____________ 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 State s

Di strict Judge for the District of South Dakota , sitting by designation.
-2- ____________ 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 (hereinafte r the church) appeals from a final order entered in the District Court for the District o f Minn esota affirming an order entered in the Bankruptcy Court for th e Distr ict of Minnesota that required the church to turn over to truste e Julia A. Christians certain funds debtors Bruce and Nancy Young ha d contributed to the church as tithes during the year preceding the filing of thei r 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 churc h 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 an d violates the free exercise clause of the first a mendment. 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

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belief and practice, the debtors voluntarily contributed certain funds as tithes to the church; they did not receive money or tangible property in
exc hange for their contributions. Tithing is a spiritual and financia l practice. Believers traditionally give a tithe, or tenth, of their income to a religious organi zation such as a church. See Lev. 27:1, 30, 32 (New Internationa l Version) (“The Lord said to Moses . . . . A tithe o f everythin g from the land, whether grain from the soil or fruit from th e trees, belongs to the Lord; it is holy to the Lord . . . . The entire tith e 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 Christian s should offer regular contributions to support the work and message of the church. However, the church does not insist on a particular amount o r require payment of membership or attendance fees . Members and non-members
are welcome at worship services and other church services whether the y tithe or not. It is not disputed that the debtors are sincere in thei r religious faith.

In Febr uary 1992 the debtors filed a joint Chapter 7 bankruptc y pet ition. 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 inorder to recover those contributions as “fraudulent

### 11 U.S.C. § 548(a) provides in part: 1 

### (a) The trustee may avoid any tr ansfer of an interest of the debtor in property, or an y obligation incurred by the debtor, that was made o r incurred on or within one year before the date of th e filing of the petition, if the debto r voluntarily or involuntarily--

. . . . (2 )(A) received less than a reasonabl y equivalent value in exchange for such transfer o r obligation; and

. . . . (B )(i) was insolvent on the date that suc h transfer was made or s uch obligation was incurred, or became insolvent as a result of such transfer o r obligation.
-4- transfer s” under 11 U.S.C. § 548(a)(2)(A). The parties file d 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 th at (1) there was a transfer of the debtors’ interest in propert y (2) made on or within a year preceding the filing of th e petition (3) while the debtors were insolvent (4) in exchange for which th e debtor s received less than reasonably equivalent value. The partie s stipulated to the existence of the first three f actors; the only factor in dispute was whether the debtors received “reason ably equivalent value” “in exchange for” their contributions to the church.

DECISION OF THE BANKRUPTCY COURT

The b ankruptcy court granted the trustee’s motion for summar y judgment and denied the church’s motion. The bankruptcy court held that the debtors’ contribu tions to the church were avoidable transfers under § 548(a)(2)(A) because the debtors did not receive “reasonably equivalen t value” “i n exchange for” their contributions. 148 B.R. at 890-93. Th e bankruptcy court concluded that “value” referred solely to economic value, that is, “property” in a physical or material sense, and that religiou s 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 ) (holdin g church services constitute property within meaning of § 548), and In r e Mis sionary 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
eco nomically beneficial to the debtors. 148 B.R. at 893. In th e bankruptcy court’s view, any benefit was strictly religious and thus merel y incidental and enjoyed by the debtors individual ly and not by either their pre-peti tion or post-petition estate. Id. at 893-94 & n.10. Th e bankruptcy court also noted that the judicial system cannot differentiate between “religious” benefits and “secular” benef its, much less put a value
on those benefits, and that any value calculation would be “fraught with the sor t of entanglement that the Constitution forbids,” and that th e debtor s’ contributions to the church were thus avoidable as fraudulen t transfer s under § 548(a)(2)(A). 148 B.R. at 893-96 & n.13, 896 & n.1 7 (noting potential excessive entanglement problems in having court s calculate value of re ligious services, even though parties did themselves did not raise first amendment concerns).
The bankruptcy court also determined that, evenassuming the debtors received value, that value had not been received “in exchange for” their contributions because no exchange took place. I d. at 895-96. As noted by the ba nkruptcy court, the church made available worship services an d religious programs to all members, including the debtors, without in any way linking those services to financial contribu tions. Id. at 894 (noting that debtors could not have received property in exchange for thei r contributions for pur poses of § 548(a) and at the same time treated those contributions as char itable deductions under 26 U.S.C. § 170(c)(4)). See Hern andez v. Commissioner , 490 U.S. 680, 691 (1989) (quid pro quo i s inconsistent with cha ritable contribution); United States v. American Bar Endowment , 477 U.S. 105, 118 (1986) (“The sine qua non of a charitabl e contri bution is a transfer of money or property without adequat e consid eration.”). The bankruptcy court declared the transfers void an d 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 th e district court.

### -7-

DECISION OF THE DISTRICT COURT

On ap peal, the district court affirmed the bankruptcy court’ s statutory interpretation and analysis of § 548(a)(2)(A) and agreed that th e debtors did not receive “reasonably equivalent value” for thei r contrib utions to the church. 152 B.R. at 948. The district court als o foun d that neither the religious services nor the tax deductions fo r charitable contributions constituted reasonably equivalent value under § 548(a)(2 )(A). Id. at 948-49. The district court agreed with th e bank ruptcy court’s decision not to follow Upreach and Moses . In th e district court’s view, good will and church services are not the kind of “fair ly concrete” benefits required to constitute reasonably equivalen t value, and neither ca se addressed the “in exchange for” requirement. Id. at 950. T he district court noted that church services and charitabl e deduct ions were not given “in exchange for” the debtors’ contributions

. Id. at 949-50. The district court also distinguished Moses from th e presen t case on the ground that in Moses the church had required th e contributions as a co ndition of the debtor’s employment as a deacon. Id. at 950. In the prese nt case the parties stipulated that the debtors were not required to contribute in order to attend ch urch services or otherwise participate in church programs.

Onappeal in the district court, the church argued for the first tim e that applying § 548(a) would violate the free exercise and establishment clause of the first amendment. The district court exercised its discretio n to consider the const itutional 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 coul d not effectively assert their free exercise rights because they are no t 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

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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 fre e 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 d istrict court also held that § 548(a) did not unfairl y discri minate against religious contributions, id. at 954, and that th e debtors’ “hybrid” rig ht to free speech and free exercise was not impaired becau se limiting the amount an individual may contribute to a cause o r organization only marginally restricts the contributor’s ability t o communicate that particular message. Id. The district court noted that §548(a)(2)(A) was narrowly drawn and content-neutral, protected a n important governmental interest in maximizing th e 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 sec ular purpose, to maximize the size of the debtor’s estate; it s primary effect neither advances nor inhibits rel igion; and its enforcement doe s not threaten excessive entanglement between church and state. 15 2 B.R. at 955. The district court agreed with the bankruptcy court tha t attempting to quantify the value received by the debtors in exchange for their con tributions to the church could lead to exactly the sort o f entanglement the Constitution forbids. Id. This appeal followed. CERTIFICATION OF CONSTITUTIONAL QUESTION

OnNovember 13, 1993, after the district court had filed its decisio n 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 no t su bstantially burden a person’s exercise o f religion even if the b urden results from a rule of ge neral applicability, except as provided i n subsection (b). (b) EXCEPTION-- Government may s ubstantially burden a person’s exercise of religion only if it demonstrates that appl ication of the burden to the person-- (1) is in furtherance of a compelling governmental interest; and (2) is the least restrictiv e means of furthering that compellin g governmental interest.
-9- § 200 0bb. For this reason, questions about the application of the RFR A

2 (or it s constitutionality) were not presented to the district court

. Pursua nt to the court’s request, the parties filed supplemental brief s addressing the applicability of the RFRA.

Whil e preparing for oral argument, this court recognized, albei t belate dly, that certification under 28 U.S.C. § 2403(a) was require d because the appeal qu estioned the constitutionality of a provision of the bankruptcy code affecting the public interest and the United States was no t 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 interve ne in the appeal on the question of constitutionality of 1 1 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 bankruptc y court, the district court or this court to notify the Attorney General, an d the district court and the bankruptcy court had not realized that 28 U.S.C

. § 2403 requires notif ication of the Attorney General whether or not it is requested by the part ies. 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 t he Christian Legal Society, the National Association o f Evangelicals, Americans United for Separation of Church and State, Concerned Women for America, t he Baptist Joint Committee on Public Affairs, the Southern Baptist Convention, the General Confer ence of Sevent h-Day Adventists, and the Evangelical Lutheran Church i n Ame rica; the Church of Jesus Christ of Latter-Day Saints; an d United States Senator Orrin G. Hatch.
-10- requireme nt.” Tonya K. v. Board of Education , 847 F.2d 1243, 1247 (7t h Cir. 1 988) (citations omitted). Certification has occurred even afte r judgment at the appellate level. E.g., Merrill v. Town of Addison , 76 3 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 th e 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 Educat ion , 847 F.2d at 1247. No practical purpose would have been served in remanding the case to th e bankruptcy court or t he district court for purposes of certification, and the belated certification did not prejudice or otherwise impair the abilit y of the U nited States to fully present its views on the question of th e 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 an d defending the constitutionality of § 548(a)(2)(A ) under both Smith and the RFR A. Several amicus briefs were filed in support of the church’ s positi on. Oral arguments were held in September 1994. However ,

3 immediately before oral argument, the United States ended its participatio n in the c ase as intervenor and withdrew its brief. The decision of th e 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.

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STANDARD OF REVIEW

We review the grant of summary judgment de novo. The question befor e the district court, a nd this court on appeal, is whether the record, when viewe d in the light most favorable to the non-moving party, shows tha t there is no genuine issue as to any material fact and that the moving part y is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The
mov ing party bears the initial burden of identifying “those portions o f ‘the pleadings, depositions, answers to interrog atories, and admissions on file, together with the affidavits, if any,’ whi ch it believes demonstrate the absen ce 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. ” Fe d. R. Civ. P. 56(e). Although we view the facts in the light mos t favorable to the non-moving party, in order to d efeat 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 affec t the outcome of the lawsuit.
In the present case, there are no genuine issue s of material fact in dispute because the parties stipulated to the relevant facts and because the issues raise only questions of law.

The ch urch’s principal argument on appeal is that requiring th e church to return thes e contributions violates the free exercise clause of the first amendment. The church relied on Smith in its main brief but als o raised a RFRA compelling governmental interest argument in its supplementa l brief. The church also argues that the district court erred in applying 11 U.S.C. § 548 to these contributions and in fi nding that the debtors did not receive

### -12-

“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 con tributions at issue, 11 U.S.C. § 548, is captioned “fraudulen t tra nsfers and obligations.” As a preliminary matter, the church argue s 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 chur ch 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 di d not change the frequency or amount or the recipi ent of their contributions in the face of their changing financial circumstances.

The term “fraudulent” in the caption of 11 U.S.C. § 548 is inapposit e 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 th e [debtors’ contributions]

as ‘av oidable transfers’ rather than ‘fraudulent transfers’ may be mor e 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 defr aud. “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 cas e the trustee has not accused the debtors and the church of any imprope r conduct,

### -13-

much less actual fraud. What is important, howe ver, is not the misleading caption but that the trustee was not required to prove actual fraud i n order to recover the contributions under § 548(a )(2)(A). We next consider the church’s substantive statutory argument.

In orde r to find a fraudulent transfer, or, more accurately, a n avoidable transfer, h as occurred under 11 U.S.C. § 548(a)(2), the trustee must prove by a preponderance of the evidence that (1) there was a transfe r of an interest of the debtor in property, (2) th e transfer was made within one year before the date of the filing of the pe tition, (3) the debtor was insolvent on the date the transfer was made, and (4) the debtor received less than a reasonable equivalent value in excha nge for the transfer. 152 B.R. at 945 (citations omitted). In the present case the partie s stipulated that the first three elements were satisfied, and the only issu e
was wh ether the debtors had received “reasonably equivalent value” “i n exchange for” their contributions to the church. Id. As noted above, the district court concluded that the debtors’ contributions were gratuitous trans fers, id. at 948, and that religious or spiritual support did no t
con stitute “reasonably equivalent value.” Id. at 949-50. The distric t court also concluded that, even assuming the church services did constitut e “reasonably equivalent value,” in the present case the church’s services had not been provided “in exchange for” the debt ors’ contributions because the parties stipulate d 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 debtor s valued what they received from the church. The church argues that “value” includes indirect eco nomic benefits and that the debtors received “value” in the form of tax deductions for charitable contributions, churc h membership and spiritual

### -14-

counsel ing, and, more concretely, access to church facilities becaus e contrib utions 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 indirec t economic benefits the debtors received in the form of churc h services. The church argues a nexus existed bet ween the contributions and those benefits becaus e 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, o r satisfaction or securing of a present or antecedent debt of the debtor, bu t 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 tha t the church did not satisfy or secure a present or antecedent debt of the debtors; t he only issue was whether the debtors received some sort o f “prope rty” or “property right,” and therefore “value,” from the church

. The bankruptcy court decided that the debtors di d not receive any economic benefit from the church services. 148 B.R. at 893-94. The bankruptc y
co urt noted that although the debtors received substantial spiritua l comfort from the chur ch services, id. at 891 n.7, the church services did not provide them, much less their pre-petition e states, with any “tangible or recognizable economic benefit,” “marketable f inancial value or economic utility from a credit or’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 no t demand consideration that replaces the transferred property w ith something else tangible or leviable that can be sold t o 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 no t define “value” only in terms of tangible property or marketable

### -15-

financial value. The district court correctly examined “all aspects of th e transaction and carefully measure[d] the value o f 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 indirec t
econ omic benefits be “fairly concrete.” Id. , citing In re Minnesot a Utility Contracting, Inc. , 110 B.R. 414, 420 (D. Minn. 1990) ( MUC ) (bank required corporation to grant bank a security interest in its assets t o exten d additional line of credit to a second corporation owned by sam e shareho lders; indirect economic benefit to first corporation could b e “reaso nably equivalent value” as long as indirect economic benefit wa s “fairly concrete”; no evidence that first corporation received any indirec t economic benefits). What “fairly concrete” means is not clear. However, the district court clearly did not define “property” in general, o r “ind irect economic benefit” in particular, only in terms of legal o r eq uitable rights or ownership interest. Compare 148 B.R. at 89 1 (bankruptcy court arguably limited “property” to legal or equitable rights and things subject to ownership) with id. at 893-94 (value require s transfer of economic benefit to debtor’s estate); cf. In re Newman , 18 3 B.R. at 247 (noting that tithing does not give debtors enforceable propert y 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
econ omic benefit from the church services is beside the point. Eve n

### Finding that the church services had some economic benefi t 4 

### and that the debtors made the contributions in exchange for those se rvices would call into doubt treating those contributions a s deductible charitable contributions. See Hernandez v. Commis sioner , 49 0 U.S. 680, 690-91 (1989) (charitable contributions are onl y deductible if made without adequate consideration; payments made to a religious organization in exchange for a benefit to the ta xpayer, even a “purely religious” benefit, do not qualify as charitable contributions).
For purposes of analysis, we have also assumed that th e co ntributions and the church services were reasonably equivalen t and thus need not take up the constitutionally suspect an d difficult task of attempting to value the church services.
-16- assumin g that the debtors received “reasonably equivalent value,” th e 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 o f religious services is typical of the case law in this area. See, e.g., In r e Tessier , 190 B.R. 396, 399 (Bankr. D. Mont. 1995 ) (church would welcome and fully accept debtors without or without tithi ng); In re Newman , 183 B.R. 239, 248 (Bankr. D. Kan. 1995 ) (noting that debtors would have tithed in same amount even i f chur ch reduced services and that church would have provide d servi ces to debtors even if they had reduced their tithe or no t 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 an y privileges at church if reduced or eliminated tithing); In re Packham , 126 B.R. 603, 608 (Bankr. D

. Utah 1991) (only speculation b y debtors that the church would deny them a temple recommend if they failed to tithe). But cf. In r e Mos es , 59 B.R. 815, 818 (Bankr. N.D. Ga. 1986) (contribution s required as condition of debtor’s employment by the church as a deacon).
-17- preclu ded any finding that the debtors made their contributions “i n 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 qu o. The debtors stipulated that they made the contributions out of a sense of religious obligation an d 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 w hether any contributions were made. In other words, the debtors ’ contribut ions were purely voluntary and in no way linked to th e availability of churc h services. Similarly, the church conducted worship servic es 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 un der 11 U.S.C. § 548(a)(2).

FREE EXERCISE OF RELIGION

Hav ing concluded that the debtors’ contributions were avoidabl e transfers and recoverable by the trustee under b ankruptcy law, we turn now to the church’s first amendment arguments. The parties’ arguments on the merits are related an d, to a certain degree, repetitive. Because we hold that requiring the church to return the debtors’ contributions violates th e RFRA, we do not reach the merits of the constitutional issues.

As not ed above, even though the church did not raise an y 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. Th e trustee a rgues that this is not the kind of extraordinary case tha t warrants an exception to the general rule that a reviewing court should no t consider issues raise d for the first time on appeal. E.g., United States Tru stee v. Harris , 960 F.2d 74, 78 (8th Cir. 1992). We hold that th e distri ct court did not abuse its discretion in considering th e constitutional arguments raised by the church for the first time on appeal

. The constitutional arguments raised by the church for the first time o n appeal involved purely legal issues. No additional evidence or argument would hav e affected the outcome of the case. E.g., Universal Titl e Insurance Co. v. United States , 942 F.2d 1311, 1314-15 (8th Cir. 1991).

STANDING

The trustee also arg ues the church lacks standing to raise the free exercise r ights of the debtors, who were not parties in the adversar y proceeding in bankruptcy court or on appeal in the

### -19-

district court (or onappeal in this court). We hold that the church has standing to raise the free exercise rights of the debtors. See In r e Newman , 183 B.R. at 249. This issue involves the concept of third-party standi ng. Standing is a jurisdictional prerequisite, and in genera l parties must raise th eir own legal rights. However, a litigant can raise the free exercise rights of a third party if the third party canno t effectively assert those rights. McGowan v. Maryland , 366 U.S. 420, 430 (1961) (department store challenging Sunday closing law could not rais e 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 th e parties in this adversary proceeding; the debtors were not. As noted by the district court, t here was no indication that the debtors were able to assert the ir free exercise rights in another forum. In addition, th e interests of the church and the debtors, who are members of the church , were suf ficiently similar so that the church would be an effectiv e 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 implem entation of that law, whether statutory or otherwise, and whethe r adopted b efore or after November 16, 1993.” RFRA § 6(a), 42 U.S.C. § 2000bb–3(a). The RFRA defines the term “governm ent” 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 applie s retroactively in other contexts.

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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.3 d 1352, 1355 (5th Cir. 1996) (city historic preser vation ordinance); Droz v. Commissioner , 48 F.3d1120 (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, bu t holding RFRA is uncon stitutional); 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 rel igion in general and, more specifically, against religions (and the members of those religions) that believe in tithing. The church argues that exem pting a personal residence
or to ols of a trade or household goods, see 11 U.S.C. § 522(d), but no t religious contributions discriminates against religion. The church also argues that requiring the return of contributions discriminates agains t religions on the basis of the way in which they are supported. Som e religions, like the church, emphasize tithing; others rely upon personal services, contributio ns 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 chu rch that encourage tithing at the traditional level of 10% are much more attractive to a truste e looking for potential assets than other religion s. Brief for Appellant at 13 (table listing average % of household income donated to charity b y denomination as 1.3 to 3.8%, much less than 10%).

For the reasons discussed below, we hold that the recovery of th e 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 an d because the RFRA is more protective of the right of free exercise tha n Smith , se e, e.g., Flores v. City of Boerne , 73 F.3d at 1361 (describin g RFRA as “a substantive expansion of First Amendment doctrine” and in effec t “an as signment by Congress of a higher value to free-exercise-secure d freedoms than the val ue assigned by the courts-- that is, strict scrutiny versus a form of intermediate scrutiny”), we nee d not consider whether the recovery of the contributions violates Smith

. The parties did not raise the question of the c onstitutionality 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 doe s not usurp judiciary’s power to interpret the Constitution). This circuit has ap plied the RFRA in other cases without questioning it s 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 Congres s does not have power u nder § 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 Smit h the Supreme Court held that the first amendment’s fre e exercise c lause does not bar application of a facially neutral law o f gen eral 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 b ecause their religious use of peyote was determined to be misconduct. The Court held that the free exercise clause did n ot bar the state from prohibiting sacramental peyote
use a nd therefore denying unemployment benefits to Native American s discharged for using peyote. Id. at 890. The Court expressly rejected th e application of the co mpelling 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 fre e exercise analysis. 494 U.S. at 885, 886-90. Justice Scalia explained tha t whereas application of the compelling government al interest test in fields such as equal protect ion or free speech produces constitutional norms, in the free exercise context it produces a “constit utional anomaly,” that is, a private right to ignore generally applicable l aws. Id. at 886 (footnote omitted). Justice Scalia emphasized that “‘[i]t is not within the judicia l ken t o 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. Jus tice Scalia cautioned that “courts must not presume to determine th e place of a particular belief in a religion or the plausibility of a religious claim.” 494 U.S. at 887.

Concernedthat Smith did not adequately protect free exercise rights , in 1993 Congress passed the RFRA expressly in re sponse 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 r eligious exercise is substantially burdened by government,” 4 2 U.S.C. § 2000bb(b)(1), (2), “even if the burden results from a rule o f general applicability.” Id. § 2000bb-1(a).

The th reshold inquiry under the RFRA is whether the governmenta l action in question “s ubstantially burdens” a person’s religious practice. This is a question of law which we review de novo. Hamilton v. Schriro , 74 F.3d a t 1552. The individual has the burden of establishing th e existenc e of substantial burden. 42 U.S.C. § 2000bb-1(a). “[T]h e 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 th e [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. 26 25 (1995). In order to be
cons idered a “substantial” burden, the governmental action mus t “significantly inhibit or constrain conduct or expression that manifests
some c entral tenet of a [person’s] individual [religious] beliefs; mus t 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 tha t courts can constituti onally determine the parameters of religious belief, what b eliefs are important or fundamental, and whether a particula r practice is of only minimal religious significance, defining substantial burden broadly to include religiously motivated as well as religiousl y compel led conduct is consistent with the RFRA’s purpose to restor e pre- Smith free exercise case law. See Sasnett v. Sullivan , 908 F. Supp. 14 29, 1440-45 (W.D. Wis. 1995) (extensive discussion of “substantia l burden” requirement).

For purposes of analysis, we can assume that the recovery of these cont ributions would substantially burden the debtors’ free exercise o f religion. Even thoug h the church encourages but does not compel tithing, the debtors consider tithing to be an important expression of thei r sincerely held religious beliefs. In other words, in the present case , tithing is religiously motivated, but not religi ously compelled, practice. Permitting the government to recover these contr ibutions would effectively prevent the debtors from tithing, at least for the year immediatel y 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 othe r ways in which the debtors can express their reli gious beliefs that are not affected by the governmental action. It is sufficient that th e gov ernmental action in question meaningfully curtails, albei t 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 no t
sanc tion them for failing to tithe, their faithful exercise of thei r religion is “continge nt” 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 religiou s giving by bringing a fraudulent transfer action against the religiou s 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 alread y paid does not substantially burden free exercise because it does no t prev ent debtors from continuing to tithe; no evidence that 11 U.S.C

. § 548(a) (2) prevented debtors, or any other member of church, fro m fulfill ing their personally-held religious obligation to tithe at an y time).

The ne xt question is whether there is a compelling governmenta l inter est. Once the individual has shown that the governmental actio n 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 tha t compelling governmental interest. 42 U.S.C. § 2000bb-1(a), (b). These ar e questions of law which we review de novo. Hamil ton v. Schriro , 74 F.3d at 1552. The RFRA does not define “compelling governmental interest. ” Compell ing governmental interests have been described in a post- Smit h establishment clause case as “interests of the highest order.” Church of the Lukum i Babalu Aye, Inc. v. City of Hialeah , 113 S. Ct. 2217, 223 3 (1993). However, pre- Smith case law is instructive. For example , Hernandez v. Commissioner , 490 U.S. at 699, heldthat 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 compellin g interest in enforcing participation in the social security system. Case law

### -25-

has recognized a comp elling 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 , 40 6 U.S
. at 213, held that the government has a compelling interest i n providing public education. However, in Sherbert v. Verner , 374 U.S. at 406, t he Court found no compelling governmental interest in preventin g fra ud in the unemployment compensation system. Cases applying the RFR A have held that the government has a compelling interest in enforcin g participation in the social security system, Dro z v. Commissioner , 48 F.3d at 1122-23, and in maintaining safety and securi ty in prisons, Hamilton v. Schriro , 74 F.3d at 1554, and schools, Cheema v. Thompson , 67 F.3d 883, 88 5 (9th Cir. 1995) (ban on wearing of ceremonial knives on campus), as well
as in providing public education, Fleischfresser v. Directors of Schoo l Distr ict 200 , 15 F.3d 680, 690 (7th Cir. 1994) (reading skills progra m described as anti-Christian).

In the present case the question is whether the bankruptcy code in genera l and § 548(a)(2)(A) in particular constitute a compellin g governmental interest. The trustee argues the b ankruptcy code in general, and § 548(a)(2)(A) in particular, furthers the compelling governmenta l 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 adversar y proc eeding brought by the Chapter 7 trustee to recover as fraudulen t transfers under 11 U.S.C. § 548(a)(2) sums that the debtors had contribute d to th eir church, the bankruptcy court concluded that § 548(a), and th e Bankruptcy Code as a whole, served a compelling governmental interest. Th e Newmancourt specifically noted the important po licies of allowing debtors to get a fresh start, treating creditors as fairly as possible, and th e administration of the bankruptcy system, as well as the

### -26-

historical importance of recovery of fraudulent transfers to bankruptc y law. Id. C f. In re Navarro , 83 B.R. 348, 353 (Bankr. E.D. Pa. 1988 ) (pre-RFRA; administration of bankruptcy system and protection of legitimat e interests of creditors are compelling government al interests). The Newman court also found that 11 U.S.C. § 548(a)(2) was the least restrictive mean s of furthering the compelling governmental interest. 183 B.R. at 252.

In comparison, the bankruptcy court in In re Tessier , 190 B.R. a t 405 , found no compelling governmental interest. However, In re Tessie r 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 physica l safety of its citizens.” Id. In re Tessier is procedurall y distinguishable from the present case because it involved a Chapter 1 3 trustee’s objection t o the debtors’ reorganization plan. Nonetheless, it is substantively simi lar 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 “th e government clearly has interests in . . . providing the debtor with a fres h start , efficiently administering bankruptcy cases, [and] protecting th e interests of creditor s,” but concluded that such interests fell “short of direct national security and public safety concerns.” Id. The Tessie r court concluded that these interests, although “rational, and eve n important,” were “not sufficiently grave to dese rve the ‘compelling’ label whe n balanced against a parishioner’s free exercise of religion.” Id. , citing Sherbert v. Verner , 374 U.S. at 406 (the key compelling governmenta l interest case which r ejected the government’s claim that preventing fraud in unemployment compensation was a compelling go vernmental interest). The Tessier court then held that the RFRA was unconstitutional, and thus had
no effect on the bankruptcy code, because its restoration of th e substantial burden/ compelling governmental inte rest 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 a gree with In re Tessier that the interests advanced by th e bankruptcy system are not compelling under the RFRA. Although we would no t necessarily interpret compelling governmental in terests 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 protec ting 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 compellin g 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 o f what is in effect a free exercise exception to the avoida nce of fraudulent transfers can undermine the integrity of th e bankruptcy system as a whole; its effect will necessarily be limited to th e debtor’s creditors, who will as a result have fewer assets available t o apply to the outstanding liabilities, and not all creditors or even al l debtors. This is not to say that the recognition of a free exercis e
exc eption under these circumstances may not have adverse economi c consequences for both creditors and debtors; for example, creditors may be more cautious in doing business with those who t ithe or make contributions to religious organizations.

Because we hold that allowing debtors a fresh start and protecting the interests of creditors are not compelling go vernmental interests under the RFRA, we need not reach the question of whether the governmental actio n 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 o f RFRA is not before 1 

### us as this case is currently postured. That notwithstanding, I feel compelled to note the unusual specter of employing th e analytical framework of RFRA, where the author of the majorit y opin ion has indicated his belief that RFRA is unconstitutional

. Hamilton v. Schriro , 74 F.3d 1 545, 1557 (8th Cir. 1996)(McMillian, J., dissenting). Having reviewed and studied the author's t horough opinion in Hamilton , I am inclined to agree with his position

. Further, cases relied on by the majority, regardless of th e resolution on some issues, have ultimately found RFRA to b e unconstitutional. In Re Tessier , 190 B.R. 396, 406-07 (Bankr. D. Mont. 1995). The constitution ality issue is particularly relevant in that employing RFRA, as opposed to the analysis under Emp loyment Division v. Smith , 494 U.S. 872 (1990), "caused" the reversal i n the current case, at least as I understand the Smith case. Pu t another way, "but for the passage of RFRA, the [church] could not hav e succeeded on [its] free exercise challenge to [11 U.S.C

. § 5489(a)(2)]." Hamilton , 74 F.3d at 1561 (acknowledging th at preRFRA standards were much less onerous as far as the government was concerned). Give n the statute's dubious constitutionality, I believe w e shou ld have requested supplementary briefing and hearing, alon g wi th certification to the Attorney General, on th e constitutionality of RFRA.
-28- governmental interest, the RFRA provides a defense against the order of th e district court permit ting the trustee to avoid the debtors’ contributions to the church under 11 U.S.C. § 548(a)(2)(A). T he 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 merit s under RFRA , and therefore respectfully dissent. 1

### I also shar e 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 par ticular practice is of only minimal religious significance ... ." S lip op. at 21.
-29- The first step in RF RA analysis requires the plaintiff to establish that the challenged government action "substantially burdens" their free exercise of religion. If there is no substantia l 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 app ly."). Courts have articulated various standards required to make a showing of substantial burden.

I agree w ith the majority that RFRA does not compel the church t o sho w that tithing is "required" by the church in order to prove a subst antial burden. It is enough if the allegedly impinged conduct i s motivated by a sincer ely held religious belief. Sasnett v. Sullivan , 908 F. Supp. 1429, 1444 (rejecting a "religiously mandated" test in favor of

a "r eligiously motivated" test for purposes of determining substantia l burden). That being said, it is important that the substantial burde n

2 step in the RFRA analysis is not reduced to a pe rfunctory determination or for egone conclusion. A searching inquiry is required to "protect[] th e govern ment from having to justify its regulations under a compellin g interest standard if the burden on the asserted practice is incidental or de minimis." Id.

As stat ed by the majority, the governmental action mus t "significantly inhibit or constrain conduct or expression that manifests
some c entral tenet of a [person's] individual [religious] beliefs; mus t 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 [pers on's] religion." Slip op. at 21. Although it is undisputed

### -30-

that the debtors sinc erely 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 doe s not substantially burden the free exercise of their religion.
In coming to this co nclusion, I note that the act of tithing by the debtors in the year preceding their filing for C hapter 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" respe cting a central tenet of their belief, nor a curtailment of thei r ability to " express adherence " to their faith, nor were they denie d reasonable opportunities to " engage in those activities " that wer e fundamental to their religion. They engaged in the conduct and activity of tithing and fully expressed adherence in their sincere belief in tithin g to the church. Unfor tunately, the debtors were insolvent during the year prec eding February 1992 when they filed a joint Chapter 7 bankruptc y petition. As such the trustee properly sought to recover that for which the debtors did not receive reasonably equivalent value in exchange fo r 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 tha t the debtors did all they could in the way of e xpressing 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 th e debtors or any other church member from tithing. Indeed, the present record certainly does not suggest tha t sect ion 548 prevented these debtors from tithing

. Equally important, the church has no records which might show that other members did not ti the because of section 548 sin ce no one ever checks to see if members actually do tithe. The funds the trustee seeks to recover have

### It cannot b e denied that the work of religious organizations 3 

### may be more important now than ever before. Contributing , financ ially or otherwise, to further the mission of a religiou s organization is a laudatory practice. That being said, religious contributions cannot be considered beyond reproach or regula tion in all circ umstances. United States v. Lee , 455 U.S. 252, 261; 10 2 S. Ct. 1051, 1057; 71 L. Ed. 2d 127 (1982) ("... every perso n can not be shielded from all burdens incident to exercising ever y aspect of the right to practic e religious beliefs. When followers of a particular sect enter int o 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 statutor y schemes which are binding on others in that activity."). Th e debtors should be commended for their commitment to contribu ting to the church. There is no disho nor in the fact that the tithes they offere d 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, g oods or services to the debtors upon the condition of repayment.
-31- already been tithed to the defendant . The debtors, i n all likelihood, continue to tithe to the defendant. The debtors fulfilled their religious obligation by tithing in the year prior to their bankruptcy filing . Th e sta tute, by its own operation, does nothing to preven t the debtors' fulfillment of their personally hel d relig ious obligation to tithe and, therefore, does no t place a "substantial burden" on th e debtors' practice of their religion.

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

Furthe r evidence of the lack of substantial burden is th e uncontroverted fact that tithing is not required to fully participate in church services. As noted by the majority, the parties have stipulate d that church services were available to all persons regardless of whether any contributions wer e made. The fact that the debtors' purely voluntary tithes were ordered retroactively recovered by t he trustee does not change the fact that the debtors can attend church services, participate in churc h programs, and worship and believe as they choose. They can continue t o tithe as has been their custom, assuming no additional

### -32-

bankruptcy filings. Given these facts, I cannot conclude the debtor's fre e 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 woul d conclude that the statute serves a compelling go vernmental interest and is the least restrictive means of achieving said interest.

Although

stated in dicta, I agree with the district court's view tha t the bankruptcy code and § 548(a)(2)(A) furthers the compelling governmenta l 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 1 993); accord In re Newman , 183 B.R. at 252 ("Section 548(a), and the Bankruptcy Code as a whole, serv e
a com pelling governmental interest.); In Re Navarro , 83 B.R. 348, 35 3 (Ban kr. E.D.Pa. 1988)(the "administration of the bankruptcy system an d protection of the legitimate interests of creditors" serves a compelling governmental interest).
It can be fairly sai d 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
cre ditors. One of the creditor's few protections are recovery statute s like section 548, which as of today includes a f ree 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, u ndermine 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 hereinafte r involve a more

### -33-

probin g and delicate inquiry. Given today's holding, are cautiou s potential creditors (including government or government-sponsore d credit ors) now expected to question applicants in depth regarding th e highly personal activity of religious giving? And what if said applicatio n is d enied on the grounds that the applicant's religious giving make s extending credit an unwarranted risk? Pragmatic issues aside, it is enoug h 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 restrictiv e
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 sectio n 548(a)(2) passes the least restrictive means test, the court noted:

The po rtion of the statute at issue in this case onl y al lows for recovery those transfers of the debtor' s prop erty which occurred within one year of th e bankruptcy filing, occurred while the debtor wa s insolve nt, and that were not given in exchange fo r reaso nably equivalent value. Clearly, the statute wa s drawn i n such a way as to balance the ability of th e debtor to dispose of property with the need to protec t unsecured creditors. For example, if in this case th e debtors had not been insolvent on the dates that th e trans fers to the defendant took place, then th e transfers would not be recoverable. Only when all o f the requirements of § 548(a)(2) are met is the truste e able to recover the transfer.

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

The st atute contains four specific elements, all of which ar e satisfied by the trus tee in this case. The statute is narrowly tailored, and the trustee closely followed the proper procedures set forth in th e Bankruptcy Code for avoiding and recovering the donations, and took n o action against these debtors which would not

### -34-

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

In c onclusion, I would hold that the trustee has satisfied th e req uirements of RFRA and would affirm the district court

.

A true copy. Attest: CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.