Listecki Ex Rel. Archdiocese of Milwaukee Catholic Cemetery Perpetual Care Trust v. Official Committee of Unsecured Creditors
780 F.3d 731
7th Cir.2015Background
- Archdiocese of Milwaukee transferred roughly $55 million into a cemetery trust in 2008 after receiving Vatican approval; transfer occurred amid mounting sexual-abuse claims and litigation.
- Archdiocese filed Chapter 11 in 2011; a creditors’ committee of abuse victims (the Committee) was appointed and granted derivative standing to pursue avoidance and turnover claims against the Archbishop/Trust on behalf of the bankruptcy estate.
- Committee moved for summary judgment seeking a declaration that RFRA and the Free Exercise Clause do not bar application of Bankruptcy Code avoidance provisions to the $55 million; Archdiocese cross-moved claiming constitutional protection.
- District court found RFRA and the First Amendment barred application of the Code to the Funds and granted Archdiocese summary judgment; Committee appealed and challenged the district judge’s impartiality.
- Seventh Circuit: affirmed that RFRA does not apply when the government is not a party, held the Committee is not the “government” (not acting under color of law), and reversed the district court on Free Exercise grounds — concluding the Code is neutral, generally applicable, and justified by a compelling, narrowly tailored interest in protecting creditors.
Issues
| Issue | Plaintiff's Argument (Archdiocese) | Defendant's Argument (Committee) | Held |
|---|---|---|---|
| Whether RFRA applies when the government is not a party | RFRA should apply to protect religious exercise against private-party application of federal law | RFRA applies only where the government is a party; private suits are outside RFRA | RFRA does not apply when the government is not a party (statute’s text and history) |
| Whether the Committee qualifies as the “government” under RFRA (acting under color of law) | Committee is effectively a governmental actor: appointed/monitored by U.S. Trustee and court, performs public functions | Committee is composed of private creditors, owes fiduciary duty to private creditors, hires counsel and operates independently; supervision does not convert it into government | Committee is not the government / not acting under color of law; RFRA therefore inapplicable here |
| Whether application of Bankruptcy Code avoidance provisions violates the Free Exercise Clause | Application to the Funds would substantially burden religious exercise and should be blocked | The Code provisions are neutral and generally applicable; protecting creditors is a compelling governmental interest narrowly served by the Code | Free Exercise Clause does not bar application: the Code and the challenged avoidance provisions are neutral, generally applicable, and, given the interest in protecting creditors, satisfy heightened scrutiny as applied here |
| Whether district judge should have been recused for appearance of bias | (Archdiocese did not press recusal) | Committee argued judge’s many family interments in Archdiocese cemeteries and prior cemetery plot purchase required recusal | Court vacated need to decide because case remanded to a new judge; but noted reasonable appearance concerns existed and emphasized judicial duty to disclose and monitor potential conflicts |
Key Cases Cited
- Tomic v. Catholic Diocese of Peoria, 442 F.3d 1036 (7th Cir. 2006) (dicta that RFRA applies only to suits with government party)
- Sutton v. Providence St. Joseph Med. Ctr., 192 F.3d 826 (9th Cir. 1999) (RFRA "under color of law" interpreted like §1983 analysis)
- Gen. Conf. Corp. v. McGill, 617 F.3d 402 (6th Cir. 2010) (RFRA applies only when government is a party)
- Employment Div., Dep’t of Human Res. v. Smith, 494 U.S. 872 (1990) (neutral, generally applicable laws do not trigger strict scrutiny under Free Exercise Clause)
- Church of Lukumi Babalu Aye v. City of Hialeah, 508 U.S. 520 (1993) (law is not neutral if it targets religious practice)
- Central Virginia Community College v. Katz, 546 U.S. 356 (2006) (history and importance of federal bankruptcy power)
- Polk County v. Dodson, 454 U.S. 312 (1981) (public defender not a state actor when advancing client’s private interests)
- BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) (background on fraudulent transfer doctrine and bankruptcy law history)