I am at the St. John’s Religion and Bankruptcy Conference this morning, and I thought to report on some of the papers and discussion going on right now.

The first presentation was by Professor Theresa Radwan of Stetson University School of Law, dealing with the use of tithing to establish the non-dischargeability of debt following the Religious Liberties and Charitable Protection Act and the Religious Freedom Restoration Act.  

The issue is whether post-petition tithing can operate to shield the debtor from creditors.  RFRA reinstituted the substantial burden/compelling state interest of Sherbert v. Verner, and the panelists are now talking about whether that test means that the state is appropriately reluctant to judge whether and how the “undue hardship” standard in the discharge of student loan debts interacts with the substantial burden component of RFRA.

A question was asked about parochial school, and the speaker says that payment for a parochial school is not a reasonably necessary expense for bankruptcy purposes.  But Professor Radwan asked why tithing should count as a reasonably necessary expense while parochial education does not, assuming that the reason for sending a child to parochial school is a religious one, and not because it is simply a better school.

Another question involved the issue of whether the existence of these exemptions, pre- or post-petition, encourages debtors to give to religious organizations and institutions, and is therefore problematic under the Establishment Clause.

The next speaker on the panel, Thomas Shriner, a partner at Foley & Lardner, spoke on the subject of what happens when a religious institution finds itself in bankruptcy.  He is talking about his experience with Roman Catholic dioceses filing for Chapter 11.  One difference between ordinary bankruptcies and these bankruptcies is that a diocese does not produce goods or financial services.  The diocese is like the headquarters of a company, where the administration gets done.  The services provided are administering sacraments, or judging the validity of marriages under church law, granting annulments, recruiting priests, running seminaries, and assigning priests to parishes. 

Dioceses raise a certain amount of money through campaigns, they receive some income through a fairly modest tax on the parish’s own contributions.  And they have relatively few assets (other than the building).

Mr. Shiner represents roughly two hundred parishes against the threatened claims of creditors — but most have not brought claims.  The exception was a claim brought by a separate entity — a cemetery trust — established in 2008.  This separate trust claims that it was an express trust, and the diocese of Milwaukee operates several cemeteries, this one being held in trust.  The issue is whether the money which is being held for the perpetual care of the cemetery is or isn’t property of the estate.  The BK code section is 541.  Apparently there is other litigation against the assets of parishes on similar grounds.  Almost all of the local assets are with the parishes, says Shiner.

In Milwaukee, the parishes are separately, individually incorporated.  The real estate is titled in the name of those individual parishes.  So Shriner was hired separately by each parish (an unusual posture).  Each parish has a separate story to tell.  Some are relatively wealthy, many are poor.  Chapter 11 is ultimately about an agreement to a plan, a negotiation among the constituent bodies against the backdrop of these individual parish structures.  

There is also a jurisdictional issue raised by Stern v. Marshall, which limited the power of bankruptcy courts.  There is a tension between allowing churches to use Chapter 11 to resolve their solvency issues, and keeping the bankruptcy judge from deciding issues like how priests should be assigned in parishes, or whether bishops should be debarred from further service.   Obviously there are difficult excessive entanglement issues raised here.  On the other hand, it is proper for a court to determine that a discharged employee is still owed something on his pension.

A question is asked by Professor Sharfman about whether even if it’s true that the parishes are separately incorporated, what about an “alter ego” theory by the creditors.  Mr. Shriner responds that the parishes are run by the local trustees, the pastor, etc.  The diocese doesn’t even know that they are there.  But there are some instances where the archbishop has disagreed with a decision, and then the parishes often times just go their own way.  Alter ego theories have not worked well for tort claimants.  — MOD

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