Religion News Service
PORTLAND, OREGON, July 9, 2004: Archbishop John Vlazny, head of the Archdiocese of Portland, announced Tuesday (July 6) that the archdiocese would file for Chapter 11 bankruptcy protection because it could not afford to pay massive settlements in sex abuse-related lawsuits, according to this report from Religion News Service. A diocese is the territorial jurisdiction of a bishop or, in Vlazny’s case, an archbishop. His archdiocese encompasses the western part of Oregon, from the Cascade mountain range to the Pacific Ocean. In becoming the first Roman Catholic diocese to file for bankruptcy, the Archdiocese of Portland is gambling that U.S. courts will be loath to interfere with the intimate workings of church operations. Judges hearing bankruptcy cases routinely take intrusive steps to protect creditors. Sometimes they appoint trustees to take over management of failed companies. They can block all transfers of money out of a bankrupt entity. But the archdiocese is no ordinary company, and experts say Archbishop John Vlazny has reason to hope that secular judges will be reluctant to impose such sanctions. “Courts do not like to get in the middle of these cases,” said David Arthur Skeel, a professor of corporate law at the University of Pennsylvania Law School.
Vlazny said the unprecedented move was “not an effort to avoid responsibility.” The case is certain to blaze legal pathways. Judges hearing the case will have to weigh church canon law and the First Amendment protection of free exercise of religion against bankruptcy statutes, which were written to protect creditors. Fred Naffziger, a professor of business law at Indiana University South Bend, said it may seem far-fetched, but the case could provoke an international incident if the creditors sought — and a judge agreed — to block any money from going to the Vatican.
Two early conflicts that could occur involve a trustee and the ownership of assets. “Creditors can ask for a trustee. They can ask for the existing managers to be kicked out,” Skeel said. “This procedure makes perfect sense when you’re talking about a company. But the concept of a court ousting the archbishop is a little bit hard to fathom.” Even if the court leaves Vlazny in charge of the day-to-day operation of the archdiocese, the archbishop likely will face financial constraints. Naffziger said the judge could put an upper limit on how much money Vlazny could spend without seeking approval.
While significant constitutional questions could arise, Naffziger said he is less sure that an international dispute will. Dioceses routinely send money to the Vatican, and Portland can probably continue to do so as long as the money is raised specifically for that purpose, he said. But “suppose the judge learns that the bishop transferred $10 million to the Vatican and the judge ordered it returned?” Naffziger mused. Naffziger said the Vatican could assert it is beyond the judge’s reach by saying, “We’re a sovereign nation.” If the judge seeks to prohibit any money from going to Rome, Vatican officials could seek help from the State Department, Naffziger said. “There could be political pressure for the federal government to actively intervene on behalf of the Vatican.”