A complicated legal dispute involving separation of church and state, management of federal grants, and the right to sue may now be decided based on that last question, one of standing, and the University of Notre Dame could benefit.

On Friday, the U.S. Supreme Court accepted an appeal by the University of Notre Dame of an appeals court's ruling that the university might have to repay a $500,000 federal grant -- even though the money had already been spent. The Supreme Court not only accepted the appeal, but vacated the ruling by the U.S. Court of Appeals for the Seventh Circuit, and ordered the lower court to reconsider the case in light of another ruling by the Supreme Court last week. That ruling, on the question of standing, could pose a challenge for those suing Notre Dame as it makes it much harder for citizens to challenge spending that they believe violates the separation of church and state.

The suit that led to all these legal maneuvers was filed by two taxpayers, helped by the Indiana Civil Liberties Union, charging that Congress violated the separation of church and state when it earmarked $500,000 to Notre Dame in 2000 so the university could spread its Alliance for Catholic Education, which helps train teachers for Roman Catholic schools, to other universities. The appeals court ruling last year focused not on church and state, but on the question of whether the university could be forced to pay the government $500,000 when it had already spent the grant money, in accordance with the terms set out by the Education Department to manage the funds.

A federal district judge had dismissed the suit as moot, given that Notre Dame had already spent the money, arguing that the spending and the resulting programming could not be undone. But in a 2-1 ruling, the appeals panel disagreed. While noting that the money has been spent, Judge Richard A. Posner wrote: “What can be rectified, however, is the depletion of the federal treasury by the amount of the grant. It can be rectified simply by the restoration of the money to the U.S. Treasury.”

The appeals panel’s opinion ordered a full trial on the question of whether the grant inappropriately mixed church and state -- an issue that was never addressed legally. And now it's possible it never will.

Last week, the Supreme Court -- in one of a series of 5-4 rulings -- rejected a challenge brought by taxpayers on church-state grounds to the White House Office of Faith-Based and Community Initiatives. The opinion held that the taxpayers' views of the church-state issue did not give them legal standing to challenge it. In ordering the Notre Dame case to be re-evaluated in light of the White House case, the Supreme Court didn't say explicitly that the standing issue should be examined. But that would appear to be the similarity in the two cases, and may not bode well for the plaintiffs.

A Notre Dame spokesman said that the university had not yet reviewed last week's decision and so could not comment. The lawyer who handled the case at the Indiana Civil Liberties Union did not respond to phone calls.