Official Committee of Unsecure v. Rudolph Randa ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 13-2881, 13-3353, 13-3495
JEROME E. LISTECKI, as Trustee of the
Archdiocese of Milwaukee Catholic
Cemetery Perpetual Care Trust
Plaintiff-Appellee,
v.
OFFICIAL COMMITTEE OF UNSECURED
CREDITORS,
Defendant-Appellant.
____________________
Appeals from the United States District Court
for the Eastern District of Wisconsin.
No. 13-cv-00179 — Rudolph T. Randa, Judge.
____________________
ARGUED JUNE 2, 2014 — DECIDED MARCH 9, 2015
____________________
Before FLAUM and WILLIAMS, Circuit Judges, and DOW,
District Judge. *
* Of the United States District Court for the Northern District of Illinois,
sitting by designation.
2 Nos. 13-2881 et al.
WILLIAMS, Circuit Judge. Facing financial problems and
lawsuits from victims of sexual abuse, the Archdiocese of
Milwaukee filed for Chapter 11 bankruptcy in 2011. A Credi-
tors’ Committee composed of abuse victims subsequently
sought to void a one-time transfer of $55 million from the
Archdiocese’s general accounts to a trust earmarked for
maintaining cemeteries as fraudulent or preferential under
the Bankruptcy Code (the “Code”). The Committee wanted
the $55 million included in the Archdiocese’s bankruptcy es-
tate (the “Estate”), making it available to creditors. However,
the district court found that the application of the Code to
that transfer would violate the Archbishop’s free exercise
rights under the Religious Freedom Restoration Act
(“RFRA”) and the First Amendment. We only affirm the dis-
trict court’s conclusion that RFRA is not applicable when the
government is not a party to the suit based on the statute’s
plain language. However, we disagree with the district
court’s conclusion that RFRA is applicable in this action be-
cause the Committee does not act under “color of law” and
is not the “government” for RFRA purposes. It is composed
of non-governmental actors, owes a fiduciary duty to the
creditors it represents and no one else, and has other non-
governmental traits. Although the Free Exercise Clause is
implicated here, we disagree with the district court’s conclu-
sion that it bars the application of the Code to the $55 mil-
lion. The Code and its relevant provisions are generally and
neutrally applicable and represent a compelling governmen-
tal interest in protecting creditors that is narrowly tailored to
achieve that end.
The Committee sought the district court judge’s recusal
after the summary judgment order, but the court denied that
Nos. 13-2881 et al. 3
motion. Because of our holding in Parts A-C of this opinion,
it is not necessary to definitively decide this issue.
I. BACKGROUND
The Archdiocese has operated and maintained eight
Catholic cemeteries and seven mausoleums in the Milwau-
kee area since 1857. It states in its complaint, which we ac-
cept as true, that it has set aside money for decades to pro-
vide perpetual care for those cemeteries in accordance with
Canon Law. In April 2007, the Archdiocese created a trust
fund (the “Trust”) to maintain that money. Two months lat-
er, the Archbishop sent a letter seeking approval from the
Vatican to transfer roughly $55 million (the “Funds”) into
the Trust, noting that “[b]y transferring these assets to the
Trust, I foresee an improved protection of these funds from
any legal claim and liability.” The Vatican approved and the
money was transferred in March 2008.
Before the creation of the Trust, the Archdiocese settled a
case in which ten victims alleged they were abused by two
priests in California. See Tom Heinen, $17 Million Settles 10
Abuse Cases, Milwaukee Journal Sentinel, Sept. 1, 2006, at A1.
Ten months later, after the Trust was created, but before the
Funds were transferred, the Wisconsin Supreme Court ruled
certain statutes of limitations could be tolled, which allowed
various sexual misconduct suits to go forward against the
Archdiocese. John Doe 1 v. Archdiocese of Milwaukee, 734
N.W.2d 827, 842–47 (Wis. 2007). Some of the resulting cases
have been stayed pending the outcome of the bankruptcy
petition.
Due in part to those cases, the Archdiocese filed for
Chapter 11 bankruptcy on January 4, 2011. The Archdiocese
4 Nos. 13-2881 et al.
has run the Estate as a debtor-in-possession since the filing.
After the filing, the United States Trustee appointed a group
of abuse victims to the Committee to represent the Archdio-
cese’s unsecured creditors in the proceedings. The Archbish-
op then, in his role as trustee of the Trust, sought declaratory
judgment from the bankruptcy court that the Funds would
not “be used to satisfy any of the claims the Committee in-
tends to pursue” against the Archdiocese because applica-
tion of the Code to the Funds would violate the Archbish-
op’s free exercise rights and RFRA. (We will call the plaintiff
the “Archdiocese,” even though it was technically the Trust
and the Archbishop that brought the present action.) How-
ever, the complaint created a conflict because the plaintiff-
Archbishop sought to limit the size of the Estate, and the
Archdiocese as debtor-in-possession had little incentive to
vigorously defend that complaint or assert affirmative de-
fenses since it acts through its sole corporate member, the
Archbishop. In other words, the declaratory complaint re-
sulted in the Archbishop initiating an adversary action (as
Trustee) against himself (as sole corporate member of the
Archdiocese). Recognizing this problem, the parties entered
into a stipulation, approved by the bankruptcy court, stating
that the Committee was “granted derivative standing to as-
sert and litigate the Avoidance and Turnover Claims against
the Archbishop for the benefit of the Debtor’s estate.” The
Committee asserted as a counterclaim that the transfer of
money into the Trust was fraudulent and preferential and
should be avoided pursuant to the Code.
The Committee moved for summary judgment on Count
III, which sought a declaration that the First Amendment
and/or RFRA bar the application of the avoidance and turn-
over provisions of the Code to the Funds. The Archdiocese
Nos. 13-2881 et al. 5
responded and filed a cross-motion for summary judgment.
The Archdiocese attached the Archbishop’s affidavit, saying
he had a Canonical duty to “properly maintain[] in perpetui-
ty” the cemeteries and mausoleums, and “[i]f the Committee
is successful in converting the [Funds] into property of the
Debtor’s estate, there will be no funds or, at best, insufficient
funds, for the perpetual care of the Milwaukee Catholic
Cemeteries.” There was no discovery taken on whether this
imposed a substantial burden on his religious beliefs, and
attorneys for both sides later agreed to stay the cross-motion
until the Committee’s summary judgment motion was adju-
dicated.
The bankruptcy court granted the Committee’s motion,
but the district court reversed. It found the Committee was
acting under color of law for RFRA purposes and that the
Archbishop’s exercise of religion would be substantially
burdened if the Funds were required to become part of the
Estate. It granted the Archdiocese’s cross-motion for sum-
mary judgment on both RFRA and First Amendment
grounds and dismissed the case. Two weeks later, the Com-
mittee filed motions to vacate and for recusal of the district
court judge based on information it obtained after the ruling.
The Committee argued that the judge was biased, or a rea-
sonable person would question his impartiality, based on
documents showing he has nine family members who were
buried between 1972 and 2013 in cemeteries owned by the
Archdiocese: his father and mother (who passed away in
1975 and 1976, respectively), two sisters (1985 and 2001), an
uncle (1972), an aunt (1985), his brother in-law (2013), and
his wife’s parents (1984 and 2010). The Committee also pro-
duced an Agreement that the judge signed with the Archdi-
ocese on August 1, 1975, the day after his father passed
6 Nos. 13-2881 et al.
away, for the purchase of his parents’ burial plots. The judge
denied the motion to recuse, stating he had no financial or
other interest in the litigation and no reasonable person
would perceive a substantial risk of bias in the case. The
Committee filed a petition for a writ of mandamus with this
court seeking the judge’s recusal, and also appealed the
summary judgment decision.
II. ANALYSIS
We begin by noting that the issue of whether the Archdi-
ocese actually made a fraudulent, preferential or avoidable
transfer is not before us. The issues before us relate only to
Count III, which sought a declaration that the First Amend-
ment and/or RFRA bar the application of the avoidance and
turnover provisions of the Code to the Funds. We review the
district court’s decision that such a bar existed de novo.
Kvapil v. Chippewa Cnty., 752 F.3d 708, 712 (7th Cir. 2014).
A. RFRA Does Not Apply in Suits in Which the “Gov-
ernment” Is Not Involved
The Committee contends it is not the “government” and
therefore RFRA does not apply. We first determine whether
RFRA applies when the “government” is not a party to ac-
tion. We have previously said in dicta that “RFRA is applica-
ble only to suits to which the government is a party.” Tomic v.
Catholic Diocese of Peoria, 442 F.3d 1036, 1042 (7th Cir. 2006),
abrogated on other grounds by Hosanna-Tabor Evangelical Lu-
theran Church & Sch. v. EEOC, 132 S. Ct. 694 (2012). Based on
RFRA’s plain language, its legislative history, and the com-
pelling reasons offered by our sister circuits, we now hold
RFRA is not applicable in cases where the government is not
a party.
Nos. 13-2881 et al. 7
We begin by first examining RFRA’s plain language. See
Barma v. Holder, 640 F.3d 749, 751 (7th Cir. 2011) (noting stat-
utory interpretation begins with the plain language of the
statute). It states, “[g]overnment shall not substantially bur-
den a person’s exercise of religion even if the burden results
from a rule of general applicability ….” 42 U.S.C. § 2000bb-
1(a). Subsection (b) provides an exception, stating that
“[g]overnment may substantially burden a person’s exercise
of religion only if it demonstrates that application of the
burden to the person—(1) is in furtherance of a compelling
governmental interest; and (2) is the least restrictive means
of furthering that compelling governmental interest.” 42
U.S.C. § 2000bb-1(b). In other words, this is a burden shifting
test in which the government must make a showing after the
plaintiff demonstrates a substantial burden. Rweyemamu v.
Cote, 520 F.3d 198, 203 n.2 (2d Cir. 2008) (“[W]e think the text
of RFRA is plain … in that it requires the government to
demonstrate that application of a burden to a person is justi-
fied by a compelling governmental interest” (emphasis in
original) (internal citation omitted)). It is self-evident that the
government cannot meet its burden if it is not party to the
suit. See Hankins v. Lyght, 441 F.3d 96, 114–15 (2d Cir. 2006)
(Sotomayor, J., dissenting) (“Where, as here, the government
is not a party, it cannot ‘go [] forward’ with any evidence. In
my view, this provision strongly suggests that Congress did
not intend RFRA to apply in suits between private parties.”).
A private party cannot step into the shoes of the “govern-
ment” and demonstrate a compelling governmental interest
and that it is the least restrictive means of furthering that
compelling governmental interest because the statute explic-
itly says that the “government” must make this showing.
8 Nos. 13-2881 et al.
If the intent were not yet clear, we find further support
for this interpretation from the “[j]udicial relief” section of
the statute. 42 U.S.C. § 2000bb-1(c). Congress stated that “[a]
person whose religious exercise has been burdened in viola-
tion of this section may assert that violation as a claim or de-
fense in a judicial proceeding and obtain appropriate relief
against a government.” Id. (emphasis added). The relief is
clearly and unequivocally limited to that from the “govern-
ment.” If the government is not a party, no one can provide
the appropriate relief. See Gen. Conf. Corp. v. McGill, 617 F.3d
402, 410 (6th Cir. 2010) (“The text of the statute makes quite
clear that Congress intended RFRA to apply only to suits in
which the government is a party.”). The plain language is
clear that RFRA only applies when the government is a par-
ty.
Our interpretation is also supported by RFRA’s legislative
history. The Report from the Committee on the Judiciary be-
gan by stating that the nation was founded by those with a
conviction that they should be free to practice their religion
“free from Government interference” and “Government ac-
tions singling out religious activities for special burdens.”
S. Rep. No. 103-111, at 4 (1993). In describing RFRA’s pur-
pose, the report refers to “government actions,” “only gov-
ernmental actions,” and “every government action.” Id. at 8–
9. As then-Judge Sotomayor noted, “[a]ll of the examples cit-
ed in the Senate and House Reports on RFRA involve actual
or hypothetical lawsuits in which the government is a par-
ty.” Hankins, 441 F.3d at 115 n.9 (Sotomayor, J., dissenting);
see also Gen. Conf. Corp., 617 F.3d at 411. The legislative histo-
ry shows Congress did not mean for RFRA to be applicable
when the government is absent, and we will not read into
Nos. 13-2881 et al. 9
the statute what neither the plain language nor legislative
history has included.
Finally, two of the three circuits to analyze this matter
have found RFRA does not apply in suits where the gov-
ernment is not a party. See Gen. Conf. Corp., 617 F.3d at 410–
11; Sutton v. Providence St. Joseph Med. Ctr., 192 F.3d 826, 834,
837–43 (9th Cir. 1999). The only circuit to analyze the issue
and hold to the contrary did so in the limited situation when
the government could have been a party, over a strong dis-
sent, and has retreated from its holding. Compare Hankins,
441 F.3d at 103 (finding RFRA applicable in private civil suit)
with id. at 114–15 (Sotomayor, J., dissenting) and Rweyemamu,
520 F.3d at 203–04 & n.2 (noting its “doubts” about Hankins
because of RFRA’s plain language and policy reasons, but
not deciding the issue because it was waived). Therefore, we
hold RFRA does not apply when the “government,” as de-
fined in RFRA, is not a party to the action.
B. The Committee Is Not the “Government”
The next question is whether the Committee is the “gov-
ernment” under RFRA, thereby triggering the statute. RFRA
defines “government” to include “a branch, department,
agency, instrumentality, and official (or other person acting
under color of law) of the United States .…” 42 U.S.C.
§ 2000bb-2(1). The Archdiocese argues that generally a credi-
tors committee, including this Committee, acts “under color
of law” and therefore is “government” because: (1) it is an
arm of the United States Trustee; (2) it owes its creation and
existence to the combination of the Trustee, the court, and
the Code; or (3) it is performing a traditional governmental
10 Nos. 13-2881 et al.
function. 1 The Committee counters that its specific makeup
and ability to appear in this action, as well as a committee’s
general fiduciary duties and responsibilities, all show that
this Committee is not the “government.” We agree with the
Committee.
The phrase “color of law” in RFRA mirrors that found in
42 U.S.C. § 1983, which applies to those acting “under color
of” law. We do not think this word choice is coincidental and
agree with the Ninth Circuit in presuming that Congress in-
tended for RFRA “color of law” analysis to overlap with Sec-
tion 1983 analysis. Sutton, 192 F.3d at 834–35 (interpreting
RFRA “under color of law” in the same way as Section 1983
because “[w]hen a legislature borrows an already judicially
interpreted phrase from an old statute to use it in a new
statute, it is presumed that the legislature intends to adopt
not merely the old phrase but the judicial construction of the
phrase” (internal citation omitted)); see also Brownson v. Bo-
genschultz, 966 F. Supp. 795, 797 (E.D. Wis. 1997) (interpret-
ing “color of law” under RFRA using Section 1983 analysis).
So we turn to Section 1983 precedent to assist our analysis.
We also note the overlap between a governmental actor and
someone acting under the color of law and use these terms
interchangeably. See Lugar v. Edmondson Oil Co., 457 U.S. 922,
935 (1982).
The Supreme Court has set forth various tests to use
when deciding whether someone is a governmental actor,
including the “symbiotic relationship test, the state com-
1The Archdiocese argues that the Committee is the governmental
actor. It does not argue that the Bankruptcy Code or the Bankruptcy
Court, is the “government” under RFRA.
Nos. 13-2881 et al. 11
mand and encouragement test, the joint participation doc-
trine, and the public function test.” Rodriguez v. Plymouth
Ambulance Serv., 577 F.3d 816, 823–24 (7th Cir. 2009). But “[a]t
its most basic level, the state action doctrine requires that a
court find such a ‘close nexus between the State and the chal-
lenged action’ that the challenged action ‘may be fairly treat-
ed as that of the State itself.’” Id. at 823 (quoting Jackson v.
Metro Edison Co., 419 U.S. 345, 351 (1974)).
First, the Archdiocese argues that the court and the Trus-
tee collectively appoint and monitor a committee’s makeup
which shows a close nexus to governmental action. Yet, none
of the individuals who make up the Committee are govern-
mental actors. Each is a private, individual creditor who was
sexually abused by the clergy. Neither is the process of ap-
pointing this Committee, nor committees in general, evi-
dence of a close nexus. A committee is usually made up of
the seven largest unsecured creditors. 11 U.S.C. § 1102(b)(1).
They became creditors through their own private transac-
tions with the debtor and choose to be appointed to the
committee, and that makes them eligible for appointment.
The U.S. Trustee, admittedly a governmental actor, appoints
the committee in the first instance, as it did here. See 11
U.S.C. § 1102(a)(1). Appointing a committee is one of the
ways that the Trustee is able to perform its duty and “super-
vise” the bankruptcy cases. Id.; 28 U.S.C. § 586(a)(3)(E). But
upon the “request of a party in interest and after notice and
a hearing, the court may order the United States trustee to
change the membership of a committee.” 11 U.S.C.
§ 1102(a)(4). So, a committee is a combination of private de-
cisions, Trustee appointment, and court supervision, with
the private actions providing the qualifying criteria for ap-
pointment. This is not action that can be “fairly treated as
12 Nos. 13-2881 et al.
that of the State itself.” Rodriguez, 577 F.3d at 823. Just be-
cause the court appoints an entity and supervises some of its
actions does not make it a governmental actor. See Loyd v.
Loyd, 731 F.2d 393, 398 (7th Cir. 1984) (finding court-
appointed administer who sold a piece of property pursuant
to the court’s approval was not governmental actor).
Moreover, once a committee is created, it takes on a life
of its own. The committee can, with the court’s approval,
employ one or more attorneys, accountants, or other agents
to represent or perform services for the committee. 11 U.S.C.
§ 1103(a). Here, the Committee has retained counsel that
represents them in this appeal. Those professionals report to
the committee, not the Trustee or the court. The committee
has an attorney-client relationship with the attorney. In re
Subpoenas Duces Tecum, 978 F.2d 1159, 1162 (9th Cir. 1992)
(per curiam). Neither the Trustee nor the court is involved.
All of a committee’s expenses, and the fees and expenses of
the professionals that the committee hires, are paid for by
the Estate and not the government. 7 Collier on Bankruptcy
¶ 1103.03 (16th ed. 2014). The Trustee can weigh in, and the
court has input, but the money ultimately comes from the
Estate, rather than the public coffers.
The Archdiocese next argues the Committee only gains
standing to appear in the case from action taken by the
bankruptcy court, rather than its own private actions, and so
its presence in the suit is a result of governmental action. See
Official Comm. of Unsecured Creditors of Cybergenics Corp. ex.
rel. Cybergenics Corp. v. Chinery, 330 F.3d 548, 568 (3d Cir.),
cert. dismissed, 124 S. Ct. 530 (2003). Here, however, because
there was conflict with the Archbishop representing the
Trust on one hand and the Estate on the other, the two sides
Nos. 13-2881 et al. 13
executed a “Stipulation Regarding the [Committee’s] Stand-
ing” that allowed the Committee “derivative standing to as-
sert and litigate the Avoidance and Turnover Claims against
the Archbishop.” True, the court had to approve it, but the
Committee’s standing came about from the Archbishop’s
conflict and the Archdiocese’s concession that the Committee
could pursue the claims. This is private ordering.
Perhaps most problematic for the Archdiocese’s argu-
ment is that a committee represents the larger interests of the
unsecured private creditors, and it is to them, and not the
Trustee, court, or any governmental actor, that the commit-
tee owes a fiduciary duty. Smart World Techs., LLC v. Juno
Online Services, 423 F.3d 166, 175 n.12 (2d Cir. 2005)
(“[C]reditors’ committee owes a fiduciary duty to the class it
represents, but not to the debtor, other classes of creditors, or
the estate.”); In re SPM Mfg. Corp., 984 F.2d 1305, 1315–16 (1st
Cir. 1993) (same). The committee does not have to act in ac-
cordance with the Trustee’s or court’s wishes. In fact, the
committee can, and should, oppose the Trustee if it is acting
against the best interests of the unsecured creditors. See In re
Bayou Group, LLC, 564 F.3d 541, 547 (2d Cir. 2009) (noting
both the creditors’ committee and bankruptcy court disa-
greed with Trustee’s motion to appoint trustee); In re Colum-
bia Gas Sys., Inc., 33 F.3d 294, 295 (3d Cir. 1994) (noting dif-
ference between the committee’s and Trustee’s position on
interpretation of statute). It is beholden to no governmental
actor.
But, the Archdiocese argues, the Committee gets a “lim-
ited grant of immunity” and only governmental actors get
immunity. See In re PWS Holding Corp., 228 F.3d 224, 246 (3d
Cir. 2000) (noting immunity pursuant to Section 1103(c) of
14 Nos. 13-2881 et al.
Code for acts related to work for creditors). The problem
with this argument is that immunity is routinely given to
private individuals, for example, directors of corporations,
see Kamen v. Kemper Fin. Servs., Inc., 939 F.2d 458, 461 (7th Cir.
1991), good Samaritans, see Rodas v. Seidlin, 656 F.3d 610, 626
(7th Cir. 2011), and parents from tort suits for damages from
their minor children, see Barnes v. Barnes, 603 N.E.2d 1337,
1339 (Ind. 1992). Here, the Committee’s immunity only ap-
plies when it is acting on behalf of the creditors, showing us
the independence the Committee has from the court and
Trustee since it is not subject to their whims or obligated to
represent them.
Finally, the Archdiocese argues—and the district court
found—that the Committee performs a “public function”
making it a governmental actor. Under this test, a private en-
tity is a governmental actor when it is performing an action
that is “traditionally the exclusive prerogative of the State.”
Jackson, 419 U.S. at 353. This test is rarely met. Rodriguez, 577
F.3d at 824 n.11. The Archdiocese argues that the Committee
is basically stepping into the shoes of the Trustee. First, that
theory is belied by the fact that the Committee can, and does,
conflict with the Trustee. Were they performing the same
function, they would presumably be on the same page. Sec-
ond, the goal and purpose of the committee is to act on be-
half of and for the creditors. Conversely, the goal of the Trus-
tee is to “promote the integrity and efficiency of the bank-
ruptcy system for the benefit of all stakeholders – debtors, credi-
tors, and the public.” 1 U.S. Department of Justice, United
States Trustee Program Policy and Practices Manual § 1-4.2.1
(Feb. 2015) (emphasis added), available at http://www.justice.
gov/ust/eo/ust_org/ustp_manual/docs/Volume_1_Overview.
pdf. There is some overlap between their functions—e.g.,
Nos. 13-2881 et al. 15
both engage in restructuring discussions and converse with
the court regarding the status of the case and the debtor’s
estate—but the traditional function of the governmental enti-
ty is to act as an impartial supervisor of the bankruptcy pro-
cess for the benefit of all. The Committee, however, is far
from impartial.
The Archdiocese also argues, and the district court
found, that a debtor-in-possession performs a public func-
tion, and when the Committee obtained derivative standing
to pursue avoidance claims, it stepped into the shoes of the
debtor-in-possession, thereby becoming a governmental ac-
tor. See In re Savino Oil & Heating Co., Inc., 99 B.R. 518, 524
(Bankr. E.D.N.Y. 1989) (noting debtor-in-possession “be-
comes an officer of the court subject to the supervision and
control of the Bankruptcy Court and the provisions of the
Bankruptcy Code”). The problem for the Archdiocese is that
the debtor-in-possession does not perform an action that is
“traditionally the exclusive prerogative of the State.” Jackson, 419
U.S. at 353 (emphasis added). As the Code makes clear, the
“trustee” avoids transfers—not the United States Trustee or
any other governmental entity. See, e.g., 11 U.S.C. §§ 544, 547,
548. It is not the government or even a governmental actor
that traditionally avoids transfers, but rather individual trus-
tees and debtor-in-possessions. This is not the exclusive pre-
rogative of the government. See State Bank of Toulon v. Covey
(In re Duckworth), 776 F.3d 453, 458 (7th Cir. 2014) (noting in-
dividual trustee attempted to avoid transfer).
Although each determination of an entity’s governmental
actor status is fact- and case-specific, our conclusion that the
Committee is not a governmental actor is supported by the
Supreme Court’s precedent. In Polk County v. Dodson, 454
16 Nos. 13-2881 et al.
U.S. 312, 318–19 (1981), the Court considered whether a pub-
lic defender, performing a lawyer’s traditional functions as
counsel to a defendant in a criminal proceeding, was a state
actor. The public defender is created by the government, se-
lected and employed by governmental officials, subject to
governmental supervision, exists only because of the state-
created adversary system, and is given its power to appear
in court (a uniquely state setting) by the government. Yet,
the Court held that a public defender performing those du-
ties is not a state actor because its job is not to act “on behalf
of the State or in concert with it, but rather by advancing ‘the
undivided interests of his client[;]’[t]his is essentially a pri-
vate function.” Id. Moreover, “a public defender is not ame-
nable to administrative direction in the same sense as other
employees of the State. … [A] defense lawyer is not, and by
the nature of his function cannot be, the servant of an admin-
istrative superior.” Id. at 321. The same can be said of the
Committee. Although some of its activities are subject to
governmental and court supervision, its core function is to
act on behalf of, and advance the undivided interest of, its
clients, namely the private creditors. See also Filarsky v. Delia,
132 S. Ct. 1657, 1667 (2012) (focusing on whether the relevant
actors were working “to achieve their own ends, [or] indi-
viduals working for the government in pursuit of govern-
ment objectives”); cf. West v. Atkins, 487 U.S. 42, 51 (1988)
(noting jail doctor was a governmental actor, even though he
had a duty to his patient first and foremost, because “his re-
lationship with other prison authorities was cooperative”).
There might be a “nexus,” between the Committee and the
government, but it is not a close one. See Rodriguez, 577 F.3d
at 823.
Nos. 13-2881 et al. 17
For all these reasons, we find the Committee is not acting
under the color of law and so RFRA does not apply. There-
fore we need not address the Committee’s argument that
RFRA’s application here would create federalism issues.
C. Free Exercise Clause Does Not Prevent Application
of the Code to the Funds
The Archdiocese contends that even if the Committee is
not the government and so RFRA does not apply, the Free
Exercise Clause is implicated. While we agree that the First
Amendment is applicable here, it does not prevent the appli-
cation of the turnover and avoidance provisions because
there is a compelling governmental interest in the applica-
tion of the relevant portions of the Code that is narrowly tai-
lored to achieving that interest.
1. Free Exercise Clause Is Applicable in Private
Civil Suits
The Free Exercise Clause states that “Congress shall
make no law … prohibiting the free exercise” of religion.
U.S. Const. amend. 1, cl. 1. “[M]ost rights secured by the
Constitution are protected only against infringement by
governments,” so that “the conduct allegedly causing the
deprivation of a federal right [must] be fairly attributable to
the State.” Lugar, 457 U.S. at 936–37 (internal citation omit-
ted). However, not all rights require the government be a
party in the case. The Court’s practice makes clear that free
exercise is one of those rights. For example, in McDaniel v.
Paty, Paty sought election to the state constitutional conven-
tion and filed a declaratory judgment action in state court
that her opponent, McDaniel, was prohibited from running
since he was an ordained minister and a Tennessee statute
18 Nos. 13-2881 et al.
barred “minister[s] of the Gospel, or priest[s] of any denom-
ination whatever” from serving. 435 U.S. 618, 621 & n.1
(1978). McDaniel countered that the statute violated his right
to free exercise. See id. at 620–21. Both parties were clearly
private citizens, and yet the Court implicitly recognized that
the Clause was applicable when it found a free exercise vio-
lation. Id. at 629. The Court has also been clear that other
clauses of the First Amendment are applicable in entirely
private civil suits, and we see no reasonable distinction be-
tween those and the Free Exercise Clause. See N.Y. Times Co.
v. Sullivan, 376 U.S. 254, 265 (1964) (“It matters not that that
law has been applied in a civil action and that it is common
law only, though supplemented by statute. The test is not the
form in which state power has been applied but, whatever
the form, whether such power has in fact been exercised.”);
see also Phila. Newspapers v. Hepps, 475 U.S. 767, 777 (1986)
(noting that the text of the First Amendment “by its terms
applies only to governmental action” but is nonetheless ap-
plicable in civil suits between private parties). So, even
though we find that the Committee is not a governmental
actor, that does not end our First Amendment analysis.
We note that a certain line of Supreme Court cases, some
of which the Archdiocese cites, have held that the Free Exer-
cise Clause can be an affirmative defense that bars consider-
ation of certain religious matters by secular courts. See, e.g.,
Hosanna-Tabor, 132 S. Ct. at 706 (holding that “ministerial ex-
ception,” grounded in the Free Exercise Clause, bars courts
from adjudicating employment discrimination case between
religious institution and its ministers); McCarthy v. Fuller, 714
F.3d 971, 975 (7th Cir. 2013) (collecting cases and noting that
a “secular court may not take sides on issues of religious
doctrine”). We understand the Archdiocese to be arguing,
Nos. 13-2881 et al. 19
and it confirmed during oral argument, that it is citing these
cases to show this court cannot “determine the centrality of
the religious practice to an adherent’s faith,” meaning the
sincerity of the Archbishop’s religious beliefs, which we
agree we cannot do. See Korte v. Sebelius, 735 F.3d 654, 683
(7th Cir. 2013).
We do not understand the Archdiocese to be arguing the
transfer of the Funds is a religious matter that this court
cannot adjudicate, nor could it make that argument because
those cases relate only to intrachurch disputes. Here, we
have what was alleged to be a fraudulent or otherwise
avoidable transfer, and the court need not interpret any reli-
gious law or principles to make that determination, nor must
it examine a decision of a religious organization or “tribu-
nal” on whether or not the transfer was fraudulent. Cf. Serbi-
an E. Orthodox Diocese v. Milivojevich, 426 U.S. 696, 724–25
(1976). So, there is no intrachurch dispute at issue.
Moreover, it is unclear whether the intrachurch doctrine
is even applicable where fraud is alleged:
[T]his Court never has suggested that those
[“intrachurch”] constraints similarly apply
outside the context of such intraorganization
disputes. … Such considerations are not appli-
cable to purely secular disputes between third
parties and a particular defendant, albeit a re-
ligious affiliated organization, in which fraud,
breach of contract, and statutory violations are
alleged.
Gen. Council on Fin. & Admin. v. Cal. Superior Ct., 439 U.S.
1369, 1372–73 (1978) (Rehnquist, J., Circuit Justice, in cham-
20 Nos. 13-2881 et al.
bers); see also Gonzalez v. Roman Catholic Archbishop of Manila,
280 U.S. 1, 16 (1929) (examining the intrachurch doctrine and
noting “the decisions of the proper church tribunals on mat-
ters purely ecclesiastical, although affecting civil rights”
might not be accepted in secular courts if “fraud” is found).
The intrachurch doctrine is not applicable here.
2. Challenged Provisions Are of General and
Neutral Applicability
Under the Free Exercise Clause, “neutral, generally ap-
plicable laws may be applied to religious practices even
when not supported by a compelling governmental inter-
est.” Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2761
(2014) (quoting City of Boerne v. Flores, 521 U.S. 507, 514
(1997)); see also Employment Div. v. Smith, 494 U.S. 872, 879–80
(1990). A law is not neutral if it discriminates on its face by
“refer[ring] to a religious practice without a secular meaning
discernible from the language or context.” Church of Lukumi
Babalu Aye v. City of Hialeah, 508 U.S. 520, 533 (1993). Moreo-
ver, facial neutrality is not determinative since “[o]fficial ac-
tion that targets religious conduct for distinctive treatment
cannot be shielded by mere compliance with the require-
ment of facial neutrality.” Id. at 534. We also look at whether
the object of the law is a neutral one, examining both direct
and circumstantial evidence. Id. at 540. In terms of general
application, all laws are selective to some extent, but “cate-
gories of selection are of paramount concern when a law has
the incidental effect of burdening religious practice.” Id. at
542. The Free Exercise Clause, at its heart, “protects religious
observers against unequal treatment;” in other words, the
government “cannot in a selective manner impose burdens
only on conduct motivated by religious belief.” Id. at 542–43
Nos. 13-2881 et al. 21
(alterations and quotations omitted). If a law is not of gen-
eral and neutral applicability, we ask whether the law is jus-
tified by a compelling governmental interest that is narrowly
tailored to advance that interest. Id. at 531–32.
There are four relevant sections of the Code at issue (the
“Challenged Provisions”): (1) 11 U.S.C. § 541, which deter-
mines what the bankruptcy “estate is comprised of”; (2) 11
U.S.C. § 544, which sets forth voidable transfers, usually by
looking at the state fraudulent transfer statutes, In re Equip.
Acquisition Res., Inc., 742 F.3d 743, 746 (7th Cir. 2014); (3) 11
U.S.C. § 547, which allows the trustee to avoid and set aside
certain preferential transactions; and (4) 11 U.S.C. § 548,
which relates to “fraudulent transfers and obligations.” The
provisions work together to establish the scope of the estate
subject to the bankruptcy proceedings, id. § 541; by ensuring
that no assets involved in transactions that are “voidable
under” the state fraudulent transfer statute, id. § 544, “void-
able” as preferential, id. § 547, or “fraudulent,” id. § 548, es-
cape inclusion in the estate. The purpose of the Bankruptcy
Code’s avoidance and turnover provisions “is to maximize
the bankruptcy estate and thereby maximize the recovery for
creditors.” Tort Claimants Comm. v. Roman Catholic Archbishop
(In re Roman Catholic Archbishop), 335 B.R. 842, 864 (Bankr. D.
Or. 2005).
We find the Challenged Provisions are of general and
neutral applicability. The Challenged Provisions and Code as
a whole are generally applied to all entities with equal
force—be it a church, synagogue, deli, bank, city or any oth-
er qualifying debtor. See 11 U.S.C. § 109 (defining “debtor”
expansively). The Archdiocese does not challenge the gen-
eral applicability, but instead contends the Challenged Pro-
22 Nos. 13-2881 et al.
visions are not neutral because three sections specifically
carve out religious and charitable contributions from the
reach of the estate. See 11 U.S.C. § 548(a)(2) (“A transfer of a
charitable contribution to a qualified religious or charitable
entity or organization” is subject to different avoidance con-
siderations); 11 U.S.C. § 548(d)(4) (defining “qualified reli-
gious or charitable entity or organization” by cross-
referencing the Internal Revenue Code); and 11 U.S.C.
§ 544(b)(2) (addressing same charitable contributions as
§ 548(a)(2)). The Archdiocese argues these provisions “refer[]
to a religious practice without a secular meaning discernible
from the language or context” and are therefore not neutral.
Lukumi, 508 U.S. at 533–34.
The first problem with the Archdiocese’s argument is that
these provisions do not “prohibit[]” the practice of religion.
See U.S. Const. amend. 1, cl. 1 (“Congress shall make no law
… prohibiting the free exercise” of religion. (emphasis add-
ed)). Instead, they do the exact opposite and encourage reli-
gious practice by providing exceptions to avoidance for cer-
tain religious and charitable donations. A benefit to religion
does not disfavor religion in violation of the Free Exercise
Clause. See Hernandez v. Comm’r, 490 U.S. 680, 696 (1989)
(“encouraging gifts to charitable entities, including but not
limited to religious organizations—is neither to advance nor
inhibit religion”); see also Walz v. Tax Comm’n. of N.Y., 397
U.S. 664, 669 (1970) (finding exemptions like the Challenged
Provisions are a type of “benevolent neutrality which will
permit religious exercise to exist without sponsorship and
without interference”).
The second problem with the Archdiocese’s argument is
that the Challenged Provisions do not single out only reli-
Nos. 13-2881 et al. 23
gious practice. Anyone, regardless of religion or beliefs, can
donate money to a qualified religious or secular charitable
organization under the Code and qualify for avoidance—no
religion or religious practice required. See Universal Church v.
Geltzer, 463 F.3d 218, 227–28 (2d Cir. 2006) (noting that
“fraudulent conveyance provision applies equally to reli-
gious and non-religious entities, while allowing a limited
safe harbor for any charitable contributions, so it neither ad-
vances nor inhibits religion”). That the Challenged Provi-
sions have both secular and religious components make
them consistent with the laws upheld in Smith: “every single
case cited by the Smith Court [as a] ‘valid and neutral law of
general applicability’ … involved laws encompassing both
secular and religious conduct.” Cent. Rabbinical Cong. of the
U.S. v. N.Y.C. Dep’t. of Health, 763 F.3d 183, 195 (2d Cir. 2014)
(collecting cases). The Challenged Provisions are generally
and neutrally applicable.
3. Compelling Governmental Interest in Chal-
lenged Provisions Is Narrowly Tailored To
Achieve That Interest
Were we writing from a clean slate, that would be the
end of our Free Exercise Clause analysis. We understand the
Supreme Court to have stated that the Smith general and
neutral applicability tests apply regardless of the strength of
the burden imposed. In other words, a law of general and
neutral applicability will be upheld whether it imposes a
substantial or minimal burden. Smith, 494 U.S. at 878 (“It is a
permissible reading of the [Free Exercise Clause] text … to
say that if prohibiting the exercise of religion (or burdening
the activity of printing) is not the object of the tax but merely
the incidental effect of a generally applicable and otherwise
24 Nos. 13-2881 et al.
valid provision, the First Amendment has not been offend-
ed.”). The very point of Smith is to avoid having courts “en-
gage in a case-by-case assessment of the religious burdens
imposed by facially constitutional laws.” Gonzales v. O Centro
Espírita Beneficente União do Vegetal, 546 U.S. 418, 424 (2006);
see also United States v. Ali, 682 F.3d 705, 710 (8th Cir. 2012)
(“[T]he district court evaluated [under RFRA] whether the
order substantially burdened Ali's religious practices, alt-
hough this would not be required in a standard First
Amendment analysis.”); United States v. Hardman, 297 F.3d
1116, 1126 (10th Cir. 2002) (en banc) (noting Smith held that a
neutral and generally applicable law “need not be justified
by a compelling interest even where religious practice is
substantially burdened”). We read the Court’s statement that
a general and neutral law will be upheld even if it has the
“incidental effect of burdening” religion to mean the law
will be upheld as long as it only unintentionally burdens re-
ligion. See, e.g., Lukumi, 508 U.S. at 531. We do not take the
Court’s precedent to mean a law must be supported by a
compelling interest that is narrowly tailored if it uninten-
tionally imposes a substantial burden on religion. See id. at
562 (Souter, J., concurring) (“Distinguishing between laws
whose ‘object’ is to prohibit religious exercise and those that
prohibit religious exercise as an ‘incidental effect,’ Smith
placed only the former within the reaches of the Free Exer-
cise Clause; the latter, laws that satisfy formal neutrality,
Smith would subject to no free-exercise scrutiny at all, even
when they prohibit religious exercise in application.”).
However, our circuit precedent includes a subsequent
step after the Smith test, namely to consider whether a law
“unduly burdens” the religious practice. If so, we revert back
to the pre-Smith balancing test and ask whether the govern-
Nos. 13-2881 et al. 25
ment has a compelling interest that is narrowly tailored to
advance that interest. See Vision Church v. Vill. of Long Grove,
468 F.3d 975, 996 (7th Cir. 2006). The Committee has not
asked us to overrule or reconsider Vision Church, so we pro-
ceed with the second step of its “two-fold” analysis.
Since no discovery was taken on the substantial burden
issue, we accept as true that the Code’s application to the
Funds would substantially burden the Archbishop’s reli-
gious beliefs without deciding the issue. So, we ask whether
there is a compelling governmental interest in the Chal-
lenged Provisions that is narrowly tailored to advance that
interest. Though there is no exact definition of a compelling
interest, it is one “of the highest order” and is only found in
“rare cases.” Lukumi, 508 U.S. at 546 (internal quotation
omitted). For example, the Court has found compelling in-
terests in the tax system, Hernandez, 490 U.S. at 699, social
security system, United States v. Lee, 455 U.S. 252, 258–59
(1982), and national security and public safety. Gillette v.
United States, 401 U.S. 437, 462 (1971). But not all proffered
justifications have met this high standard. See, e.g., Ariz. Free
Enter. Club’s Freedom Club PAC v. Bennett, 131 S. Ct. 2806,
2825 (2011) (holding no compelling interest in “leveling the
playing field” via election funding statute for Free Speech
Clause purposes); Sherbert v. Verner, 374 U.S. 398, 407–09
(1963) (determining no compelling interest in dilution of
employment compensation fund or employers’ scheduling
and finding eligibility provisions in unemployment statute
unconstitutional as applied); Koger v. Bryan, 523 F.3d 789, 800
(7th Cir. 2008) (finding no compelling governmental interest
in management of prison dietary department). Whether
there is a compelling governmental interest depends on “a
case-by-case determination of the question, sensitive to the
26 Nos. 13-2881 et al.
facts of each particular claim.” Gonzales, 546 U.S. at 431
(quoting Smith, 494 U.S. at 899 (O’Connor, J., concurring in
judgment)).
The Committee’s asserted compelling governmental in-
terest is the protection of creditors. We agree that this is a
compelling governmental interest that can overcome a bur-
den on the free exercise of religion.
We start with the history of the Code since the “long his-
tory of the very provision under discussion” contributes to
our understanding of its importance. Gillette, 401 U.S. at 460.
The Court has extensively analyzed the history of the Bank-
ruptcy Clause in the Constitution, U.S. Const. art. 1, § 8, cl. 4,
and its place in our nation. In Central Virginia Community Col-
lege v. Katz, for example, the Court chronicled the history of
the Bankruptcy Clause to 1649, noting that there was near
unanimity to include the Bankruptcy Clause in the Constitu-
tion so that the federal government could address insolvency
and discharging of debts with a uniform body of laws. 546
U.S. 356, 365–69 (2006). Further, the protection of creditors
has always been important. See, e.g., In re River West Plaza-
Chicago, LLC, 664 F.3d 668, 671 (7th Cir. 2011) (“A central
purpose of bankruptcy is to maximize creditor recovery.”)
The Court has noted that avoidance of preferential transfers
has been “a core aspect of the administration of bankrupt
estates since at least the 18th century.” Katz, 546 U.S. at 372;
see also Cohen v. De La Cruz, 523 U.S. 213, 221 (1998) (“The
Bankruptcy Act of 1898 prohibited discharge of ‘judgments
in actions for frauds, or obtaining property by false pretens-
es or false representations’”); BFP v. Resolution Trust Corp.,
511 U.S. 531, 540–41 (1994) (tracing history of fraudulent
transfer laws to 1570); Begier v. IRS, 496 U.S. 53, 58 (1990)
Nos. 13-2881 et al. 27
(noting avoidance sections of the Code “further[]” the “cen-
tral policy of the Bankruptcy Code” of “[e]quality of distri-
bution among creditors”). The Code’s importance in our na-
tion’s history is well-established.
The broad scope and remedial nature of the Code are
akin to some of those interests the Court has held are com-
pelling under this test, e.g., the social security system. The
social security system “serves the public interest by provid-
ing a comprehensive … system with a variety of benefits
available to all participants” nationwide. Lee, 455 U.S. at 258.
As with the social security system, the purpose of the Code
is to provide a support system for those who need it. While
the social security system aids those who have reached a cer-
tain age or are disabled, the Code aids those who have
reached a certain financial condition and who need assis-
tance repaying or recovering a debt. Both the Code and the
social security system ensure the financial stability of the cit-
izenry. See also United States v. Whiting Pools, 462 U.S. 198, 203
(1983) (“By permitting reorganization [through bankruptcy],
Congress anticipated that the business would continue to
provide jobs, to satisfy creditors' claims, and to produce a
return for its owners.”).
These purposes, the history and the Court’s words, con-
vince us that there is a compelling interest in the Code, in-
cluding the Challenged Provisions. Cf. United States v. Crystal
Evangelical Free Church (In re Young), 82 F.3d 1407, 1422–23
(8th Cir. 1996) (Bogue, J., dissenting) (“I agree with the dis-
trict court’s view that the bankruptcy code and § 548(a)(2)(A)
furthers the compelling governmental interest in … protect-
ing the interests of creditors by maximizing the debtor’s es-
tate.”), overruled on other grounds by Christians v. Crystal Evan-
28 Nos. 13-2881 et al.
gelical Free Church, 521 U.S. 1114 (1997); Morris v. Midway S.
Baptist Church (In re Newman), 183 B.R. 239, 251 (Bankr. D.
Kan. 1995) (finding compelling interest in the Code); In re
Navarro, 83 B.R. 348, 353 (Bankr. E.D. Pa. 1988) (same).
Indeed, there is also no doubting the significance of the
Bankruptcy Code to the individuals who invoke it. One need
not look any further than the Archdiocese’s own purposeful
availment of the Code. If the Code’s functioning were not a
significant interest, it is questionable that the Archdiocese
would have subjected itself to this bankruptcy proceeding
and the adversary action since there is a very serious danger,
from the Archdiocese’s perspective, that it could be com-
pelled to make the Funds part of the Estate. But it has taken
that risk because of the benefits the Code provides: “A Chap-
ter 11 reorganization … enables the archdiocese to use avail-
able funds to compensate all victims/survivors with unre-
solved claims in a single process overseen by a court, ensur-
ing that all are treated equitably. In addition, by serving as a
final call for legal claims against the archdiocese, the pro-
ceeding will allow the Church to move forward on stable fi-
nancial ground, focused on its Gospel mission.” Archdiocese
of Milwaukee, Chapter 11 Reorganization: Original Statement
(Jan. 4, 2011), http://www.archmil.org/reorg.htm. The Arch-
diocese is not alone. In 2013, there were 1,071,932 bankrupt-
cy filings in the United States, including nearly 9,000 Chap-
ter 11 filings. See United States Bankruptcy Courts–Business &
Nonbusiness Cases Commenced, http://www.uscourts.gov/
uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2
013/1213_f2.pdf (last visited Mar. 5, 2015). The very scope
and number of entities that avail themselves of the Code is a
telling indicator of its importance. See Lee, 455 U.S. at 258
Nos. 13-2881 et al. 29
(noting that “[b]ecause the social security system is nation-
wide, the governmental interest is apparent”).
In this case, the importance of protecting the interests of
the creditors is readily apparent. There were fifteen pages
and hundreds of entries of accounts payables attached to the
answer, each representing a vendor that requires the Code’s
functioning, as well as five additional pages of creditors
holding unsecured nonpriority claims. Cf. Andrews v. Riggs
Nat’l Bank, 80 F.3d 906, 909 (4th Cir. 1996) (“Section 541, like
the Bankruptcy Code generally, has two overarching pur-
poses: (1) providing protection for the creditors of the insol-
vent debtor and (2) permitting the debtor to carry on and re-
build ….”).
In finding a compelling interest, we disagree with the
Eighth Circuit’s finding that the Code in general, and specifi-
cally 11 U.S.C. § 548(a)(2)(A)—which is not at issue in this
litigation—do not present a compelling governmental inter-
est. See In re Young, 82 F.3d at 1419–20. In Young, the Eighth
Circuit held that the Code could not be applied to avoid cer-
tain tithes and make them part of the bankruptcy estate. Id.
at 1420. It found, without explanation, that “bankruptcy is
not comparable to national security or public safety,” mean-
ing the social security system in Lee and the Selective Service
Act in Gillette, and that “protecting the interests of creditors
is not comparable to the collection of revenue through the
tax system or the fiscal integrity of the social security sys-
tem.” Id. at 1419. As discussed above, we see parallels be-
tween Lee and the Code that the Eighth Circuit did not dis-
cuss. Additionally, we find the Eighth Circuit’s cursory anal-
ysis did not take into account the importance of the Code in
Supreme Court precedent, our nation’s history, or the effect
30 Nos. 13-2881 et al.
it has on debtors and creditors. 2 See id. at 1422–23 (Bogue, J.,
dissenting) (“It can be fairly said that our nation's economy
depends extensively on the availability of credit to individu-
als and businesses. Bankruptcy is an extraordinary remedy
for insolvent debtors and oftentimes harsh on creditors. One
of the creditor’s few protections are recovery statutes like
section 548, which as of today includes a free exercise excep-
tion for religious giving in the year preceding filing for
bankruptcy.”).
We also find that the Challenged Provisions are narrowly
tailored to achieve the interests of expanding the estate to
pay creditors, thereby protecting their interests. We must
look “beyond broadly formulated interests justifying the
general applicability of government mandates and scruti-
nize[] the asserted harm of granting specific exemptions to
particular religious claimants.” Gonzales, 546 U.S. at 431. The
Committee argues the Challenged Provisions are narrowly
tailored because their existence and application to all credi-
tors is the only means possible to serve the ends of federal
bankruptcy law. The Archdiocese argues that there are vari-
ous exceptions that already limit the definition of estate, and
so there could be another exception to adequately address
the Archbishop’s substantial burden. Under the Archdio-
cese’s proffered exception, it would comply with the other
provisions of the Code but not those that affect its religious
practices. The Archdiocese’s proposed course of action
2Because our decision creates a circuit split, this opinion has been
circulated among all judges of this court in regular active service. No
judge favored a rehearing en banc on the question of the government’s
compelling interest in the Bankruptcy Code. Circuit Judge Sykes took no
part in the consideration of this case.
Nos. 13-2881 et al. 31
would allow it to avoid including what were allegedly pref-
erential, avoidable and fraudulent amounts in the Estate.
This proffered exception would undermine the narrowly
tailored purpose of the Code. First, as the Committee notes,
such an exception would not serve the purpose of aiding
creditors. In this case, for example, the creditors would have
$55 million less available in the Estate. Moreover, if the alle-
gations are true, the rule would favor a dishonest debtor at
the creditors’ expense. This would undermine the compel-
ling interest of the Code by allowing a debtor who has made
preferential, fraudulent and avoidable transfers to intention-
ally harm its creditors. See also Grogan v. Garner, 498 U.S. 279,
287 (1991) (“[W]e think it unlikely that Congress … would
have favored the interest in giving perpetrators of fraud a
fresh start over the interest in protecting victims of fraud,
[e.g. the creditors].”). (Again, we make no determination on
the nature of the transfer here.)
Such an exception would also pose a logistical nightmare
for the court, which would have to consider every provision
in the Code, determine whether it affects the Archbishop’s
beliefs, and then act accordingly. Such an exception would
also open up a religious affirmative defense beyond this case
to all provisions of the Code, so long as that belief is sincere-
ly held. The once-unified Code would become piecemeal in
its application. But as with the tax code, the bankruptcy sys-
tem “‘could not function if denominations were allowed to
challenge the [] system’ on the ground that it operated ‘in a
manner that violates their religious belief.’” Hernandez, 490
U.S. at 699–700 (quoting Lee, 455 U.S. at 260); see also Comm.
of Tort Litigants v. Catholic Diocese of Spokane, 329 B.R. 304, 324
n.5 (Bankr. E.D. Wash. 2005) (“Bankruptcy debtors who vol-
32 Nos. 13-2881 et al.
untarily choose to participate in that statutory scheme, even
those of a religious nature, should not be able to ‘pick and
choose’ among Code sections.”); Tort Claimants Comm., 335
B.R. at 853 n.9 (same). The mandatory and unified nature of
the Code is just as important as the tax and social security
systems once it has been initiated. Indeed, as Justice Stevens
noted in his concurrence to Lee, “if tax exemptions were dis-
pensed on religious grounds, every citizen would have an
economic motivation to join the favored sects.” 455 U.S. at
263 n.3 (Stevens, J., concurring). If an exemption to the Code
was created in the name of religious beliefs, we can envision
scenarios in which individuals would join religious sects to
circumvent the Code, all in the name of religion, and gain an
“economic advantage over” their secular competitors. See
Braunfeld v. Brown, 366 U.S. 599, 608–09 (1961) (plurality
opinion) (noting competitive advantage over competitors
was reason not to carve out exception to law at issue).
The Archdiocese counters that Congress has already cre-
ated exceptions to increasing the size of the Estate elsewhere
in the Code, and so the court could do the same here to re-
spect the Archbishop’s beliefs. However, “[t]he fact that
Congress has already crafted some deductions and exemp-
tions in the Code also is of no consequence” to the possibility
of crafting a further exception. Hernandez, 490 U.S. at 700
(quoting Lee, 455 U.S. at 261). Congress has intended the es-
tate to be expansive so that the creditors can obtain maxi-
mum relief. See 5 Collier on Bankruptcy ¶ 541.01 (16th ed.
2014) (discussing “Congress’s intent to define property of the
estate in the broadest possible sense” since “[i]t would be
hard to imagine language that would be more encompass-
ing”). The Archdiocese’s proposed narrowing would defeat
Nos. 13-2881 et al. 33
Congress’s very purpose in defining “estate” broadly by
shrinking its size with an unwritten exception.
The case for a religious exception is even weaker here
than in Lee and Hernandez, since what the Archdiocese asks
us to do is write in an exception for purported fraud. The
Court has rejected the idea that fraudulent or improper ac-
tions can be excused in the name of religion: “Nothing we
have said is intended even remotely to imply that, under the
cloak of religion, persons may, with impunity, commit frauds
upon the public. … Even the exercise of religion may be at
some slight inconvenience in order that the State may pro-
tect its citizens from injury.” Cantwell v. Conn, 310 U.S. 296,
306 (1940); see also McDaniel, 435 U.S. at 643 n.* (Stewart, J.,
concurring) (“[A]cts harmful to society should not be im-
mune from proscription simply because the actor claims to
be religiously inspired.”); Gonzalez, 280 U.S. at 16 (noting
fraud exception to intrachurch doctrine). We do not believe
that there is, nor can there be, a religious exception that
would allow a fraudulent conveyance in the name of free ex-
ercise. For these reasons, we find that the Challenged Provi-
sions are of general and neutral applicability. Assuming the
Archbishop’s religious practice is substantially burdened, we
find that there is a compelling interest in the application of
the Challenged Provisions here that is narrowly tailored to
achieve that interest.
Therefore, we reverse the grant of summary judgment in
favor of the Archdiocese and the dismissal of the case, and
grant the Committee’s motion for summary judgment on
Count III of the Archdiocese’s complaint. Our decision does
not resolve all the issues in the Archdiocese’s complaint, nor
do we make any finding as to whether the transfer of the
34 Nos. 13-2881 et al.
Funds to the Trust was fraudulent, avoidable, or preferential.
Our holding today is limited to a determination that RFRA
and the First Amendment do not prevent the application of
the Challenged Provisions to the Funds. In other words, if
the case reaches that stage, the adjudicator can consider the
issue of whether the transfer of the Funds ran afoul of any of
the Challenged Provisions without violating the Free Exer-
cise Clause or RFRA.
D. Recusal
Finally, the Committee appeals the denial of its motion
for recusal, which it filed after the district court entered its
summary judgment order. Because we have vacated the
summary judgment order and the case shall be assigned to a
new judge on remand, we need not reach the merits of the
Committee’s motion. However, because the case will be re-
manded, we briefly note recusal considerations. The Com-
mittee alleges that the judge had financial and other interests
in the case and so recusal was required under 28 U.S.C.
§ 455(b). The Committee also argues that a reasonable per-
son would “be deeply concerned about the state of his par-
ents’ and other close relatives’ bodies and gravesites” and
would believe these facts create an appearance of improprie-
ty requiring recusal under 28 U.S.C. § 455(a).
The Archdiocese argues “if the basis for recusal is a mat-
ter of public record, as in this case, then the failure to seek
recusal in a timely manner is inexcusable.” But there is no
such requirement—a party does not have an obligation to
discover any potentially disqualifying information that is in
the public record. The onus is on the judge to ensure any po-
tentially disqualifying information is brought to the atten-
tion of the litigants. 28 U.S.C. § 455(c) (“A judge should in-
Nos. 13-2881 et al. 35
form himself about his personal and fiduciary financial in-
terests.”); see also Liljeberg v. Health Servs. Acquisition Corp.,
486 U.S. 847, 873 n.9 (1988) (“[N]otwithstanding the size and
complexity of the litigation, judges remain under a duty to
stay informed of any personal or fiduciary financial interest
they may have in cases over which they preside.”). It would
be unreasonable, unrealistic and detrimental to our judicial
system to expect litigants to investigate every potentially
disqualifying piece of information about every judge before
whom they appear. “[L]itigants (and, of course, their attor-
neys) should assume the impartiality of the presiding judge,
rather than pore through the judge’s private affairs and fi-
nancial matters. … ‘Both litigants and counsel should be able
to rely upon judges to comply with their own Canons of Eth-
ics.’” Am. Textile Mfrs. Inst., Inc. v. Limited, Inc., 190 F.3d 729,
742 (6th Cir. 1999) (quoting Porter v. Singletary, 49 F.3d 1483,
1489 (11th Cir. 1995)).
A judge should stay up to date on her financial and other
interests so she can make informed decisions and avoid ei-
ther the appearance of impropriety (28 U.S.C. § 455(a)) or
actual bias (28 U.S.C. § 455(b)). The informed judge may
then recuse herself on her own motion, if necessary. See
Hampton v. Chicago, 643 F.2d 478, 480 n.7 (7th Cir. 1981) (per
curiam) (noting district court “may disqualify himself on his
own motion since, for example, he is probably best informed
about his minor children’s financial interests”). The informed
judge can also disclose any concerns he might have so that
the parties can proceed with full knowledge. 28 U.S.C.
§ 455(e) (noting “waiver may be accepted [under § 455(a)]
provided it is preceded by a full disclosure on the record of
the basis for disqualification”). Had that been done here, any
purported timing issues or concerns that the Committee had
36 Nos. 13-2881 et al.
questionable motives in filing the motion would have re-
solved themselves earlier in the proceedings.
Under 28 U.S.C. § 455(a), a judge “shall disqualify him-
self in any proceeding in which his impartiality might rea-
sonably be questioned.” Whether a judge’s impartiality
might be reasonably questioned is an objective determina-
tion. In re Hatcher, 150 F.3d 631, 637 (7th Cir. 1998). The ques-
tion is whether a reasonable person could perceive “a signif-
icant risk that the judge will resolve the case on a basis other
than the merits.” Id. (quoting Hook v. McDade, 89 F.3d 350,
354 (7th Cir. 1996)).
The Committee argues that a reasonable person would
question the judge’s impartiality because he would be emo-
tionally attached to the well-being of his family members’
resting places. The Archdiocese argues that no reasonable
person would “make [that] leap in logic.” We think it sur-
prising, given this litigation involves cemetery care and
strongly held beliefs about the same, that the Archdiocese
would give so little weight to the importance of where the
deceased are buried.
Many people strongly ritualize the way they honor the
departed, regardless of their faith, religion, or lack thereof.
As the Archbishop points out, “the care and maintenance of
Catholic cemeteries, cemetery property, and the remains of
those interred therein is a fundamental exercise of the Catho-
lic faith.” No doubt we could go through and chronicle the
importance that graves and cemeteries have on many of the
world’s major religions, or the importance they have on
secular practices, as well.
Nos. 13-2881 et al. 37
That importance is compounded by who was buried in
the cemeteries here. The Judicial Code of Conduct specifical-
ly notes the problems that arise when the “judge or the
judge’s spouse, or a person related to either within the third
degree of relationship” is “known by the judge to have an
interest that could be substantially affected by the outcome
of the proceeding.” Code of Conduct for United States Judges
Canon 3(C)(1)(d)(iii) (Mar. 20, 2014), available at
http://www.uscourts.gov/uscourts/RulesAndPolicies/conduc
t/vol02a-ch02.pdf. Persons within the third degree are a
“parent, child, grandparent, grandchild, great grandparent,
great grandchild, sister, brother, aunt, uncle, niece, and
nephew.” Id. Canon 3(C)(3)(a). When one of the family
members within the third degree is involved in the litigation,
that should heighten the judge’s awareness, raising the ques-
tion of whether there is actual bias and, if not, whether the
judge should disclose any information so that the parties can
decide whether to proceed with full knowledge. See 28
U.S.C. § 455(e). Here, these were not distant relatives of the
judge’s—they were his parents (whose plots he personally
bought), two sisters, an uncle, an aunt, his mother- and fa-
ther-in-law, and his brother in-law, so nine relatives within
the third degree. This was problematic.
Though the municipality can come in after one year and
take control of the cemeteries if the owner is unable to, Wis.
Stat. § 157.115(1)(b)(1), there is no assurance that will hap-
pen. Also, the municipality does not have an obligation to
take control until five years have passed. Id. at (b)(2). A rea-
sonable person might wonder whether the impartiality of a
judge, secular or religious, could be affected by the possibil-
ity of the graves of nine close relatives falling into a state of
disrepair. A lot can happen in one year, let alone five. The
38 Nos. 13-2881 et al.
image of the graves containing someone’s father and mother
crumbling is a powerful one indeed, regardless of one’s be-
liefs, and could reasonably call into question a judge’s impar-
tiality. These are graves of close relatives and loved ones,
and the judge was clearly concerned enough about their care
that, at least in his parent’s case, he bought their graves. Peo-
ple have been known to act differently when the care of their
loved ones is, or might be, affected. This is why the Canons
draw the third degree distinction. Cf. Nichols v. Alley, 71 F.3d
347, 352 (10th Cir. 1995) (finding reasonable person could
question impartiality of judge whose chambers was affected
by, and staff member and court personnel were injured by,
bomb allegedly set off by defendant).
III. CONCLUSION
For the foregoing reasons, we AFFIRM IN PART and
REVERSE IN PART the judgment of the district court and
REMAND for proceedings consistent with this opinion. Circuit
Rule 36 shall apply on remand.