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Graduation in a church building violates First Amendment.
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A federal appeals court in Chicago ruled that a public school's practice of conducting graduation ceremonies in a church violated the First Amendment's ban on the establishment of religion. Doe ex rel. Doe v. Elmbrook School District, 687 F.3d 840 (7th Cir. 2012). Excerpts from the dissenting opinion by Judge Posner follow:

I don't agree that by choosing—and not for religious reasons—to conduct its graduation ceremony in a church, a public high school transgresses the command in the First Amendment that "Congress shall make no law respecting an establishment of religion." The case law that the Supreme Court has heaped on the defenseless text of the establishment clause is widely acknowledged, even by some Supreme Court Justices, to be formless, unanchored, subjective and provide no guidance.
The text and history of the establishment clause provide no clue to whether a public high school (a virtually nonexistent institution in the eighteenth century) "establishes" religion when it holds its graduation ceremony in a church. The opaque phrase "respecting an establishment" casts no light on the question. The phrase may have been substituted for "establishing" so that the federal government would be forbidden not only to create an established church but also to disestablish New England's quasi-established churches ….
With no guidance from the Constitution or the social sciences, judges inevitably fall back on their priors, that is, on beliefs based on personality, upbringing, conviction, experience, emotions, and so forth that people bring to a question they can't answer by the methods of logic and science or some other objective method. A judge's political orientation is a particularly important clue to his or her likely vote in a case arising under the religion clauses of the First Amendment; conservative judges are more favorable to religion in their decisions than liberal ones, though only on average rather than in every case ….
The best that a judge of determined neutrality faced with a case such as the present one can do is to be guided by Gibbon's aphorism (from chapter 2 of the Decline and Fall ) that "the various modes of worship, which prevailed in the Roman world, were all considered by the people, as equally true; by the philosopher, as equally false; and by the magistrate, as equally useful." For "the Roman world" substitute "the United States" and for "the magistrate" substitute "the judge" and one has the right starting point for the analysis of this case. The judge should not be concerned with the truth or falsity of any religious faith but should regard the various faiths as "equally useful" from the standpoint of society, in recognition of the importance that Americans attach to religion, the diversity and intensity of their religious beliefs and observances, and the bitterness and strife that the government's taking sides among competing faiths would engender ….
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