Listecki v. Official Committee of Unsecured Creditors

Summarized by Kurt Carlson , Carlson Dash LLC
10 years 11 months ago

Citation:

Listecki v. Official Committee of Unsecured Creditors, Court of Appeals, 7th Circuit 2015 (unpublished)

Tag(s):

Ruling:

The Religious Freedom Restoration Act (“RFRA”) does not apply to cases where the “government,” as defined in RFRA, is not a party. Also, even where the Free Exercise Clause of the First Amendment is applicable, it does not preclude application of the Bankruptcy Code (the “Code”), as the government has a compelling interest to protect creditors from fraudulent or preferential activity by a debtor.

Procedural context:

The Archdiocese of Milwaukee filed for Chapter 11 bankruptcy in 2011 in the face of sexual abuse lawsuits and subsequent financial woes. A Creditors’ Committee sought to void a transfer by the Archdiocese in the amount $55 million to a trust for cemetery maintenance; the Committee claimed the transfer was fraudulent avoidance. The district court held that applying the Code would violate both the RFRA and the Free Exercise Clause of the First Amendment. The appellate court affirmed that RFRA is not applicable when the government is not party to the suit, and reversed the district court’s decisions that RFRA is applicable in this case and the Free Exercise Clause of the First Amendment precludes application of the Code. The case was remanded for proceedings consistent with their opinion.

Facts:

After filing Chapter 11 bankruptcy, the Archdiocese of Milwaukee transferred $55 million into a trust for cemetery maintenance and a Creditors’ Committee comprised of sexual assault victims sought to void this transfer, claiming it was fraudulent avoidance. The Archdiocese challenged the applicability of the Code, claiming protection under the RFRA. Four sections of the Code were being challenged: (1) 11 U.S.C. §541, which determines what the bankruptcy “estate is comprised of”; (2) 11 U.S.C. §544, which sets forth voidable transfers; (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 addresses “fraudulent transfers and obligations.” The appellate court found these provisions to be facially neutral and narrowly tailored to protect creditors. The Committee was found to be comprised of non-governmental actors and the RFRA therefore did not apply to this case.

Judge(s):

Flaum, Williams

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