Listecki Ex Rel. Archdiocese of Milwaukee Catholic Cemetery Perpetual Care Trust v. Official Committee of Unsecured Creditors

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.

____________________

Appeal 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.