____________

No. 93-2267

____________

In re: Bruce Young; *

In re: Nancy Young *

*

-------------------- *

*

Julia A. Christians, *

*

Appellee, *

*

United States of America, *

*

Intervenor, *

*

v. *

*

Crystal Evangelical Free *

Church, *

*

Appellant. *

*

-------------------- *

*

Christian Legal Society; The *

National Association of *

Evangelicals; Americans United * Appeal from the United States

for Separation of Church and * District Court for the

State; Concerned Women for * District of Minnesota

America; The Baptist Joint *

Committee on Public Affairs; *

The Southern Baptist Convention;*

The General Conference of *

Seventh-Day Adventists; *

The Evangelical Lutheran Church *

in America; *

*

Amici Curiae. *

*

United States Senator Orrin G. *

Hatch; The Church of Jesus *

Christ of Latter-Day Saints; *

Catholic League for Religious *

and Civil Rights; Traditional *

Values Coalition; Worldwide *

Church of God, *

*

Amici Curiae. *
*The Honorable Andrew W. Bogue, United States

District Judge for the District of South Dakota,

sitting by designation.

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____________

 Submitted: September 15, 1994

 Filed: May 6, 1996

____________

Before McMILLIAN and MAGILL, Circuit Judges, and BOGUE, District *

Judge.

____________

McMILLIAN, Circuit Judge.

The Crystal Evangelical Free Church (hereinafter the church) appeals

from a final order entered in the District Court for the District of

Minnesota affirming an order entered in the Bankruptcy Court for the

District of Minnesota that required the church to turn over to trustee

Julia A. Christians certain funds debtors Bruce and Nancy Young had

contributed to the church as tithes during the year preceding the filing

of their petition for bankruptcy. In re Young, 148 B.R. 886 (Bankr. D.

Minn. 1992), aff’d, 152 B.R. 939 (D. Minn. 1993). For reversal, the church

argues that the contributions were not avoidable under 11 U.S.C.

§ 548(a)(2) because the contributions were not made in exchange for less

than “reasonably equivalent value.” The church also argues that requiring

it to turn over the contributions discriminates against religion and

violates the free exercise clause of the first amendment. For the reasons

discussed below, we reverse the order of the district court. 

BACKGROUND FACTS

The facts are not disputed. The debtors are active members of the

church. For several years, as part of their religious
-3-

belief and practice, the debtors voluntarily contributed certain funds as

tithes to the church; they did not receive money or tangible property in

exchange for their contributions. Tithing is a spiritual and financial

practice. Believers traditionally give a tithe, or tenth, of their income

to a religious organization such as a church. See Lev. 27:1, 30, 32 (New

International Version) (“The Lord said to Moses . . . . A tithe of

everything from the land, whether grain from the soil or fruit from the

trees, belongs to the Lord; it is holy to the Lord . . . . The entire tithe

of the herd and flock-- every tenth animal that passes under the shepherd’s

rod-- will be holy to the Lord.”). The church teaches that Christians

should offer regular contributions to support the work and message of the

church. However, the church does not insist on a particular amount or

require payment of membership or attendance fees. Members and non-members

are welcome at worship services and other church services whether they

tithe or not. It is not disputed that the debtors are sincere in their

religious faith. 

In February 1992 the debtors filed a joint Chapter 7 bankruptcy

petition. During the year preceding the filing of their Chapter 7

petition, and at a time when they were insolvent, they contributed a total

of $13,450.00 to the church. The trustee filed this adversary proceeding

against the church in order to recover those contributions as “fraudulent
 11 U.S.C. § 548(a) provides in part: 1

(a) The trustee may avoid any transfer of an

interest of the debtor in property, or any

obligation incurred by the debtor, that was made or

incurred on or within one year before the date of

the filing of the petition, if the debtor

voluntarily or involuntarily-- 

. . . . 

(2)(A) received less than a reasonably

equivalent value in exchange for such transfer or

obligation; and 

. . . .

(B)(i) was insolvent on the date that such

transfer was made or such obligation was incurred,

or became insolvent as a result of such transfer or

obligation.

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transfers” under 11 U.S.C. § 548(a)(2)(A). The parties filed

1

cross-motions for summary
-5-

judgment. In order to avoid transfers under 11 U.S.C. § 548(a)(2)(A), the

trustee must prove that (1) there was a transfer of the debtors’ interest

in property (2) made on or within a year preceding the filing of the

petition (3) while the debtors were insolvent (4) in exchange for which the

debtors received less than reasonably equivalent value. The parties

stipulated to the existence of the first three factors; the only factor in

dispute was whether the debtors received “reasonably equivalent value” “in

exchange for” their contributions to the church. 

DECISION OF THE BANKRUPTCY COURT

The bankruptcy court granted the trustee’s motion for summary

judgment and denied the church’s motion. The bankruptcy court held that

the debtors’ contributions to the church were avoidable transfers under §

548(a)(2)(A) because the debtors did not receive “reasonably equivalent

value” “in exchange for” their contributions. 148 B.R. at 890-93. The

bankruptcy court concluded that “value” referred solely to economic value,

that is, “property” in a physical or material sense, and that religious

services, theological programs and access to the church’s facilities did

not meet this economic definition of value. Id. at 891, 895-96 (rejecting

In re Moses, 59 B.R. 815, 818 (Bankr. N.D. Ga. 1986) (Moses) (holding

church services constitute property within meaning of § 548), and In re

Missionary Baptist Foundation of America, 24 B.R. 973, 979 (Bankr. N.D.

Tex. 1982) (Upreach) (holding good will constituted reasonably equivalent

value in exchange for charitable contributions to church)). 
-6-

The bankruptcy court also concluded that the contributions were not

economically beneficial to the debtors. 148 B.R. at 893. In the

bankruptcy court’s view, any benefit was strictly religious and thus merely

incidental and enjoyed by the debtors individually and not by either their

pre-petition or post-petition estate. Id. at 893-94 & n.10. The

bankruptcy court also noted that the judicial system cannot differentiate

between “religious” benefits and “secular” benefits, much less put a value

on those benefits, and that any value calculation would be “fraught with

the sort of entanglement that the Constitution forbids,” and that the

debtors’ contributions to the church were thus avoidable as fraudulent

transfers under § 548(a)(2)(A). 148 B.R. at 893-96 & n.13, 896 & n.17

(noting potential excessive entanglement problems in having courts

calculate value of religious services, even though parties did themselves

did not raise first amendment concerns). 

The bankruptcy court also determined that, even assuming the debtors

received value, that value had not been received “in exchange for” their

contributions because no exchange took place. Id. at 895-96. As noted by

the bankruptcy court, the church made available worship services and

religious programs to all members, including the debtors, without in any

way linking those services to financial contributions. Id. at 894 (noting

that debtors could not have received property in exchange for their

contributions for purposes of § 548(a) and at the same time treated those

contributions as charitable deductions under 26 U.S.C. § 170(c)(4)). See

Hernandez v. Commissioner, 490 U.S. 680, 691 (1989) (quid pro quo is

inconsistent with charitable contribution); United States v. American Bar

Endowment, 477 U.S. 105, 118 (1986) (“The sine qua non of a charitable

contribution is a transfer of money or property without adequate

consideration.”). The bankruptcy court declared the transfers void and

ordered the trustee to recover from the church $13,450.00, plus interest

and costs. The church appealed the decision of the bankruptcy court to the

district court. 
-7-

DECISION OF THE DISTRICT COURT

On appeal, the district court affirmed the bankruptcy court’s

statutory interpretation and analysis of § 548(a)(2)(A) and agreed that the

debtors did not receive “reasonably equivalent value” for their

contributions to the church. 152 B.R. at 948. The district court also

found that neither the religious services nor the tax deductions for

charitable contributions constituted reasonably equivalent value under §

548(a)(2)(A). Id. at 948-49. The district court agreed with the

bankruptcy court’s decision not to follow Upreach and Moses. In the

district court’s view, good will and church services are not the kind of

“fairly concrete” benefits required to constitute reasonably equivalent

value, and neither case addressed the “in exchange for” requirement. Id.

at 950. The district court noted that church services and charitable

deductions were not given “in exchange for” the debtors’ contributions.

Id. at 949-50. The district court also distinguished Moses from the

present case on the ground that in Moses the church had required the

contributions as a condition of the debtor’s employment as a deacon. Id.

at 950. In the present case the parties stipulated that the debtors were

not required to contribute in order to attend church services or otherwise

participate in church programs. 

On appeal in the district court, the church argued for the first time

that applying § 548(a) would violate the free exercise and establishment

clause of the first amendment. The district court exercised its discretion

to consider the constitutional arguments and rejected them. The district

court first held that the church had standing to raise the constitutional

rights of the debtors in addition to its own. Id. at 950-51 (debtors could

not effectively assert their free exercise rights because they are not

parties in this proceeding). The district court then applied Employment

Division v. Smith, 494 U.S. 872 (1990) (Smith), and held that the church’s

free exercise claim failed on the merits because the Bankruptcy Code was

a neutral law of general applicability
-8-

which has only an incidental effect on religion. 152 B.R. at 953-54. The

district court held in the alternative that, even if the pre-Smith free

exercise test applied, “[t]he government’s policy of allowing debtors to

get a fresh start while at the same time treating creditors as fairly as

possible qualifies as a compelling [governmental] interest.” Id. at 954.

The district court also held that § 548(a) did not unfairly

discriminate against religious contributions, id. at 954, and that the

debtors’ “hybrid” right to free speech and free exercise was not impaired

because limiting the amount an individual may contribute to a cause or

organization only marginally restricts the contributor’s ability to

communicate that particular message. Id. The district court noted that

§548(a)(2)(A) was narrowly drawn and content-neutral, protected an

important governmental interest in maximizing the debtors’ estate, and did

not violate the doctrine of separation of church and state. Id. at 954.

Finally, the district court held that § 548(a) did not violate the

establishment clause. Id. at 955. The district court applied the Lemon

v. Kurtzman, 403 U.S. 602 (1971), entanglement test and found that § 548

has a secular purpose, to maximize the size of the debtor’s estate; its

primary effect neither advances nor inhibits religion; and its enforcement

does not threaten excessive entanglement between church and state. 152

B.R. at 955. The district court agreed with the bankruptcy court that

attempting to quantify the value received by the debtors in exchange for

their contributions to the church could lead to exactly the sort of

entanglement the Constitution forbids. Id. This appeal followed. 

CERTIFICATION OF CONSTITUTIONAL QUESTION

On November 13, 1993, after the district court had filed its decision

and while this appeal was pending, President Clinton signed the Religious

Freedom Restoration Act (RFRA), 42 U.S.C.
 The Religious Freedom Restoration Act, 42 U.S.C. § 2000bb,

2

provides in part:

(a) IN GENERAL-- Government shall not

substantially burden a person’s exercise of

religion even if the burden results from a rule of

general applicability, except as provided in

subsection (b).

(b) EXCEPTION-- Government may substantially

burden a person’s exercise of religion only if it

demonstrates that application of the burden to the

person-- 

(1) is in furtherance of a

compelling governmental interest; and

(2) is the least restrictive

means of furthering that compelling

governmental interest.

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§ 2000bb. For this reason, questions about the application of the RFRA

2

(or its constitutionality) were not presented to the district court.

Pursuant to the court’s request, the parties filed supplemental briefs

addressing the applicability of the RFRA. 

While preparing for oral argument, this court recognized, albeit

belatedly, that certification under 28 U.S.C. § 2403(a) was required

because the appeal questioned the constitutionality of a provision of the

bankruptcy code affecting the public interest and the United States was not

a party. Accordingly, we removed the case from the argument calendar and

certified the appeal to the Attorney General and invited the United States

to intervene in the appeal on the question of constitutionality of 11

U.S.C. § 548(a) if it so desired. See 28 U.S.C. § 2403(a); Fed. R. App.

P. 44; Fed. R. Civ. P. 24(c). The parties had not requested the bankruptcy

court, the district court or this court to notify the Attorney General, and

the district court and the bankruptcy court had not realized that 28 U.S.C.

§ 2403 requires notification of the Attorney General whether or not it is

requested by the parties. Nonetheless, “[f]ailure to notify the Attorney

General is not a jurisdictional defect, and belated notice satisfies any
 Amicus briefs were filed in support of the church on behalf 3

of the Christian Legal Society, the National Association of

Evangelicals, Americans United for Separation of Church and State,

Concerned Women for America, the Baptist Joint Committee on Public

Affairs, the Southern Baptist Convention, the General Conference of

Seventh-Day Adventists, and the Evangelical Lutheran Church in

America; the Church of Jesus Christ of Latter-Day Saints; and

United States Senator Orrin G. Hatch.

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requirement.” Tonya K. v. Board of Education, 847 F.2d 1243, 1247 (7th

Cir. 1988) (citations omitted). Certification has occurred even after

judgment at the appellate level. E.g., Merrill v. Town of Addison, 763

F.2d 80, 83 (2d Cir. 1985) (citing cases). “The rule is designed to give

the Executive Branch both the time to make its views known and the

opportunity to intervene in order to take a direct appeal to the Supreme

Court if the decision should be adverse to the statute’s

constitutionality.” Tonya K. v. Board of Education, 847 F.2d at 1247. No

practical purpose would have been served in remanding the case to the

bankruptcy court or the district court for purposes of certification, and

the belated certification did not prejudice or otherwise impair the ability

of the United States to fully present its views on the question of the

constitutionality of § 548(a). See Merrill v. Town of Addison, 763 F.2d

at 83. 

Following certification, the United States decided to intervene in

the case and filed a brief supporting the position of the trustee and

defending the constitutionality of § 548(a)(2)(A) under both Smith and the

RFRA. Several amicus briefs were filed in support of the church’s

position. Oral arguments were held in September 1994. However,

3

immediately before oral argument, the United States ended its participation

in the case as intervenor and withdrew its brief. The decision of the

United States to withdraw surprised the parties and the court, but counsel

for the trustee was substituted for the United States at the last moment

and ably presented oral argument. 
-11-

STANDARD OF REVIEW

We review the grant of summary judgment de novo. The question before

the district court, and this court on appeal, is whether the record, when

viewed in the light most favorable to the non-moving party, shows that

there is no genuine issue as to any material fact and that the moving party

is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The

moving party bears the initial burden of identifying “those portions of

‘the pleadings, depositions, answers to interrogatories, and admissions on

file, together with the affidavits, if any,’ which it believes demonstrate

the absence of a genuine issue of material fact.” Celotex Corp. v.

Catrett, 477 U.S. 317, 323 (1986) (quoting Fed. R. Civ. P. 56(c)). Once

the moving party has met this burden, the non-moving party cannot simply

rest on the allegations in the pleadings; rather, the non-movant “must set

forth specific facts showing that there is a genuine issue for trial.”

Fed. R. Civ. P. 56(e). Although we view the facts in the light most

favorable to the non-moving party, in order to defeat a motion for summary

judgment, the non-movant cannot simply create a factual dispute; rather,

there must be a genuine dispute over those facts that could actually affect

the outcome of the lawsuit. 

In the present case, there are no genuine issues of material fact in

dispute because the parties stipulated to the relevant facts and because

the issues raise only questions of law. 

The church’s principal argument on appeal is that requiring the

church to return these contributions violates the free exercise clause of

the first amendment. The church relied on Smith in its main brief but also

raised a RFRA compelling governmental interest argument in its supplemental

brief. The church also argues that the district court erred in applying

11 U.S.C. § 548 to these contributions and in finding that the debtors did

not receive
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“reasonably equivalent value” “in exchange” for their contributions to the

church. We will discuss the statutory arguments first.

“FRAUDULENT” TRANSFERS UNDER 11 U.S.C. § 548(a)(2)

The section of the bankruptcy code under which the trustee recovered

the contributions at issue, 11 U.S.C. § 548, is captioned “fraudulent

transfers and obligations.” As a preliminary matter, the church argues

that this caption is not merely “unfortunate” but significant because the

purpose of the section is to avoid transfers made with fraudulent intent

or at least under circumstances under which a transfer may be considered

fraudulent. The church argues that the section was not drafted with bona

fide charitable contributions in mind and that in the present case there

is no question of fraudulent intent. The church notes that the debtors did

not change the frequency or amount or the recipient of their contributions

in the face of their changing financial circumstances. 

The term “fraudulent” in the caption of 11 U.S.C. § 548 is inapposite

and, at least with respect to § 548(a)(2), can certainly be misleading.

In re Newman, 183 B.R. 239, 245 & n.9 (Bankr. D. Kan. 1995). It may be,

as the district court noted, that “describing the [debtors’ contributions]

as ‘avoidable transfers’ rather than ‘fraudulent transfers’ may be more

appropriate because it lessens the [unwarranted] inference of culpability.”

152 B.R. at 950. Fraudulent intent is not required to recover transfers

made within one year of the bankruptcy filing under § 548(a)(2). Compare

11 U.S.C. § 548(a)(1) (under which fraudulent intent is required to avoid

transfers). Section § 548(a)(2) requires only “constructive fraud,” not

actual intent to defraud. “A transfer is constructively fraudulent if an

insolvent debtor transfers some of its property for less than reasonably

equivalent value.” In re Newman, 183 B.R. at 245 n.9. In the present case

the trustee has not accused the debtors and the church of any improper

conduct,
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much less actual fraud. What is important, however, is not the misleading

caption but that the trustee was not required to prove actual fraud in

order to recover the contributions under § 548(a)(2)(A). We next consider

the church’s substantive statutory argument. 

In order to find a fraudulent transfer, or, more accurately, an

avoidable transfer, has occurred under 11 U.S.C. § 548(a)(2), the trustee

must prove by a preponderance of the evidence that (1) there was a transfer

of an interest of the debtor in property, (2) the transfer was made within

one year before the date of the filing of the petition, (3) the debtor was

insolvent on the date the transfer was made, and (4) the debtor received

less than a reasonable equivalent value in exchange for the transfer. 152

B.R. at 945 (citations omitted). In the present case the parties

stipulated that the first three elements were satisfied, and the only issue

was whether the debtors had received “reasonably equivalent value” “in

exchange for” their contributions to the church. Id. As noted above, the

district court concluded that the debtors’ contributions were gratuitous

transfers, id. at 948, and that religious or spiritual support did not

constitute “reasonably equivalent value.” Id. at 949-50. The district

court also concluded that, even assuming the church services did constitute

“reasonably equivalent value,” in the present case the church’s services

had not been provided “in exchange for” the debtors’ contributions because

the parties stipulated that the church services were available regardless

of whether or not they made any contributions. Id. 

On appeal the church argues the district court erroneously defined

“value” to include only tangible property and ignored how the debtors

valued what they received from the church. The church argues that “value”

includes indirect economic benefits and that the debtors received “value”

in the form of tax deductions for charitable contributions, church

membership and spiritual
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counseling, and, more concretely, access to church facilities because

contributions from the debtors and others helped pay for the church’s

operating expenses. The church also argues that the district court erred

in concluding that the contributions were not made “in exchange for” the

indirect economic benefits the debtors received in the form of church

services. The church argues a nexus existed between the contributions and

those benefits because the debtors made the contributions during the same

time period they received the benefits. 

Title 11 U.S.C. § 548(d)(2)(A) defines “value” as “property, or

satisfaction or securing of a present or antecedent debt of the debtor, but

does not include an unperformed promise to furnish support to the debtor

or the relative of the debtor.” In the present case it was undisputed that

the church did not satisfy or secure a present or antecedent debt of the

debtors; the only issue was whether the debtors received some sort of

“property” or “property right,” and therefore “value,” from the church.

The bankruptcy court decided that the debtors did not receive any economic

benefit from the church services. 148 B.R. at 893-94. The bankruptcy

court noted that although the debtors received substantial spiritual

comfort from the church services, id. at 891 n.7, the church services did

not provide them, much less their pre-petition estates, with any “tangible

or recognizable economic benefit,” “marketable financial value or economic

utility from a creditor’s point of view.” Id. at 894. We agree that the

bankruptcy court over-emphasized the financial or economic considerations

in defining “value” under § 548. “[T]he requirement of economic benefit

to the debtor does not demand consideration that replaces the transferred

property with something else tangible or leviable that can be sold to

satisfy the debtor’s creditor’s claims.” 2 David G. Epstein, Bankruptcy

§ 6-49, at 23 (1992). 

Unlike the bankruptcy court, however, the district court did not

define “value” only in terms of tangible property or marketable
-15-

financial value. The district court correctly examined “all aspects of the

transaction and carefully measure[d] the value of all benefits and burdens

to the debtor, direct or indirect,” including “indirect economic benefits.”

152 B.R. at 945. The district court required only that the indirect

economic benefits be “fairly concrete.” Id., citing In re Minnesota

Utility Contracting, Inc., 110 B.R. 414, 420 (D. Minn. 1990) (MUC) (bank

required corporation to grant bank a security interest in its assets to

extend additional line of credit to a second corporation owned by same

shareholders; indirect economic benefit to first corporation could be

“reasonably equivalent value” as long as indirect economic benefit was

“fairly concrete”; no evidence that first corporation received any indirect

economic benefits). What “fairly concrete” means is not clear. However,

the district court clearly did not define “property” in general, or

“indirect economic benefit” in particular, only in terms of legal or

equitable rights or ownership interest. Compare 148 B.R. at 891

(bankruptcy court arguably limited “property” to legal or equitable rights

and things subject to ownership) with id. at 893-94 (value requires

transfer of economic benefit to debtor’s estate); cf. In re Newman, 183

B.R. at 247 (noting that tithing does not give debtors enforceable property

right, contract right or equitable right to attend or partake in services

offered by church). 

In any event, in the present case, whether the debtors received any

economic benefit from the church services is beside the point. Even
 Finding that the church services had some economic benefit

4

and that the debtors made the contributions in exchange for those

services would call into doubt treating those contributions as

deductible charitable contributions. See Hernandez v. Commissioner,

490 U.S. 680, 690-91 (1989) (charitable contributions are only

deductible if made without adequate consideration; payments made to

a religious organization in exchange for a benefit to the taxpayer,

even a “purely religious” benefit, do not qualify as charitable

contributions). 

For purposes of analysis, we have also assumed that the

contributions and the church services were reasonably equivalent

and thus need not take up the constitutionally suspect and

difficult task of attempting to value the church services.

-16-

assuming that the debtors received “reasonably equivalent value,” the

4

stipulated facts in the present case
 In fact, as one would expect, given the religious context,

5

the absence of any nexus between tithing and the availability of

religious services is typical of the case law in this area. See,

e.g., In re Tessier, 190 B.R. 396, 399 (Bankr. D. Mont. 1995)

(church would welcome and fully accept debtors without or without

tithing); In re Newman, 183 B.R. 239, 248 (Bankr. D. Kan. 1995)

(noting that debtors would have tithed in same amount even if

church reduced services and that church would have provided

services to debtors even if they had reduced their tithe or not

tithed at all); In re Lees, No. 94-10523-13, 1994 WESTLAW 871932,

at *2 (Bankr. D. Mont. 1994) (no indication that debtors could no

longer attend or would lose any privileges at church if reduced or

eliminated tithing); In re Packham, 126 B.R. 603, 608 (Bankr. D.

Utah 1991) (only speculation by debtors that the church would deny

them a temple recommend if they failed to tithe). But cf. In re

Moses, 59 B.R. 815, 818 (Bankr. N.D. Ga. 1986) (contributions

required as condition of debtor’s employment by the church as a

deacon).

-17-

precluded any finding that the debtors made their contributions “in

exchange for” the church services. 152 B.R. at 949; 148 B.R. at 893.

Section 548 contemplates a quid pro quo. In the present case the parties’

stipulations are inconsistent with a quid pro quo. The debtors stipulated

that they made the contributions out of a sense of religious obligation and

not in order to attend church (or receive a tax deduction). The parties

also stipulated that the church services were available to all regardless

of whether any contributions were made. In other words, the debtors’

contributions were purely voluntary and in no way linked to the

availability of church services. Similarly, the church conducted worship

services and provided other services independent of the debtors’

contributions. Under the stipulated facts, there was no quid pro quo, no

exchange of contributions for church services. 

5

Because the debtors did not receive the church services “in exchange

for” their contributions, the contributions were avoidable
-18-

transfers and were recoverable by the trustee under 11 U.S.C. § 548(a)(2).

FREE EXERCISE OF RELIGION

Having concluded that the debtors’ contributions were avoidable

transfers and recoverable by the trustee under bankruptcy law, we turn now

to the church’s first amendment arguments. The parties’ arguments on the

merits are related and, to a certain degree, repetitive. Because we hold

that requiring the church to return the debtors’ contributions violates the

RFRA, we do not reach the merits of the constitutional issues. 

As noted above, even though the church did not raise any

constitutional arguments in the bankruptcy court and raised them for the

first time on appeal in the district court, the district court exercised

its discretion to consider the constitutional arguments on appeal. The

trustee argues that this is not the kind of extraordinary case that

warrants an exception to the general rule that a reviewing court should not

consider issues raised for the first time on appeal. E.g., United States

Trustee v. Harris, 960 F.2d 74, 78 (8th Cir. 1992). We hold that the

district court did not abuse its discretion in considering the

constitutional arguments raised by the church for the first time on appeal.

The constitutional arguments raised by the church for the first time on

appeal involved purely legal issues. No additional evidence or argument

would have affected the outcome of the case. E.g., Universal Title

Insurance Co. v. United States, 942 F.2d 1311, 1314-15 (8th Cir. 1991). 

STANDING

The trustee also argues the church lacks standing to raise the free

exercise rights of the debtors, who were not parties in the adversary

proceeding in bankruptcy court or on appeal in the
-19-

district court (or on appeal in this court). We hold that the church has

standing to raise the free exercise rights of the debtors. See In re

Newman, 183 B.R. at 249. This issue involves the concept of third-party

standing. Standing is a jurisdictional prerequisite, and in general

parties must raise their own legal rights. However, a litigant can raise

the free exercise rights of a third party if the third party cannot

effectively assert those rights. McGowan v. Maryland, 366 U.S. 420, 430

(1961) (department store challenging Sunday closing law could not raise

free exercise rights of patrons). We agree with the district court that

the debtors could not have effectively asserted their free exercise rights.

The trustee, representing the debtors’ estates, and the church were the

parties in this adversary proceeding; the debtors were not. As noted by

the district court, there was no indication that the debtors were able to

assert their free exercise rights in another forum. In addition, the

interests of the church and the debtors, who are members of the church,

were sufficiently similar so that the church would be an effective

representative of the debtors’ free exercise rights. 

RETROACTIVE APPLICATION OF RFRA

Although the RFRA was enacted after the district court’s decision,

the RFRA provides that it “applies to all Federal and State law, and the

implementation of that law, whether statutory or otherwise, and whether

adopted before or after November 16, 1993.” RFRA § 6(a), 42 U.S.C. §

2000bb–3(a). The RFRA defines the term “government” broadly to include “a

branch, department, agency, instrumentality, and official (or other person

acting under color of law) of the United States, a State, or a subdivision

of a State.” Id. § 5(1), 42 U.S.C. § 2000bb-2(1). The bankruptcy code is

federal law, the federal courts are a branch of the United States, and our

decision in the present case would involve the implementation of federal

bankruptcy law. We and other circuits have held that the RFRA applies

retroactively in other contexts. 
-20-

E.g., Hamilton v. Schriro, 74 F.3d 1545, 1549 (8th Cir. 1996); Holterman

v. Helling, 70 F.3d 1276 (8th Cir. 1995) (table); Brown-El v. Harris, 26

F.3d 68, 69 (8th Cir. 1994); see also Flores v. City of Boerne, 73 F.3d

1352, 1355 (5th Cir. 1996) (city historic preservation ordinance); Droz v.

Commissioner, 48 F.3d 1120 (9th Cir. 1995) (Social Security taxes), cert.

denied, 116 S. Ct. 698 (1996). Bankruptcy courts in other jurisdictions

have applied the RFRA retroactively. See, e.g., In re Tessier, 190 B.R.

396, 403 (Bankr. D. Mont. 1995) (applying RFRA to protect tithing, but

holding RFRA is unconstitutional); In re Newman, 183 B.R. at 251 (holding

RFRA does not protect tithing). 

RFRA

On the merits the church argues that requiring the return of these

contributions unfairly discriminates against religion in general and, more

specifically, against religions (and the members of those religions) that

believe in tithing. The church argues that exempting a personal residence

or tools of a trade or household goods, see 11 U.S.C. § 522(d), but not

religious contributions discriminates against religion. The church also

argues that requiring the return of contributions discriminates against

religions on the basis of the way in which they are supported. Some

religions, like the church, emphasize tithing; others rely upon personal

services, contributions from the public, fees for services, donations, or

membership dues. The church also argues that, even among those religions

that rely upon donations, religions like the church that encourage tithing

at the traditional level of 10% are much more attractive to a trustee

looking for potential assets than other religions. Brief for Appellant at

13 (table listing average % of household income donated to charity by

denomination as 1.3 to 3.8%, much less than 10%). 

For the reasons discussed below, we hold that the recovery of the

contributions substantially burdens the debtors’ free exercise
-21-

of their religion and is not in furtherance of a compelling governmental

interest and therefore violates the RFRA. In light of this holding and

because the RFRA is more protective of the right of free exercise than

Smith, see, e.g., Flores v. City of Boerne, 73 F.3d at 1361 (describing

RFRA as “a substantive expansion of First Amendment doctrine” and in effect

“an assignment by Congress of a higher value to free-exercise-secured

freedoms than the value assigned by the courts-- that is, strict scrutiny

versus a form of intermediate scrutiny”), we need not consider whether the

recovery of the contributions violates Smith. The parties did not raise

the question of the constitutionality of the RFRA, and we do not consider

the constitutionality of the RFRA. See id. at 1356-64 (holding Congress

has authority under § 5 of fourteenth amendment to enact RFRA and RFRA does

not usurp judiciary’s power to interpret the Constitution). This circuit

has applied the RFRA in other cases without questioning its

constitutionality and thus has at least implicitly held that the RFRA is

constitutional. But cf. Hamilton v. Schriro, 74 F.3d at 1557 (McMillian,

J., dissenting) (arguing that the RFRA is unconstitutional because Congress

does not have power under § 5 of the fourteenth amendment to enact RFRA);

Tessier, 190 B.R. at 405-07 (holding RFRA is inconsistent with Smith and

violates the separation of powers doctrine). 

In Smith the Supreme Court held that the first amendment’s free

exercise clause does not bar application of a facially neutral law of

general application to religiously motivated conduct. 494 U.S. at 881.

In Smith two members of the Native American Church claimed that the state

unfairly denied them unemployment compensation because their religious use

of peyote was determined to be misconduct. The Court held that the free

exercise clause did not bar the state from prohibiting sacramental peyote

use and therefore denying unemployment benefits to Native Americans

discharged for using peyote. Id. at 890. The Court expressly rejected the

application of the compelling governmental interest and least restrictive

means test set forth in cases like Sherbert
-22-

v. Verner, 374 U.S. 398 (1963), as unworkable and unnecessary in free

exercise analysis. 494 U.S. at 885, 886-90. Justice Scalia explained that

whereas application of the compelling governmental interest test in fields

such as equal protection or free speech produces constitutional norms, in

the free exercise context it produces a “constitutional anomaly,” that is,

a private right to ignore generally applicable laws. Id. at 886 (footnote

omitted). Justice Scalia emphasized that “‘[i]t is not within the judicial

ken to question the centrality of particular beliefs or practices to a

faith, or the validity of particular litigants’ interpretations of those

creeds.’” Id. at 887, citing Hernandez v. Commissioner, 490 U.S. at 699.

Justice Scalia cautioned that “courts must not presume to determine the

place of a particular belief in a religion or the plausibility of a

religious claim.” 494 U.S. at 887. 

Concerned that Smith did not adequately protect free exercise rights,

in 1993 Congress passed the RFRA expressly in response to Smith. Congress

intended “to restore the compelling [governmental] interest test” as set

forth in Sherbert v. Verner and Wisconsin v. Yoder, 406 U.S. 205 (1972),

“to guarantee its application in all cases where free exercise of religion

is substantially burdened” and “to provide a claim or defense to persons

whose religious exercise is substantially burdened by government,” 42

U.S.C. § 2000bb(b)(1), (2), “even if the burden results from a rule of

general applicability.” Id. § 2000bb-1(a). 

The threshold inquiry under the RFRA is whether the governmental

action in question “substantially burdens” a person’s religious practice.

This is a question of law which we review de novo. Hamilton v. Schriro,

74 F.3d at 1552. The individual has the burden of establishing the

existence of substantial burden. 42 U.S.C. § 2000bb-1(a). “[T]he

governmental action must burden a religious belief rather than a philosophy

or a way of life. [T]he burdened belief must be sincerely held by the

[person].” Werner v.
-23-

McCotter, 49 F.3d 1476, 1480 n.1 (10th Cir.) (citing Wisconsin v. Yoder,

406 U.S. at 215-19), cert. denied, 115 S. Ct. 2625 (1995). In order to be

considered a “substantial” burden, the governmental action must

“significantly inhibit or constrain conduct or expression that manifests

some central tenet of a [person’s] individual [religious] beliefs; must

meaningfully curtail a [person’s] ability to express adherence to his or

her faith; or must deny a [person] reasonable opportunities to engage in

those activities that are fundamental to a [person’s] religion.” Werner

v. McCotter, 49 F.3d at 1480. Assuming for purposes of analysis that

courts can constitutionally determine the parameters of religious belief,

what beliefs are important or fundamental, and whether a particular

practice is of only minimal religious significance, defining substantial

burden broadly to include religiously motivated as well as religiously

compelled conduct is consistent with the RFRA’s purpose to restore

pre-Smith free exercise case law. See Sasnett v. Sullivan, 908 F. Supp.

1429, 1440-45 (W.D. Wis. 1995) (extensive discussion of “substantial

burden” requirement). 

For purposes of analysis, we can assume that the recovery of these

contributions would substantially burden the debtors’ free exercise of

religion. Even though the church encourages but does not compel tithing,

the debtors consider tithing to be an important expression of their

sincerely held religious beliefs. In other words, in the present case,

tithing is religiously motivated, but not religiously compelled, practice.

Permitting the government to recover these contributions would effectively

prevent the debtors from tithing, at least for the year immediately

preceding the filing of the bankruptcy petitions. We do not think it is

relevant that the debtors can continue to tithe or that there are other

ways in which the debtors can express their religious beliefs that are not

affected by the governmental action. It is sufficient that the

governmental action in question meaningfully curtails, albeit

retroactively, a religious practice of more than minimal
-24-

significance in a way that is not merely incidental. Cf. In re Tessier,

190 B.R. at 403-04 (debtors testified that even though church would not

sanction them for failing to tithe, their faithful exercise of their

religion is “contingent” upon their continuing to tithe; holding that not

allowing debtors to tithe under Chapter 13 plan substantially burdens free

exercise right; however, noting that Chapter 7 trustee may attack religious

giving by bringing a fraudulent transfer action against the religious

institution under 11 U.S.C. § 548(a), as was done in the present case, or

by dismissing the Chapter 7 case for substantial abuse under 11 U.S.C. §

707(b)). But cf. In re Newman, 183 B.R. at 251 (recovery of tithes already

paid does not substantially burden free exercise because it does not

prevent debtors from continuing to tithe; no evidence that 11 U.S.C.

§ 548(a)(2) prevented debtors, or any other member of church, from

fulfilling their personally-held religious obligation to tithe at any

time). 

The next question is whether there is a compelling governmental

interest. Once the individual has shown that the governmental action

substantially burdens his or her free exercise right, the government must

demonstrate that the substantial burden is in furtherance of a compelling

governmental interest and is the least restrictive means of furthering that

compelling governmental interest. 42 U.S.C. § 2000bb-1(a), (b). These are

questions of law which we review de novo. Hamilton v. Schriro, 74 F.3d at

1552. The RFRA does not define “compelling governmental interest.”

Compelling governmental interests have been described in a post-Smith

establishment clause case as “interests of the highest order.” Church of

the Lukumi Babalu Aye, Inc. v. City of Hialeah, 113 S. Ct. 2217, 2233

(1993). However, pre-Smith case law is instructive. For example,

Hernandez v. Commissioner, 490 U.S. at 699, held that the governmental has

a compelling interest in maintaining the tax system. United States v. Lee,

455 U.S. 252, 258-59 (1982), held that the government has a compelling

interest in enforcing participation in the social security system. Case

law
-25-

has recognized a compelling governmental interest in maintaining national

security and public safety, Gillette v. United States, 401 U.S. 437 (1971);

Prince v. Massachusetts, 321 U.S. 158, 165 (1944). Wisconsin v. Yoder, 406

U.S. at 213, held that the government has a compelling interest in

providing public education. However, in Sherbert v. Verner, 374 U.S. at

406, the Court found no compelling governmental interest in preventing

fraud in the unemployment compensation system. Cases applying the RFRA

have held that the government has a compelling interest in enforcing

participation in the social security system, Droz v. Commissioner, 48 F.3d

at 1122-23, and in maintaining safety and security in prisons, Hamilton v.

Schriro, 74 F.3d at 1554, and schools, Cheema v. Thompson, 67 F.3d 883, 885

(9th Cir. 1995) (ban on wearing of ceremonial knives on campus), as well

as in providing public education, Fleischfresser v. Directors of School

District 200, 15 F.3d 680, 690 (7th Cir. 1994) (reading skills program

described as anti-Christian). 

In the present case the question is whether the bankruptcy code in

general and § 548(a)(2)(A) in particular constitute a compelling

governmental interest. The trustee argues the bankruptcy code in general,

and § 548(a)(2)(A) in particular, furthers the compelling governmental

interests in allowing debtors to get a fresh start while at the same time

protecting the interests of creditors by maximizing the debtor’s estate.

The bankruptcy cases decided under the RFRA are split. In In re Newman,

183 B.R. at 252, a case which, like the present case, involved an adversary

proceeding brought by the Chapter 7 trustee to recover as fraudulent

transfers under 11 U.S.C. § 548(a)(2) sums that the debtors had contributed

to their church, the bankruptcy court concluded that § 548(a), and the

Bankruptcy Code as a whole, served a compelling governmental interest. The

Newman court specifically noted the important policies of allowing debtors

to get a fresh start, treating creditors as fairly as possible, and the

administration of the bankruptcy system, as well as the
-26-

historical importance of recovery of fraudulent transfers to bankruptcy

law. Id. Cf. In re Navarro, 83 B.R. 348, 353 (Bankr. E.D. Pa. 1988)

(pre-RFRA; administration of bankruptcy system and protection of legitimate

interests of creditors are compelling governmental interests). The Newman

court also found that 11 U.S.C. § 548(a)(2) was the least restrictive means

of furthering the compelling governmental interest. 183 B.R. at 252.

In comparison, the bankruptcy court in In re Tessier, 190 B.R. at

405, found no compelling governmental interest. However, In re Tessier

arguably interpreted the compelling governmental interest requirement more

narrowly than In re Newman to include in the free exercise context “only

those interests pertaining to survival of the republic or the physical

safety of its citizens.” Id. In re Tessier is procedurally

distinguishable from the present case because it involved a Chapter 13

trustee’s objection to the debtors’ reorganization plan. Nonetheless, it

is substantively similar to the present case because the trustee objected

to the debtors’ charitable contribution of $100 per month to their church,

in other words, a tithe. The Tessier court acknowledged that “the

government clearly has interests in . . . providing the debtor with a fresh

start, efficiently administering bankruptcy cases, [and] protecting the

interests of creditors,” but concluded that such interests fell “short of

direct national security and public safety concerns.” Id. The Tessier

court concluded that these interests, although “rational, and even

important,” were “not sufficiently grave to deserve the ‘compelling’ label

when balanced against a parishioner’s free exercise of religion.” Id.,

citing Sherbert v. Verner, 374 U.S. at 406 (the key compelling governmental

interest case which rejected the government’s claim that preventing fraud

in unemployment compensation was a compelling governmental interest). The

Tessier court then held that the RFRA was unconstitutional, and thus had

no effect on the bankruptcy code, because its restoration of the

substantial burden/ compelling governmental interest test was inconsistent

with Smith’s “valid and neutral law of general
-27-

applicability” test for free exercise claims and violated the separation

of powers doctrine. 190 B.R. at 405-07. 

We agree with In re Tessier that the interests advanced by the

bankruptcy system are not compelling under the RFRA. Although we would not

necessarily interpret compelling governmental interests as narrowly as the

Tessier court did, we agree that bankruptcy is not comparable to national

security or public safety. We also agree that allowing debtors to get a

fresh start or protecting the interests of creditors is not comparable to

the collection of revenue through the tax system or the fiscal integrity

of the social security system, which have been recognized as compelling

governmental interests in the face of a religious exercise claim. See,

e.g., Droz v. Commissioner, 48 F.3d at 1122-24. Moreover, we cannot see

how the recognition of what is in effect a free exercise exception to the

avoidance of fraudulent transfers can undermine the integrity of the

bankruptcy system as a whole; its effect will necessarily be limited to the

debtor’s creditors, who will as a result have fewer assets available to

apply to the outstanding liabilities, and not all creditors or even all

debtors. This is not to say that the recognition of a free exercise

exception under these circumstances may not have adverse economic

consequences for both creditors and debtors; for example, creditors may be

more cautious in doing business with those who tithe or make contributions

to religious organizations. 

Because we hold that allowing debtors a fresh start and protecting

the interests of creditors are not compelling governmental interests under

the RFRA, we need not reach the question of whether the governmental action

is the least restrictive means of furthering the compelling governmental

interest. 

In sum, we hold that because the substantial burden on the debtors’

free exercise of religion is not furthered by a compelling 
 I understand that the constitutionality of RFRA is not before 1

us as this case is currently postured. That notwithstanding, I

feel compelled to note the unusual specter of employing the

analytical framework of RFRA, where the author of the majority

opinion has indicated his belief that RFRA is unconstitutional.

Hamilton v. Schriro, 74 F.3d 1545, 1557 (8th Cir. 1996)(McMillian,

J., dissenting). Having reviewed and studied the author's thorough

opinion in Hamilton, I am inclined to agree with his position.

Further, cases relied on by the majority, regardless of the

resolution on some issues, have ultimately found RFRA to be

unconstitutional. In Re Tessier, 190 B.R. 396, 406-07 (Bankr. D.

Mont. 1995). The constitutionality issue is particularly relevant

in that employing RFRA, as opposed to the analysis under Employment

Division v. Smith, 494 U.S. 872 (1990), "caused" the reversal in

the current case, at least as I understand the Smith case. Put

another way, "but for the passage of RFRA, the [church] could not

have succeeded on [its] free exercise challenge to [11 U.S.C.

§ 5489(a)(2)]." Hamilton, 74 F.3d at 1561 (acknowledging that preRFRA standards were much less onerous as far as the government was

concerned). 

Given the statute's dubious constitutionality, I believe we

should have requested supplementary briefing and hearing, along

with certification to the Attorney General, on the

constitutionality of RFRA. 

-28-

governmental interest, the RFRA provides a defense against the order of the

district court permitting the trustee to avoid the debtors’ contributions

to the church under 11 U.S.C. § 548(a)(2)(A). The trustee is not entitled

to recover $13,450 from the church. 

Accordingly, the order of the district court is reversed.

BOGUE, Senior District Judge, dissenting.

While I agree with the majority's holding that the debtors did not

receive reasonably equivalent value in exchange for the debtor's financial

contributions to the church, I cannot agree with the decision on the merits

under RFRA , and therefore respectfully dissent. 1
 I also share the majority's concern as to whether courts can 2

constitutionally determine "the parameters of religious belief,

what beliefs are important or fundamental, and whether a particular

practice is of only minimal religious significance ... ." Slip op.

at 21. 

-29-

The first step in RFRA analysis requires the plaintiff to establish

that the challenged government action "substantially burdens" their free

exercise of religion. If there is no substantial burden, the inquiry ends

and the challenger's petition must fail. In re Newman, 183 B.R. 239, 251

(Bankr. D. Kan. 1995) ("If there is no substantial burden, RFRA does not

apply."). Courts have articulated various standards required to make a

showing of substantial burden.

I agree with the majority that RFRA does not compel the church to

show that tithing is "required" by the church in order to prove a

substantial burden. It is enough if the allegedly impinged conduct is

motivated by a sincerely held religious belief. Sasnett v. Sullivan, 908

F. Supp. 1429, 1444 (rejecting a "religiously mandated" test in favor of

a "religiously motivated" test for purposes of determining substantial

burden). That being said, it is important that the substantial burden

2

step in the RFRA analysis is not reduced to a perfunctory determination or

foregone conclusion. A searching inquiry is required to "protect[] the

government from having to justify its regulations under a compelling

interest standard if the burden on the asserted practice is incidental or

de minimis." Id. 

As stated by the majority, the governmental action must

"significantly inhibit or constrain conduct or expression that manifests

some central tenet of a [person's] individual [religious] beliefs; must

meaningfully curtail a [person's] ability to express adherence to his or

her faith; or must deny a [person] reasonable opportunities to engage in

those activities that are fundamental to a [person's] religion." Slip op.

at 21. Although it is undisputed
-30-

that the debtors sincerely believe in tithing and that tithing is central

to the religion they practice, I would conclude that the trustee's action

of recovering monies tithed during the year the debtors were insolvent does

not substantially burden the free exercise of their religion.

In coming to this conclusion, I note that the act of tithing by the

debtors in the year preceding their filing for Chapter 7 protection was in

fact executed, i.e., regardless of the eventual outcome, they were given

the opportunity to practice their religion as they chose during the year

they were insolvent. There was no "constraint of conduct or expression"

respecting a central tenet of their belief, nor a curtailment of their

ability to "express adherence" to their faith, nor were they denied

reasonable opportunities to "engage in those activities" that were

fundamental to their religion. They engaged in the conduct and activity

of tithing and fully expressed adherence in their sincere belief in tithing

to the church. Unfortunately, the debtors were insolvent during the year

preceding February 1992 when they filed a joint Chapter 7 bankruptcy

petition. As such the trustee properly sought to recover that for which

the debtors did not receive reasonably equivalent value in exchange for

their contributions to the church. 

The trustee's act of recovering the tithes from the church under 11

U.S.C. § 548 (a)(2) does not change the fact that the debtors did all they

could in the way of expressing and practicing their religious beliefs. I

agree with the court in In Re Newman, which reasoned:

there is no evidence that section 548(a) prevents the

debtors or any other church member from tithing. Indeed,

the present record certainly does not suggest that

section 548 prevented these debtors from tithing.

Equally important, the church has no records which might

show that other members did not tithe because of section

548 since no one ever checks to see if members actually

do tithe. The funds the trustee seeks to recover have
 It cannot be denied that the work of religious organizations 3

may be more important now than ever before. Contributing,

financially or otherwise, to further the mission of a religious

organization is a laudatory practice. That being said, religious

contributions cannot be considered beyond reproach or regulation in

all circumstances. United States v. Lee, 455 U.S. 252, 261; 102

S. Ct. 1051, 1057; 71 L. Ed. 2d 127 (1982) ("... every person

cannot be shielded from all burdens incident to exercising every

aspect of the right to practice religious beliefs. When followers

of a particular sect enter into commercial activity as a matter of

choice, the limits they accept on their own conduct as a matter of

conscience and faith are not to be superimposed on the statutory

schemes which are binding on others in that activity."). The

debtors should be commended for their commitment to contributing to

the church. There is no dishonor in the fact that the tithes they

offered during insolvency ought to be recovered by the trustee.

The reality is that the tithed money should be part of the estate

available to creditors, who in good faith, advanced money, goods or

services to the debtors upon the condition of repayment. 

-31-

already been tithed to the defendant. The debtors, in

all likelihood, continue to tithe to the defendant. The

debtors fulfilled their religious obligation by tithing

in the year prior to their bankruptcy filing. The

statute, by its own operation, does nothing to prevent

the debtors' fulfillment of their personally held

religious obligation to tithe and, therefore, does not

place a "substantial burden" on the debtors' practice of

their religion.

In Re Newman, 183 B.R. at 251 (emphasis added).3

Further evidence of the lack of substantial burden is the

uncontroverted fact that tithing is not required to fully participate in

church services. As noted by the majority, the parties have stipulated

that church services were available to all persons regardless of whether

any contributions were made. The fact that the debtors' purely voluntary

tithes were ordered retroactively recovered by the trustee does not change

the fact that the debtors can attend church services, participate in church

programs, and worship and believe as they choose. They can continue to

tithe as has been their custom, assuming no additional
-32-

bankruptcy filings. Given these facts, I cannot conclude the debtor's free

exercise of religion was substantially burdened. 

In my view, the church's failure to demonstrate a substantial burden

would end the inquiry and would require affirmance. Yet even if section

548 worked a substantial burden on the debtors' religious practice, I would

conclude that the statute serves a compelling governmental interest and is

the least restrictive means of achieving said interest.

Although stated in dicta, I agree with the district court's view that

the bankruptcy code and § 548(a)(2)(A) furthers the compelling governmental

interest in allowing debtors to get a fresh start while at the same time

protecting the interests of creditors by maximizing the debtor's estate.

In re Young, 152 B.R. 939, 954 (Bankr. D. Minn 1993); accord In re Newman,

183 B.R. at 252 ("Section 548(a), and the Bankruptcy Code as a whole, serve

a compelling governmental interest.); In Re Navarro, 83 B.R. 348, 353

(Bankr. E.D.Pa. 1988)(the "administration of the bankruptcy system and

protection of the legitimate interests of creditors" serves a compelling

governmental interest).

It can be fairly said that our nation's economy depends extensively

on the availability of credit to individuals and businesses. Bankruptcy

is an extraordinary remedy for insolvent debtors and oftentimes harsh on

creditors. One of the creditor's few protections are recovery statutes

like section 548, which as of today includes a free exercise exception for

religious giving in the year preceding filing for bankruptcy. 

The majority may be correct when it admonishes that today's decision

may not, by itself, undermine the integrity of the bankruptcy system as a

whole. But I share the majority's apprehension that credit transactions

involving persons with views similar to the current debtors may hereinafter

involve a more
-33-

probing and delicate inquiry. Given today's holding, are cautious

potential creditors (including government or government-sponsored

creditors) now expected to question applicants in depth regarding the

highly personal activity of religious giving? And what if said application

is denied on the grounds that the applicant's religious giving makes

extending credit an unwarranted risk? Pragmatic issues aside, it is enough

that all of society has a compelling interest in maintaining the balance

between debtors and creditors in its current state. 

Finally, I would find that section 548(a)(2) is the least restrictive

means of furthering the above-articulated compelling interest. Like the

present action, In re Newman also involved a trustee's attempted recovery

of tithed funds under 11 U.S.C. § 548(a)(2). In finding that section

548(a)(2) passes the least restrictive means test, the court noted:

The portion of the statute at issue in this case only

allows for recovery those transfers of the debtor's

property which occurred within one year of the

bankruptcy filing, occurred while the debtor was

insolvent, and that were not given in exchange for

reasonably equivalent value. Clearly, the statute was

drawn in such a way as to balance the ability of the

debtor to dispose of property with the need to protect

unsecured creditors. For example, if in this case the

debtors had not been insolvent on the dates that the

transfers to the defendant took place, then the

transfers would not be recoverable. Only when all of

the requirements of § 548(a)(2) are met is the trustee

able to recover the transfer.

In re Newman, 83 B.R. at 252.

The statute contains four specific elements, all of which are

satisfied by the trustee in this case. The statute is narrowly tailored,

and the trustee closely followed the proper procedures set forth in the

Bankruptcy Code for avoiding and recovering the donations, and took no

action against these debtors which would not
-34-

be taken against any other transferee in the same factual situation. 

In conclusion, I would hold that the trustee has satisfied the

requirements of RFRA and would affirm the district court.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.