Backfire Possible in Bankruptcy Declaration
Legal Experts Say the Filing May Force the Church to Sell Assets

By Sarah Linn
The Associated Press
July 18, 2004

PORTLAND — By filing for bankruptcy, the Archdiocese of Portland has begun a complicated legal process that could backfire — perhaps forcing church officials to reveal documents they’d rather not disclose, and lose assets they’d rather keep — legal experts say.

Archbishop John Vlazny has said Chapter 11 bankruptcy is the best way to sort out the nonprofit organization’s struggling finances and settle more than 60 clergy sexual abuse cases pending against the Roman Catholic archdiocese.

Saturday evening, he was in Keizer to say Mass at St. Edward Catholic Church. Vlazny was visiting the parish, sitting in for the church’s pastor, the Rev. Phil Sopke, who has been severely ill in the hospital for the past month.

Near the end of Mass, Vlazny asked parishioners to pray for their sick pastor and “to pray for our archdiocese in its mounting troubles.”

The July 6 bankruptcy filing, the first by an American diocese, has a lot of potential pitfalls in the courts, experts said.

“Portland has taken a huge gamble,” said Patrick Schiltz, a law professor at the University of St. Thomas in Minneapolis. “If the gamble pays off, it will extinguish their legal liabilities, and they’ll get back on the right financial track.”

Otherwise, Schiltz said, the church could be forced to sell off parishes and reveal information that could propel future litigation, potentially hurting thousands of parishioners.

At least one attorney for priest abuse plaintiffs said he is confident that the bankruptcy proceedings will result in just restitution for abuse victims, and a full public airing of archdiocese files.

“No plan of reorganization has any hope of success unless it is approved by the survivors,” said David Slader, who has represented more than a dozen plaintiffs in the Portland priest abuse cases.

Lawsuits against the archdiocese range from $5.1 million to $135 million, while Key Bank of Oregon has the largest non-tort claim, $22.3 million.

But before creditors can claim their rewards, the federal bankruptcy court must establish what assets belong to the archdiocese, said Chuck Zech, an economics professor at Villanova University who specializes in Catholic church finances.

Under civil law, schools, parishes and other holdings belong to the archdiocese and can therefore be used to pay off creditors.

But canon law says the archdiocese holds those assets in trust for the parishes, who are the true owners.

Archdiocese spokesman Bud Bunce said the question of what constitutes archdiocese assets will dominate the bankruptcy hearings.

“Once we demonstrate that the parish property is held in trust for the parish, and its basic operations are separate, that will clarify the situation somewhat,” he said.

The church’s first appearance in U.S. Bankruptcy Court offered a glimpse of the possible fights ahead.

Alfred Kennedy, who represents a plaintiffs’ claims committee, said Wednesday that parishes’ savings accounts managed by the archdiocese should be considered part of the money to be divided among creditors.

But Tom Stilley, who is representing the archdiocese, said those accounts were off-limits to the proceedings.

Zech said it’s unlikely that canon law will hold up in civil court, where it has much the same standing as an informal family agreement.

That means anywhere from $300 million to $500 million could be up for grabs.

A bankruptcy judge may have a harder time deciding whether assets include money donated for a specific charitable purpose, such as a scholarship fund controlled by the nonprofit archdiocese, he said.

“Either way, the church loses,” said Zech.

Although the archdiocese has control over day-to-day functions, he noted, any major financial decision — such as selling or shutting down a property — first must be approved by the judge.

David Skeel, a University of Pennsylvania law professor, said once assets are determined, the archdiocese has the perfect platform for settling several lawsuits at once.

Individual awards likely would be less than those originally sought by plaintiffs because of the sheer volume of cases to be settled, Skeel said.

That would be a welcome respite for the archdiocese, which has paid more than $53 million in settlements.

Plaintiffs in two cases set to go to trial against the late Rev. Maurice Grammond, who is accused of molesting more than 50 boys during three decades, had sought a total of $160 million.


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