A Tennessee court ruled that church members were not legally entitled to inspect certain records of their church on the basis of a provision in the state nonprofit corporation law giving members a right of inspection, since they lacked a "proper purpose" for their request.
The Tennessee nonprofit corporation law specifies that members have a legal right to inspect "accounting records" only if "a demand is made in good faith and for a proper purpose, the member describes with reasonable particularity the purpose and the records the member desires to inspect; and the records are directly connected with the purpose for which the demand is made."
Several members of a church sought to inspect the church's financial records as part of their investigation into financial mismanagement by the pastor and other church leaders. The church resisted this request, arguing that the members' request failed to satisfy all of the conditions required for inspection, and turning over the records would violate the church's constitutional right to freely exercise its religion. The trial court ruled that the members had a proper purpose since they were investigating suspected financial mismanagement, and therefore had a "property interest in the church assets."
A state appeals court reversed the trial court's decision, and ruled that the members failed to satisfy the requirements of the nonprofit corporation law for inspection of the church's financial records:
The members relied upon their "property rights in the church building and its funds" as the proper purpose. The purpose presented by the members … was to determine their property rights. However … unless there is an agreement to the contrary in some bylaw or associational agreement, any decision about control of church property is to be decided by a majority vote of the church. It has likewise been found that church members have no property rights in their contributions to a church. Consequently, the members have no property rights in the church building or its assets. This is in accord with the generally accepted law on the subject. Generally, a nonprofit corporation, and not its members, owns the property of the nonprofit. Absent a departure by the majority from doctrine accepted by the articles of incorporation, the minority has no right to claim church property from a majority at the church membership.
The court acknowledged that the church "had the burden of proof that the members' purpose was not proper." However, "the members did not have a property interest in the church assets, which was the reason relied upon before the trial court. [The law] requires the member to describe the purpose with particularity. Whether access would have been required had another purpose been proffered by the members is speculative at best."
What this means for churches
Tennessee, like most states, has a nonprofit corporation statute that empowers members of nonprofit corporations to inspect certain corporate records so long as they have a "proper purpose."
This court reached the remarkable conclusion that members who want to inspect a church's financial records in order to investigate suspected financial mismanagement do not have a proper purpose as a result of their "property rights in the church building and its funds" since (1) "unless there is an agreement to the contrary in some bylaw … any decision about control of church property is to be decided by a majority vote of the church"; and (2) "church members have no property rights in their contributions to a church," presumably since charitable contributions are gifts that by definition divest donors of any legal interest in their contributions unless there is a written agreement to the contrary. As a result, the members in this case had no property rights in the church building or its assets.
Two Rivers Baptist Church v. Sutton, 2010 WL 2025444 (Tenn. App. 2010).