The Superior Court found that evidence presented at Lynn's trial was insufficient to find him guilty of endangering the welfare of children. Lynn was not convicted of molesting children himself, but prosecutors argued that as secretary for clergy in the Philadelphia archdiocese he allowed at least one known molester to continue.
Lynn was 18 months into a three- to six-year sentence.
Philadelphia District Attorney Seth Williams told the Philadelphia Inquirer he expects to appeal the decision.
Marita Green, president of the Philadelphia chapter of Voice of the Faithful, called the decision a "disgrace."
"It is appalling that the laws in the state of Pennsylvania have been so ineffective that none of these enablers, facilitators and cover-up-ers have gone to jail," she said.
Joe Maher, the founder of Opus Bono Sacerdotii, a Detroit group that provides support for accused priests, said the decision will force prosecutors to think through "who is really accountable" for clerical sex abuse. He said administrators like Lynn should not be made responsible for others' crimes.
The Rev. Christopher Walsh, pastor at St. Raymond of Penafort and founder of a two-year-old group, Association of Philadelphia Priests, said the decision is not a victory for the church. Walsh, who said he was speaking only for himself, said the legal issue was not whether Lynn was guilty but whether he did something "he could be prosecuted for."
"There's not a sense we're getting past this," he added.