Archbishop Utters Bankruptcy

By Shelby Oppel and Ashbel S. Green
The Oregonian
June 18, 2003

Catholics in Western Oregon are receiving a letter from Archbishop John Vlaznywarning that the Archdiocese of Portland may seek bankruptcy protection as a last resort to deal with the wave of sex-abuse lawsuits facing the church.

Filing for bankruptcy, however, would require permission from the Vatican, which Vlazny has not sought. The experiences of dioceses that have confronted greater liability than Portland over sex-abuse claims indicates that bankruptcy remains unlikely.

No diocese of the Roman Catholic Church in the United States has ever filed for bankruptcy. The Boston Archdiocese, considered the center of the abuse scandals, raised the possibility in December but has not pursued that path.

In 1997, the Dallas, Texas, diocese received permission from the Vatican to file for bankruptcy after a jury awarded $119.6 million to several victims of one priest. The diocese never filed, but the threat prompted victims to settle for $31 million rather than pursue the judgment.

Last week, the Archdiocese of Louisville agreed to settle 243 sex abuse claims for $25.7 million without resorting to bankruptcy.

Vlazny mentioned the possibility of bankruptcy in interviews in December, fueling speculation in the pews. Yet bishops would be reluctant to file for bankruptcy because that would open church records to public scrutiny and would require church leaders to cede significant control to the court, said Fred J. Naffziger, a corporate law specialist who has researched how bankruptcy could affect the Catholic Church.

"A bishop who historically has had unfettered power would now find his authority greatly restricted," said Naffziger, a professor of business law at Indiana University in South Bend.

Some parishes distributed Vlazny's letter Sunday, while others won't receive it until this weekend. In the letter, which updates church members on the sex-abuse claims, Vlazny wrote that the archdiocese still hopes to resolve pending claims without seeking bankruptcy protection and is "making our very best efforts to do so."

"I assure you that declaring bankruptcy will be a very last resort. Nonetheless, if it is the only prudent way to manage a chaotic financial situation and to preserve the ability of the Archdiocese to fulfill its missions, I may have little choice but to take this step," he wrote.

Since 1999, nearly 170 people in Oregon have filed lawsuits claiming they were sexually molested by clergy or church personnel. The suits have been filed against the Portland Archdiocese, the Baker Diocese, Mt. Angel Abbey and various religious orders.

The Portland Archdiocese has settled with about 85 plaintiffs since 2000, including 53 during a recent round of mediation. Including a lawsuit filed last week, the archdiocese has nearly 40 remaining claims that church officials have said they will continue to try to settle.

The financial terms of the settlements have not been released. The archdiocese previously settled two priest abuse cases from the 1980s for about $500,000 each.

The average suit seeks $3.8 million, according to an analysis by The Oregonian. Reported settlements around the country have been for far less.

Under canon law, the body of rules that govern church operations, Vlazny must obtain the consent of the archdiocesan finance council and the college of consultors, a group of priests who act as Vlazny's advisers, before seeking bankruptcy protection. In his letter to parishioners, Vlazny wrote that he has obtained those consents.

However, he hasn't taken the next necessary step of asking Vatican permission to file for bankruptcy, said Bud Bunce, a spokesman for the archdiocese.

In his letter, Vlazny wrote that he has asked permission from the Vatican to use "certain Archdiocesan assets" to pay for the settlements, but that is a separate issue from bankruptcy, Bunce said.

Until this point, the archdiocese has paid for the settlements from three sources: insurance coverage, an archdiocese insurance fund and other funds not held in charitable trust, according to Vlazny's letter. No parish property or funds donated to the archdiocese's annual money-raising drive have been used to pay for settlements or lawyers, Vlazny wrote.

Bunce declined to identify what other archdiocese assets are being discussed. In general, U.S. bishops who want to take out loans, sell property or stocks, or conduct any financial transaction involving church assets in excess of $3 million must receive Vatican approval, Bunce said.

Michael Morey, an attorney for plaintiffs involved in the settlements, downplayed the possibility of bankruptcy.

"It's no different from the position they'd taken many months ago. They had always threatened that bankruptcy was an option they might choose," Morey said. "I do not think his reporting to the parishioners in any way suggests that they are any closer to doing that than they were before the mediation. And in fact, by all indications, that is not an option they are presently considering."


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