Assets ruling favors abuse plaintiffs!

Portland Archdiocese - A bankruptcy judge defines what's available to pay claims to include all parish holdings.

Saturday, December 31, 2005.

ASHBEL S. GREEN and STEVE WOODWARD

A bankruptcy judge ruled Friday that the Portland Archdiocese -- not individual parishes and schools -- owns church real estate, trusts and investments. 

The decision by Judge Elizabeth L. Perris resolves a fundamental dispute over how much money the archdiocese has available to settle claims by more than 100 people who say they were sexually abused by priests. 

The archdiocese holds legal title to $100 million in investments and accounts and extensive real estate across Western Oregon. But church lawyers argued that the archdiocese holds most of the property and money in trust for parishes and schools, and could not use it to settle claims. 

Plaintiffs' attorneys argued that the archdiocese owned the property under secular law, which trumped church law in a bankruptcy proceeding voluntarily entered into in 2004. Perris agreed. 

"Who owns the property is, quite simply, not a theological or doctrinal matter," she wrote. 

Perris rejected claims by church lawyers that canon law prevailed based on the First Amendment, the federal Religious Freedom Restoration Act and Oregon corporate law. 

"There is no constitutional requirement that internal church law be considered in determining a purely secular dispute," she said. 


Church officials, based on their position on who owns church property, recently proposed a $40 million bankruptcy settlement plan. 

Plaintiffs' attorneys denounced it, saying that the cases should be sent back to state court to go to trial or settle for whatever they are worth. 

That dispute has yet to be resolved. But Albert N. Kennedy, who represents the plaintiffs, said Perris' ruling should remove a key stumbling block to an agreement on a plan that settles the claims and brings the church out of bankruptcy. 

"This should clear the way to a resolution of the case," Kennedy said. 

Church officials were circumspect about the immediate impact of the ruling. "We feel strongly that this decision is not supported by the facts or the law, and believe it infringes on Archdiocese's right and the parishioners' rights to freely exercise their religion," according to a news release. "We will review our options to appeal and evaluate the impact of this ruling on this litigation and other aspects of the bankruptcy case." 

Perris' ruling comes nearly 18 months after the Portland Archdiocese became the first Roman Catholic diocese in the country to seek bankruptcy protection from priest abuse claims. The archdiocese filed for bankruptcy the day it was scheduled to go to trial in a $135 million sex-abuse lawsuit involving the late Rev. Maurice Grammond. 

The archdiocese had made settlements totaling $53 million for more than 130 claims. The bankruptcy froze dozens more seeking hundreds of millions of dollars in damages. 

Although settlement negotiations continued, they were unsuccessful. Plaintiffs' attorneys said one of the problems was that church officials claimed most of the money in church accounts and real estate in 124 parishes were off limits based on canon law. 

The archdiocese contended that the Religious Freedom Restoration Act prohibits the Bankruptcy Court from issuing any order that forces the archdiocese to violate the canons of the Roman Catholic Church. An adverse ruling on the property issue, for instance, would require Archbishop John G. Vlazny to violate canon law by seizing assets that church law says the parishes own. 

The archdiocese also maintained that Oregon corporation law recognizes the importance of the church's internal laws and, thus, the judge should, too. Perris didn't dispute that "canons" are mentioned in state law. But she wrote that the church used state law to create a corporation that mirrors its religious organization. It is that civil entity that governs its relationships with the secular world, she concluded. 

Perris pointed out that the archdiocese itself had chosen to create a corporate structure that didn't allow parishes to hold title to real estate, even though it could have done so. 

"What defendants ask this court to do in the name of religious freedom is to disregard the choice debtor has made about how to hold property under civil law,"
Perris wrote. 

According to its reorganization plan filed with the court last month, the archdiocese is seeking to bulletproof itself against future problems by separately incorporating its parishes after it emerges from bankruptcy. Only one of the archdiocese's 124 parishes, St. Elizabeth Parish of Portland, is already incorporated and thus immune from seizure in the bankruptcy. 

Lawyers for the parishes and parishioners also contended that diverting their religious contributions to pay claimants substantially burdens the exercise of their religion. 

"I am not persuaded," Perris wrote. "Because the parishes are merely parts of the Archdiocese, contributions made to the parishes were in effect made to the Archdiocese." 

Perris' ruling gives a boost to the sex-abuse claimants, who have told the archdiocese they have a lender willing to lend the archdiocese as much as $100 million to pay claims. In a Dec. 23 filing, the archdiocese downplayed the feasibility of such a loan, saying no lender would accept disputed property as collateral. 

In its reorganization plan, the archdiocese suggested that $40 million was enough to settle more than 100 unresolved sex-abuse claims. The archdiocese has until Jan. 16 to sell the plan to creditors, although its lawyers have asked for an extension until at least Feb. 14. If the archdiocese plan fails to get the necessary votes, the sex-abuse plaintiffs intend to offer their own plan. 

Plaintiffs' attorneys want to send the cases back to state court. Once there, the cases would get trial dates, although most would settle, said Kelly W.G. Clark, who represents plaintiffs. 

"Cases settle when trials are just around the corner, and both sides know they can win, and both sides know they can lose," Clark said. 

Clark also disputed that the parishes would be closed and sold to fund the settlements. 

"Just the endowment funds and unused property is more than enough to fund the entire bankruptcy plan without touching any school or church," he said. 

But Douglas Pahl, who represents about 400,000 Western Oregon Catholics, said Perris' decision to make those funds available is deeply troubling. 

"It has always been held out that what you give to the parish is separate," Pahl said. "What this decision says is that is not the case in bankruptcy. The religious intentions of parishioners are going to fall to the requirements of the bankruptcy code." 

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