|Diocese in Ore.
Files for Chap. 11
By Michael Paulson
July 7, 2004
The Archdiocese of Portland, Ore., filed for bankruptcy yesterday, an unprecedented step for a Roman Catholic diocese and a dramatic illustration of the devastating financial impact decades of sexual abuse by priests are having on the nation's largest religious denomination.
Archbishop John G. Vlazny, in a letter to western Oregon Catholics, said his diocese has already settled more than 100 claims of abuse, but faced another $155 million in claims in two cases that were scheduled to go to trial yesterday.
"At this point, circumstances beyond my control have created great financial risk," Vlazny said. "If I am to be a prudent steward of our resources, I believe that the best choice is to seek protection in bankruptcy."
The archdiocese is the first to file for protection under federal bankruptcy laws, which will require that the church fully disclose its finances and cede authority over its spending to a federal bankruptcy judge. Many other dioceses that have talked of taking such a step, including Boston, have avoided doing so. The Tucson diocese, in Arizona, is still seriously considering a bankruptcy filing.
The filing immediately halts all legal action against the diocese. The federal bankruptcy court will now, over a period of months, preside over a process of developing a financial plan for the diocese that is intended to allow the church to pay off its creditors, including abuse victims -- while continuing to function.
"This is a stunner," said Elizabeth Warren, a professor of law who teaches bankruptcy at Harvard Law School.
"The archdiocese will be required to open its books -- something no other archdiocese around the world has been willing to do -- and that's a very high price to pay for a religious institution that has guarded its own privacy for centuries," she said. "And the second thing that will happen is that their operations come under the scrutiny of a court. Think about what that means: court supervision over charitable and religious works. The archdiocese is stepping into unknown territory."
It is extremely rare for religious organizations in the United States to file for bankruptcy. Eleven Hare Krishna temples and schools affiliated with the movement formally known as the International Society of Krishna Consciousness filed for bankruptcy in 2002 in response to lawsuits alleging child abuse in Hare Krishna boarding schools in the 1970s and 1980s; the Baptist Foundation of Arizona, founded by the Arizona Southern Baptist Convention, filed for bankruptcy in 1999 because of financial losses.
"This obviously has a lot of potential significance beyond Oregon. There are a number of other dioceses that have considered or are considering filing for bankruptcy, and what happens in Oregon will influence those decisions," said David A. Skeel, a professor of corporate law at the University of Pennsylvania Law School who is a specialist on bankruptcy. "The most obvious reason religious organizations haven't pursued bankruptcy is that it just looks terrible for a church to say we're going to potentially not repay people that we've hurt. But I have argued that there are, nonetheless, circumstances under which bankruptcy is appropriate, when they are truly facing so much litigation that there is no obvious solution."
Skeel said the bankruptcy case could raise important church-state concerns. He said that in business cases, creditors often seek to replace the management of an institution that files for bankruptcy, but that such a step would raise difficult constitutional questions if creditors sought to replace church leaders in the Portland case.
Skeel said it is unlikely that the bankruptcy court could force the archdiocese to close parishes or schools, and that nonprofit organizations, including churches, cannot be forced from Chapter 11 bankruptcy, which governs reorganization, into Chapter 7 bankruptcy, which governs liquidation.
Tucson Bishop Gerald F. Kicanas yesterday issued a letter to his parishioners saying that "In its own way, Chapter 11 reorganization represents an option for shelter for our Diocese." Kicanas, hinting at a legal strategy likely to be adopted by any diocese that files for bankruptcy, said Catholic parishes and schools are not assets of the diocese and that "if this is challenged, it will need to be taken all the way to the US Supreme Court for resolution." But an attorney in one of the Portland cases said he would argue that parishes and schools are diocesan assets.
The Archdiocese of Portland is relatively small, and is located in a state with a small Catholic population. The geographic territory of the archdiocese -- all of western Oregon between the Cascades and the Pacific Ocean -- has 3 million residents, of whom 356,000 are Catholic, according to the Official Catholic Directory.
But the diocese has been hit hard by the abuse scandal. Vlazny reported in February that, between 1950 and 2003, 37 of 1,150 priests in the archdiocese were accused of sexually abusing a minor. During that period, the archdiocese paid $53 million to settle cases --$26 million from its own funds and $27 million from insurers.
Archdiocesan spokesman Bud Bunce said yesterday that the archdiocese has settled about 130 cases but has another 60 still pending, including the two scheduled to go to trial yesterday. Both cases were brought by alleged victims of the Reverend Maurice Grammond, who was accused of molesting at least 50 boys in the 1980s. Grammond died in 2002.
Vlazny said he had first mentioned bankruptcy filing as a possibility in February 2003, but that he had considered it a last resort. He said the diocese is committed to compensating victims, but that the amounts sought in pending cases "go beyond compensation" and that "major insurers have abandoned us and are not paying what they should on the claims."
"This is not an effort to avoid responsibility," he said. "It is, in fact, the only way I can assure that other claimants can be offered fair compensation."
But David L. Slader, an attorney for one plaintiff, said the filing is a way to avoid trial.
"The archdiocese was afraid of one thing, and it had nothing to do with their ability to compensate their victims. It had to do with avoiding a public airing of 50 years of the archdiocese covering up the fact that its priests were raping and molesting children," Slader said. "This is a delay, a detour, but we will still get a fair public airing of the whole sordid history, and a fair restitution."
Michael Paulson can be reached at firstname.lastname@example.org.
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