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BANKRUPTCY-CONFLICT Jul-22-2004 (810 words) xxxn
Civil, church law may come in conflict in church's bankruptcy filing
By Ed Langlois
Catholic News Service
PORTLAND, Ore. (CNS) -- The bankruptcy filing by the Archdiocese of Portland is almost certain to place church law and civic law in conflict.
The two legal systems have met before in Oregon, and churches have often prevailed.
In one instance, Catholic hospitals worked for the right to opt out of physician-assisted suicide, which was legalized in Oregon in 1997. In another, after Lane County officials tape recorded a murder suspect's sacramental confession in the mid-1990s, the courts eventually ruled the act an undue state intrusion.
The debate even goes back to the 1920s, when the U.S. Supreme Court overturned an Oregon law that would have closed down Catholic schools.
Judges dealing with the first bankruptcy filing in history by a U.S. Catholic diocese will need to consider canon law against bankruptcy law and First Amendment rights of freedom of religion.
Archbishop John G. Vlazny of Portland said the archdiocese filed for Chapter 11 federal bankruptcy protection July 6. The decision came as two lawsuits seeking restitution for childhood sexual abuse by a now-deceased priest of the archdiocese were about to go to trial. One plaintiff was seeking $130 million. The other wanted $25 million.
One key issue will be whether the court can dip into the resources of parishes and schools to pay sex abuse plaintiffs.
Lawyers for sex abuse victims view the parishes and schools as assets of the archdiocese. The archbishop said that canon law holds that parish property belongs to the parishes, not the archdiocese.
One federal bankruptcy attorney, who asked to remain anonymous, said the archdiocese will have a big job stating its case.
"The problem is that Section 541 of the bankruptcy code defines what is property of the estate, and it is a very broad definition," said the attorney, who works for a U.S. Trustee Office in another part of the country.
"It is defined to be very broad and inclusive," he told the Catholic Sentinel, newspaper of the Portland Archdiocese.
The federal attorney said, for example, that if parishes want to build on parish property they must get the approval of the archdiocese first.
But Dan Murray, a Chicago bankruptcy attorney and professor at the University of Notre Dame law school, said the property issues in the case could be complicated because the bankrupt entity is a church with long-standing practices.
He cited a 1976 U.S. Supreme Court case that was eventually decided in favor of the Serbian Eastern Orthodox Diocese, which had a land dispute with one of its Chicago area parishes that was rebelling against the diocese.
The question in Serbian Eastern Orthodox Diocese vs. Milivojevich was to what degree a civil court can sit in review of a church court decision.
The U.S. Supreme Court held that the Illinois Supreme Court had run afoul of religious freedom and due process when it interfered with the Serbian diocese's decisions about the status of the property.
"The fallacy fatal to the judgment of the Illinois Supreme Court is that it rests upon an impermissible rejection of the decisions of the highest ecclesiastical tribunals of this hierarchical church upon the issues in dispute, and impermissibly substitutes its own inquiry into church polity and resolutions," said the U.S. Supreme Court decision, written by Justice William Brennan.
The bankruptcy court, Murray said, will likely try to distinguish between property that is part of the archdiocese's core mission and property that is spare.
"A church and school being sold and closed down might be seen as impinging upon religious doctrine and practice," he explained.
David Skeel, a professor of corporate law at the University of Pennsylvania, said that the bankruptcy judge cannot force the Portland Archdiocese to sell off parishes and schools or any other property.
It would be up to the archdiocese, Skeel explained, to decide if those kinds of closures are necessary to satisfy the financial arrangements approved by the creditors and the court.
Also, Skeel said, creditors cannot force not-for-profit organizations to be liquidated, as they might be able to with a for-profit company.
"The biggest stick the victims have is that they can vote no on any plan that the archdiocese proposes," Skeel said. "If they continue to vote no, there could be a stalemate. Then the victims can ask the judge to dismiss the case. The victims may be thinking along those lines."
The question, Skeel said, is whether the court will count parishes and schools as assets of the archdiocese when the time comes to develop the reorganization plan.
Canon law holds that parish and school assets cannot be seized by the archdiocese.
Normally, Skeel explained, bankruptcy courts defer to "the technical corporate structure."
But, he said, "to the extent that canon law conflicts with state property law, the judge will be less likely to defer to it."
END
Copyright (c) 2004 Catholic News Service/U.S. Conference of Catholic Bishops. The CNS news report may not be published, broadcast, rewritten or otherwise distributed, including but not limited to such means as framing or any other digital copying or distribution method, in whole or in part without the prior written authority of Catholic News Service.
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