RFRA N/A to claims against ArchMil Cemetery Trust

Bruce Vielmetti reported at the Milwaukee Journal Sentinel on today's ruling by the United States Court of Appeals for the Seventh Circuit. His story is misleadingly headlined Court rules church can't shield $60 million in abuse cases. As he notes in the body of the article,

"It [the Seventh Circuit] found that including the money in the bankruptcy proceedings would not violate the Religious Freedom Restoration Act [RFRA} and the church's rights under the First Amendment. The court went out of its way to note that the ruling was not on the cemetery trust itself, the establishment of the Trust or the money in the Trust. Its effect was to clear the way for a future court decision on whether fraud occurred in moving archdiocesan money to the trust."

The court gives the background to the allegation of fraud on page 3 of its opinion.

"The Archdiocese has operated and maintained eight Catholic cemeteries and seven mausoleums in the Milwaukee area since 1857. It states in its complaint, which we accept as true, that it has set aside money for decades to provide perpetual care for those cemeteries in accordance with Canon Law. In April 2007, the Archdiocese created a trust fund (the 'Trust') to maintain that money. Two months later, the Archbishop sent a letter seeking approval from the Vatican to transfer roughly $55 million (the “Funds”) into the Trust, noting that '[b]y transferring these assets to the Trust, I foresee an improved protection of these funds from any legal claim and liability.' The Vatican approved and the money was transferred in March 2008.

... after the Trust was created, but before the Funds were transferred, the Wisconsin Supreme Court ruled certain statutes of limitations could be tolled, which allowed various sexual misconduct suits to go forward against the Archdiocese. John Doe 1 v. Archdiocese of Milwaukee, 734 N.W.2d 827, 842–47 (Wis. 2007). [opinion] Some of the resulting cases have been stayed pending the outcome of the bankruptcy petition."

As I understand the situation, the Creditors Committee says that this constitutes a fraudulent or preferential transfer, so that the funds should be considered part of the bankruptcy estate and subject to claims. Our Archdiocese says this money was already trust funds while on its books, and so there is no disadvantage to the creditors from transferring it to a formal trust. Those issues now go back to the Bankruptcy Court for decision.

The net effect may be that the plan of reorganization will be revised so that the Cemetery Trust loans more money to our Archdiocese to finance a larger payment to abuse claimants.