Young, In re, 93-2267

• Decision Date: 27 June 1996
• Docket Number: No. 93-2267,93-2267
• Citation: 82 F.3d 1407
• Parties: 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 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; The Evangelical Luthern Church in America, Amicus 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, Amicus Curiae.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1407

82 F.3d 1407

64 USLW 2695

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 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; The Evangelical Luthern Church in America,

Amicus 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, Amicus Curiae.

No. 93-2267.

United States Court of Appeals,

Eighth Circuit.

Submitted Sept. 15, 1994.

Decided May 6, 1996.

Petition for Rehearing and Suggestion for Rehearing En Banc

Denied June 27, 1996. ^*

Appeal from the United States District Court for the District of Minnesota; Harry H. MacLaughlin, Judge.

Kenneth Corey-Edstrom, Brooklyn Center, MN, argued, for appellant.

Douglas Laycock, Austin, TX, argued, for amici curiae.

Richard Thomas Thomson, Minneapolis, MN, argued, for appellee.

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 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 transfers" under 11 U.S.C. § 548(a)(2)(A). ¹ The parties filed cross-motions for summary 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 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 themselves did not raise first amendment concerns).

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)).

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, 109 S.Ct. 2136, 2144-45, 104 L.Ed.2d 766 (1989) (quid pro quo is inconsistent with charitable contribution); United States v. American Bar Endowment, 477 U.S. 105, 118, 106 S.Ct. 2426, 2433-34, 91 L.Ed.2d 89 (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.

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 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...