Wednesday, July 31, 2013

Claims against cemetery trust dead, for now

On appeal from the Bankruptcy Court, a U.S. District Court Judge shields archdiocese fund from creditors, the Associated Press reported in the Wisconsin Law Journal.

More specifically, In win for Milwaukee Archdiocese, judge shields cemetery funds from creditors, Annysa Johnson and Gina Barton reported in more detail in the article, as well as the headline, at the Milwaukee Journal Sentinel.

Here is Judge Randa's order [pdf] (via SNAP Wisconsin). As I read it, he ruled that a bankruptcy trustee would be subject to the Religious Freedom Restoration Act (RFRA), which enacted a higher standard for judging if government action of general applicability abridges the free exercise of religion. Since in regard to litigating the cemetery trust's status the Creditors Committee is functionally in the role of a bankruptcy trustee, it is likewise subject to the RFRA.

The issue not dealt with is whether the transfer of perpetual care funds from our Archdiocese to the cemetery trust would otherwise make the assets subject to the claims of the unsecured creditors. I did find this article by Catharine P. Wells of Boston College Law School which touches on the issue.

"Generally Accepted Accounting Principles (GAAP) require that charitable organizations keep their books and records in accordance with fund accounting principles. Under these principles, any organization that receives a donation for a specific charitable purpose must set up a special fund in its bookkeeping system. This fund is legally restricted in the sense that it cannot be used to pay any expense that does not fall within the designated purpose. Thus, if a hospital maintains a restricted fund for research, it will be credited each time the hospital receives a donation for research and debited when expenditures are made on behalf of the research program. If the hospital goes bankrupt, then the money in the restricted account can only be used to pay those creditors who have furnished goods or services for the research program. The remainder of the fund must be set aside for future research by the hospital or, if the hospital is no longer able to conduct such research, the fund should be transferred to a similar institution that will be able do so. In light of these considerations, the trustee of a bankrupt charity must be especially careful to note the existence of any restricted funds and to segregate them from the funds used to pay general creditors." (pages 5-6, footnotes omitted)
If this is the case, it seems to me the issue should be whether or not the perpetual care funds as held by our Archdiocese were in a form of restricted fund that would protect those funds in bankruptcy. If so, Archbishop Dolan saying [pdf] the transfer of those funds to the cemetery trust was for "improved protection of these funds from any legal claim and liability" is not a "smoking gun" because there would be no "gun" in the first place.

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