At various times during the last nine months, Chief Judge Susan V. Kelley of the U.S. Bankruptcy Court for the Eastern District of Wisconsin has told attorneys for the Archdiocese of Milwaukee and the Official Committee of Unsecured Creditors (the committee) that she would not proceed on certain matters in the archdiocese’s Chapter 11 reorganization until she heard from “the Seventh Circuit (Court of Appeals).”
The reference was to an appeal by the committee seeking to overturn a ruling by Judge Rudolph Randa in the U.S. District Court for the Eastern District of Wisconsin in which he said that applying the U.S. Bankruptcy Code to the archdiocese’s transfer of $55 million from its general accounts to a trust earmarked for cemetery maintenance would violate Archbishop Jerome E. Listecki’s, as trustee for the cemetery trust, free exercise (of religion) under the Religious Freedom Restoration Act (RFRA) and the First Amendment.
On Monday, March 9, the U.S. Court of Appeals for the Seventh Circuit reversed Randa on those points.
“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,” the appeals court wrote.
The archdiocese had argued that the committee had acted under “color of the law,” thus making it “government.” The committee countered that it was not “government.” In one of several lengthy explanations given in the 38-page ruling, the appeals court dissected the archdiocese’s arguments in siding with the committee.
Not about fraud
The appeals court said that the First Amendment’s free exercise clause does not prevent application of the U.S. Bankruptcy Code to the cemetery trust funds.
“We do not understand the archdiocese to be arguing the transfer of the funds is a religious matter this court cannot adjudicate, nor could it make that argument because those cases relate only to intrachurch disputes,” the judges wrote. “Here, we have what was alleged to be a fraudulent or otherwise avoidable transfer, and the court need not interpret any religious law or principles to make that determination, nor must it examine a decision of a religious organization or ‘tribunal’ on whether or not the transfer was fraudulent.”
Jerry Topczewski, chief of staff for Archbishop Listecki, said the case was never about fraudulent transfer of funds.
“The issue was is the money the property of the state or is it a separate trust?” he said.
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 Seventh District Court, which overruled her.
In reversing the circuit court’s summary judgment in favor of the archdiocese and the dismissal of the case, the appeals court judges stated, “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.”
In making his July 29, 2013 ruling, Randa stated, “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.”
Timothy Nixon, the attorney representing the cemetery trust, told the Catholic Herald Tuesday, March 10, that 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,” he said. “No court has ruled that it shouldn’t be.”
Cemeteries will be cared for
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.”
“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.
Topczewski said that in addition to a $2 million loan from the trust to help cover expenses and the settlement of the plan, the trust will also pay approximately $2 million annually to the archdiocese to ensure that perpetual care of the cemeteries.
Nixon noted that the court acknowledged the “faith perspective” integral to what archbishop and the archdiocese argued. In its decision, the court, quoting one of the archdiocese’s oral arguments, said it “cannot ‘determine the centrality of religious practice to an adherent’s faith,’ which means the sincerity of the archbishop’s religious beliefs….”
The court remanded the case to the Seventh Circuit Court where it is “open,” according to Nixon, and will be heard by a judge other than Randa.
At the same time, Kelley, who has had the plan for reorganization since it was filed by the archdiocese on Feb. 12, 2014, could consider the settlement it proposes. If the court accepts the plan, the lawsuit in the circuit court would become a moot point.
Noting that Kelley has said she couldn’t rule on the plan until she had received a ruling from the court of appeals, Topczewski said, “We have a ruling; now she can rule on the plan. And in the plan the litigation is settled.”