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β€˜A Last Resort’: Archdiocese Weighs Bankruptcy

Portland Church Leader Vows That All Abuse Victims Will Be Compensated Fairly

Dec 6, 2002 | Portland Tribune

The Archdiocese of Portland is exploring filing bankruptcy to deal with nearly $600 million in claims by 104 alleged sex-abuse victims, says a Portland attorney who represents the Roman Catholic Church’s Western Oregon district.

Bankruptcy would be used as “a last resort” if talks prove fruitless between the archdiocese and attorneys representing men and women who say they were molested 25 to 50 years ago by priests in archdiocese-operated parishes, said attorney Thomas Dulcich.

“The first goal of the archdiocese is to see that each plaintiff who has a claim worthy of compensation is compensated reasonably,” Dulcich said. But if the claims are beyond what the church can afford, filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code would be “a distinct possibility,” he said.

According to attorneys who have filed suits against the Archdiocese of Portland, no Catholic archdiocese has ever filed for bankruptcy protection. It is unclear what role, if any, the Vatican would have in an archdiocese filing bankruptcy.

Three attorneys who have filed the bulk of the sex abuse cases now pending against the Portland archdiocese, Kelly Clark and David Slader of Portland and Michael Morey of Lake Oswego said they would be surprised if Portland Archbishop John Vlazny decides to file bankruptcy rather than settle with their clients.

Slader, Clark and Morey all said they have been impressed with Vlazny’s straightforward approach to settling the earlier cases.

During a prayer service held Wednesday evening at Holy Redeemer Church in North Portland for victims and their families, Vlazny said: “I am sorry for those times when anyone here has been offended or hurt by any representative of our church, (and) I am sorry for my own inadequacies in dealing with these matters as compassionately and as effectively as you deserve.”

Still, the attorneys say the victims and their families deserve more than apologies.

Morey, the Lake Oswego attorney who filed 15 of the suits against the archdiocese, said talk of bankruptcy is a “litigation strategy meant to scare the plaintiffs into settling for less than the real value of the cases.”

Clark said Vlazny would be listening to his lawyers “and not to his Lord,” if the archdiocese files bankruptcy.

“If (the archdiocese) makes noises about bankruptcy, it will be a sign that the archbishop had made a decision to treat (the lawsuits) as a business issue and not as a spiritual and moral matter,” he said. Clark represents 23 clients suing the archdiocese.

Vlazny was unavailable for comment Thursday, but Mary Jo Tully, the archdiocese’s chancellor, said, “We are hoping these cases will be settled in mediation. That’s certainly our greatest hope.”

Talk of bankruptcy surfaced this week after Archdiocese of Boston officials said they would consider filing bankruptcy to deal with 400 pending sex-abuse lawsuits seeking hundreds of millions of dollars in damages.

Under such a Chapter 11 filing, the bankruptcy court would decide which assets would be available for victims, and the value of those assets.

“Chapter 11 means all the claimants will be treated equally,” Dulcich said. “It slows down the legal expenses of working on all these cases, and allows the archdiocese to continue with its charitable mission.”

A flood of lawsuits filed in Boston earlier this year sparked hundreds of similar lawsuits in dioceses nationwide, including the Portland archdiocese, which serves 300,000 Catholics in 121 parishes and 51 schools in Multnomah and 17 other Western Oregon counties.

Though sex-abuse lawsuits against Oregon clergy have been filed since the mid-1980s, most of the pending cases were filed earlier this year. They allege that at least 30 priests sexually abused a number of victims mostly men now in their 30s, 40s and 50s when they were children.

So far, the archdiocese has settled about 32 suits for an undisclosed amount, Dulcich said, adding that most of the settlements were covered by insurance. However, the insurers are now balking at making more payments.

Dulcich said the claims could be even higher than $600 million, because one attorney said he would ask for $200 million in punitive damages.

Insurers are balking

Because of the number of lawsuits still pending, Multnomah County Circuit Judge John Wittmayer has ordered attorneys, clients and insurers in all of the cases to come together and begin five weeks of mediation, beginning Feb. 24.

Attorneys said the mediators will attempt to get all parties to agree to a fair settlement of each of the cases. Each settlement would depend on the extent of the harm to the victim, Dulcich said.

Cases that fail to be resolved in mediation would go to trial, sometime in May. At that point, the church could decide to file bankruptcy.

Complicating the mediation and potential settlements, however, is a separate lawsuit filed by the archdiocese’s five insurance companies, all of which are underwriters of Lloyds of London. The insurers claim they do not have to cover any of the settlements because the archdiocese knew about the abuses and did not take action to stop them.

According to court papers, the archdiocese’s policies cover “unexpected” or “unintentional” mishaps, not those the archdiocese knew about.

Jerry Hodson, a Portland attorney representing the archdiocese in the insurance lawsuit, has asked the court to dismiss the suit or at least delay its hearing until the sex-abuse suits are resolved.

“Our position is that we shouldn’t have to fight on two fronts,” Hodson said. “That’s why you buy insurance, for peace of mind, not to fight with insurance companies and complainants at the same time.”

A hearing on the archdiocese’s motion is set for hearing later this month in Multnomah County Circuit Court, Hodson said.

Meanwhile, attorneys on all sides are preparing for mediation by taking depositions from alleged victims and other prospective witnesses.

Enough assets?

Clark and other attorneys think the archdiocese has enough assets in the form of property, endowments and contributions to cover the claims.

Morey said an incomplete evaluation he currently is conducting of several of the 18 counties in the archdiocese shows that its “real estate holdings alone amounts to hundreds of millions of dollars.”

But archdiocese attorney Dulcich said it is unclear whether the archbishop can sell property, such as a school building or land, used by parishes.

That would be another reason to declare bankruptcy, Dulcich said: “It would be up to the bankruptcy court to determine the value of the assets.”

“The archbishop is a steward of the archdiocese and its assets,” he said. “He must balance the interests of 300,000 Catholics and many others that are serviced by our schools and parishes with the interests of 100 claimants and their attorneys.”

There is no doubt, attorneys for the claimants say, that Vlazny has reached out to those harmed. For instance, as part of the settlement with victims of the late Rev. Maurice Grammond, Vlazny apologized to Grammond’s victims and conducted a reconciliation service in Seaside, where most of the abuse occurred.

“Vlazny is one of the few bishops who seem to get the seriousness of the problem,” said Slader, who filed the first sex-abuse lawsuit and represented 42 of Grammond’s victims.

Dulcich said the archbishop has been placed in a difficult position.

“Archbishop Vlazny clearly sees this as a spiritual and moral issue, but the plaintiffs’ attorneys have made it a business issue by suing the archdiocese for $600 million, and (he) must deal with that as well.”

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