Official Comm. of Unsecured Creditors v. Listecki, No. 13-3495 (7th Cir. 2015)Annotate this Case
Facing financial problems and lawsuits from victims of sexual abuse, the Catholic Archdiocese of Milwaukee filed for Chapter 11 bankruptcy in 2011. A Creditors’ Committee composed of abuse victims sought to void a one-time transfer of $55 million from the Archdiocese’s general accounts to a trust, created after the settlement with victims and earmarked for maintaining cemeteries in accordance with Canon Law, as fraudulent or preferential. The district court found that the application of the Bankruptcy Code to that transfer would violate the Archbishop’s free exercise rights under the Religious Freedom Restoration Act (RFRA) and the First Amendment. The Seventh Circuit reversed in part. RFRA is not applicable. The government is not a party; 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 and no one else, and has other nongovernmental traits. Although the Free Exercise Clause is implicated, but does not bar application of the Code to the $55 million. The Code and its relevant provisions are generally and neutrally applicable and represent a compelling governmental interest in protecting creditors that is narrowly tailored to achieve that end.