Judge Says Cemetery Fund Is Part of Milwaukee Archdiocese's Bankruptcy Estate

By Annysa Johnson
Milwaukee Journal Sentinel
January 11, 2013

http://www.jsonline.com/features/religion/judge-says-cemetery-fund-is-part-of-milwaukee-archdioceses-bankruptcy-estate-5s8bldr-186573221.html

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.

Taking funds the Archdiocese of Milwaukee set aside for cemetery operations to help settle its bankruptcy debts would not hinder its free exercise of religion under the First Amendment and a 1993 federal law aimed at protecting religious freedom, U.S. Bankruptcy Judge Susan V. Kelley said in a hearing Friday.

Kelley's opinion, which is expected to be filed early next week, is a victory for sex-abuse victims and other creditors working to expand the archdiocese's bankruptcy estate - the pool of money used to fund settlements and the church's reorganization.

But it could be short-lived.

Lawyers for the creditors committee and the archdiocese's cemetery trust have agreed to seek a separate decision from the U.S. District Court in a procedural move that reduces Kelley's findings from a final order to essentially recommendations - a development that appeared to blindside and anger the judge.

"I have hundreds of other bankruptcy cases I put on hold to decide this," Kelley said, rebuking the lawyers midway through a 2 1/2 -hour hearing.

"My idea was to get this case on a faster track, to get this settled, and I don't think this advances that ball at all."

Marci Hamilton, a First Amendment scholar who argued the case for the creditors committee, said Kelley's opinion is unlikely to be reversed.

"Our view is that that should help with settlement negotiations," said Hamilton, who is not involved in the settlement talks.

Timothy Nixon, who represents the cemetery trust, also suggested settlement talks were ongoing. But he challenged Hamilton's assessment that Kelley's opinion would be adopted in the District Court.

Nixon conceded that federal district judges generally affirm their bankruptcy colleagues on bankruptcy issues.

"But this is not a bankruptcy issue," said Nixon. "This is (The Religious Freedom Restoration Act) and the Constitution, on which district courts jealously protect their prerogatives."

At issue is whether the $55 million moved off the archdiocese's books in 2008 into a newly created cemetery trust - and all subsequent payments into that trust - should be considered assets of the bankruptcy estate.

The creditors committee argues that the funds were fraudulently transferred to keep them from sex-abuse victims who were suing the archdiocese.

The trust - of which Milwaukee Archbishop Jerome Listecki is the sole trustee - maintains that Catholic burials are an essential part of the archdiocese's religious mission, and that attaching even a portion of those funds would substantially burden its free exercise of religion under the First Amendment and the 1993 Religious Freedom Restoration Act.

Hamilton argued successfully that the Restoration Act applied only in cases involving the government, that it was unconstitutional when applied to state law (on which federal bankruptcy law turns), and that religious groups cannot invoke the First Amendment as a protection against laws that are neutral and generally applicable to all, including federal bankruptcy laws.

Internationally known Wisconsin attorney Brady Williamson, who represented the cemetery trust, argued that the Restoration Act should apply because the creditors committee functioned essentially as a government entity; and that even neutral, generally applicable laws such as the U.S. Bankruptcy Code can impinge on the practice of religion in violation of the First Amendment.

"This case is about money, but it is also about matters of faith," said Williamson.

The archdiocese filed for Chapter 11 protection in January 2011 as a way to resolve its outstanding sex-abuse claims. From the beginning, the two sides have pursued divergent strategies, with the archdiocese moving to throw out victims' claims and the creditors pursuing church assets that could be used to pay them.

Kelley ruled in December that the creditors committee could not pursue assets of the archdiocese's 200-plus parishes or the more than $35 million in parish investment funds the archdiocese moved off its books in 2005.