In re Young: A Correct but Unnecessary Constitutional Decision

I. INTRODUCTION In recent years, the tension between bankruptcy trustees and charitable religious organizations has become a continuous source of litigation.1Courts have become battlegrounds where wars are waged over money donated to churches by debtors who subsequently file for bankruptcy. These wars have forced courts to weigh religious and moral values against the economic rights of creditors. By enacting the Religious Freedom Restoration Act (RFRA),2 Congress joined this war and attempted to protect the conventional understanding that laws should give way to the freedom of religion in the absence of a compelling state interest that could not be addressed in a less burdensome manner. While the Supreme Court has invalidated RFRA in its application to states and state and municipal laws, the question as to its residual validity in federal settings, such as federal bankruptcy law, remains open.3 In re Young4 was the first case at the federal appellate level to consider the application of RFRA to a debtor's prebankruptcy petition (prepetition) donations to religious organizations. The Young court held that RFRA was constitutional and that bankruptcy trustees could not void charitable contributions to religious organizations.5Recently RFRA's constitutionality in its application to federal laws has been questioned and the Supreme Court vacated and remanded the Eighth Circuit Young decision to be reviewed in light of the Flores decision.6 Already some courts, without analyzing the scope of the Flores decision, have rejected RFRA as completely unconstitutional even in its application to federal bankruptcy law.7 However, this Note argues that Flores does not compel a different outcome in the Young case on remand than the decision originally reached by the Eighth Circuit Court of Appeals. Additionally, RFRA remains viable federal law and the Young court correctly analyzed the issues raised by RFRA and its application to prepetition charitable donations. Furthermore, the conflict between the debtor's desire to exercise religious beliefs and the trustee's legal obligations to protect creditors will not be resolved until (1) Congress remedies the "constructive fraud" provision of 11 U.S.C. (sec)548(a)(2) (hereafter "(sec) 548")8 and (2) courts find a way to simultaneously protect creditors from fraudulent attempts by some debtors to avoid paying their debts while recognizing an individual's need to fulfill sincere, good-faith religious convictions. This Note will discuss the Young decision and RFRA's impact on conflicts between the sincere religious donor who becomes a debtor in bankruptcy, and the bankruptcy trustee. Section II will discuss the background and legal events that set the stage for the Young's bankruptcy. Section III explains the facts of Young and the reasoning used by the Eighth Circuit Court of Appeals in reaching its decision. Section IV focuses on the application of RFRA to(sec) 548 and offers a solution to the conflict between sincere religious donors who become bankruptcy debtors and bankruptcy trustees. This Note suggests that the Young court correctly applied RFRA and the First Amendment to (sec)548. However, even if the Young court incorrectly analyzed RFRA, the same result could be achieved by reading a good-faith test into(sec) 548. Finally, this Note concludes that Congress needs to address the (sec)548 problems outlined in this Note, and amend (sec)548 to protect charitable contributions absent actual fraud. II. BACKGROUND The First Amendment provides in relevant part that: "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof. . ."9 In interpreting the Free Exercise clause in the First Amendment, the Supreme Court, in a line of cases including Sherbert v. Verner10 and Wisconsin v. Yoder,11 created and applied the strict scrutiny standard to any government regulation that burdened the free exercase of religion. …