By The Guardian (World News) | Created at 2024-10-06 12:15:13 | Updated at 2024-10-06 14:25:12
2 hours ago
Clergy abuse survivors and other parties ensnared in the Roman Catholic archdiocese of New Orleans’ expensive and lengthy bankruptcy reorganization are concerned after a nationally recognized business-turnaround expert brought on to assist with resolving the unusually contentious proceeding had some of his actions questioned in an unrelated case.
Judge Meredith Grabill’s chosen expert, Mohsin “Mo” Meghji, was recently the subject of a Wall Street Journal investigation that examined ethical concerns over some of his maneuvering in a pharmaceutical company’s high-stakes bankruptcy reorganization.
None of the clergy abuse claimants – who have spent years fighting for compensation – or their supporters wanted to speak on the record about the Journal’s investigation into Meghji for fear of troubling Grabill after their side and the church each presented to the judge competing settlement plans that are hundreds of millions of dollars apart.
However, one prominent bankruptcy attorney who is not involved in either the New Orleans church case or the pharmaceutical matter – Ken Rosen – analyzed Meghji’s reported actions at the request of the Guardian, and he acknowledged what the Journal documented was “improper behavior”.
The Journal’s investigation found the New York City-based Meghji hosted a ritzy party for two bankruptcy judges who later oversaw the chapter 11 reorganization of Sorrento Therapeutics. Meghji subsequently took a job with Sorrento and helped steer the drugmaker’s reorganization to the judges’ dockets.
In fact, one of the two judges, David Jones, authorized a loan worth tens of millions of dollars to Meghji’s M3 Partners that the firm said it needed to pay its employees and professional advisers, though Sorrento and its shareholders had objected. Court filings reviewed by the Guardian show Meghji earned up to $225,000 monthly in his role with Sorrento, a billion-dollar company that ended up essentially being dismantled at the conclusion of its bankruptcy.
Jones, coincidentally, consulted with Grabill before she decided to remove four clergy abuse victims from a committee representing the interests of survivors involved in the New Orleans archdiocesan bankruptcy after their attorney alerted a local Catholic high school that a priest stationed there had admitted molesting a teenage girl during a previous assignment.
It is not clear if Grabill at all solicited Jones’s input before appointing Meghji to the New Orleans archdiocese’s bankruptcy on 21 August. Neither she nor Meghji responded to a request for comment.
Nonetheless, the involvement of Meghji and that of Jones in the Journal’s story on Sorrento was enough to make one clergy abuse attorney say he was “not happy to read these reports”.
“It is disturbing this is how things work in our legal system,” said that attorney, whose clients were not involved in the committee removals ordered by Grabill.
Grabill brought Meghji, M3 and the Latham & Watkins national law firm with which they frequently collaborate into the archdiocesan bankruptcy to find out the viability of two competing reorganization plans being promised by the church and those to whom it is indebted, among them 500 survivors of clergy sexual abuse. She also directed them to review $40m in costs already incurred in the bankruptcy since its filing in 2020 – when the church estimated it could resolve the matter for about $7.5m – as well as to determine whether the archdiocese has the “financial wherewithal” to reorganize its books.
The judge arrived at that choice after some of the abuse survivors urged the court to appoint a trustee to strip away control of archdiocesan finances from the archbishop, Gregory Aymond, a move the archdiocese is resisting by arguing that to do so would be a violation of the separation of church and state embedded in the US constitution.
That plea came after the Guardian and WWL Louisiana reported exclusively that Aymond’s designee in charge of the bankruptcy, Lee Eagan, testified in a series of legal depositions that he had no relevant expertise for his role and had been suffering mental impairment from a 2022 car crash. Eagan also described doing things to purposely impede negotiations aimed at striking a settlement with clergy abuse survivors and other creditors.
At a hearing prior to Meghji’s appointment, Grabill predicted that bringing a turnaround expert on board would “instill confidence” in the integrity of the case.
An attorney for the archdiocese’s affiliates – including local Catholic schools – expressed reluctance, asking whether the consultant in effect would be paid handsomely to complete tasks Grabill should carry out. Grabill responded to those remarks with a rebuke, sarcastically calling it “rich” that the church was suddenly concerned with the cost of the bankruptcy.
The judge hasn’t ruled on whether to remove financial control of the archdiocese from Aymond.
‘We got a special relationship’
The Journal report recounted how Meghji “professionally and personally” knew Jones. Not only had Meghji and his M3 Partners worked on some of the bankruptcies overseen by Jones in Houston’s bankruptcy court, but the Journal also reported how, in April 2022, they distributed invitations to “a private soiree at the swanky New York restaurant Le Bernardin”, touting Jones and his colleague on the Houston bankruptcy court bench, Christopher Lopez, as guests of honor.
Meghji and his associates then hosted Jones, Lopez and the party in their honor at the restaurant, which has previously advertised a chef’s tasting menu with wine pairing at $282 per person.
Rosen said Meghji’s use of the invitation was ethically improper. “What Mo Meghji did was he was announcing to the world, ‘Hey, if you got a case in Texas, we’re the restructuring people that you should be talking to, because we got a special relationship with these two judges,’” he said.
Rosen – the author of a Bloomberg article on how lawyers can ethically network with bankruptcy judges – contended it would also be improper for Jones and Lopez to have given Meghji permission to use their names as he did. But Rosen said it was unclear whether the judges had done that.
Meghji’s familiarity with Jones came into play when, amid financial and legal distress, the San Diego-based Sorrento decided to file for bankruptcy in February 2023.
As its chief restructuring officer, Meghji joined other advisers in telling Sorrento to file for bankruptcy in Houston, even though the company had never done business there. The primary reason was that Jones had a reputation of favoring law firms representing bankrupt corporations in his court, the Journal reported.
A shell company belonging to Sorrento then rented a Houston mailbox and also opened a local bank account to be able to file for bankruptcy in the Texas city as well as end up in front of Jones. That move stemmed from legal advice from two law firms: Jackson Walker and Latham & Watkins.
After Sorrento filed for bankruptcy, the case was assigned to Jones. Meghji almost immediately went to the judge and said that M3 Partners, its employees and its professional advisers would need to borrow $30m from the pharmaceutical company to be able to do their work. Sorrento and its shareholders objected to the loan and its expensive terms, yet Jones overruled them and approved Meghji to borrow the money, according to the Journal.
“I’ve seen Mr Meghji work difficult situations,” Jones reportedly said, alluding to how the turnaround expert had led major restructurings at Sears, Barneys and other troubled companies. “He tells me that it’s necessary.”
Jones eventually had to resign from the case – and from the bankruptcy court entirely – after a lawsuit revealed his romantic relationship with an attorney who represented many companies that had landed in the judge’s courtroom. The implicated attorney, Elizabeth Freeman, was a partner for the Jackson Walker law firm, which Sorrento had hired, too.
Sorrento’s bankruptcy was reassigned to Lopez. And the drugmaker – which entered its bankruptcy with a reported $1bn in assets – was all but disassembled.
Lopez shot down attempts by Sorrento’’s shareholders to investigate Freeman. Then he refused to dismiss Sorrento’s bankruptcy, concluding that the drugmaker got its case to Houston as a result of resourceful legal jockeying rather than fraud, the Wall Street Journal noted.
The judge reached that conclusion after Meghji and Latham’s lead lawyer on the case each provided sworn statements that they denied knowing of Jones and Freeman’s affair before it erupted into public view in October 2023.
‘Screwed once again?’
Some of the names at the center of Sorrento’s bankruptcy saga bring discomfort to those who are owed by the bankrupt New Orleans archdiocese.
For one, Grabill has agreed to pay Meghji, M3 Partners and Latham & Watkins up to $350,000 for two months of work – $100,000 of which has already been paid out.
Grabill defended her decision by saying she was willing to spend “a little” more of the archdiocese’s money, out of which would come a settlement for clergy abuse survivors, because she believed in “the value” of having someone like Meghji weigh whether there would be more than a “carcass” to divvy up at the end of the church’s bankruptcy.
Grabill selected Meghji after rejecting a proposal for the same job from a New Orleans-area business turnaround expert named Vincent Liuzza.
Liuzza admitted to Grabill in court that his godson was a Catholic priest within the New Orleans archdiocese. And Grabill said she was opting to hire someone else because she needed to bring in someone without ties to the local community or the Catholic church.
Though the judge didn’t explicitly mention it, one of Meghji’s top search results on Google is a May 2023 news release recounting how a family trust that he helms made a $1m donation to establish a Shia Islam studies professorship at Florida International University.
Yet Jones’s association to Meghji leaves it unclear how much of an outsider the latter man truly is.
Jones had a role in one of the more controversial rulings Grabill made during the bankruptcy, to the detriment of a group of abuse survivors whose attorney has been one of the church’s most strident critics.
That attorney, Richard Trahant, advised the principal of a Catholic high school in New Orleans – who happened to be his cousin – that its chaplain had a substantial stain in his past.
As would later be revealed by the news media, yet not by Trahant because of a confidentiality order governing many records pertaining to the church bankruptcy, the chaplain had admitted molesting a 17-year-old girl in the 1990s. But, citing technicalities in church law which set the age of adulthood at 16 at the time of the abuse, the archdiocese largely spared the chaplain from punishment.
Aymond, as the archbishop of New Orleans, later stationed the clergyman at Trahant’s cousin’s school.
Grabill ordered an investigation into how the information had made news headlines despite having been in sealed bankruptcy records. And though Trahant at one point testified – without contradiction – that the investigation failed to blame him for knowingly or willfully violating the bankruptcy’s confidentiality order, Grabill fined him $400,000, a sanction the lawyer has since been trying to overturn on appeal.
Furthermore, Grabill expelled four clergy abuse claimants represented by Trahant and two of his co-counsels from being involved with a committee advocating on behalf of molestation victims’ interests in the church bankruptcy.
Many legal commentators – including several who won’t speak publicly to avoid possibly upsetting Grabill and then drawing a case in front of her – regarded those punishments as highly unusual.
A publicly available transcript of a status conference held by Grabill before she handed down the sanctions shows she first consulted with two judges.
One of them, she said, was Jones.
The archdiocese didn’t comment when sent a copy of the Journal’s article on Meghji.
But another party in the church reorganization said: “After reading of the Sorrento bankruptcy … and seeing many of the same players now involved with the New Orleans archdiocese bankruptcy, isn’t it reasonable to be anxious that survivors may be screwed once again?”
