Vilatte establishes the Society of the Precious Blood

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Bishop Brown died May 2, 1888, and was on November 13, succeeded as Bishop of Fond du Lac by Charles C. Grafton, who had been one of the first members of the Cowley Fathers, founded at Oxford in 1866. Grafton was a rigid High Churchman. He at first supported Vilatte in his mission and most of all, did not want any Catholics to become part of the Roman Catholic Church. Grafton and Vilatte continued with their differences throughout the rest of his stay in Wisconsin.

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Twenty-one months after his appointment as Bishop, Grafton realized that the Old Catholic missions of Northeast Wisconsin were not actually under his episcopal command that they were more or less "freelance". The Bishop managed to persuade Vilatte to transfer the legally to the trustees of the Diocese of Fond du Lac, to be held in trust for Old Catholicism. In return for this, the trustees agreed to pay stipend to Old Catholic clergy and finance their work. T

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In 1889, Vilatte published a pamphlet entitled 'A Sketch of the Belief of Old Catholics' In it, Vilatte was still quite convinced that he had a vocation to be an Old Catholic mission priest in the United States. He also promoted the idea of a Democratic catholic church in America. Neither Roman Catholic and nor Protestant Catholic, but American Catholic.

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In Dykesville, Vilatte established the first Old Catholic religious order and monastery. The Society of The Precious Blood ("SPB") he and two other members made up the first members.

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When Archbishop Heykamp, Old Catholic Archbishop of Utrecht, heard of the goings on in Wisconsin between Vilatte and Bishop Grafton, he wrote to Vilatte on September 19, 1889, to break off relations with the Protestant Episcopal Church (at that time the Old Catholics did not recognize the PEC orders as valid). On October 8, 1889, Bishop Dipendaal, Bishop of Deventer wrote a letter stating that the Old Catholic hierarchy of the Netherlands regarded Father Vilatte, S.P.B., as one of their priests, and the recognized leader of the Old Catholics in North America.

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The following April, Vilatte told Bishop Grafton about the correspondence with the Church of Utrecht, and suggested that he be raised to the episcopate. Bishop Grafton wrote to Archbishop Heykamp with the suggestion that Vilatte might be consecrated Abbot-Bishop of The Society of Precious Blood and suffragan bishop of Fond du Lac, but that this action would have to emanate from the church in the Netherlands and Vilatte would have to be sent back to America by their mandate, and that if a consecration did take place that Vilatte and the Old Catholics would face financial cutoff from the Diocese of Fond du Lac. That is was only through his financial support that the Old Catholic Missions were able to exist. The Bishop also stated that he would remove Vilatte as pastor of the Old Catholic Missions if such a consecration took place.

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Vilatte and Grafton were determined to rid themselves of each other. At one point, Vilatte had sent letters to the Russian Orthodox Bishop of the Aleutian Islands and Alaska, seeking assistance. The final breaking point took place when Bishop Grafton started publishing statements against Vilatte in Episcopal publications and asking fellow Episcopalians to stop sending money and donations to the Old Catholic Missions of Northeastern Wisconsin.

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Meanwhile, the Old Catholic Bishops in Europe continued their request that Vilatte discontinue any relations with the Protestant Episcopal Church and the Diocese of Fond du Lac. In September of 1890, when Bishop Grafton showed up at the Old Catholic mission with several of his clergy, for confirmation, he was informed that there were no candidates because the Old Catholic Bishops of Holland had forbidden the Old Catholics there to accept any sacraments from him.

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Grafton insisted on addressing the congregation, stating that he was their true bishop and he reminded them of his financial support (this was at Duval). The next day the same scenes took place at Little Sturgeon. Shortly thereafter, Bishop Grafton wrote to Vilatte and suggested that he give-up his work and turn everything over to the Diocese of Fond du Lac. (This included churches, houses, furniture, religious items and vestments). On September 19, 1890, Vilatte sent a letter to Bishop Grafton; he informed him that he was severing connections with the Episcopal Church.