New Orleans Archdiocese bankruptcy teams wary of turnaround expert after WSJ investigation

Clergy abuse survivors and other parties caught up in a costly and lengthy bankruptcy reorganization of the Roman Catholic Archdiocese of New Orleans have been called into question in an unrelated case after bringing in a nationally recognized business-turnaround expert to help resolve unusually contentious proceedings. the case

Judge Meredith Grabill's chosen expert, Mohsin “Mo” Meghji, was recently the subject of a Wall Street Journal investigation that examined ethical concerns about some of his tactics in restructuring a high-stakes bankruptcy of a pharmaceutical company.

Neither the clergy abuse claimants — who have spent years fighting for compensation — nor their supporters wanted to speak on the record about the Journal's investigation into Meghji, fearing it would embarrass Grabill by presenting competing settlement plans to the judge. Hundreds of millions of dollars apart.

However, Ken Rosen, a prominent bankruptcy lawyer not involved in the New Orleans church case or the pharmaceutical matter, analyzed Meghji's reported actions at the Guardian's request, and acknowledged that the Journal had documented “improper conduct.”

The Journal's investigation found that New York City-based Meghji hosted a raffle party for two bankruptcy judges who later oversaw the Chapter 11 reorganization of Sorrento Therapeutics. Mejji subsequently took a job with Sorrento and helped manage the restructuring of drug manufacturers on the judges' dockets.

In fact, one of the two judges, David Jones, approved a loan of several million dollars to Meghji's M3 Partners that the firm said it had to pay its employees and professional advisers, even though Sorrento and its shareholders objected. Court filings reviewed by the Guardian show that Meghji earned up to $225,000 a month in his role with Sorrento, a billion-dollar company that was essentially dissolved when it concluded bankruptcy.

Jones, coincidentally, consulted with Grabill before he decided to remove four priest 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 confessed to molesting a teenage girl. did Girl during the previous assignment.

It's unclear whether Grabil sought Jones' input at all before hiring Mezhzi before the Archdiocese of New Orleans filed for bankruptcy on Aug. 21. Neither he nor Mezhji responded to requests for comment.

Still, the involvement of Meghji and Jones in the Sorrento Journal story was enough for one clergy abuse attorney to say he was “not happy to read these reports.”

“It's disturbing how things work in our legal system,” said the attorney, whose clients were not involved in the committee's removal of Grabil's order.

Grabill brought the national law firms Meghzie, M3 and Latham & Watkins with whom they often cooperated in the archdiocesan bankruptcy to find the viability of two competing restructuring plans promised by the church and 500 of its debtors. Priest sexual abuse. He ordered them to review the $40 million in bankruptcy costs already incurred since the 2020 filing — when the church estimates it could settle the matter for about $7.5 million — as well as to determine whether the archdiocese has “the financial wherewithal.” Reconstruction of his book.

The judge reached that choice after asking the court to appoint a trustee to wrest control of archdiocesan finances from Archbishop Gregory Aymond, which the archbishop is resisting, arguing that doing so would be a violation. Separation of church and state is embedded in the US Constitution.

The plea comes after the Guardian and WWL Louisiana exclusively reported that Aymond's nominee for bankruptcy, Lee Egan, testified in multiple legal depositions that he had no relevant skills for the role and suffered from mental retardation stemming from a 2022 car accident. . Egan also described the abuse survivors and other creditors doing to purposefully block negotiations with other creditors.

At a hearing before 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 would effectively be paid handsomely to complete Grabill's tasks. Grabill responded to that comment with a rebuke, sarcastically calling it “rich” that the church was suddenly worried about the cost of bankruptcy.

The judge did not rule on whether to remove financial control of the archdiocese from Aymond.

'We have a special relationship'

The Journal reports how Meghji knew Jones “professionally and personally”. Not only did Mezhji and his M3 partners work through some bankruptcy cases under Jones' supervision in Houston bankruptcy court, but the Journal also reported how in April 2022 they distributed invitations to “a private soiree at the New York restaurant Le Bernardin.” , on the Houston bankruptcy court bench with Jones and his colleague, Christopher Lopez, as guests of honor.

Meghji and his partners then hosted a Jones, Lopez and party in their honor at the restaurant, which previously advertised a chef's tasting menu with wine pairings for $282 per person.

Rosen said it was morally wrong to use Meghji's invitation. “What Moe Meghji did was he announced to the world, 'Hey, if you've got a case in Texas, we're the restructuring people you should talk to, because we have a special relationship with these two judges,'” he said.

Rosen — the author of a Bloomberg article about how lawyers can ethically network with bankruptcy judges — contends that it would be improper for Jones and Lopez to even allow Meghji to use their names. But Rosen said it's unclear whether the judges did that.

Mejji's introduction to Jones came into play when, in the midst of a financial and legal crisis, San Diego-based Sorento decided to file for bankruptcy in February 2023.

As its chief restructuring officer, Meghji joined other advisers in filing Sorento for bankruptcy in Houston, even though the company never did business there. The primary reason was that Jones had a reputation for favoring law firms representing bankrupt corporations in his courtroom, the Journal reported.

A shell company belonging to Sorrento then rents a Houston mailbox and opens a local bank account in the Texas city to end up in bankruptcy as well as Jones. The 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 went to the judge almost immediately and said that M3 Partners, its employees and its professional advisers would have 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, but Jones overruled them and allowed Meghji to borrow the money, according to the Journal.

“I've seen Mr. Meghji work in difficult situations,” Jones said, noting how the turnaround specialist has led major restructurings at Sears, Barneys, Vice Media and other troubled companies. “He tells me it's necessary.”

Jones eventually had to resign from the case — and from bankruptcy court entirely — after revealing her romantic relationship with an attorney in a lawsuit who represented many of the companies that landed in the judge's court. The attorney involved, Elizabeth Freeman, was a partner at the Jackson Walker law firm, which Sorrento also hired.

Sorrento's bankruptcy is reassigned to Lopez. And the drugmaker — which entered its bankruptcy with $1 billion in assets — was all but torn apart.

Lopez shot down attempts by Sorrento's shareholders to investigate Freeman. He then refused to dismiss Sorrento's bankruptcy, concluding that the drugmaker got the case in Houston as a result of resourceful legal jockeying rather than fraud, the Wall Street Journal noted.

The judge concluded after Meghji and Latham's lead attorneys each provided sworn statements in the case that they denied knowing about Jones and Freeman's relationship before the public appearance in October 2023.

'Drunk one more time?'

Some of the names at the center of Sorrento's bankruptcy saga bring discomfort for those who owe money to the bankrupt Archdiocese of New Orleans.

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.

Grabill defended his decision by saying he was willing to spend “somewhat” more of the archdiocese's money, including a settlement for clergy abuse survivors, because he believed there was “value” in having someone like Meaghy at the end of the church's bankruptcy. More than a “corpse” to share.

Grabill chose Meghji after turning down a similar job offer from a New Orleans-area business transformation specialist named Vincent Liuzza.

Liuza admitted to Grabill in court that his godson was a Catholic priest within the New Orleans Archdiocese. And Grabill said he's choosing to hire someone else because he needs to bring in someone without ties to the local community or the Catholic Church.

Although the judge did not specifically mention it, one of the top search results for Mezhji on Google is a May 2023 news release describing how a family believed he had donated $1 million to establish a professorship in Shia Islamic studies at Florida International University.

Yet Jones' association with Mezhji obscures just how exotic the latter really 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 was one of the church's staunchest 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 significant past.

The chaplain admitted to molesting a 17-year-old girl in the 1990s, not to be released by Trahant, due to a confidentiality order governing many records related to the church's bankruptcy, which would later be released to the media. But, citing a technicality in church law that set the age of adulthood at 16 at the time of the abuse, the archdiocese largely shielded the chaplain from punishment.

Aymond, as archbishop of New Orleans, later assigned clergy to the school of Trahant's cousin.

Grabill ordered an investigation into how the information made headlines despite having sealed bankruptcy records. And though Trahant testified at one point — without contradiction — that the investigation failed to charge him with knowingly or intentionally violating the bankruptcy's confidentiality order, Grabill fined him $400,000, a sanction while lawyers are trying to overturn the appeal.

Additionally, Grabill fired four clergy abuse claimants representing Trahant and two of his co-counsel from involvement with a committee to advocate for the interests of abuse victims in the church's bankruptcy.

Many legal commentators — including several who don't speak publicly to avoid possibly upsetting Grabill and then a lawsuit before him — consider the sentences highly unusual.

A publicly available transcript of a status conference held by Grabil before handing down the sanctions shows that he first consulted with the two judges.

One of them, he said, is Jones.

The archdiocese did not comment when sent a copy of the Journal article on Meghji.

But another side of church restructuring said: “After the Sorrento bankruptcy … and many of the same players now involved in the New Orleans Archdiocese bankruptcy, isn't it reasonable to worry that the survivors could be hurt again?”