Portland Archdiocese Files for Bankruptcy

PORTLAND, Ore. – The Portland Archdiocese (search) filed for bankruptcy Tuesday because of the steep costs from clergy sex abuse lawsuits, an unprecedented step that could open the Roman Catholic (search) archdiocese to new levels of court scrutiny.

No other American diocese has filed for bankruptcy, though Boston threatened to do so at the height of the abuse crisis that began there two years ago. The Diocese of Tucson, Ariz., has said it will decide whether to seek court protection before an abuse trial there in September.

Portland's Chapter 11 bankruptcy filing (search) halted the trial of a lawsuit against the late Rev. Maurice Grammond, who was accused of molesting more than 50 boys in the 1980s. Grammond died in 2002.

Plaintiffs in the two lawsuits involving Grammond have sought a total of more than $160 million.

The archdiocese and its insurers already have paid more than $53 million over 50 years to settle more than 130 claims by people who say they were abused by priests. Most of those cases have taken place since 1999.

The bankruptcy filing includes claims against the diocese from 20 pending priest abuse lawsuits, ranging in amounts from $5.1 million to $135 million. It also includes what appears to be a $22.3 million bank loan.

The filing did not include a list of the archdiocese's assets, which will be filed at a later date.

Bud Bunce, spokesman for the 356,000-member archdiocese, said church operations will continue as usual.

"All the parishes will continue with their regular services," Bunce said. "For the most part we anticipate the normal, everyday types of activities we do will continue."

But the filing is far from everyday business -- and raises concerns about secular oversight of church affairs.

"For a diocese to give up control like this, control over a lot of important decisions, a lot of spending decisions -- it's totally uncharted," said Chuck Zech, an economics professor at Villanova University who specializes in Catholic church finances.

Chapter 11 bankruptcy frees an organization from the threat of creditors' lawsuits while it reorganizes. However, it could also open church records to public scrutiny, and could require church leaders to cede some financial control to the courts.

A judge would likely have to approve major archdiocesan expenditures as plaintiffs vie with each other for a share of its assets, said Fred Naffziger, a business law professor at Indiana University. It would be up to the judge to approve how much money creditors receive and which assets should be sold; the judge could also act as a mediator in any settlement talks.

Archbishop John G. Vlazny said the archdiocese tried to settle with the plaintiffs, but could not afford their offer.

"The pot of gold is pretty much empty right now," Vlazny said.

Plaintiffs' attorney David Slader countered that the church was simply trying to avoid the details of the lawsuits coming out in court. "The bishop hasn't begun to touch his pot. He is lying," Slader said.

The archdiocese owns over $500 million in tax-assessed properties, Slader said, and also has many investments, but he could not disclose the estimated value of those due to court-ordered confidentiality.

"The archdiocese is one of the wealthiest corporations in Oregon," Slader said. Bunce declined to disclose the value of church assets.

Grammond served as a priest throughout the state from 1950 to 1985, when he took sick leave. Allegations of sexual abuse against Grammond were first reported in 1991, but the charges didn't become public until 1999 when a former altar boy sued him and the archdiocese. Grammond was suspended when he refused to fully cooperate in the church investigation.

In a deposition taken before his death, Grammond said, "I'd say these children abused me. They'd dive in my lap to get sexual excitement."

James Devereaux, one of the plaintiffs, said he would persevere with the suit.

"We will continue our fight to finally get the archdiocese to accept the sin of its crimes," he said.

The Archdiocese of Boston was flooded with hundreds of civil lawsuits and considered bankruptcy, but opted to sell church real estate worth millions to settle claims.

In the 1990s, the Archdiocese of Santa Fe, N.M., was brought to the brink of bankruptcy, and had to borrow from parish savings accounts to pay out millions of dollars because of abuse claims.

Nationwide, abuse cases are known to have cost the church more than $650 million since 1950. Still, relatively few molestation lawsuits have actually gone to trial in the United States; many settle beforehand.