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The Archdiocese of Milwaukee's creditors want the federal judge in the church's bankruptcy case to set aside a key ruling and recuse himself over a potential conflict of interest — the fact that he has several relatives buried in Catholic cemeteries, the Milwaukee (Wis.) Journal Sentinel reported today. U.S. District Judge Rudolph T. Randa ruled in late July that forcing the archdiocese to tap the $50 million-plus it holds in a trust for the perpetual care of cemeteries would substantially burden its free expression of religion under the First Amendment and a 1993 federal law aimed at protecting religious liberty. In response, lawyers representing the archdiocese's creditors — primarily sex abuse victims — asked U.S. Bankruptcy Judge Susan V. Kelley to compel the release of any records showing whether Randa and his wife, Melinda, have purchased any plots or crypts in one of the archdiocese's cemeteries, or whether they have any interest as heirs or beneficiaries of several relatives known to be buried in them. Before Randa reversed her, Kelley had found that the First Amendment did not protect the cemeteries trust fund. In motions filed on Monday — one to set aside the ruling and the other asking Randa to recuse himself — the creditors said they "discovered that at least nine of Judge Randa's relatives (including his mother, his father and his wife's parents) are buried in cemeteries owned and operated by" the archdiocese.

U.S. District Judge Denise Cote said that the Federal Housing Finance Agency (FHFA) may pursue a fraud lawsuit against Ally Financial Inc even though Ally's Residential Capital LLC mortgage unit is in bankruptcy, Reuters reported yesterday. Judge Cote said that the lawsuit is unlikely to have an "immediate adverse economic consequence" for ResCap's estate, such that it would be subject to an automatic stay under the U.S. Bankruptcy Code. Ally is among 18 defendants that the FHFA sued in 2011 for allegedly making false or misleading statements in documents relating to residential mortgage-backed securities bought by Fannie Mae, Freddie Mac or both. FHFA, the conservator for both Fannie and Freddie, sued Ally to recoup losses on the sale of more than $6 billion of securities to Freddie Mac between September 2005 and May 2007. Fourteen of the 15 pending FHFA lawsuits are before Cote. Three others ended in settlements, including a $885 million accord last month with Swiss bank UBS AG.

Mortgage lender Residential Capital LLC is facing a number of objections from the U.S. Trustee Program, its pension insurer and other creditors to the outline of its plan to exit bankruptcy protection, Dow Jones Newswires reported on Friday. U.S. Trustee Tracy Hope Davis took aim at "impermissible payments" earmarked for some bondholders' and investors' lawyers and financial advisers, in a court filing on Thursday. Davis is also concerned about the broad releases from civil lawsuits granted to Ally Financial Inc. and its managers as part of its bankruptcy deal with its mortgage subsidiary. Ally, which isn't under chapter 11 protection, has agreed to pay $2.1 billion to its mortgage subsidiary and its creditors in return for protection from litigation over ResCap's mortgage business. The broad scope of those releases has caught the attention of several U.S. government officials.

Clergy abuse victims may be going after a district judge on undisclosed grounds for recusal in the bankruptcy of the Archdiocese of Milwaukee, as Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle discuss in leading off their new video. To watch the video, please click here: http://www.youtube.com/watch?v=Fk4-Tq-raeQ&list=PL_500m6Wb0wjRwfUjzisq9…

Embattled bank-holding company Capitol Bancorp Ltd. won court approval to sell its controlling stake in an Ohio community bank to Amalgamated Bank of Chicago, Dow Jones Daily Bankruptcy Review reported today. Bankruptcy Judge Marci B. McIvor on Wednesday signed off on the sale of Capitol’s 51 percent stake in Bank of Maumee, a small northwest Ohio savings bank, to Amalgamated. The purchase price wasn't disclosed.

Bankruptcy Judge Susan V. Kelley ruled yesterday that the Archdiocese of Milwaukee (Wis.) must release to its bankruptcy creditors documents that could show whether a federal judge, who sided with the church on a key issue involving its cemeteries, might have had a conflict of interest that should have been disclosed, the Milwaukee Journal Sentinel reported today. Kelley issued the ruling after a brief hearing yesterday, stressing that it was not a commentary on U.S. District Judge Rudolph T. Randa’s July 29 ruling or whether he should have recused himself from the case. Judge Randa ruled last week that forcing the church to use even some of the more than $50 million it set aside in a trust for the perpetual care of cemeteries to pay its bankruptcy debts — primarily sex abuse settlements — would substantially burden its free exercise of religion under the First Amendment and a 1993 law aimed at protecting religious freedom. Judge Randa’s ruling, which overturned an earlier decision by Judge Kelley, was a key victory for the archdiocese in that it eliminated one of the last major assets available for a settlement with sex abuse victims who filed claims in the bankruptcy.

Bankruptcy Judge Christopher Sontchi yesterday granted Orchard Supply Hardware Corp. permission to pay up to $3.1 million in bonuses to its top executives, Dow Jones Daily Bankruptcy Review reported today. Judge Sontchi said that he would sign off on the bonuses, which are tied to the successful sale of the company’s business, after a U.S. Trustee grilled Orchard’s advisers on whether the payments complied with bankruptcy laws.

The corporate parent of Fort Worth, Texas-based Hawk Electronics says that it will declare bankruptcy this week and liquidate after defaulting on a loan to its major creditor, which then blocked access to nearly $800,000 in its bank accounts on July 30, the Fort Worth Star-Telegram reported today. Customers are being told that there will be no interruption of service as Hawk, a unit of Teletouch Corp., transfers the account to its master network provider AT&T. Although Teletouch said in a July 30 federal securities filing that would file for chapter 11 reorganization in Delaware this week as it phases out its ongoing business. The company could then file a liquidation plan with the bankruptcy court or convert the bankruptcy to chapter 7 liquidation. The company said it had been trying to negotiate a deal with its New York lender, DCP, so it could meet its short-term obligations. It disclosed in February that DCP had extended a $6 million line of credit. The Fort Worth communications wholesaler-retailer disclosed last month that it had defaulted.

The owner of struggling Trinity Coal Corp. has put up $15 million to stop the bankruptcy auction process for the company’s Appalachian coal mining operations — a halt that buys Trinity Coal executives time to negotiate a bankruptcy exit plan with its lenders, Dow Jones Newswires reported yesterday. Trinity Coal’s owner, India-based steel and energy conglomerate Essar Global Ltd., agreed to spend $15 million to keep the company operating and push back a series of auction deadlines required by Trinity Coal's lenders, according to court papers. The deal pushes back Trinity Coal's bankruptcy loan-repayment deadline to Nov. 8.

Unsecured creditors of drybulk shipper Excel Maritime Carriers Ltd. have asked a bankruptcy court to terminate the exclusivity period for the company’s reorganization plan, saying that the package benefited only secured lenders and controlling shareholders, Reuters reported yesterday. The committee representing the unsecured creditors said late last month that Excel’s bondholders were planning to file a rival reorganization plan. Excel will get $50 million of new capital and access to $30 million of restricted cash under the current reorganization plan between Excel and its senior lenders and an entity affiliated with the family of Chairman Gabriel Panayotides. In return, an entity affiliated with the Panayotides family will receive 60 percent of the company for $30 million and the lenders 40 percent. In exchange, the lenders will postpone the maturity of Excel’s $771 million senior secured facility to 2018. The committee says the company’s plan gives the controlling shareholders the exclusive right to buy back their shares at a price that is significantly less than the market value while leaving non-trade unsecured creditors a slim chance of recovery.