Court rules Milwaukee archdiocese’s cemetery trust part of bankruptcy reorganization


CHICAGO — The 7th U.S. Circuit Court of Appeals in Chicago ruled March 9 that it would not violate the free exercise of religion to consider the Milwaukee archdiocese’s cemetery trust fund in its Chapter 11 reorganization proceedings.

The court overturned a July 29, 2013, ruling by Judge Rudolph Randa of the U.S. District Court for the Eastern District of Wisconsin.

Randa said that applying the U.S. Bankruptcy Code to $55 million transferred from the archdiocese’s general accounts to a trust earmarked for cemetery maintenance would violate Milwaukee Archbishop Jerome E. Listecki’s religious freedom rights as trustee for the cemetery trust.

He cited the Religious Freedom Restoration Act, better known as RFRA, and the First Amendment’s free exercise of religion clause.

“It cannot be denied that this court’s decision, or a further ruling on appeal from this court’s decision, will shape the course of future proceedings in bankruptcy,” he wrote.

In overturning Randa’s decision, the 7th Circuit said: “Based on RFRA’s plain language, its legislative history and the compelling reasons offered by our sister circuits, we now hold RFRA is not applicable in cases where government is not a party.”

It also said that the First Amendment’s free exercise clause does not prevent application of the U.S. Bankruptcy Code to the cemetery trust funds.

In 2011, Milwaukee’s archdiocesan attorneys filed a petition for a Chapter 11 reorganization of its financial affairs under the U.S. Bankruptcy Code to provide a settlement to victims of past sexual abuse.

Chief Judge Susan V. Kelley of the U.S. Bankruptcy Court for the Eastern District of Wisconsin is handling the proceedings.

On Jan. 11, 2013, Kelley offered an opinion that neither the First Amendment nor RFRA protected the money in the cemetery trust. Attorneys for the archdiocese appealed her ruling to the District Court, which overruled her.

The Official Committee of Unsecured Creditors, which is seeking compensation for victims/survivors of clergy sexual abuse, then appealed Randa’s decision to the circuit court.

The archdiocese in its appeal of Kelley’s ruling argued the committee acted under “color of the law,” thus making it “government.” The committee countered that it was not “government.”

RFRA says: “Government shall not substantially burden a person’s exercise of religion even if the burden results from a rule of general applicability,” unless two conditions are met, that it advances “a compelling government interest” and that it does so in the least restrictive way possible.

At various times during the past nine months, Kelley has told attorneys for the archdiocese and the committee that she would not proceed on certain matters in the archdiocese’s Chapter 11 reorganization until she heard from the 7th Circuit.

She has had the archdiocesan plan for reorganization since it was filed Feb. 12, 2014. Kelley said she couldn’t rule on it until she received the circuit court ruling.

“We have a ruling; now she can rule on the plan,” Jerry Topczewski, chief of staff for Archbishop Listecki,” said in a statement.”And in the plan the litigation is settled.”

When the plan was filed, Archbishop Listecki called it “the next major step toward ending the bankruptcy and returning our focus to the primary mission of the church; proclaiming the Gospel, worshipping more fully, and serving our sisters and brothers in need.”

The plan would provide about $4 million in abuse settlements and it includes a Lifetime Therapy Fund to provide help to abuse survivors as long as they need it.

It demonstrates a commitment by the archdiocese, according to the archbishop, to abuse survivors and to serving the people of God in southeastern Wisconsin.

“It’s time for us to get back to what the church is supposed to be doing. It’s time for the archdiocese to return its focus to its ministry. Outreach to and the support of abuse survivors will always be part of that ministry,” he wrote.

The 7th Circuit sent the case over the cemetery funds back to the lower court for further proceedings.

“Our decision does not resolve all the issues in the archdiocese’s complaint, nor do we make any finding as to whether the transfer of the funds to the trust was fraudulent, avoidable or preferential,” it said in its 38-page ruling.

Topczewski said the case was never about the fraudulent transfer of funds.

“The issue was is the money the property of the state or is it a separate trust?” he said.

Timothy Nixon, the attorney representing the cemetery trust, said the court made “a very narrow ruling on a technical legal issue.”

According to Nixon, it doesn’t change the status of the trust.

“As of today, the money is still in the cemetery trust. No court has ruled that it shouldn’t be,” he said March 10 in an interview with the Catholic Herald, which serves the Catholic community in southeastern Wisconsin.

Asked if the cemeteries would receive the care for which people paid, Nixon said, “Yes. We are confident that there will be money there. They’ll be taken care of.”

Topczewski concurred.

“The intention of the archdiocese is to continue to provide perpetual care for the archdiocesan cemeteries through the financial support provided by the Cemetery Perpetual Care Trust in the plan of reorganization,” he said.

Contributing to this story was Brian T. Olszewski of the Catholic Herald, a publication that serves the Catholic community in southeastern Wisconsin.