MADISON, Wis. (AP) — A federal judge made a mistake when he ruled a $55 million cemetery trust fund off-limits in the Archdiocese of Milwaukee's bankruptcy case, a federal appeals court ruled Monday.
The 7th U.S. Circuit Court of Appeals in Chicago said the federal Religious Freedom Restoration Act, which protects religious organizations from government interference, doesn't protect the money because creditors seeking a share of the fund aren't the government.
Attorneys for clergy sexual abuse victims have accused New York Cardinal Timothy Dolan of creating the trust fund when he was archbishop of Milwaukee to hide money from their clients. Their lawsuit has potentially far-reaching consequences because many Roman Catholic dioceses hold money in trust, and the victory for victims in Milwaukee could pave the way for others elsewhere. The appeals court decision is likely to be appealed.
"This is a great decision that reverberates across the country," said Jeff Anderson, an attorney for 350 of the victims.
Tim Nixon, an attorney for the cemetery trust fund, said his firm will review its options and discuss them with the archdiocese.
"The care and maintenance of the Milwaukee Catholic cemeteries are a fundamental belief of the Catholic faith, and this decision casts a shadow over religious freedom," Nixon said in a statement.
The archdiocese filed for bankruptcy in 2011, saying it wouldn't have the money to pay if courts ruled in favor of abuse victims who had filed lawsuits. Hundreds of victims have since filed claims against the archdiocese in bankruptcy court.
The archdiocese has proposed a reorganization plan that would give 128 victims roughly $4 million from an insurance settlement. About 450 other people who have filed claims would receive nothing.
Bankruptcy Judge Susan Kelley refused to hold a confirmation hearing on the plan until the appeals court ruled. A provision of the plan called for the archdiocese to borrow $2 million from the cemetery trust fund to help cover attorneys' fees and other bankruptcy costs.
Victims have called that outrageous when they can't get access to the money.
The appeals court sent the case back to the lower court for further proceedings.
Archdiocese spokesman Jerry Topczewski said the ruling does not mean the money is now available to clergy abuse victims.
Pamela Foohey, associate professor at Indiana University Maurer School of Law, said Monday's ruling means that a religious organization has to follow the same rules as every other business and can't invoke the First Amendment or the 1993 Religious Freedom Restoration Act to escape them.
"If you want to be in the system and benefit from (Chapter 11 reorganization) you have to be subject to the same rules as everyone else," she said.
U.S. District Judge Rudolph T. Randa said last year that the trust fund was covered by the Religious Freedom Restoration Act, which protects religious organizations from government interference. Trust fund attorneys claimed the court-appointed committee that represents sexual assault victims and others owed money by the archdiocese is an arm of the government.
The committee's lawyers disputed that, saying the committee acts independently from the court and the bankruptcy trustee who appointed it.
During oral arguments in June, the three judges on the appeals court panel peppered attorneys with questions about cemetery maintenance, including whether the archdiocese needed all $55 million to maintain the properties. Attorneys responded that the archdiocese had never disclosed its annual maintenance costs.
The archdiocese has contended the money was given to maintain the cemeteries and always used for that purpose. The fund provides money to operate eight cemeteries and mausoleums on nearly 1,000 acres of land in which more than 500,000 people are buried.
But victims point to a June 2007 letter in which Dolan told a Vatican office that moving the money into a trust would provide "an improved protection of these funds from any legal claim and liability."
Associated Press writer Amy Forliti contributed to this report from Minneapolis.