High court declines review of bankruptcy decision that employed RFRA

Tuesday, October 6, 1998

The U.S. Supreme Court has refused to hear an appeal of a federal court opinion that upheld the Religious Freedom Restoration Act of 1993 as applied to federal bankruptcy laws.

The high court, without comment, yesterday declined to review the federal opinion, which centered on a 1997 Supreme Court decision in Boerne v. Flores.

The high court in Boerne ruled that RFRA, a law which would have made it harder for government to interfere with how Americans practice their faith, could not be applied to state courts. The high court, in part, concluded that it was not within Congress' power to tell state court judges how to interpret free-exercise clause claims.

Lower courts have since disagreed whether Boerne invalidated RFRA as applied to the federal government and federal law.

The Supreme Court's denial of review let stand the 8th U.S. Circuit Court of Appeals decision in Christians v. Crystal Evangelical Free Church. The 8th Circuit ruled in April that when the Supreme Court struck down RFRA it did so only as it applied to state laws and actions.

The 8th Circuit ruled in Crystal that the strict legal standard of RFRA — which said that government must show a compelling interest to justify a substantial interference in religious practice, and must use the least-restrictive means for doing so — would have to apply to the case of a couple who challenged the federal bankruptcy code. Therefore the appeals court found that a bankruptcy trustee could not recover church donations the couple made within the year before they sought bankruptcy protection.

The Crystal case involved tithes that Bruce and Nancy Young made to their church in New Hope, Minn., in 1991 and 1992. Shortly after tithing 10% of their annual income to the church, the Youngs filed for bankruptcy. At that time the federal bankruptcy code treated a person's tithes made within a year of filing for bankruptcy as a fraudulent transfer recoverable by bankruptcy trustees.

The Youngs, however, sued in federal court citing the strict legal test of RFRA. They argued that their tithes were given to the church because of deeply held religious beliefs.

The couple's case reached the 8th Circuit Court of Appeals after RFRA had been invalidated, but not before a debate among legal scholars and lower courts emerged as to whether the ruling in Boerne had invalidated RFRA as applied to federal laws and actions.

Circuit Judge Frank J. Magill, writing for the majority, ruled that RFRA could apply to federal law — at least in the Crystal case, which meant that the church could keep the Youngs' donations. The 8th Circuit's decision centered on Congress' powers, as stated in Article I of the Constitution, to create uniform laws regarding bankruptcies and to make laws “necessary and proper” to enforce those laws.

“We conclude that RFRA is an appropriate means by Congress to modify the United States bankruptcy laws,” Magill wrote. “In attempting to [recover] the Youngs' tithes to the church, the Trustee relied on an affirmative act of Congress defining which transactions of debtors in bankruptcy may be [recovered].

“RFRA, however, has effectively amended the Bankruptcy Code, and has engrafted the additional clause that a recovery that places a substantial burden on a debtor's exercise of religion will not be allowed to unless it is the least restrictive means to satisfy a compelling governmental interest,” Magill wrote.

The high court's action, although leaving the 8th Circuit opinion untouched, was not a statement on the merits of the appeals court's decision.

Eric Treene, litigation director for the Becket Fund, a D.C.-based religious-liberty group, welcomed the high court's action, although noting that “it's always hard to read the tea leaves” of a denial of review by the Supreme Court.

Treene said that “by denying review, the court let stand an important 8th Circuit opinion that RFRA is still in force against federal law, a conclusion that is shared by a majority of the circuit and district courts that have ruled on the issue.”

He added that the high court's action was “good news for religious liberty, because it preserves protection of religious exercise for people in the District of Columbia, federal workers and others affected by federal law.”

In June, President Clinton signed the Religious Liberty and Charitable Donation Protection Act of 1998. The act amended the federal bankruptcy code to prevent bankruptcy judges from forcing churches and other tax-exempt, charitable organizations to return donations of up to 15% of a debtor's gross annual income in order to repay creditors.

Treene acknowledged that the new law would have protected the Youngs' tithes from a bankruptcy judge, even if the high court had accepted for review and overturned the 8th Circuit's decision in Crystal.

Nonetheless, Treene said that the 8th Circuit's opinion was not just limited to federal bankruptcy law. “The court ruled on the constitutionality of RFRA, a broad law encompassing all government actions that impinge on religious liberty protections.”

Marci Hamilton, the attorney who argued against RFRA before the Boerne court, said there was always the danger that people would over-read the high court's denial of review.

“The reason the court did not take the decision up for review is because there are not enough cases on the issue,” Hamilton, a constitutional law scholar and professor at Yeshiva University in New York, said. “There must be a full airing of the issues in the lower federal courts and state courts, which there has not been. So it was not surprising the court did not grant” review.

Hamilton also said that because Clinton signed the law amending the bankruptcy code, the decision in the 8th Circuit had become moot.