In its recent opinion in Jerome Listecki, as Trustee of the Archdiocese of Milwaukee Catholic Cemetery Perpetual Care Trust v. Official Committee of Unsecured Creditors, 2015 WL 1010089 (7th Cir. 2015), the Seventh Circuit held that theReligious Freedom Restoration Act (“RFRA”) does not apply in cases where the government is not a party, and further held that the creditor the Creditors Committee in the case was not the equivalent of the government for purposes of the RFRA. The facts of the case involved a claim by the Committee to avoid the transfer of a substantial sum of money by the Archdiocese of Milwaukee to a perpetual care trust as afraudulent transfer. In seeking declaratory relief, the Archbishop contended the transfer was protected by the RFRA. Because the filing of the complaint created a conflict for the Archbishop, he and the Committee stipulated, and the bankruptcy court granted, the Committee derivative standing to pursue avoidance of the transfer. The Committee then filed a counterclaim asserting the transfer was avoidable under the Bankruptcy Code. The U.S. District Court for the Eastern District of Wisconsin held that RFRA is not applicable when the government is not a party to the suit based on the statute’s plain language, a ruling with the Seventh Circuit affirmed. However, the U.S. District Court also found that the RFRA was applicable to the action because the Committee acted under “color of law” and was the “government” for RFRA purposes, rulings with the Seventh Circuit reversed.
The Seventh Circuit noted that it had previously stated in dictathat the RFRA is applicable only to suits where the government is a party. The court followed that dicta in its opinion, holding the statute’s plain language, its legislative history and the compelling reasons offered by its sister circuits justified a holding that RFRA is applicable only in suits where the government is a party. The plain language of the statute provides that the “government shall not substantially burden a person’s exercise of religion even if the burden results from a rule of general applicability,” and that a private party cannot step into the shoes of the “government.” The language of the statute indicated to the court that relief is “clearly and unequivocally” limited to that from the “government.” The legislative history of the statute also was replete with references to protection of religious liberty from government incursion. Thus, the court concluded that RFRA applies only to actions involving the government as a party.
With that conclusion, the court then turned to whether the Committee was the “government” such that RFRA would apply to the action, and concluded the Committee was not. The Archdiocese argued that the Committee was the “government” because it acted under color of law as an arm of the U.S. Trustee, its creation by the U.S. Trustee pursuant to the Bankruptcy Code, and its performance of a traditional government function. The court rejected these arguments. First, the court noted that none of the members of the Committee was a governmental actor. In addition, although appointed by a government entity pursuant to statute, the court found that, once appointed, a Committee “takes on a life of its own.” Further, the court noted that a committee represents the larger interests of the unsecured creditors, “and it is to them, and not the Trustee, court or any governmental actor, that the committee owes a fiduciary duty,” with no requirement to act in accordance with the Trustee’s or the court’s wishes. The court noted that a committee can, in fact, oppose a debtor’s or trustee’s conduct. The fact that a committee enjoys a limited grant of immunity was not conclusive, as the court noted that such immunity is routinely given to private individuals. The court rejected the argument that the Committee performed a “public function” because it did not perform its functions in connection with the reorganization in an impartial matter and, in fact, was far from impartial in representing the interests of its constituency. The court held that, while determination of whether a committee is acting as the “government” must be determined on a case by case basis, the Committee in this case did not.