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Oregon archdiocese files for bankruptcy protection

The Boston Globe, via the Winston-Salem Journal, USA
July 7, 2004
www.journalnow.com

ReligionNewsBlog.com • Wednesday July 7, 2004

Portland’s district hit hard financially by sex-abuse cases

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 effect years of sexual abuse by priests is 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 filing immediately stops all legal action against the diocese. The federal bankruptcy court will preside over a process of developing a financial plan for the diocese to allow the church to pay off its creditors, including abuse victims, as it continues 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 that no other archdiocese around the world has been willing to do – and that is 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 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 that the bankruptcy case could raise important church-state issues. He said that in business cases, creditors often want to replace the management of an institution that files for bankruptcy, but that such a step would raise difficult constitutional questions if creditors tried to replace church leaders in the Portland case.

Skeel said it is unlikely that the bankruptcy court could require 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.