Kevin Higley and Natalie Higley in an undated family photo. (Courtesy of Natalie Higley)
Natalie Higley said she met her future husband, Kevin, on the school bus when they were teenagers growing up in a small town near Rochester, New York, in the 1980s. She said he was only 14 when he told her that after a recent church trip to a monastery, he had been raped by a Catholic priest.
"About two weeks after that trip, he told me what had happened, because it was really bothering him. And swore me to secrecy," she said. "And being young, and not knowing what to do, I didn't tell anybody either."
"And we chose to deal with it between ourselves. When he needed to talk, he talked to me."
The teenagers would stay together for life, marrying and raising two sons. Late in life, Kevin Higley became one of hundreds of sexual abuse survivors who brought claims against the Diocese of Rochester. And after the diocese declared bankruptcy in 2019, he served on an official committee of creditors and remained dedicated to trying to protect others from sexual abuse.
"The last couple years, he viewed that as his one and only job," Natalie Higley said.
That job is unfinished. Amid a complex legal fight involving an insurer, the Rochester diocese bankruptcy case has dragged on for nearly five-and-a-half years.
No compensation has been paid out to survivors. No reorganization plan has been approved. And Kevin Higley died in 2022.
His lawyer, Anelga Doumanian of Pfau Cochran Vertetis Amala PLLC, said some of her other clients have died, too.
"I can tell you that we represented 33 survivors total in the Diocese of Rochester," she told Law360. "And five of them have passed away. So that's roughly 15%."
"I talked with a client last week who was diagnosed with leukemia, and he has been given four years to live. Maybe he sees resolution."
The deaths of creditors reflect a situation that goes beyond the Rochester case. Some advocates argue that the modern bankruptcy system offers opportunities to stall tort claims for years and that, as a result, creditors are dying before finding resolution.
From Personal Injury Plaintiff to Bankruptcy Creditor
Some of America's biggest legal controversies — including sexual abuse cases, opioid lawsuits, product liability cases and fraud cases — are being handled in the nation's bankruptcy courts.
Thousands of ordinary people have filed lawsuits in state and federal courts seeking compensation from various companies and institutions for alleged wrongdoing, only to see the defendants declare bankruptcy, which freezes their cases.
In bankruptcy court, injured plaintiffs are reclassified as bankruptcy creditors.
Many of these people are discovering that the U.S. bankruptcy system can yield bad results for creditors, subjecting them in some cases to small payouts and yearslong waits as the process plays out. In recent years, creditors have died by the hundreds as their cases grind through the bankruptcy system, plaintiffs' attorneys say.
"These people are victimized twice," said Michael Shepard with the Boston law firm Shepard O'Donnell PC, who represents asbestos victims suing companies that are now in bankruptcy. "You can't help but feel the bankruptcy court is complicit."
Meanwhile, the bankruptcy system offers handsome rewards to attorneys and other professionals who are sometimes compensated at rates of $2,000 per hour or more. Shepard and other critics complain that in some asbestos cases, supposedly "bankrupt" companies are actually earning lots of money and gaming the bankruptcy system to avoid paying victims.
"It's just the victims aren't getting paid, but everyone else is, including the lawyers," Shepard said, referring to attorneys representing the bankrupt entity, the creditors committee and other professionals.
Advocates also argue that bankruptcy proceedings can hinder victims of wrongdoing from achieving other forms of justice besides money: holding institutions to account, discovering the truth of what happened, and forcing changes to protect the public.
"When corporations file Chapter 11 in the wake of [large-scale tort litigation], what they seek is twofold: to bypass procedural justice and to shut down discussion of their purported wrongdoings," University of Georgia School of Law professor Pamela Foohey and Texas A&M University School of Law professor Christopher K. Odinet wrote in a 2023 paper.
Law360 was unable to locate national statistics on how often bankruptcy creditors die before resolution of their claims. Representatives of the Office of the U.S. Trustee, the American Bankruptcy Institute, and the Administrative Office of the U.S. Courts said they don't track this information.
The poor outcomes for creditors are not a new problem. For more than 100 years, critics have raised concerns that the U.S. bankruptcy system rewards the professionals who work in the system, protects the interests of deep-pocketed companies and other debtors filing for bankruptcy, and harms the creditors seeking compensation.
To be sure, some bankruptcy cases do result in significant benefits to creditors.
In December 2021, for instance, USA Gymnastics announced a $380 million settlement to address sexual abuse survivors' legal claims. The settlement also led USA Gymnastics to adopt changes aimed at preventing sexual abuse.
And in the resolution of a large-scale Ponzi scheme case that had duped investors, many of them elderly, a federal judge in 2019 ordered Woodbridge Group of Companies LLC and its former owner to pay more than $1 billion to settle claims.
Defenders of the current system argue that bankruptcy may be a faster, fairer way to handle mass tort claims than the main alternative: mass tort litigation in state or federal courts.
Lindsey Simon, an associate professor at Emory University School of Law, has written extensively about mass tort cases in bankruptcy.
She said she's not aware of any studies on creditor deaths in bankruptcy cases, but she said that if timelines in bankruptcy cases are dragging out so long that creditors are dead, it shows a problem.
"If that timeline is more of a feature than a bug, then I think we've missed something ... I think at a certain point, if bankruptcy is just used to hide out and wait before you have to face judgment, that's not what the system is designed to do."
Trauma in Youth Disrupted Life for Years
Natalie Higley said her husband was highly intelligent with an outgoing and friendly personality, but that the rape deeply affected him during their decades of marriage.
The priest that he accused of rape, the Rev. Paul Cloonan, was removed from ministry in 1988, formally left the priesthood in 2005 and died in 2015, according to a diocese spokesperson.
Kevin Higley's lawyer said the firm is representing four people who alleged abuse by Cloonan, including Higley and one other person who has died.
In a 2019 interview with Rochester NPR affiliate WXXI, Kevin Higley said the incident had stuck with him for years.
"I go through three- to five-year cycles where I have really good years and everything comes crashing down again," he told the radio station. "I've had multiple careers I've lost over anxiety, depression."
Kevin Higley bounced from a stint in the Navy to jobs such as driving a Zamboni at an ice rink, managing a gun club, teaching high school science and managing RV resorts, his wife told Law360. The couple eventually settled in Lakeland, Florida, near Tampa.
Several times, he was doing well in a job, then resigned, she said. "It was like he couldn't allow himself to be completely happy, and he would just leave."
He would wake up screaming from nightmares, he was diagnosed with post-traumatic stress disorder, and toward the end of his life he drank heavily, she said.
Natalie Higley said their life had many good moments, too. They raised two sons together — they're adults now. Kevin Higley enjoyed cooking, boating, fishing and traveling, especially taking their boys to amusement parks across the country. She said he was happiest when he was near his wife.
"This is going to sound bad, but we used to joke that I was like his service animal," she said. "That sounds bad, but I mean, we were tied at the hip. If we were together, he was good."
After New York state passed a law in February 2019 creating a one-year window to file lawsuits over long-ago abuse allegations, Kevin Higley joined a group of survivors to file a sexual abuse lawsuit against the Diocese of Rochester and related churches and institutions. He saw the lawsuit as a means to make sure that the kind of abuse he and others suffered never happened again, Natalie Higley said.
In September 2019, about one month after the suit was filed, however, the diocese sought Chapter 11 bankruptcy protection.
While the bankruptcy filing automatically froze Kevin Higley's lawsuit, his wife said he wasn't ready to give up.
"He never did this for the money," she said. "It was never that. It was for the prevention of somebody else having to go through what he went through, and he felt very strongly about that. So when they did go into bankruptcy, he was very upset, knowing that there was going to be no resolution in this case for many years."
As the litigation dragged on, his wife said he developed liver disease, which may have been related to his drinking or a period of his life when he was very overweight. He got a liver transplant. Shortly after the transplant, in February 2022, he died of a brain aneurysm at age 48.
He was thinking about the lawsuit until the very end, Natalie Higley said.
"And the day before he actually went brain-dead, he had told me that he was very, very sorry that he couldn't see this through," she said.
"And I kept telling him, 'No, no, it's going to be fine. It's going to be fine. You'll be back up in no time.' And he just kept saying he was sorry and that he loved me."
Additional Deaths in the Rochester Bankruptcy
Kevin Higley and Natalie Higley on their wedding day, July 25, 1992. (Courtesy of Natalie Higley)
Another attorney working on the Rochester case, Leander L. James of James Vernon & Weeks PA, said he originally represented 49 survivors.
"So, two of the 49 clients I represent in Rochester died before receiving justice and closure," he wrote in an email. "At least 12 of my clients in Rochester, to my knowledge, are battling serious health issues."
Jeff Anderson of Jeff Anderson & Associates PA also represents clients in the Rochester diocese case and other diocese cases.
He said several Catholic dioceses have declared bankruptcy in the name of the main diocese only, a step that leaves out assets such as real estate, investment funds and other property held in the names of individual parishes, hospitals, schools and other affiliated entities, thus preventing them from being liquidated to help pay claimants.
He said this leads to time-consuming fights, and he noted that many claimants have died.
"The consequence on the survivors is just nothing short of unbearable and intolerable, and it is a real, what we call re-victimization of them," Anderson told Law360.
A spokesperson for the Diocese of Rochester, Deacon Edward A. Giblin, said the diocese has already taken many steps to prevent sexual abuse and that it isn't the one holding up resolution of the bankruptcy case.
He said the diocese and three of its insurers had reached an agreement with a creditors committee, which represents the interests of most survivors, but that one of the diocese's other insurers, CNA, rejected the deal and proposed its own Chapter 11 plan.
"It is tragic that some survivors have passed away during the pendency of this proceeding," Giblin wrote in an email to Law360.
He wrote that the estate representatives of the survivors may continue to pursue their claims, but acknowledged that the situation causes real hardship.
"The diocese continues to pray earnestly for a just resolution, especially to ease the pain and suffering of the survivors, who have endured this very painful ordeal for entirely too long," he said.
Higley's attorney, Doumanian, blames insurance companies for stalling the process, saying that they've calculated that the longer they drag this out, the more people will die, which damages the value of the claimants' underlying state court cases, meaning the insurance company has to pay less.
A key insurance company involved in the Rochester bankruptcy, CNA, disputes this.
"CNA categorically denies any accusations that it is pursuing a strategy based on the aging of the survivor population," Mark Plevin, an attorney with Plevin & Turner LLP who is representing the insurer, wrote in a statement. He added that the company has already made multimillion-dollar payment offers and will continue to negotiate in good faith.
Millions for Attorneys, Zero for Claimants
Natalie Higley said she's still pursuing a bankruptcy claim on her husband's behalf.
While Kevin Higley and creditors like him have received nothing in the Rochester diocese case, attorneys representing the diocese and other entities have racked up millions of dollars in fees. In a recent billing statement, the diocese's law firm, Bond Schoeneck & King PLLC, listed seven paraprofessionals and 20 attorneys billing at rates ranging from $140 to $526.50 per hour.
Bond Schoeneck is one of about six law firms, plus other business professionals, that have submitted bills for representing the diocese or other entities, such as the creditors committee.
Big fees matter because they come from the same funds that could be used to compensate creditors — and, in general, professionals are paid first, before creditors.
The Rochester professionals are earning so much money that the U.S. Trustee's office, a federal watchdog for the nation's bankruptcy courts, recently asked the judge to step in and reduce the spending. The watchdog agency said in a November filing that lawyers had received $13.3 million, and had asked the court to approve $3.1 million more for their work in recent months.
The court ultimately approved the additional millions for the professionals — but also agreed to appoint an expert to review the legal bills. In a filing, the judge wrote that his own cursory review of timesheets "raises concerns about whether professionals are exercising appropriate discretion in billing the estate."
Representatives of Bond Schoeneck and other professionals didn't respond to requests for comment.
Fees in some other sexual abuse cases are much bigger, using up even more money that could go to survivors. In the third quarter of 2024 alone, for instance, professionals in the Boy Scouts of America bankruptcy ran up $295 million in fees.
Legal Fees Eat Up Cash in California Fraud Case
Fees for attorneys have used up most of the available cash in the bankruptcy of Litigation Practice Group, a California debt relief law firm that was run by a disbarred lawyer before collapsing in March 2023. The firm recruited tens of thousands of consumer clients from across the country, but in many cases performed little to no meaningful legal work to help reduce their debts.
Among those clients was Alphonzo Christian Jr., who spoke with Law360 in October 2023. The Virginia resident had retired from work as a fast-food manager and was facing about $20,000 in debt when he signed up with the firm.
In the hope of fixing his debts, Christian agreed to pay the Orange County law firm $338 per month. While the payments went on for more than a year, he said the firm did nothing to improve his debt situation.
After LPG filed for bankruptcy and its operations were taken over by a court-appointed lawyer, Christian filed a $5,700 claim for a refund of the money he paid to the firm.
"I just got out of the hospital for congestive heart failure," he said. "And I'm an older guy, I'm 65 years old. And it's just crazy that I turned my money over in good faith … and they didn't do a damn thing."
Christian never got the refund — he died in December 2023, according to a published obituary.
Even if he hadn't died, he would have received nothing, at least not yet. To date, unsecured creditors in the case have received no compensation.
A total of about 2,600 individuals and companies have filed bankruptcy claims seeking payments worth more than $400 million. This number does not include an unknown number of claimants who filed claims through a separate administrative system.
Meanwhile, a judge has approved fees of about $11.1 million and expenses of about $250,000 to attorneys and other professionals working on the case, according to court records, payments that have used up the majority of the available money.
Representatives of the trustee working on the case, Richard Marshack, have said they are recovering more money for the bankruptcy estate through litigation against the disbarred lawyer and other companies and individuals they accuse of taking money that rightfully belongs to the bankruptcy estate.
"The trustee is working diligently to ensure that in the due course of the bankruptcy administration there will be a distribution to unsecured creditors," Yosina M. Lissebeck, an attorney with Dinsmore & Shohl LLP who works with the trustee, wrote in an email to Law360.
"If a creditor dies during the course of the bankruptcy, and they have a claim in the case, their estate will receive those funds."
"The Crime of All This"
In some cases, the possibility of creditors dying is more inherent.
In asbestos-related bankruptcies, for example, almost all creditors are doomed to die as a result of their exposure to the material, a known carcinogen used for decades in building materials and as insulation.
But plaintiffs' lawyers say asbestos companies are skillfully using the bankruptcy system to ensure cancer patients and their families get nothing.
Their outrage focuses on a legal maneuver dubbed the "Texas two-step." In short, a company that's facing lots of lawsuits splits itself in two.
One company — some call it "GoodCo" — holds onto the company's good assets and keeps running as normal. The other — some call it "BadCo" — keeps bad assets, such as legal liabilities, and declares bankruptcy.
One high-profile company to carry out the maneuver is Georgia-Pacific, which formerly manufactured asbestos-containing products.
In 2017, it spun off a "BadCo" called Bestwall, which declared bankruptcy in North Carolina.
Creditors quickly cried foul, saying Georgia-Pacific was a "multibillion-dollar corporate enterprise" that had carried out a "sham" bankruptcy.
According to a 2020 filing by the creditors committee, there were 64,000 asbestos-related claims pending against Georgia-Pacific at the time Bestwall was spun off and declared bankruptcy.
In the years since, asbestos creditors have repeatedly begged the bankruptcy court to dismiss the Bestwall bankruptcy as fraudulent, but they've lost each time.
In the more than seven years that the Bestwall bankruptcy has been pending, asbestos creditors have received zero — and they continue to die.
The story of the Bestwall creditors committee reflects this grim reality.
In November 2017, the judge overseeing Bestwall's bankruptcy appointed a 10-member committee to represent the interests of asbestos claimants.
Some members of the committee represented people who were already dead. Other members were terminally ill.
About two weeks after the committee's appointment, Cresante Perreras became the first of its members to die of asbestos-related cancer. He was 55, according to court records.
Over the ensuing years, committee members kept dying: Stephen F. Lanphear, Jeffrey A. Watts, Richard S. Trumbull and Linda Hofferber all passed away from asbestos-related causes, according to court records.
The last committee member's death recorded in court records came in 2022 when the Rev. John Harvey Dixon died of mesothelioma. He had been a church pastor and chaplain for numerous fire departments in Maryland and Virginia, according to his obituary.
Not only have all the living committee members died, one estate representative on the committee has died, too, said plaintiffs' attorney Shepard of Shepard O'Donnell.
That estate representative was Rick Bengston of Massachusetts, who died in 2021. His brother, Gary Bengston, had died of asbestos-related cancer in 2017.
"And that's the crime of all this," Shepard said.
One of the underlying issues, he said, is that Georgia-Pacific isn't really bankrupt.
"They have the ability to pay every victim 100% of what they owe them, forever. This isn't an issue of them not having enough money. It's just an issue of them wanting a better deal, and they're using the bankruptcy court as the better deal court for them."
Shepard said he's had somewhere around 40 mesothelioma victims with potential claims against Bestwall come into his office, talk with him about their cases, and die during the pendency of the Bestwall bankruptcy.
"And you know, that's my small firm in Boston. You multiply that times all the other firms around the country."
In an August appeals court brief, the asbestos creditors committee attempted to add up the deaths. Their conclusion: during the Bestwall bankruptcy, the number of current claimants or potential claimants who had died was "more than 25,000."
A spokesperson for Georgia-Pacific declined to comment.
Nor is Bestwall the only asbestos company to perform a Texas two-step — Shepard said he's also representing claimants who are seeking compensation in three other Texas two-step asbestos bankruptcies.
And in each of those three other cases, just like in Bestwall, every living member of the creditors committee has died, Shepard said.
The Bestwall case has attracted bipartisan criticism in Congress from diverse ideological figures including Sens. Josh Hawley, R-Mo., and Elizabeth Warren, D-Mass.
A bill to ban the Texas two-step was reintroduced in the Senate in December, but it did not advance before the new congressional session began last month. The prospects for the legislation in the current Congress are unclear.
What's Worse For Creditors: Bankruptcy Or Other Mass Tort Litigation?
Despite stories of creditor deaths, some argue that the bankruptcy system is better than handling mass torts through state or federal courts.
One such defender is Ted Gavin, a former president of the American Bankruptcy Institute and managing director of Gavin/Solmonese LLC, which provides nonlegal restructuring advice to distressed companies and sometimes represents creditors.
"So if what you're looking to do is put money in the hands of people who hold claims because of some wrong that occurred, the bankruptcy system can do that much faster and much more efficiently than the mass tort system," Gavin said.
He said that's because the mass tort system is designed to decide guilt or innocence, then decide damages. In bankruptcy, by contrast, the focus is on evaluating how much money the debtor has, then decide who gets what.
Foohey, the University of Georgia School of Law professor, said she's unaware of any data either about the deaths of creditors in bankruptcy cases, or the relative speed of making payouts to victims in bankruptcy versus the mass tort court system.
"There is no way, in my opinion, to assert either that the bankruptcy system pays victims more quickly or less quickly," she said.
That said, she's critical of using the bankruptcy system to adjudicate sexual abuse and other claims. The first line of the paper she wrote with Texas A&M's Odinet reads: "Bankruptcy is being used as a tool for silencing survivors and their families."
The authors argued that institutions use bankruptcy to help cover up wrongdoing that would otherwise be exposed in civil court through the discovery process.
"Silencing people and sweeping the alleged harms under the proverbial rug become a byproduct of reassurances about making sure that victims are treated well," they wrote. "But it is the corporation and its leaders that benefit, not the people who they hurt."
Heart-Shaped Urns
Another onetime defender of the bankruptcy system is Ed Neiger, a creditors rights attorney with the law firm ASK LLP.
In September 2021, he published an article in the New York Law Journal arguing that Johnson & Johnson should be allowed to use the bankruptcy system to resolve claims that allegedly asbestos-tainted talcum powder had caused cancer.
"In all likelihood, victims will recover almost as much, if not as much, as they would in a nonbankruptcy context, but the recovery will be quicker and easier," Neiger wrote at the time. "And, after all, isn't that most beneficial to the victims?"
That same year, J&J tried to carry out a Texas two-step bankruptcy.
But courts twice rejected the maneuver after finding the company wasn't actually financially distressed.
J&J launched its third Texas two-step bankruptcy attempt in September, drawing objections from a federal bankruptcy watchdog and other parties.
Meanwhile, Neiger has shifted his point of view.
He said he no longer thinks that bankruptcy court is necessarily better than a mass tort litigation program. Instead, he said that what really matters are the decisions the major players make during the case.
For instance, he's representing individuals who have been impacted by opioid addiction as they pursue claims in opioid manufacturer Purdue Pharma LP's bankruptcy case. A 2019 settlement that would have delivered billions to opioid victims and to states has been tied up in litigation for years after the federal government intervened to dispute a provision that would have shielded Purdue's owners, the Sackler family, from being sued individually.
The U.S. Supreme Court ultimately agreed last year that the deal should be invalidated, sending the parties back to the negotiating table.
At an October hearing, Chris Shore, an attorney representing about 60,000 claimants against Purdue Pharma, said that in the five years since Purdue filed for bankruptcy, at least 700 members of the ad hoc victims' group had died.
As the case has dragged on, Neiger said that victims have continued to suffer.
He mentioned clients like Cheryl Juaire, a mother in Massachusetts who has spoken publicly about how she lost one son, Corey Merrill, to an opioid overdose in 2011, then another son, Sean Merrill, to an overdose in 2021.
Neiger said he attended the funeral for the second son, an adult who, at the time he died, had a 10-year-old son of his own. During the service, he said the boy had stood up in front of the mourners to read a eulogy he'd written about his father.
"And then he just said, 'Daddy, you are my favorite person. My favorite person in the world,' and he just broke down. And you know, I'll never forget that day."
He said another client had likewise already lost one child to opioid addiction when she came to him, and subsequently lost another.
As Neiger sees it, an efficient settlement process might have prevented deaths like this, because not only would it have provided funds to states to fight opioid abuse, it would have given families money that they could have used to pay for rehab.
He described a photo the second client had sent him of a memorial in her house.
"They're heart-shaped urns right next to each other," he said. "And in one heart-shaped urn, she has the ashes of one child, and in another heart-shaped urn, she has the ashes of another child."
--Additional reporting by Hilary Russ, Vince Sullivan, Rick Archer, Yun Park, Ryan Boysen, Clara Geoghegan and Alex Wittenberg. Editing by Orlando Lorenzo. Graphics by Jason Mallory.
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