CHICAGO (CN) - The Archdiocese of Milwaukee's $55 million cemetery trust fund is not off limits to claims filed by clergy sex abuse victims against the church's bankruptcy estate, the 7th Circuit ruled.
The archdiocese declared Chapter 11 bankruptcy in 2011, declaring that it did not have the funds to pay the amounts sought by clergy sexual abuse victims in court.
It proposed a bankruptcy reorganization plan that would give 128 victims $4 million, but leave 450 other claimants with nothing.
However, the archdiocese transferred $55 million out of its general fund, and earmarked the money for the upkeep of cemeteries, claiming it was off-limits to creditors.
A creditors' committee composed of abuse victims protested this move in court, asserting that this one-time transfer of $55 million was a blatant attempt to prevent victims from recovering money from the archdiocese.
A federal judge sided with the archdiocese, ruling that the Religious Freedom Restoration Act (RFRA) and First Amendment protected its freedom to make its own financial decisions.
But the 7th Circuit reversed Monday, finding that the bankruptcy code is "generally and neutrally applicable and represent[s] a compelling governmental interest in protecting creditors that is narrowly tailored to achieve that end."
While the RFRA would apply if the government were a party to the lawsuit, the creditors' committee is not the government, even if it performs a public function, the panel found.
"There is some overlap between their functions," U.S. Circuit Judge Ann Williams said, comparing the committee with the bankruptcy trustee, "e.g., both engage in restructuring discussions and converse with the court regarding the status of the case and the debtor's estate - but the traditional function of the governmental entity is to act as an impartial supervisor of the bankruptcy process for the benefit of all. The Committee, however, is far from impartial."
In addition, the First Amendment is not applicable here, because the question of whether the transfer of funds was fraudulent is not a religious matter.
"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," Williams said.
And even if the code's application to the Archdiocese's funds would substantially burden the Archbishop's religious beliefs, the government has a compelling interest in protecting creditors "that can overcome a burden on the free exercise of religion," the court ruled.
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