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Originally published Thursday, February 19, 2009 at 12:00 AM

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Does filing put Jesuit schools at risk?

Bankruptcy proceedings started this week by the Jesuits in the Northwest could lead to intense wrangling over who owns the assets of Jesuit-sponsored schools, including Seattle University, Gonzaga University and Seattle Preparatory School.

Seattle Times staff reporter

Bankruptcy proceedings started this week by the Jesuits in the Northwest could lead to intense wrangling over the institutions the order is best known for: its schools.

The Society of Jesus, Oregon Province — as the Northwest Jesuits are formally called — filed for Chapter 11 reorganization Tuesday, beset by numerous lawsuits alleging past sexual abuse.

Unlike in the six dioceses that have declared bankruptcy since the Catholic Church sex-abuse scandal broke nationwide some seven years ago, the bitter disputes won't be over who owns parish assets. That's because the province doesn't own any parishes, though it staffs seven, including St. Joseph in Seattle and St. Leo in Tacoma.

Rather, the clash is likely to be over who owns the assets of schools such as Seattle University, Gonzaga University, Seattle Preparatory School, Bellarmine Preparatory School and Gonzaga Preparatory School.

The schools are "sponsored" by the Jesuits, meaning they follow a Jesuit philosophy and educational mission. But they are separately incorporated, with independent governing boards that include laypeople, and thus bankruptcy should not affect them financially, the province and schools say.

The schools themselves are emphasizing their distance from the province.

Officials at both Seattle U. and Gonzaga issued statements saying they were incorporated in Washington state more than 100 years ago, and are legally and financially separate from the province.

Jack Peterson, president of Bellarmine Prep in Tacoma, said in a statement on the school Web site that Bellarmine is "working with our attorneys to be prepared to demonstrate clearly that Bellarmine is an autonomous corporation and that the law cannot be stretched to construe otherwise."

But plaintiffs' attorneys don't buy that, and say they will argue in bankruptcy court that the Jesuits own the assets of those schools — and that those assets can be used to pay creditors.

Indeed, even if a school is an separate legal entity, it can still "belong to" a Jesuit province, said Fred Naffziger, professor of business law and an expert on Catholic Church bankruptcy issues at Indiana University South Bend.

A school might be determined to be an asset of the province if, for instance, the province has the power to elect a majority on the board, or if the head of the province signs on in a real-estate deal involving the school, Naffziger said.

Ken Roosa, an Anchorage attorney who represents many of the plaintiffs, said he believes the universities' assets belong to the Jesuits because he read minutes from meetings of a group of senior Jesuits in the province from the 1960s to the 1980s, and those minutes indicate "numerous occasions where they simply transferred money back and forth from the universities to the Jesuits," he said. All of that is up to the attorneys to argue and the bankruptcy court to figure out.

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And "if you aren't on the internal parts of it, sometimes figuring out what's what can be difficult," Naffziger said.

Filing may be a first

The filing by the Oregon Province — which listed assets of $4.8 million and liabilities of $61.8 million — is believed to be the first filed by a Catholic religious order, or part of an order, since the abuse scandals broke nationwide.

In the last several years, the province — which covers Washington, Oregon, Alaska, Montana and Idaho — has received a staggering number of accusations of past sexual abuse.

Most of the abuse claims were made in Alaska, where more than 170 Alaska Natives have filed lawsuits saying they were sexually abused years ago by Jesuits or those supervised by Jesuits. More than 100 of those cases settled for $50 million.

In Washington state, a $4.8 million settlement involved 16 Native Americans, and more Native Americans have since come forward with abuse claims, said Seattle attorney Michael Pfau.

Some of the claims have also involved schools, including Gonzaga University and Seattle University. A 2007 suit against both the Oregon Province and Seattle University, claiming sexual abuse by the Rev. Michael Toulouse, a now-deceased Jesuit priest who taught at the school, was set to go to trial in April.

Filing for bankruptcy was not an easy decision, "but with approximately 200 additional claims pending or threatened, it is the only way we believe that all claimants can be offered a fair financial settlement within the limited resources of the Province," said the Very Rev. Patrick Lee, head of the province, in a statement.

Copyright © 2009 The Seattle Times Company

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