7th Circuit: Milwaukee Archdiocese Cannot Protect Cemetery Trust Funds In Bankruptcy

In Listecki v. Official Committee of Unsecured Creditors, (7th Cir., March 9, 2015), the U.S. 7th Circuit Court of Appeals ruled that $55 million held by the Archdiocese of Milwaukee in a perpetual care trust fund for maintaining Catholic cemeteries is potentially available in bankruptcy to satisfy claims of clergy sex abuse victims.  The district court had held that the Archdiocese's free exercise rights under RFRA and the 1st Amendment would be infringed if the trust funds were made available to claimants. (See prior posting.)  The 7th Circuit held, however, that RFRA does not apply unless the government is a party to the suit, and that a creditors' committee in bankruptcy does not act "under color of law" as a governmental instrumentality.  It rejected the Archdiocese's 1st Amendment free exercise assertion, finding that the Bankruptcy Code's fraudulent transfer provisions are neutral and generally applicable. It further held that the Bankruptcy Code reflects a compelling governmental interest in the protection of creditors. AP reports on reactions to the decision.