Pachulski Stang Confirms Major Wins in Archdiocese of Milwaukee Sex Abuse Case

Court Reinstates $60mm Fraud Lawsuit and Takes Case Away From Judge Randa

March 9, 2015


Milwaukee, WI – March 09, 2015 – The Seventh Circuit Court of Appeals has reinstated the $60 million fraud lawsuit that seeks to recover funds from a cemetery trust fund for the care of graves for the benefit of the bankruptcy estate of the Archdiocese of Milwaukee and its creditors. While the Court did not recuse Judge Rudolph Randa for failing to disclose his interest in the litigation, it reversed his dismissal of the lawsuit and remanded the case to another District Court judge.

The Archdiocese of Milwaukee filed a chapter 11 case in January 2011. The Official Committee of Unsecured Creditors (the “Committee”) filed a counter suit to recover a $60 million transfer made by then Archbishop Timothy Dolan (now Cardinal Dolan of the Archdiocese of New York) from the Archdiocese to a trust established and controlled by him for the perpetual care of Archdiocese cemeteries (the “Cemetery Trust”). The Committee alleged that the transfer was made with the intent to hinder, delay and defraud creditors based on statements made in correspondence between Archbishop Dolan and the Vatican. The Cemetery Trust (the Archbishop is the sole trustee of the Trust) contended that the recovery of the funds would burden the exercise of religion under the Religious Freedom Restoration Act and the First Amendment (“RFRA”). The Bankruptcy Court denied those defenses, and District Court Judge Rudolph Randa reversed the Bankruptcy Court and dismissed the suit. The Committee appealed the dismissal of the case to the Seventh Circuit Court of Appeals and sought the recusal of Judge Randa for failure to disclose his personal relationship to the litigation.

The Seventh Circuit Court held that RFRA did not shield the Archdiocese’s transfer of the funds to the trust because the Committee (the plaintiff in the litigation) was not a government actor as required by the Act, and that the suit did not violate the First Amendment. As the Court reversed Judge Randa, it did not recuse him, but ordered the case remanded to another judge.

James Stang of Pachulski Stang Ziehl & Jones LLP (counsel to the Committee) stated, “No longer can religious organizations shield cash and property under the ruse that it is important to their faith. Today’s decision is critically important to survivors of sexual abuse by any religious entity.”

Marci Hamilton, special First Amendment counsel to the Committee and Paul R. Verkuil Chair in Public Law, Benjamin N. Cardozo School of Law Yeshiva University added, "The Seventh Circuit issued an extremely important ruling today that RFRA is not a sword to be wielded against private parties and that religious organizations do not have immunity from the bankruptcy laws that apply to everyone else. This is a win for survivors of sexual abuse, and for every person or private entity threatened with the federal (or a state) RFRA. In the big picture, it also means that RFRAs are not tools that businesses and other organizations can wield to harm or inflict discrimination against private persons. The survivors in this case have set a precedent that will aid not only other victims of abuse, but also victims of discrimination by organizations. It is an honor to represent the Creditors’ Committee in this important case. "

The Official Committee of Unsecured Creditors is represented by James Stang, Kenneth Brown, Gillian Brown and Erin Gray of Pachulski Stang Ziehl & Jones LLP, and Marci A. Hamilton as special counsel.

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