In Win for Milwaukee Archdiocese, Judge Shields Cemetery Funds from Creditors

By Annysa Johnson
Milwaukee Journal Sentinel
July 30, 2013

[Cemetery Trust Transfer - All Documents - Archdiocese of Milwaukee via Jeff Anderson & Associates]

The Catholic Archdiocese of Milwaukee, which faces more than a dozen civil fraud lawsuits over its handling of clergy sex abuse cases, filed for Chapter 11 bankruptcy protection in January. As the case proceeds, we'll have updates, analysis, documents and more.

In a decision that could have far-reaching implications for religious institutions around the country,a federal judge has ruled against forcing the Archdiocese of Milwaukee to tap its cemetery funds to pay sex abuse claims in its bankruptcy.

In issuing the ruling Monday, U.S. District Judge Rudolph T. Randa said including the funds would violate free exercise of religion under the First Amendment and a 1993 law aimed at protecting religious freedom. Randa cited the Catholic belief in the resurrection, which teaches that the body ultimately reunites with the soul, and the role of Catholic cemeteries in the exercise of that belief under canon law.

"The sacred nature of Catholic cemeteries and compliance with the church's historical and religious traditions and mandates requiring their perpetual care are understood as a fundamental exercise of this core belief," said Randa in overturning an earlier decision by U.S. Bankruptcy Judge Susan V. Kelley.

The decision was a major victory for the archdiocese, and appears to eliminate one of the last large assets available to sex abuse victims who have filed claims in the bankruptcy.

"We are thrilled," said attorney Timothy Nixon, who represents the archdiocese's Catholic Cemetery Perpetual Care Trust and its sole trustee, Milwaukee Archbishop Jerome Listecki. The trust and Listecki had sued the bankruptcy creditors committee to keep it from accessing the more than $53 million in the cemetery trust. "The care and maintenance of the Milwaukee Catholic Cemeteries are fundamental to the Catholic faith, and the court's decision properly recognizes this as a protected exercise of religious freedom."

Hoping for closure

Mark Doll, who chairs the archdiocese's finance council, said he hoped the decision would bring "closure and peace to the families with loved ones buried in the archdiocese's cemeteries."

"The cemetery trust was always maintained as a separate legal entity with its own board representing the more than 500,000 Catholics buried there," said Doll.

First Amendment scholar Marci Hamilton, who represents the creditors primarily sex abuse victims on this issue, said their attorneys were surprised by the scope of Randa's decision. They expected a more narrow ruling on a question of law: whether the Religious Freedom Restoration Act applies to the creditors committee.

The Act requires that any neutral law that substantially burdens religious exercise must be justified by a compelling public interest. The creditors argued that the law applied only to government entities, and therefore not a creditors committee. Randa disagreed, saying the committee acts "under color of law" because of the authority granted it by the bankruptcy court. In essence, Randa determined that the committee was essentially a government entity, and then that requiring the archdiocese to tap its cemetery funds would create a substantial burden on its free exercise of religion.

Hamilton said attorneys for the creditors committee are exploring their options, including an appeal to the 7th Circuit Court of Appeals.

At issue in the lawsuit was whether the cemetery funds should be part of the bankruptcy estate, which will be used to compensate sex abuse victims and fund the archdiocese's bankruptcy reorganization plan.

Victims have alleged that the archdiocese created the trust to protect funds from any legal liability in lawsuits. They believed their viewpoint was bolstered on July 1, when the archdiocese released a trove of documents, including a 2007 letter from then-Archbishop Timothy Dolan to the Vatican saying the creation of the trust would offer "improved protection of these funds from any legal claim and liability."

However, the archdiocese maintained that the funds were always segregated for cemetery use and that the trust merely formalized that arrangement.

Randa did not take up that issue; he addressed only the question of religious liberty.

Nixon, and two other attorneys involved in the case who declined to be quoted, said Randa's decision would have implications far beyond the Milwaukee bankruptcy. They said it could affect dozens of lawsuits over the Obama administration's mandate that all employers, including religious entities, provide free contraceptive coverage as part of their health care plans.

Randa's decision, Nixon said, "brings clarity to the definition of 'government' because it emphasizes the importance of conduct that occurs under 'color of law.'"

Clarity seen

Others say the effect will be more narrow, affecting primarily other religious bankruptcy cases.

"It's opening the door to religious actors who are concerned about liability to say 'I want to go into bankruptcy, but I don't want the burdens of bankruptcy,'" said Jonathan Lipson, a professor at Temple University's Beasley School of Law in Philadelphia. "(They could say) 'We would still get the benefit of a bankruptcy discharge, but not be subjected to the ordinary rules about what is property of the state.'"

One of the key questions in cases involving the First Amendment and the Religious Freedom Restoration Act is whether the government has a "compelling interest" in taking an action that might interfere with religion. In his ruling, Randa said distributing money through a bankruptcy doesn't qualify.

But standing up for principles such as protecting women's health or preventing discrimination could, said Aaron Caplan, a professor at the Loyola University School of Law in Los Angeles.

"All this case is telling us is that moving money around in the context of a bankruptcy is not at that level of strength," he said. "This is not the first bankruptcy decision to say that the bankruptcy code needs to give leeway to accommodate religious freedom."

May not apply

Douglas Laycock, a professor at the University of Virginia Law School, said many of the issues at play in the health care/contraception cases are not a factor in the archdiocese bankruptcy.

For example, in considering challenges to the federal health care law that requires employers to provide insurance policies that cover birth control, courts must look at factors such as whether for-profit businesses may use an exception designed for churches and whether religious institutions are insulated by shifting the burden for coverage to insurance companies.

What's more, Randa's decision is not binding on any other judge, Laycock said.

"It is potentially persuasive in factually similar cases, but courts elsewhere are not going to be taking broad ... principles from it."

Randa's decision addresses one of two issues before him that could have a significant effect on the trajectory of the bankruptcy case. He is also expected to rule soon on whether the archdiocese's insurers are liable for damages in several of the sex abuse claims filed as part of the bankruptcy.








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