STANG:   For the benefit of bondholders whose bond

15      proceeds were used for the construction and improvement of what

16      I believe is a high school.

17                  THE COURT:   And Wilmington Trust is either the issuer

18      or the indentured trustee.

19                  MR. STANG:   I think it's the indentured trustee.

20                  THE COURT:   All right002E

21                  MR. STANG:   At least the indentured trustee.

22                  THE COURT:   And it's -- the balance on the bonds is

23      about eleven million?

24                  MR. STANG:   Yes, sir.

25                  THE COURT:   And the requirement under the LC is

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 1      thirty-five million dollars of cash available at the diocese to

 2      backstop the letter of credit.

 3                  MR. STANG:   That's how I read the declaration and I

 4      just wanted to know if there was collateral for anybody in

 5      that, other than the LC.

 6                  THE COURT:   And why?   Why?

 7                  MR. STANG:   Well, it goes to cash management because

 8      if there's a covenant that they have to have thirty-five

 9      million dollars of unencumbered cash, that's a potentially cash

10      management issue.     And if in fact there's any cash collateral

11      for the LC obligation, then that's a cash management issue as

12      well -- cash collateral issue as well but I think it also hits

13      on cash management.

14                  I think it's a simple disclosure by the debtor as to

15      whether there's collateral.

16                  THE COURT:   Well maybe it is.

17                  MR. STANG:   It's really just a question of not going

18      anywhere else with it.

19                  THE COURT:   All right.   Well, I took it from the

20      schedules that the Wilmington Trust -- the bonds for which

21      Wilmington Trust serves as the indentured trustee were

22      unsecured.

23                  MR. BRADY:   Well they have the benefit of an LC issued

24      by Allied Irish Bank but there's no collateral securing those.

25                  THE COURT:   Right.

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 1                  MR. STANG:   Okay.

 2                  THE COURT:   Okay.   And is there a minimum -- under the

 3      LC is there a minimum balance to be maintained by the diocese?

 4                  MR. BRADY:   There is.   As set forth in the affidavit,

 5      there's a thirty-five million dollar unencumbered cash

 6      requirement under the LC and we're in breach of that.

 7                  THE COURT:   You're in breach of that covenant?

 8                  MR. BRADY:   Yes.

 9                  THE COURT:   Okay.

10                  MR. STANG:   One more query, Your Honor, and this

11      became very relevant in the San Diego case.       Does the -- do the

12      parishes or any of the nondebtor Catholic entities use the

13      debtor's federal tax ID number?       This was raised in cash

14      collateral in San Diego and actually became the subject of an

15      OSC issued by the judge regarding the use of the tax ID number.

16                  If I can say one more thing, Your Honor.    Judge Adler

17      felt that if other entities were using the debtor's tax ID

18      number then those debtors should be -- then those entities, who

19      claim separate status by the way, should be filing as part of

20      the monthly operating reports.

21                  THE COURT:   When's the first monthly operating report

22      due?

23                  MR. KLAUDER:   Well, there'll be an interim report due

24      fifteen days, I think, from the petition date.       And then the

25      first one would be due end of November for the stub October

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 1      period.

 2                  THE COURT:   Okay.

 3                  MR. KLAUDER:   But --

 4                  THE COURT:   Have the SOFA's been filed?

 5                  MR. BRADY:   No, Your Honor.

 6                  MR. KLAUDER:   No.   I mean, we're going to have a

 7      meeting as we always do and initial debtor interview probably

 8      pretty quickly in this case.

 9                  THE COURT:   Yeah.

10                  MR. KLAUDER:   So we'll be going over all this.

11                  THE COURT:   Okay.   Thank you.   Again, in terms of cash

12      management I guess the point would be that that might be a

13      reason to sort of rethink the issue as to whether they should

14      be covered by a court order in connection with the cash

15      management system.

16                  MR. STANG:   Well, I'll tell you what I said to Judge

17      Adler and I don't think my thinking's refined any more then

18      what I said about a year ago.       Tax ID numbers mean something.

19      They mean something in how you report to the government on your

20      uses of cash.    I'm not sure what they mean exactly but they

21      mean something.    And if people, other people, are using this

22      debtor's tax ID number there should be accountability for how

23      that cash is being used because the debtor may be responsible

24      for how that cash is being used.

25                  THE COURT:   Well Mr. Brady, let me preliminary ask can

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 1      you answer that question?

 2                  MR. BRADY:   Based on the knowledge of the people in

 3      this room, that includes Monsignor Cini, the attorneys and Mr.

 4      Ramickers (ph.) who is the proposed financial advisor, we do

 5      not believe any of these entities are using the debtor's tax ID

 6      number.     We'll check to make sure but we do not believe so,

 7      Your Honor.

 8                  THE COURT:   Okay.   Thank you.

 9                  MR. STANG:   Your Honor, I apologize but we're trying

10      to make this efficient so you don't have a lot of people coming

11      up.

12                  THE COURT:   Uh-huh.

13                  MR. STANG:   The question that I was asked is are

14      the -- as between the diocese and the Holy C there are

15      restrictions on how much the diocese can transfer in property

16      without the Holy C's consent.       I have seen situations in these

17      norms, which are really the operating guideline books of the

18      diocese and they may not call them norms, they have different

19      words for them but they're generally called norms.       That

20      sometimes the bishop can control or has to have -- give his

21      consent before the parishes can transfer or expend above a

22      certain dollar amount.      In the case of the Holy C, vis-a-vis

23      the diocese it's a five million dollar property transfer,

24      anything above that requires the Holy C's consent.

25                  And so, if the bishop is going, during this interim

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 1      period, giving his consent to the parishes expending amounts in

 2      excess of what might be a limit, we think the Court should be

 3      cognizant of that as well.

 4                  THE COURT:   I think that's totally, wholly irrelevant

 5      to the issue before the Court today.        This is use of cash by

 6      the debtor, okay.     This is having the source to use it pursuant

 7      to ordinary course use of the debtor as well as what I've

 8      approved today subject to the limitations on the record.        And

 9      at this point the parishes are not debtors and how the parishes

10      use their monies, at this point, are not before me.

11                  Now if it ultimately turns out, based on evidence,

12      that I find that this was property of the estate transferred

13      outside the ordinary course of business at whoever's direction,

14      it is avoidable.    The transfer would be avoidable.

15                  MR. STANG:   Your Honor, we would view the bishop

16      exercising authority in connection with a transfer in excess of

17      any authorized limits to be an action by the debtor outside the

18      ordinary course, but I would just leave it at that.

19                  THE COURT:   Well, that's your --

20                  MR. STANG:   I will leave it.

21                  THE COURT:   I know that's your allegation but I have

22      no evidence in front of me on that today and I'm not prepared

23      to make that ruling today.

24                  MR. STANG:   All right.   Your Honor, I think that those

25      are the debtor's three motions.       Your deputy -- your courtroom

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 1      clerk called Mr. Sheehan, is what I was going to turn to.

 2                  THE COURT:   Yeah, we'll deal with that in just a

 3      second.

 4                  MR. STANG:   Thank you, Your Honor.

 5                  THE COURT:   I wanted to -- yes, we are going to deal

 6      with that.    I think that resolves the issues, Mr. Brady.      And I

 7      had two minor comments which was to add as set forth herein in

 8      paragraph 1 and to remove the word and directed from paragraph

 9      11.   I'm not going to direct the banks to do anything, they're

10      not before me today.

11                  Subject to those modifications and the statement on

12      the record I'll approve the motion.       It's also an interim order

13      so we need to come up with a final hearing date.

14                  And what I'd like to use --

15            (Pause)

16                  THE COURT:   Mr. Klauder, you think the week of

17      November 2nd is too early?

18                  MR. KLAUDER:   I think so.

19                  THE COURT:   How about the week of November 9th?

20                  MR. KLAUDER:   Yeah.

21                  THE COURT:   That would be all right?

22                  MR. KLAUDER:   That would be.   You're talking about for

23      the second hearing?

24                  THE COURT:   I'm talking about for a final hearing.

25      And Mr. Stang, do you think --

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 1                  MR. STANG:   Your Honor, there are mediations going on

 2      in the Fairbanks Diocese case either the 9th or 10th of

 3      November.    So if you could work around that I'd appreciate it.

 4                  THE COURT:   All right.   So maybe late that week, after

 5      Veteran's Day.

 6                  MR. STANG:   Later that week would be better --

 7                  THE COURT:   Or early the next week.

 8                  MR. STANG:   -- for several of us.

 9            (Pause)

10                  THE COURT:   Just give me a moment to check all three

11      of my calendars.

12            (Pause)

13                  THE COURT:   November 12th at 3 o'clock.   Objections

14      will be November 4th at 4, although of course I would expect an

15      appropriate extension for the committee.

16                  MR. BRADY:   Absolutely, Your Honor.   And as to the

17      cap, we'd like to just have a little time after the hearing to

18      talk about it.    We'll prepare a number, we'll show it to the

19      unofficial committee and the U.S. Trustee and then we'll send

20      it over under certification.

21                  THE COURT:   That's fine.   Do we have an order I can

22      sign on this marked up or do you want to send that -- why don't

23      you send that under certification as well so it'll be cleaner

24      with the hearing dates, etcetera.

25                  MR. BRADY:   And that will have the cap in there.

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 1                  THE COURT:   Very good.   All right.   Well, subject to

 2      the -- oh, I'm sorry; you said just what I asked before I

 3      asked.      Subject to the rulings and statements on the record,

 4      I'll approve the motion and expect it under certification.         And

 5      I'll also await the wages motion under certification of

 6      counsel.

 7                  MR. BRADY:   Thank you, Your Honor.

 8                  THE COURT:   All right.   That's the hearings we had

 9      scheduled for today.      I have three matters that I'd like to

10      discuss scheduling of in connection with this case, and again

11      scheduling, in no particular order.       The first is the -- excuse

12      me, four matters.

13                  The first is Mr. Sheehan's motion for stay relief.

14      Second is the TRO request by the debtors.       Third -- sorry;

15      third is the motion to designate Bishop Maluli (ph.) --

16                  MR. BRADY:   That's correct, Your Honor.

17                  THE COURT:   -- Maluli as the debtor for purposes of

18      the 341 meeting.     And fourth is a motion I received this

19      morning to permit taking of, my Latin teacher will be

20      displeased with my pronunciation -- to permit taking the de

21      bene esse --

22                  MR. STANG:   That's it, Your Honor.

23                  THE COURT:   Very good.   Depositions pursuant to the

24      mediation order.     My proposal would be to hear all of those

25      motions starting -- wait a minute --

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 1            (Pause)

 2                  THE COURT:   -- all of those motions on Monday,

 3      November 2nd at 9:30.      Now, that day I'm available until about

 4      4 o'clock.    If we don't finish -- if we don't finish we can

 5      continue the next day late mid-morning and into -- and you're

 6      in Alaska, Mr. Stang, is that correct?

 7                  MR. STANG:   I could actually split myself.    Your

 8      Honor, yes.     Not Alaska but the mediation in Alaska.     Mr. Manly

 9      is attending that as well but if need be I can get someone else

10      here.   Mr. Rofatjoo, who's helped us can be here too.

11                  THE COURT:   Well, the nonbankruptcy lawyers might not

12      be aware of how busy we are, although if you read the financial

13      papers --

14                  MR. STANG:   Your Honor, I think that Mr. Neuberger may

15      want to talk to you about the Sheehan matter.      But as far as

16      the committee issues are concerned, November 2 is fine.

17                  THE COURT:   Mr. Brady?

18                  MR. BRADY:   That's fine.

19                  THE COURT:   Now that may be before the formation of a

20      committee but I'm sensitive to that.      But these are not

21      necessarily issues that affect a committee.      And look, frankly,

22      fully expect that Mr. Stang would be counsel to whatever

23      committee is formed, although we'll see.      Mr. Brady?

24                  MR. BRADY:   Your Honor, with respect to our TRO, Judge

25      Vaughn has scheduled a status conference, I believe, for

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 1      Monday.     As long as Judge Vaughn is prepared to not proceed

 2      with those trial that we seek to enjoin until Your Honor has

 3      heard the issue, and I suspect he will be, then we don't have

 4      any time constraints and the 2nd, I think works.

 5                  THE COURT:   Yes, sir.

 6                  MR. CRUMPLAR:   Your Honor, Thomas Crumplar.   Attorney

 7      for the plaintiffs in the matter before Judge Vaughn.        Based on

 8      -- Judge Vaughn was originally going to have a status

 9      conference on Thursday but when found out that the TRO was

10      going to be presented today, moved it to Monday in order to

11      give Your Honor more time.       I will not -- I will advise Judge

12      Vaughn that there'll be this Monday matter and ask him to

13      schedule it as soon after as possible.

14                  Given the speed that Your Honor is moving with, and I

15      appreciate it, I think one day, even though we have our

16      witnesses on hold and everything else, we can live with that.

17                  THE COURT:   When is trial scheduled to begin?

18                  MR. CRUMPLAR:   Trial was scheduled to begin this

19      Monday, Your Honor.

20                  THE COURT:   The Monday that just passed?

21                  MR. CRUMPLAR:   The Monday that just passed.   And it's

22      on hold.    We were ready to go forward against the parishes; the

23      Judge was ready to go forward against the parishes but for the

24      TRO.   So we can wait an extra day.

25                  THE COURT:   Okay.   I would prefer to do that because

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 1      first of all I'd like to hear it in connection with the stay

 2      relief motion because I think, although not the same case, very

 3      related issues.    Correct, not the same civil action?

 4                  MR. CRUMPLAR:    Mr. Sheehan is not the same --

 5                  THE COURT:   That's the November 18th case -- 16th

 6      trial.

 7                  MR. NEUBERGER:    That's the November 16th trial,

 8      Sheehan, Your Honor.

 9                  THE COURT:   And I'm sensitive to the timing of the

10      depositions, obviously, in connection with people who are

11      gravely ill.    If something arises in the interim I am always

12      available for emergencies.

13                  MR. NEUBERGER:    Thank you, Your Honor.   Your Honor,

14      the November 2nd date works for Mr. Sheehan's matter.         It works

15      for the de bene esse matter.       I think Mr. Crumplar is saying it

16      works for your hearing the TRO.       I would simply point out one

17      thing in advance, as I indicated Judge Vaughn is prepared to

18      rule on forty motions in limine and other matters relating to

19      the entire scope of the jurisdiction.       It's our understanding

20      that it's the position of the debtor that he has lost his

21      ability to rule on argued matters that would have precedential

22      effect throughout the system.       I believe that this Court would

23      be sensitive to matters of comity and the efficient use of

24      judicial resources when you're going to make your decision on a

25      stay or the nature of a stay.       So I would just simply point

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 1      that out in anticipation of addressing the TRO matters.

 2                  THE COURT:    Well, I can only hear what's in front of

 3      me.   And I will certainly, to the extent possible -- well, I

 4      always respect my colleagues on the bench, both state and

 5      federal but I can only decide the stay issues in front of me

 6      and the stay exists to the extent it's set forth in the

 7      statute.     And in connection with that we'll have to address it

 8      as we go along.     I can't -- I won't address it sua sponte.

 9                  MR. NEUBERGER:    Oh no, I'm not asking you to address

10      it sua sponte.

11                  THE COURT:    But the TRO, obviously, expands.   It's

12      coming in for a -- well, I wouldn't say expands the stay but

13      seeks a separate injunction.        So I understand whatever action I

14      take, no matter how I try to limit it to the facts in front of

15      me, will probably have broader effect.

16                  MR. NEUBERGER:    The Sheehan matter, which you are

17      expediting and we greatly appreciate that, is a tool in the

18      process that the superior court has crafted also.        Your

19      expediting it will be very helpful and we'll address that at

20      that time.

21                  THE COURT:    Yeah.   I'll hear that at that time.    Mr.

22      Brady?      Mr. Beach?   Mr. Brady?

23                  MR. BRADY:    Your Honor, I don't believe we have

24      anything further.

25                  THE COURT:    Okay.   Yes, Mr. Klauder?

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 1                  MR. KLAUDER:   Your Honor, papers that can be filed

 2      with regard to those motion, do you have a deadline for that?

 3                  THE COURT:   Thank you.   Well, given the expedited

 4      nature but also wanting to be prepared I would request

 5      objections by 4 o'clock on the 28th, which is a week from

 6      today.      And any replies by noon on the 30th.   And replies will

 7      be permitted in all four motions.

 8                  MR. KLAUDER:   Thank you.

 9                  THE COURT:   And if the parties can agree on an order

10      to proceed on Monday, fine.      If they can't, that's what I'm

11      here to do, make rulings when people can't agree.       Okay.

12      Anything further for today?

13                  MR. BRADY:   Nothing further, Your Honor.   We thank you

14      for your time.

15                  THE COURT:   Thank you.   Hearing adjourned.

16            (Proceedings Concluded at 11:19 a.m.)


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 2                                 I N D E X

 4                                  RULINGS

 5                                                   Page      Line

 6      Motion Authorizing and Approving the          37        11

 7      Employment and Retention of The

 8      Garden City Group, Inc., Approved

 9      Employee Wage Motion, Approved as Modified    50          6

10      Continued Use of Existing Cash Management    67        12

11      System and Corporate Bank Accounts,

12      Approved Subject to Modification


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 2                                C E R T I F I C A T I O N

 4         I, Pnina Eilberg, certify that the foregoing transcript is a

 5         true and accurate record of the proceedings.
                             Digitally signed by Pnina Eilberg
            Pnina Eilberg    DN: cn=Pnina Eilberg, o, ou,
                             email=digital1@veritext.com, c=US
                             Date: 2009.10.26 17:20:50 -04'00'
 7         ___________________________________

 8         Pnina Eilberg

 9         AAERT Certified Electronic Transcriber (CET**D-488)

11         Veritext LLC

12         200 Old Country Road

13         Suite 580

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16         Date:    October 26, 2009


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                         UNITED STATES BANKRUPTCY COURT
                                  District of Delaware

In Re:
Catholic Diocese of Wilmington, Inc.
1925 Delaware Avenue                                Chapter: 11
P.O. Box 2030
Wilmington, DE 19899
 EIN: 51−0095439
Roman Catholic Diocese of Wilmington

                                                    Case No.: 09−13560−CSS


    A transcript of the proceeding held on 10/21/09 was filed on 10/27/09 . The following deadlines apply:

    The parties have 7 days to file with the court a Notice of Intent to Request Redaction of this transcript. The
deadline for filing a request for redaction is 11/17/09 .

    If a request for redaction is filed, the redacted transcript is due 11/27/09 .

     If no such notice is filed, the transcript may be made available for remote electronic access upon expiration of the
restriction period, which is 1/25/10 unless extended by court order.

    To review the transcript for redaction purposes, you may purchase a copy from the transcriber (see docket for
Transcriber's information) or you may view the document at the clerk's office public terminal.

                                                                                Clerk of Court
Date: 10/27/09

                                                   Notice Recipients
District/Off: 0311−1                     User: Leslie                        Date Created: 10/27/2009
Case: 09−13560−CSS                       Form ID: ntcBK                      Total: 5

Recipients of Notice of Electronic Filing:
ust         United States Trustee         USTPREGION03.WL.ECF@USDOJ.GOV
                                                                                                               TOTAL: 1

Recipients submitted to the BNC (Bankruptcy Noticing Center):
db          Catholic Diocese of Wilmington, Inc.     1925 Delaware Avenue       P.O. Box 2030      Wilmington, DE
aty         James L. Patton      Young, Conaway, Stargatt &Taylor       The Brandywine Bldg.      1000 West Street, 17th
            Floor        PO Box 391      Wilmington, DE 19899−0391
aty         Maris J. Finnegan       Young Conaway Stargatt &Taylor, LLP      The Brandywine Bldg.      1000 N. West
            Street, 17th Fl.     Wilmington, DE 19801
aty         Robert S. Brady       Young, Conaway, Stargatt &Taylor      The Brandywine Bldg.      1000 West Street, 17th
            Floor        PO Box 391      Wilmington, DE 19899−0391
                                                                                                               TOTAL: 4

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