In the
latest opinion interpreting the federal Religious Freedom Restoration Act
(RFRA), the Seventh Circuit concluded that the 1993 law does not require the
court to exclude a $55 million cemetery trust fund from the Archdiocese of
Milwaukee’s bankruptcy estate. The case, Listecki v. Official Committee of Unsecured Creditors,
involves the question of whether a 2008 transfer of the money from the
archdiocese’s general fund to a newly created trust.
latest opinion interpreting the federal Religious Freedom Restoration Act
(RFRA), the Seventh Circuit concluded that the 1993 law does not require the
court to exclude a $55 million cemetery trust fund from the Archdiocese of
Milwaukee’s bankruptcy estate. The case, Listecki v. Official Committee of Unsecured Creditors,
involves the question of whether a 2008 transfer of the money from the
archdiocese’s general fund to a newly created trust.
Archdiocese transferred funds in light of sex-abuse cases, filed for bankruptcy.
In seeking Vatican
approval of the transfer, then-Archbishop Timothy Dolan (now Archbishop of the
Archdiocese of New York) wrote, “By transferring these assets to the
Trust, I foresee an improved protection of these funds from any legal claim and
liability.” At the time of the transfer, the archdiocese found itself amid
a series of lawsuits arising from sexual abuse by priests. It had settled with
ten victims for $17 million in 2006. Then, after the Wisconsin Supreme Court
held that applicable
statutes of limitations did not bar certain other claims, various
sexual-misconduct suits went forward.
approval of the transfer, then-Archbishop Timothy Dolan (now Archbishop of the
Archdiocese of New York) wrote, “By transferring these assets to the
Trust, I foresee an improved protection of these funds from any legal claim and
liability.” At the time of the transfer, the archdiocese found itself amid
a series of lawsuits arising from sexual abuse by priests. It had settled with
ten victims for $17 million in 2006. Then, after the Wisconsin Supreme Court
held that applicable
statutes of limitations did not bar certain other claims, various
sexual-misconduct suits went forward.
Due in part
to the sex-abuse cases, the archdiocese filed for Chapter 11 bankruptcy in
2011. As part of the bankruptcy procedure, the bankruptcy trustee appointed a
group of abuse victims to a committee to represent the archdiocese’s unsecured
creditors. The Archbishop then sought to protect the cemetery fund from the
creditors, arguing that to use the funds to satisfy the committee’s claims
would violate the Archbishop’s free-exercise rights and RFRA. The archdiocese
argued that the archbishop has a canonical duty to maintain the cemeteries and
mausoleums in perpetuity. The committee argued that the transfer was fraudulent
and should be voided.
to the sex-abuse cases, the archdiocese filed for Chapter 11 bankruptcy in
2011. As part of the bankruptcy procedure, the bankruptcy trustee appointed a
group of abuse victims to a committee to represent the archdiocese’s unsecured
creditors. The Archbishop then sought to protect the cemetery fund from the
creditors, arguing that to use the funds to satisfy the committee’s claims
would violate the Archbishop’s free-exercise rights and RFRA. The archdiocese
argued that the archbishop has a canonical duty to maintain the cemeteries and
mausoleums in perpetuity. The committee argued that the transfer was fraudulent
and should be voided.
The
district court had concluded that RFRA and the First Amendment protected the
funds because the archbishop’s exercise of religion would be substantially
burdened if the money was used to satisfy the archdiocese’s debts and that the
committee was acting under color of law, or that it had the authority of the
government. In response, the committee moved to reverse the ruling and recuse
the judge, who has nine family members buried in archdiocese-owned cemeteries.
district court had concluded that RFRA and the First Amendment protected the
funds because the archbishop’s exercise of religion would be substantially
burdened if the money was used to satisfy the archdiocese’s debts and that the
committee was acting under color of law, or that it had the authority of the
government. In response, the committee moved to reverse the ruling and recuse
the judge, who has nine family members buried in archdiocese-owned cemeteries.
Appeal from summary judgment challenged RFRA and First Amendment claims.
On appeal,
the Seventh Circuit did not consider whether the transfer was fraudulent, only
whether RFRA or the First Amendment protected the funds in bankruptcy. In
deciding the RFRA issue, it concluded that RFRA does not apply because,
contrary to the district court’s holding, the government is not involved.
Because the committee is not the government, RFRA does not apply. In deciding
whether the First Amendment’s Free Exercise Clause prevents application of the
bankruptcy code to the cemetery funds, the Seventh Circuit concluded it does
not, explaining, “there is a compelling governmental interest in the
application of the relevant portions of the Code that is narrowly tailored to
achieving that interest.”
the Seventh Circuit did not consider whether the transfer was fraudulent, only
whether RFRA or the First Amendment protected the funds in bankruptcy. In
deciding the RFRA issue, it concluded that RFRA does not apply because,
contrary to the district court’s holding, the government is not involved.
Because the committee is not the government, RFRA does not apply. In deciding
whether the First Amendment’s Free Exercise Clause prevents application of the
bankruptcy code to the cemetery funds, the Seventh Circuit concluded it does
not, explaining, “there is a compelling governmental interest in the
application of the relevant portions of the Code that is narrowly tailored to
achieving that interest.”
RFRA’s
language states, “Government shall not substantially burden a person’s
exercise of religion even if the burden results from a rule of general
applicability.” 42 U.S.C. § 2000bb-1(a). The exception requires that the
government show a compelling governmental interest and that the burden is the
least-restrictive means to advance that interest. The Seventh Circuit pointed
out that the government cannot meet this burden if it is not a party, and
private parties cannot “step into the shoes of the ‘government'” to
meet that burden. It also pointed to the relief provided by RFRA, which calls
for “relief against a government.” 42 U.S.C. § 2000bb-1(c). Support
for this position is also found in the legislative history, which only includes
examples of suits against governments, and in other circuits.
language states, “Government shall not substantially burden a person’s
exercise of religion even if the burden results from a rule of general
applicability.” 42 U.S.C. § 2000bb-1(a). The exception requires that the
government show a compelling governmental interest and that the burden is the
least-restrictive means to advance that interest. The Seventh Circuit pointed
out that the government cannot meet this burden if it is not a party, and
private parties cannot “step into the shoes of the ‘government'” to
meet that burden. It also pointed to the relief provided by RFRA, which calls
for “relief against a government.” 42 U.S.C. § 2000bb-1(c). Support
for this position is also found in the legislative history, which only includes
examples of suits against governments, and in other circuits.
Seventh Circuit held RFRA does not apply to the bankruptcy case.
In
concluding that the committee did not qualify as the “government,”
the Seventh Circuit looked to RFRA’s definition of government. The archdiocese pointed to the definition’s
inclusion of “other person acting under color of law” to argue the
committee could qualify. The court rejected this interpretation, instead
applying a meaning consistent with 42 U.S.C. § 1983, which provides relief for
other constitutional claims. That precedent requires a close relationship
between the state and challenged action, so that the action “may be fairly
treated as that of the State itself.” The committee, “a combination of
private decisions, Trustee appointment, and court supervision, with the private
actions providing the qualifying criteria for appointment, is not action that
meets this test. In other words, appointment and supervision do not make a
party the “government.”
concluding that the committee did not qualify as the “government,”
the Seventh Circuit looked to RFRA’s definition of government. The archdiocese pointed to the definition’s
inclusion of “other person acting under color of law” to argue the
committee could qualify. The court rejected this interpretation, instead
applying a meaning consistent with 42 U.S.C. § 1983, which provides relief for
other constitutional claims. That precedent requires a close relationship
between the state and challenged action, so that the action “may be fairly
treated as that of the State itself.” The committee, “a combination of
private decisions, Trustee appointment, and court supervision, with the private
actions providing the qualifying criteria for appointment, is not action that
meets this test. In other words, appointment and supervision do not make a
party the “government.”
Court held that the Free Exercise Clause does not protect cemetery funds.
Turning to
the Free Exercise Clause, the court held that it was applicable because it
allows for certain actions where the government is not a party. But the court
rejected the archdiocese’s argument that the First Amendment prohibited the
court from questioning the transfer because it was a religious matter. The
question of whether the transfer was fraudulent is not an intrachurch dispute,
so there are no religious issues involved. Further, the court questioned
whether the intrachurch doctrine even applies where fraud is alleged.
Most
important the Seventh Circuit’s Free Exercise analysis was its conclusion that
the bankruptcy code is of general and neutral applicability. Because the First
Amendment allows neutral, generally applicable laws to “be applied to
religious practices even when not supported by a compelling governmental
interest,” the Free Exercise Clause does not prohibit use of the funds
under Supreme Court precedent.
important the Seventh Circuit’s Free Exercise analysis was its conclusion that
the bankruptcy code is of general and neutral applicability. Because the First
Amendment allows neutral, generally applicable laws to “be applied to
religious practices even when not supported by a compelling governmental
interest,” the Free Exercise Clause does not prohibit use of the funds
under Supreme Court precedent.
The court
went a step further than Supreme Court precedent requires, however, based on
Seventh Circuit precedent that requires courts to consider “whether a law
‘unduly burdens’ the religious practice.” Citing Vision Church v. Village of Long Grove,
the court applied the same test as found in RFRA, which was established in
caselaw before the Supreme Court abandoned
it in 1990. The court found a compelling governmental interest in the
bankruptcy code, pointing to the number of entities that avail themselves of
its protections, including the archdiocese, and its importance to assisting
those in “a certain financial condition” and need assistance with
debts. In doing so, it disagreed with an Eighth
Circuit opinion excluding tithes from a bankruptcy estate.
went a step further than Supreme Court precedent requires, however, based on
Seventh Circuit precedent that requires courts to consider “whether a law
‘unduly burdens’ the religious practice.” Citing Vision Church v. Village of Long Grove,
the court applied the same test as found in RFRA, which was established in
caselaw before the Supreme Court abandoned
it in 1990. The court found a compelling governmental interest in the
bankruptcy code, pointing to the number of entities that avail themselves of
its protections, including the archdiocese, and its importance to assisting
those in “a certain financial condition” and need assistance with
debts. In doing so, it disagreed with an Eighth
Circuit opinion excluding tithes from a bankruptcy estate.
The court
additionally concluded that the code’s provisions at issue are narrowly
tailored and that adopting the proposed exception “would undermine the
narrowly tailored purpose of the Code.” It would not aid creditors, would
favor dishonest debtors, and “pose a logistical nightmare” of
determining whether each bankruptcy provision affects the archbishop’s beliefs,
making the code piecemeal rather than unified.
additionally concluded that the code’s provisions at issue are narrowly
tailored and that adopting the proposed exception “would undermine the
narrowly tailored purpose of the Code.” It would not aid creditors, would
favor dishonest debtors, and “pose a logistical nightmare” of
determining whether each bankruptcy provision affects the archbishop’s beliefs,
making the code piecemeal rather than unified.
The opinion
allows the case to move forward, leaving the question of whether the transfer
ran afoul of the bankruptcy code for the district court to decide.
allows the case to move forward, leaving the question of whether the transfer
ran afoul of the bankruptcy code for the district court to decide.
Court addressed district-court judge’s relatives buried in affected cemeteries.
Finally,
the court addressed the recusal allegations, even though its reversal meant
that another judge would automatically be assigned to the case. But because the
deciding judge’s buried relatives were close, including his parents, sisters,
uncle, aunt, and his mother-, father-, and brother-in-law, the court
characterized his participation as “problematic.” The judge had even
purchased his parents’ graves. The court stated, “The image of the graves
containing someone’s father and mother crumbling is a powerful one indeed,
regardless of one’s beliefs, and could reasonably call into question a judge’s
impartiality.”
the court addressed the recusal allegations, even though its reversal meant
that another judge would automatically be assigned to the case. But because the
deciding judge’s buried relatives were close, including his parents, sisters,
uncle, aunt, and his mother-, father-, and brother-in-law, the court
characterized his participation as “problematic.” The judge had even
purchased his parents’ graves. The court stated, “The image of the graves
containing someone’s father and mother crumbling is a powerful one indeed,
regardless of one’s beliefs, and could reasonably call into question a judge’s
impartiality.”
More resources
Listen to
the oral argument here.
Have a question about legal issues affecting religious organizations? Let me know at questions@lawmeetsgospel.com or @LawMeetsGospel.
the oral argument here.
Have a question about legal issues affecting religious organizations? Let me know at questions@lawmeetsgospel.com or @LawMeetsGospel.