Legal Docket: Religious freedom and financial law

NICK EICHER, HOST: It’s The World and Everything in It for this 3rd day of February, 2025. We’re so glad you’ve joined us today. Good morning! I’m Nick Eicher.

MARY REICHARD, HOST: And I’m Mary Reichard. It’s time for Legal Docket.

The U.S. Supreme Court will consider two cases of interest to Christian parents—one involving religious education, the other, what students are required to read.

On that front, let’s begin in Montgomery County, Maryland, where parents are challenging a school district over mandatory LGBTQ-themed books.

NBC NEWS: Save our children! Save our children!

So unfortunately, if they're going to continue to hold their stance, we're going to be here until the end.

We will still continue to fight for what we believe is a good middle ground, which was the opt out option.

The audio from NBC News. The dispute goes back two summers ago. A group of around 300 parents were seeking an opt-out for lessons they say conflict with their religious beliefs. That includes Muslim, Jewish, and Christian families—an unexpected coalition all pointing to the same concern: We deserve a choice in what our children read at school.

EICHER: School officials refused the opt-out, so these parents took their case to federal court. And now, the U.S. Supreme Court has decided to weigh in. The question is whether religious freedom allows exemptions from certain educational mandates.

REICHARD: Meanwhile, in Oklahoma, a Catholic online school wants to become the first-ever religious charter school in the nation.

But the Oklahoma supreme court rejected the idea, saying it violates the separation of church and state—public dollars can’t flow to religious instruction, as the state reads the law.

EICHER: The school counters that Oklahoma is violating its First Amendment rights—accusing the state of denying it a charter because it’s religious. The Supreme Court will hear arguments in April. These two cases could have broad implications for religious liberty in public education.

REICHARD: The two oral arguments we’ll cover today did not attract the same kind of attention the education cases did … but the stakes in this first case touch on national defense. At issue is how long a military reservist should collect extra pay “during” a national emergency.

The case is Feliciano versus the Department of Transportation. The entire thing rests on the meaning of a humble preposition … the word during. When Congress says government employers “must provide differential pay to reservists called to active duty during a war or national emergency,” how long is that?

The answer matters very much … because differential pay ensures these people working in higher-paid civilian jobs who are pressed into active duty don’t have to take a pay cut while serving.

EICHER: Nick Feliciano is a civilian federal employee and a reservist called to active duty. When he was, he initially got that extra pay. But when his service was extended, the pay dried up. So he sued, claiming the law guarantees him differential pay the whole time the national emergency is in effect.

The federal government disagrees, saying Feliciano’s extended duty wasn’t really part of the original emergency. Government attorney Nicole Reaves framed it this way:

REAVES: The word “during” has multiple meanings. And as with many words, the meaning of during in any particular sentence will depend upon context.

REICHARD: The government argued that “during” means “in the course of,” with a “substantive connection” between a reservist’s military service and the ongoing national emergency.

Feliciano’s attorney, Andrew Tutt, argued that the statute supports his client.

TUTT: Under the differential pay statute, the government must provide differential pay to its civilian employees who also serve in the reserves when they are called to active duty under a provision of law…of Title 10… Thus, during a national emergency, reservists called to active duty under any provision of law must receive differential pay. The government resists this common-sense temporal definition of "during…"

EICHER: Tutt sought to persuade the justices to draw a bright line that doesn’t have to answer so many questions about so many contingencies. Saying ambiguity like that just creates uncertainty:

TUTT: Not just for courts, not just for agencies, but for private employers, who will face criminal penalties…if they get the question wrong.

Justice Ketanji Brown Jackson questioned whether Congress really intended Tutt’s interpretation:

JACKSON: I guess what I’m confused about is why Congress would have so carefully amended the statute over time to add new people, et cetera, if the right reading was just, if you’re called up, you get it?

REICHARD: Tutt countered that Congress often amends laws piecemeal to correct interpretations made by executive agencies.

Justice Elena Kagan pointed out the nature of national emergencies:

KAGAN: We're not going to have any sanctions programs? We're not going to have any hurricanes? I mean, it just seems like a world which couldn't possibly exist…

EICHER: … pointing out how national emergencies are common:

KAGAN: There are 43 national emergencies now. Every time we have a sanctions program in place, we declare a national emergency. This is just a sort of feature of modern life.

Justice Samuel Alito took a tad sarcastic touch in questioning Tutt:

ALITO: Your thinking is that Congress said: Well, you know, we realize that there have been national emergencies now for decades and decades and decades, but, if we look ahead, we foresee the time when there will be peace throughout the world and nothing threatening, and the --the lion or the wolf is going to lie down with the lamb, and there isn't going to be a national emergency, so that's why we've put in, what is it, eight specific provisions that would be superfluous if your interpretation were accepted?

The justices also considered the challenge private employers face in interpreting the law. Reaves, arguing for the government, emphasized that employers who fail to extend differential pay could face retroactive criminal liability.

Justice Neil Gorsuch hinted at a likely outcome in this case:

GORSUCH: Hey, you don't win everything, but, you know, it's better than a loss, isn't it, counsel?

TUTT: I --yes, Your Honor. Yes. And we would, of course, accept a vacate --a vacate and remand…

REICHARD: He’ll take the best he can get.

On to the final argument for today, United States versus Miller … it’s a bankruptcy case … but that doesn’t mean it’s uninteresting.

One thing about bankruptcy is that all the parties who are owed something are supposed to be equal. This case touches on whether the tax-man is more equal than everyone else.

EICHER: These parties owed something are called trustees. The bankruptcy court appoints trustees to manage a debtor’s assets and be the intermediary among the debtor, creditors, and the court.

The key question here is whether a bankruptcy trustee can claw-back tax payments made to the IRS before the bankruptcy filing—just as they can do with payments made to private creditors.

REICHARD: This case goes back eight years to when a transportation company in Utah filed for bankruptcy. Before that, the company All Resorts Group, Inc. had paid more than $145-thousand dollars in company funds to the IRS. This took care of the personal tax debts of two of its principals.

Bankruptcy trustee David Miller argued those payments were fraudulent transfers. And so he sought to reclaim the funds for creditors—claw them back. He wants that money back in the pot for creditors.

EICHER: To support his case, Miller cites the U.S. Bankruptcy Code … specifically Section 5-44(b) that allows a trustee to use state law to void certain transfers—to step into the shoes of an actual creditor.

Government lawyer Yaira Dubin emphasized this point … and cited the relevant law by number:

DUBIN: The trustee must first identify a creditor with the right to avoid the transfer under state law. If so, he can step into the creditor's shoes and avoid the same transfer under 544(b). But, if not, he has no one's shoes to step into and he can't use 544(b) to circumvent the code's two-year lookback period.

REICHARD: For the trustee, attorney Lisa Blatt pointed out Congress tried more than once to clarify that government agencies are not immune in bankruptcy. First, it passed a measure explicitly waiving sovereign immunity for government entities. Then another one to ensure agencies could not hide behind immunity to dodge bankruptcy rules. But the Supreme Court has traditionally read those waivers pretty narrowly.

BLATT: And after Congress made this very broad after this Court twice narrowed it, it just would be a strange thing…

EICHER: Blatt warned that a decision for the government could force Congress to act yet again to counteract the Supreme Court. But the justices doubted whether trustees can ignore who the recipient of a fraudulent transfer is.

Justice Gorsuch seemed to lean toward the trustee, citing precedent from a hundred years ago:

GORSUCH: If I understand what you’re saying…is that essentially, the trustee steps into the shoes of a normal creditor…I don’t see that in that language isn’t there. It does exist in some other statutes, which is notable. And we’ve got a very old case written by Oliver Wendell Holmes no less… that says sometimes a trustee’s power to avoid property transfers can transcend the rights of the creditor in whose shoes he might otherwise step.

Justice Brett Kavanaugh raised concerns about potential IRS overreach in this comment to Dubin for the IRS:

KAVANAUGH: The other side says that your position will create a playbook for fraud, that you pay your personal tax debts with corporate funds and let the IRS then, in their words, hide behind sovereign immunity that would short-change creditors. I want to make sure you respond to that.

Dubin argued just the opposite is true, but Justice Elena Kagan came at her argument this way:

KAGAN: I mean, but, if I understand the argument that you're making, you're saying, well, because Congress included so many things, we don't have to take any one of them particularly seriously.

DUBIN: That is not at all our position. Our position is --

KAGAN: Because it doesn't sound all that good. (Laughter.)

REICHARD: If the Supreme Court sides with the government, then tax payments would be untouchable in bankruptcy, even if they’d be considered fraudulent payments under normal rules.

If the trustee wins, it could limit the government’s special protections in bankruptcy cases and make sure the IRS doesn’t get priority over other creditors.

So, the justices could either keep the playing field level for all creditors or give the government a special advantage in bankruptcy cases—which could tip the balance in future bankruptcies involving taxes and government debts.

And that’s this week’s Legal Docket!

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