Court Rules Church Can't Shield $60 Million in Abuse Cases
By Bruce Vielmetti and Annysa Johnson
Milwaukee Journal Sentinel
March 9, 2015
|U.S. District Judge Rudolph Randa’s parents and other relatives are buried at the Holy Cross Cemetery Mausoleum in Milwaukee. The court remanded the case to a different district court judge.|
|Rudolph T. Randa|
n a blow to the Archdiocese of Milwaukee in its ongoing bankruptcy, a federal appeals court on Monday put a $60 million cemetery trust fund back in play to potentially settle claims related to sexual abuse by priests.
The ruling from the 7th U.S. Circuit Court of Appeals said the church cannot use the First Amendment or a 1993 law aimed at protecting religious freedom to shield the funds.
The court also said the judge who put the money off limits, U.S. District Judge Rudolph Randa, should have disclosed the fact his parents and other relatives are buried in a cemetery maintained by the trust fund. The court remanded the case to a different district judge.
"This is a highly momentous day for clergy sex abuse survivors in the Archdiocese of Milwaukee, who have suffered terribly since they were abused and have continued to suffer greatly as the archdiocese has gone to great lengths to deny them justice," said survivors' attorney Jeff Anderson of St. Paul, Minn.
The decision reinstated the lawsuit filed by the bankruptcy creditors committee to recover what was a $55 million transfer of money by then-Archbishop Timothy Dolan from the archdiocese to a trust for the perpetual care of the church's cemeteries. The lawsuit claimed that the transfer was a fraudulent attempt to shield the money in anticipation of a bankruptcy filing.
The archdiocese created the Catholic Cemetery Perpetual Care Trust in 2007. The Vatican approved the transfer of funds in 2008. Dolan was named archbishop of New York in 2009 and is now a cardinal. The archdiocese filed for Chapter 11 bankruptcy in January 2011.
The church maintained that forcing it to turn over even $1 in cemetery funds to the bankruptcy estate would substantially burden its free exercise of religion under the First Amendment and the federal Religious Freedom Restoration Act.
In an affidavit, Archbishop Jerome Listecki stated that he had a canonical duty to properly maintain the church's cemeteries and mausoleums, and allowing money from the trust to be accessed to settle claims jeopardized the ability to perform that duty — in effect, a violation of the First Amendment right to the free exercise of religion.
The application of the Religious Freedom Restoration Act — which provides that "government shall not substantially burden a person's exercise of religion" — hinged on whether the creditors committee functioned as an extension of the government. It is appointed by the bankruptcy trustee and is afforded certain powers and responsibilities under the bankruptcy code.
In January 2013, U.S. Bankruptcy Judge Susan V. Kelley ruled on the side of the creditors, saying that taking at least a portion of the cemetery funds would not constitute a substantial burden on the church. The archdiocese appealed to Randa, who found in July 2013 that it would, saying Catholic cemeteries and their proper care play a central role in the Catholic belief in the resurrection of the body after death.
Randa found that the creditors committee, though not strictly a government agency that would normally trigger the religious freedom law, was "acting under color of law" through the bankruptcy proceedings.
No reason to shield
On Monday, a three-judge panel of the 7th Circuit — Appellate Judges Ann Claire Williams and Joel Flaum, along with U.S. District Judge Robert Dow of the Northern District of Illinois — reversed Randa.
The decision, written by Williams, found that neither the Religious Freedom Restoration Act nor the church's rights under the First Amendment allowed the money in the trust to be shielded.
The court rejected the argument that the creditors committee was somehow an entity of the government. The court observed that while government creates, funds and hires public defenders, for example, and operates the court system in which they practice, public defenders act only in the interest of their own clients, "essentially a private function."
The court found the bankruptcy code is designed to represent a "compelling governmental interest in protecting creditors."
If the bankruptcy code were not a significant interest, the court continued, "It is questionable that the Archdiocese would have subjected itself to this bankruptcy proceeding and the adversary action since there is a very serious danger, from the Archdiocese's perspective, that it could be compelled to make the (cemetery) funds part of the (bankruptcy) estate."
The court went out of its way to note that it was not ruling on the legality of the cemetery trust itself, the establishment of the trust or the money in the trust.
However, its decision clears the way for a future court decision on whether fraud occurred in creating the trust and moving archdiocesan money into it.
Further, the creditors committee had asked for a decision on whether Randa should have recused himself from the case. The committee had asked Randa in September 2013 to step aside; he declined.
Because the case will be sent to a different judge, the 7th Circuit did not reach a decision on whether Randa erred in not recusing himself.
But it did note the situation was "problematic."
"The Committee argues that a reasonable person would question the judge's impartiality because he would be emotionally attached to the well being of his family members' resting places," the ruling read.
"The Archdiocese argues that no reasonable person would "make (that) leap in logic." "We think it surprising, given this litigation involves cemetery care and strongly held beliefs about the same, that the Archdiocese would give so little weight to the importance of where the deceased are buried."
After the ruling was announced, James Stang, who represents the creditors committee, said: "No longer can religious organizations shield cash and property under the ruse that it is important to their faith. Today's decision is critically important to survivors of sexual abuse by any religious entity."
Marci Hamilton, special First Amendment counsel to the committee, stated: "This is a win for survivors of sexual abuse, and for every person or private entity threatened with the federal (or a state) RFRA."
Timothy Nixon, who represents the cemetery trust and its sole trustee, Milwaukee Archbishop Jerome Listecki, acknowledged disappointment in the decision and said he still believes "the facts, the federal law and the First Amendment clearly support our position."
"We will give this decision a full review and discuss all options with our client," he said.
Jerry Topczewski, chief of staff of the office of the archbishop, stressed that the archdiocese's reorganization plan did not hinge on how the court ruled on the cemetery issue.
"With the ruling of the 7th Circuit, Judge Kelley can now move forward with confirming the archdiocese's plan of reorganization to emerge from Chapter 11," Topczewski said. "The plan resolves the fight over the cemetery trust to the benefit of abuse survivors and also maintains the sacred commitment to provide perpetual care for those buried in Catholic Cemeteries."
As part of the proposed plan, the archdiocese would borrow $2 million from the trust to pay a portion of its fees.