Amish Alternative Bankruptcy Plan Would Violate Establishment Clause

 In re Beachy, (ND OH Bkrpt., March 18, 2011), involves an unusual intersection of the Establishment Clause with the federal Bankruptcy Code.  Monroe L. Beachy, a member of the Amish community, filed a bankruptcy petition in federal bankruptcy court in Ohio.  Beachy operated a securities firm that he ultimately turned into a Ponzi scheme, leaving investors with $33 million in claims against his $18 million in assets. Because both the debtor and the vast majority of investors are members of the Amish or Mennonite communities, a group from those communities proposed a Plain Community alternative plan to the bankruptcy proceedings. Plain Community members interpret the Bible as barring the use of civil courts to resolve financial disputes. Beachy asked the court to dismiss his bankruptcy petition and allow investors to proceed under the alternative plan. The court refused, saying:

The debtor in this case is clearly asking this court to delegate its function to a religious body. The motion to dismiss is conditioned on the court transferring estate funds to the Committee, which, according to the Committee's own filings, is a unit established by a church.... Any such delegation is forbidden by the Establishment Clause, regardless of the specific facts of a particular case.

The court rejected the argument that acceptance of the alternative plan was required by the Religious Freedom Restoration Act, saying that applying the Act in that way would violate the Establishment Clause. Moreover, in the court's view, the government has a compelling and narrowly tailored interest in an orderly and predictable bankruptcy system. The Dover- New Philadelphia (OH)  Times Reporter  discusses the decision. (See prior related posting.)