In a case with broad financial implications for the U.S. Roman Catholic Church, a judge in Bend will decide this week whether the local diocese will become the first in the nation to have its assets frozen because of pending sexual abuse cases.
Eighteen men who claim they were abused by a priest more than 30 years ago are asking a Deschutes County judge to forbid the Catholic Diocese of Baker from transferring money and property to its 34 parishes until a $60 million lawsuit is settled.
The plaintiffs maintain such transfers are fraudulent during litigation and could deplete diocesan coffers, preventing them from recovering civil damages for suffering and sexual battery if the church is found negligent.
Diocesan officials deny wrongdoing and have called the allegations outrageous.
A hearing is scheduled Wednesday.
The case could have far-reaching impact on the Catholic Church’s efforts to protect its assets from lawsuits. So far, the U.S. church owes an estimated $1 billion in legal expenses, court settlements and judgments in the sexual abuse scandal nationwide. As a result, many underinsured dioceses across the nation are scrambling to avoid bankruptcy.
For those reasons, the Baker case is being watched with great interest, says David Skeel, a Pennsylvania law professor and national expert on fraudulent transfers and bankruptcy.
Skeel said the case signals that courts are becoming more concerned about dioceses trying to limit their financial exposure. The case is navigating in waters where canon law the church’s ecclesiastic legal system and secular civil law both try to assess questions important to sexual abuse litigation, such as: Who owns the assets in a diocese? Who makes bankruptcy decisions? To what extent can churches create their own corporate structure?
The public relations implications of the case are also enormous for the church.
“This is the first church to be called to court, and others will undoubtedly think twice about moving assets even when it is perfectly legal if they think there are problematic public relations consequences,” Skeel said. He notes the Boston Archdiocese, which is in the midst of settling 400 cases, has been careful to avoid aggressive legal actions that might reflect badly on the church.
Priest at center of Oregon case The Oregon case stems from an ongoing lawsuit in which the Archdiocese of Portland and the Diocese of Baker are accused of covering up the sexual transgressions of the Rev. David Hazen, who died in 1986. He served at various parishes and institutions in Oregon.
Most of the plaintiffs were altar boys at St. Pius X parish in Klamath Falls, where Hazen worked from about 1960 to 1966. The lawsuit says that he molested them under the guise of giving them counseling, taking their confession, and giving them blessings. Several plaintiffs said the priest told them that “Jesus wouldn’t mind.”
Church records show that after confessing to sexual abuse of a youth, Hazen was sent to a treatment center for a year in 1959. Afterward, church officials assigned him to work in various parishes where he had access to youths, the lawsuit says.
Restraining order granted Earlier this year, the plaintiffs in the Hazen case were granted a temporary restraining order against the church by Circuit Judge Michael Adler.
Documents filed in that action show that the Most Rev. Robert F. Vasa, bishop of the Baker Diocese, filed incorporation documents with the Oregon secretary of state for most or all of the diocese’s parishes, creating 50 separate corporations, on Oct. 8, 2002.
Before October 2002, none of the parishes was separately incorporated. The first sexual abuse case was filed on Dec. 10, 2001.
“We are asking the court to compel the bishop of Baker to obey the same laws that apply to everyone else and not re-abuse these men,” said David Slader, a Portland attorney representing the plaintiffs.
The 66,826-square-mile Baker Diocese includes all of Oregon east of the Cascades. It owns extensive real property, most of which is occupied by parish churches, social halls and living quarters for priests.
The value of that property is disputed. The diocese indicated that it had assets of $2 million, according to an affidavit filed by Slader. A search of real property records by the plaintiffs turned up parish and other property with an assessed tax value in excess of $19 million.
“If the diocese succeeds in transferring to these new corporations all of its property used for parish business, it will effectively divest itself of all but a tiny percentage of its assets potentially rendering it insolvent,” Slader wrote in court records. Such action is illegal under Oregon’s Fraudulent Transfers Act if a creditor’s claims arose before the transfer was made.
Bishop’s attorney responds Gregory Lynch, a Bend attorney representing the Baker Diocese, says that the bishop had planned such incorporations when he was first appointed three years ago, well before the lawsuit was filed.
Lynch said the diocese incorporated its parishes so they would each have the legal capacity to have ownership of what belongs to them. He said the assets have never belonged to the diocese, but rather the diocese has been “the custodian of parish assets.”
Some legal experts have maintained that individual parishes become liable if incorporated. But others say that only a diocese can be liable for a priest’s actions because priests are hired and supervised by the diocese.
Early in the 20th century, canon law established that dioceses had the organizational choice to set up parishes as individual financial entities, Lynch said. Although Midwestern and Eastern dioceses often gave that power to parishes, most of those in the Western United States did not, Lynch said.
Vasa is one of 14 members of the high-profile U.S. Conference of Catholic Bishops’ Committee on Sexual Abuse. In an interview Friday, he said that when he came to the Baker Diocese three years ago, he was “taken aback” that the parishes were not separately incorporated.
He said that because the parishes were incorporated in Lincoln, Neb., where he had been serving, “I felt comfortable with that.”
“I believe it is the model of how the church sees herself as individual parishes collectively working together,” said Vasa. “To deprive them of possibility of true legal ownership is wrong.”
Vasa said he started working to incorporate the parishes “from the first day,” but that it took time to conduct consultations and legal work.
There have been at least 10 cases nationally in which individual parishes have asserted ultimate ownership of property, said Michael Morey, a Lake Oswego attorney who has represented plaintiffs in sexual abuse cases against the Catholic Church and others for 18 years. They did not prevail, he said.
Action said not unusual It is not unusual for a corporation to structure itself in a way so that if liability is incurred by one part, it doesn’t destroy the other, says Professor Patrick Schiltz of St. Thomas School of Law in Minneapolis. An expert on bankruptcy and sexual abuse cases, he has defended churches in 500 cases, including a number in Oregon.
In fact, law school experts see it as negligent if a church doesn’t set up its corporation that way, he says. In the 1980s and 1990s, after another wave of sexual lawsuits hit the Catholic Church, many dioceses transferred assets to their parishes, Schiltz notes. This was done so that if a priest in one parish sexually abused someone, the diocese wouldn’t have to close down, for example, its homeless shelter to pay for it.
“Imagine if a member of a parish works hard to build a school and a priest 100 miles away molests someone,” said Schiltz. “They don’t even know the guy. Should they lose their school to a judgment?”
Schiltz noted that what is unusual about the Baker case is that the incorporation of the parishes took place after the diocese was sued.
Jeffrey Anderson, a Minnesota attorney who has represented more than 700 sexual abuse claimants against the church in 22 years, said what makes the Baker case a groundbreaker is that the plaintiffs’ attorney “had the will and energy to do something about it.”
Anderson said that while dioceses are covered by liability insurance, many are underinsured in light of the huge awards being meted out in sex-abuse cases.
Among the dioceses that have contemplated bankruptcy after being assessed large sex-abuse judgments are those in Boston; Dallas; Tucson, Ariz.; Sante Fe, N.M.; and San Bernardino, Calif.