Michigan Court Rules United Methodist Church Not A ‘Jural Entity’

A Michigan court ruled the United Methodist Church is not a ‘jural entity’ and cannot be sued for damages stemming from an embezzlement case.

Richard R. Hammar, Attorney, CPA

Bio

State: Michigan
Categories: Denominations - Legal Liability

Key point 10-18.2. Many courts have refused to hold denominational agencies liable for the acts of affiliated ministers and churches, either because of First Amendment considerations or because the relationship between the denominational agency and affiliated church or minister is too remote to support liability.

In a potentially significant ruling, a federal district court in Michigan ruled that the United Methodist Church was not a “jural entity” and therefore could not be sued by a family seeking $12 million in damages from various Methodist agencies as a result of the embezzlement of $360,000 of their funds from church accounts.

An adult male (the plaintiff) is a beneficiary of a multimillion-dollar family trust.

He claimed that an employee of a local Methodist church served as trustee of the trust, and allegedly, with the assistance of the church and its pastor, misappropriated trust funds amounting to $360,000.

He alleged that the trustee would disburse amounts of money from the trust to himself, disguising the payments as charitable contributions, and then using the money for personal gain.

In addition to embezzling money from the trust, the plaintiff claimed that the trustee failed to maintain adequate financial statements and transmitted confidential trust documents to third parties.

Based on the foregoing, the plaintiff sued the local church, the United Methodist Church (UMC), and the trustee who embezzled the funds, on the following grounds:

civil embezzlement,
civil financial fraud and racketeering,
fraud,
misrepresentation,
concealment,
aiding and abetting a breach of fiduciary duties, and
unjust enrichment.

The plaintiff requested $12 million in damages and a permanent injunction barring the defendants from engaging in similar activities in the future.

The General Council on Finance and Administration (GCFA) of the UMC asked the federal district court in Michigan where the lawsuit was filed to dismiss the plaintiff’s claims against the UMC on two grounds.

The UMC “is a denomination, not a jural entity capable of being sued.”

The UMC is not a “true and accurate perpetrator of the alleged wrongdoing against the plaintiff.”

The court observed that

in its motion [to dismiss the case] the GCFA explained that “[the] United Methodist Church is simply a series of separate legal entities — including local churches, conferences, agencies, councils and boards — united by a common religious belief.” It therefore appears that the Michigan Conference of the United Methodist Church is the legal entity that [plaintiff] intended to sue. . . .

The undersigned [judge] respectfully recommends that the Court dismiss the United Methodist Church from this action because it is a religious denomination, not a legal entity. The undersigned further recommends that the Court grant [plaintiff’s] motion for leave to amend insofar as he wishes to name the Michigan Conference of the United Methodist Church as a defendant; it appears that this is the legal entity that [plaintiff] intended to sue in the first place. (emphasis added)

What this case means for churches and religious denominations

This case raises the extraordinary possibility that national religious denominations may not be liable for injuries occurring at affiliated churches if the following conditions are met:

The national church is a “religious denomination, not a jural entity capable of being sued.”
The denomination is not a “true and accurate perpetrator of the alleged wrongdoing” against the injured party.
The denomination is simply “a series of separate legal entities — including local churches, conferences, agencies, councils and boards — united by a common religious belief.”

The court concluded that the Michigan Conference of the UMC was a proper defendant since it supplied the deficiencies preventing the UMC from being a defendant in the underlying litigation.

Whether a court bars other national religious denominations from being sued for injuries over which it was not a “true and accurate perpetrator of the alleged wrongdoing,” remains to be seen.

An instructive example is the liability of national and regional denominational agencies for the numerous lawsuits pending against them for incidents of child sexual abuse occurring in affiliated churches.

Should a national or regional denomination be responsible for such wrongs? Such questions require careful examination of several considerations, including the authority, if any, conferred by a denomination’s governing documents over the activity or personnel causing the abuse, and the willingness of other courts to follow the ruling in the Michigan case summarized above.

Some courts have ruled that national and regional denominational agencies are not “jural entities” that can be sued for the wrongful acts of affiliated churches, clergy, and lay employees and volunteers. Consider the following example.

EXAMPLE. A California appeals court ruled that the UMC could be sued for the alleged misconduct of a subsidiary. The UMC was sued for the alleged improprieties of a subsidiary corporation that operated fourteen nursing homes in California, Arizona, and Hawaii. When the subsidiary encountered financial difficulties, it raised the monthly payments of residents in violation of the terms of their “continuing care agreements” that guaranteed lifetime nursing and medical care for a fixed price. The subsidiary went bankrupt, and a class of nearly 2,000 residents sued the UMC for fraud and breach of contract. Although the case eventually was settled out of court, a California appeals court did rule that the UMC could be sued for the misconduct of its subsidiary. The court emphasized that the UMC was a hierarchical denomination with control over local churches and subsidiary institutions, ranging from restrictions on the purchase or sale of property to the selection of local church pastors. Such control, observed the court, made the UMC responsible for the liabilities of its affiliated churches and subsidiary institutions. The court also found it relevant that the subsidiary organization that operated the nursing homes was engaged in a commercial enterprise.

However, the court suggested that the First Amendment guaranty of religious freedom might prohibit direct actions against the UMC on account of the actions of subsidiary organizations if the allowance of such actions “would affect the distribution of power or property within the denomination, would modify or interfere with modes of worship affected by Methodists or would have any effect other than to oblige UMC to defend itself when sued upon civil obligations it is alleged to have incurred.”

Barr v. United Methodist Church, 153 Cal. Rptr. 322 (1979), cert. denied, 444 U.S. 973 (1979).

Several courts have ruled that national and regional denominational agencies are “jural entities” that can be sued for the wrongful acts of affiliated churches, clergy, and lay employees and volunteers. This often is based on the conclusion that the affiliate is an “agent” of the denomination. Consider the following examples.

EXAMPLE. In 1951 the California Supreme Court ruled that a presbytery was responsible for injuries caused by the negligent driving of the pastor of an affiliated “mission church.” The court concluded that the pastor was an “agent” of the presbytery, since “he was not responsible to the local church but only to the presbytery. The presbytery, not the church, had the power to remove him. Furthermore, he could not transfer to another pastorate without permission of the presbytery, and in fact he was a member of the presbytery rather than of the local church.” The court concluded:

The existence of the right of control and supervision establishes the existence of an agency relationship [making the employer legally responsible for the acts of an employee committed within the scope of his or her employment]. The evidence clearly supports the conclusion of the jury that such control existed in the present case. The right of the presbytery to install and remove its ministers, to approve or disapprove their transfer to other jurisdictions, and to supervise and control the activities of the local churches, particularly those in the mission stage, is inconsistent with a contrary conclusion.

The court emphasized that the presbytery exercised significant control over “missions” churches (it held title to all church property, assisted with the churches’ finances, and paid a portion of clergy salaries). It cautioned that “we are not here called upon to determine the liability of the presbytery for negligence in the activities of a fully established and independently incorporated Presbyterian church which has passed from the mission stage.”

Malloy v. Fong, 232 P.2d 241 (Cal. 1951).

EXAMPLE. In a similar case, a California appeals court ruled that a trial court had improperly dismissed a lawsuit against a denomination (the International Church of the Foursquare Gospel). The denomination had been sued by a person who was injured by the negligent driving of one of the denomination’s pastors while engaged in church business. The court concluded that there was ample evidence demonstrating that the denomination was legally responsible for the injuries since the pastor was its “agent,” and was acting within the scope of church business at the time of the accident. Accordingly, the trial court acted improperly in dismissing the case.

The court based its finding of an agency relationship upon the following factors: (1) The denomination’s charter specified that it was incorporated “to supervise the management of the churches of the [denomination],” and to establish and grant charters to churches which would “be subject at all times to the supervision of [the denomination].” (2) The denomination ordained ministers “for the furtherance of the work of the [denomination].” (3) All property or equipment acquired by any local church is required to be held in the name of the denomination. (4) No church is allowed to execute a general contract to build without the written consent of a denominational official. (5) Each church is required to keep books of account and to prepare full and accurate monthly reports of activities in such form as is prescribed by the denomination. (6) The denomination is empowered to remove from office pastors who are not functioning in such a manner as to promote the best interests of their church. (7) Pastors who desire to transfer to a church in another state must secure a letter of transfer from a denominational official. (8) One of the pastor’s duties is to see that the local church cooperates in all programs of the denomination.

The court concluded, on the basis of these facts, that “manifestly, this evidence meets every requirement for the establishment of an agency relationship . . . Further, the pastor was not only an agent of the denomination, but also was acting within the scope of his duties at the time of the accident. Accordingly, the denomination was legally responsible for his negligence.”

Miller v. International Church of the Foursquare Gospel, Inc., 37 Cal. Rptr. 309 (Cal. 1964).

In summary, national and regional denominational agencies may be liable for injuries occurring on the property of affiliates or resulting from the wrongful or negligent acts of clergy, lay employees, and volunteers, but only if they have sufficient authority over the affiliate and its personnel

Here are several of the factors identified by the courts in deciding if a national or regional denominational agency is sufficiently integrated with an affiliate to be responsible for the affiliate’s liabilities. The more of these a particular denomination meets, the less likely it can avoid liability for the acts and liabilities of the affiliate. And conversely, the fewer of these that a denomination meets, the more likely it can avoid liability for the actions of affiliates.

A hierarchical denomination exercises control over local churches and subsidiary institutions, ranging from restrictions on the purchase or sale of property to the selection of local church pastors role with the local church
A denomination’s charter specifies that it was incorporated “to supervise the management of the churches of the [denomination],” and to establish and grant charters to churches which would “be subject at all times to the supervision of [the denomination].”
The denomination ordains ministers “for the furtherance of the work of the [denomination].”
All property or equipment acquired by any local church is required to be held in the name of the denomination.
No church is allowed to execute a general contract to build without the written consent of a denominational official.
Each church is required to keep books of account and to prepare full and accurate monthly reports of activities in such form as is prescribed by the denomination.
The denomination is empowered to remove from office pastors who are not functioning in such a manner as to promote the best interests of their church.
Pastors who desire to transfer to a church in another state must secure a letter of transfer from a denominational official.
One of the pastor’s duties is to see that the local church cooperates in all programs of the denomination.

Myerscough v. United Methodist Church, 2023 WL 3998256 (W.D. Mich. 2023).

Legal Developments

Clergy-Penitent Privilege Does Not Extend to Email in Sexual Harassment Case

A key email between an investigator and an archbishop falls outside the ‘cleric-congregant’ privilege.

Richard R. Hammar, Attorney, CPA

Bio

State: Michigan
Categories: Confidential and Privileged Communications

Key point 3-07.1. In order for the clergy-penitent privilege to apply there must be a “communication.” A communication includes verbal statements, but it also may include nonverbal acts that are intended to transmit ideas. Mere observations generally are not considered to be communications.

Are email communications between ministers and church members protected from disclosure by the clergy-penitent privilege?

It’s a question a federal court in Michigan recently addressed.

Archdiocese seeks ‘clergy-penitent’ privilege protection for key email exchange

Two men (the “Plaintiffs”) sued a priest and parochial school for: assault; retaliation; negligent hiring, supervision, and retention; and intentional infliction of emotional distress. The men alleged the priest sexually harassed them while they were employed by the school operated by their church and archdiocese. They also alleged the priest retaliated when they rejected his advances.

One man said the priest’s behavior caused him to resign. The other claimed he was fired for reporting the priest’s conduct to the school’s board of regents.

Download Sexual Harassment in the Christian Workplace, Church Law & Tax’s study into the reality of sexual harassment and what churches can do to prevent harassing behaviors and address them should they occur.

Before the plaintiffs’ lawsuit, a representative of the archbishop who investigated sexual abuse crimes on behalf of the archdiocese emailed the archbishop to report that a school board member had raised concerns about the priest’s sexuality and behavior.

Court: Email exchange did not involve spiritual matters

The representative asked the archbishop for spiritual guidance on how to proceed “given the other concerns we’ve had about [the priest].”

The plaintiffs later asked the archdiocese to turn over the email. The archdiocese asked the court to seal the email under the “cleric-congregant” privilege.

The court observed:

Under Michigan law, communication between “members of the clergy and the members of their respective churches” are privileged “when those communications were necessary to enable” the members of the clergy to serve as such. … The cleric-congregant privilege applies “when the communication: (1) serves a religious function, such as providing guidance, counseling, forgiveness, or discipline, (2) is conveyed to the cleric in his or her capacity as a spiritual leader within the denomination, and (3) [is] considered privileged under the discipline or practices of the denomination.” All three elements are required to establish invocation of the privilege. … And for the privilege to apply, the congregant must have spoken to the cleric as part of the cleric’s job as a cleric and not in the cleric’s role as a relative, friend, or employer.

The archdiocese argued the email was privileged because “it exclusively concerns seeking counsel from a church leader and an internal discussion between two church leaders … as to the appropriate next step in an internal church investigation,” and contended the email contained a board member’s private communication about her spiritual concerns.

The court ruled that the key email was not privileged. The investigator “was not seeking spiritual advice from the archbishop, and the archbishop was not serving a religious function.” Rather, “the representative was acting as an investigator for the archdiocese seeking direction from the archdiocese about an employment matter.”

What this means for churches

It is common for ministers to provide spiritual guidance or solace during cell phone and email conversations. Are such conversations protected by the clergy-penitent privilege? This case suggests they are if the requirements for a privileged conversation under state or federal law are met. However, since the requirement that a conversation with a minister serving in his or her professional capacity as a spiritual advisor was not met, the conversation was not privileged.

Again, in Michigan, the requirements for a conversation to be protected by the clergy-penitent privilege are as follows:

(1) The communication serves a religious function, such as providing guidance, counseling, forgiveness, or discipline,

(2) is conveyed to the cleric in his or her capacity as a spiritual leader within the denomination, and

(3) [is] considered privileged under the discipline or practices of the denomination.

Very few courts have addressed electronic communications and the clergy-penitent privilege, so a definitive answer is not possible. On the other hand, the opinion of those few courts that have addressed an issue often constitutes a stronger precedent.

Many states require a communication to be made in confidence, meaning there is an expectation that it will not be revealed to a third party. The presence of a third party often negates the privilege. This is important to remember in situations involving electronic communications, and whether other parties are present for a cell phone call or receive a copy of an email sent.

Doe v. Orchard Lake School, 2022 WL 1262547 (E.D. Mich. 2022).

Legal Developments

Archdiocese Faces Fraud Suit for Using Donations to Defend, Settle Sex Abuse Claim

The church tried—and failed—to have the case dismissed under the ecclesiastical abstention doctrine.

Richard R. Hammar, Attorney, CPA

Bio

State: Michigan
Categories: Charitable Contributions, Fraud

Summary : A Michigan appellate court ruled that the ecclesiastical abstention doctrine did not bar a lawsuit alleging a Catholic archdiocese committed fraud by redirecting donations raised for a specific ministry to instead be used to defend and settle a sex abuse claim.

Fraud suit rooted in call for donations

Several church members sued a Catholic archdiocese for fraud, claiming that it asked its parishioners to donate money to the Catholic Services Appeal (CSA) when in fact the donations were used for the defense and settlement of a sex abuse claim.

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The trial court ruled that the plaintiffs’ claims were barred by the ecclesiastical abstention doctrine, a judicially created legal doctrine based upon the First Amendment that bars civil courts from resolving disputes involving doctrine and polity.

WATCH: Church Law & Tax Editor and Attorney-at-Law Matt Branaugh explains why lawsuits like these are so important for church leaders involved in fundraising campaigns.

The plaintiffs appealed, arguing the ecclesiastical abstention doctrine is not applicable to the facts of this case because no questions of church doctrine or polity had to be examined to resolve their claims.

Allegations of fraud

The plaintiffs claimed the archdiocese committed fraud when it said CSA donations would be used for charitable ministries and were not and would not be used to settle claims “of any nature” against it. According to the plaintiffs, the archdiocese made a false representation because the CSA donations were used to investigate and respond to a sex abuse claim.

Did you know? A similar lawsuit, against the late Ravi Zacharias’ ministries, is moving through the courts in Georgia. In that case, donors claim the ministry’s use of designated offerings for unrelated purposes constitutes fraud.

The appellate court’s decision

The appellate court reversed the lower court’s decision, allowing the lawsuit to proceed.

The appellate court noted that the elements of fraud are:

(1) the defendant made a material representation; (2) the representation was false; (3) when the defendant made the representation, the defendant knew that it was false, or made it recklessly, without knowledge of its truth as a positive assertion; (4) the defendant made the representation with the intention that the plaintiff would act upon it; (5) the plaintiff acted in reliance upon it; and (6) the plaintiff suffered damage.

In weighing whether the ecclesiastical abstention doctrine prevented such a claim from proceeding against the archdiocese, the appellate court concluded:

… contrary to defendants’ arguments, resolution of … plaintiffs’ fraud claim would not impermissibly permit the trial court to second guess how the Archdiocese spends its money. (emphasis added) In order to adjudicate plaintiffs’ claim that the CSA donations were not and would not be used to settle claims against the Archdiocese, the trial court would only be required to decide whether the Archdiocese’s statement was true or false when made. Such an inquiry by the trial court would not involve delving into internal church policies or otherwise substituting its opinion in lieu of that of the authorized tribunals of the church in ecclesiastical matters. The inquiry would not relate to the propriety of how the donations were spent, but rather whether the Archdiocese lied about their purpose when it solicited them. This does not cross the line imposed by the First Amendment.

What this means for churches

A failure by a church to spend designated offerings for the donors’ designated purposes may subject a church to liability on the basis of fraud or misrepresentation.

In this case, the appellate court concluded that such a claim of fraud or misrepresentation could be subject to the civil courts’ jurisdiction without violating the archdiocese’s First Amendment rights.

Dux v. Bugarin, 2021 WL 6064359 (Mich. App. 2021).

Legal Developments

Church’s Push to Strip Members’ Power to Vote Falls Flat on Appeal

Deviating from governing documents can expose pastors and church leaders to legal challenges.

Richard R. Hammar, Attorney, CPA

Bio

State: Michigan
Categories: Charters, Constitutions, and Bylaws

Key point 6-02.2. Churches are subject to the provisions of their governing documents, which generally include a charter and a constitution or bylaws (in some cases both). A charter is the state-approved articles of incorporation of an incorporated church. Most rules of internal church administration are contained in a constitution or bylaws. Specific and temporary matters often are addressed in resolutions. If a conflict develops among these documents, the order of priority generally is as follows—charter, constitution, bylaws, and resolutions.

Key point 6-06.2. Officers and directors must be legally authorized to act on behalf of their church. Legal authority can be express, implied, inherent, or apparent. In addition, a church can ratify the unauthorized actions of its officers or directors, but this is not required.

Key point 9-07. The First Amendment allows civil courts to resolve internal church disputes so long as they can do so without interpreting doctrine or polity.

A Michigan court ruled that the attempt by a pastor and some church members to eliminate the voting power of members was invalid because it was in violation of the church’s articles of incorporation, and the First Amendment did not prevent the plaintiffs from challenging the unlawful actions in court since no doctrinal considerations were implicated.

Background

A church incorporated as a nonprofit religious corporation in 1968 by filing articles of incorporation with the state of Michigan.

Making a quiet change in church governance, if pursued for the wrong reasons, can erode a congregation’s trust, writes attorney and Church Law & Tax Senior Advisor Erika Cole.

Its constitution and bylaws, also drafted in 1968, specified that governance of the church would be vested in the church’s members, and that the church’s leadership would be charged with carrying out the will of the members.

The constitution and bylaws gave members of the church the right to elect who was to serve as the church’s pastor and who was to serve on the church’s governing board. These documents gave them the right to remove the pastor or members of the governing board as well, along with the right to amend or repeal the constitution or bylaws by a majority vote.

However, in 2011, the church amended its constitution and bylaws to give the governing board (now known as the board of elders) the power to choose a senior pastor who, in turn, can nominate members for election to the board of elders. The board then must approve the nominees by a majority vote.

Likewise, only the board can remove either the senior pastor or a member of the board. Lastly, only the board can amend or appeal the constitution or bylaws.

In 2019, the church’s constitution and bylaws were amended again to say that the church’s members had no voting power and that any membership vote would be advisory in nature.

Church members sue senior pastor, church

Several members (“plaintiffs”) sued in early 2020, alleging the senior pastor and church (“defendants”) adopted the 2019 amendments without the consent of the church’s members.

The plaintiffs asked the court to rule the church was organized on a “membership” basis, rather than a “directorship” basis, under the Michigan Nonprofit Corporation Act (MNCA) and that the 2019 amendments were invalid.

They also asked the trial court to order the church to adopt a new set of bylaws.

The defendants argued that, through the 2011 and 2019 amendments, the church had declared itself to be “directorship” based, and if the trial court were to declare otherwise, it would entangle itself in purely ecclesiastical questions. The defendants argued that the court should abstain from deciding this question under the “ecclesiastical abstention doctrine.”

The plaintiffs responded that the church was indisputably organized on a “membership” basis as made plain by the following provision from its corporate articles of incorporation with the state:

The doctrine, rules and discipline shall generally be based upon those of the [church] as modified and agreed upon, however, by the members of this church, and in no event shall the doctrine and business of this church be subject to or controlled by any higher church authority than the membership of this church.

Contending that the 2011 and 2019 amendments conflicted with the church’s membership-based structure, the plaintiffs argued that they were invalid. They alleged that not only did the 2011 and 2019 amendments conflict with the church’s membership-based structure, but the church’s members had never voted to approve them. So, the plaintiffs contended, 2011 and 2019 amendments were invalid for this reason as well.

The trial court ruled in favor of the plaintiffs.

The court concluded that applying the MNCA to resolve an issue involving corporate governance was not an ecclesiastical matter.

Next, interpreting the church’s articles of incorporation, the trial court concluded that the church was organized on a membership basis under the MNCA.

Accordingly, the church could not adopt bylaw provisions depriving members of their voting power, for such provisions would conflict with the church’s articles of incorporation.

The trial court entered a final order granting summary disposition in favor of the plaintiffs, declaring the 2011 and 2019 amendments null and void.

Defendants lose appeal

The defendants appealed, claiming that the civil courts were barred by the ecclesiastical abstention doctrine from resolving this internal church dispute.

The appeals court began its opinion by noting that the ecclesiastical abstention doctrine “arises from the Religion Clauses of the First Amendment of the United States Constitution.”

The purpose of the ecclesiastical abstention doctrine is “to ensure that, in adjudicating a particular case, a civil court does not infringe the religious freedoms and protections guaranteed under the First Amendment.”

And, when deciding whether the doctrine bars a particular claim against a religious entity, “what matters is whether the actual adjudication of a particular legal claim would require the resolution of ecclesiastical questions; if so, the court must abstain from resolving those questions itself, defer to the religious entity’s resolution of such questions, and adjudicate the claim accordingly.”

The court concluded:

Whether the Church was organized on a membership basis or a directorship basis was not an ecclesiastical question—it was a corporate law question. To answer this question, the trial court needed to look no further than the Church’s [articles of incorporation] and the MNCA. Resolving the parties’ dispute did not require the trial court to interpret any of the Church’s religious doctrine or to pass judgment on what it believed to be the form of corporate governance most in line with the Church’s discipline or values. It simply required the trial court to apply Michigan statutory law against the language of the [articles of incorporation]. … If there were any doubt, our Supreme Court has intimated that a question about a church’s corporate structure is not an ecclesiastical question. Borgman v. Bultema, 182 N.E. 91 (1921).

The Borgman case also concerned two groups within a church that disagreed about the church’s corporate governance structure. The defendants attempted to amend the church’s articles of association to change the church’s government structure from presbyterial to congregational.

In the Borgman case, the state Supreme Court “did not abstain from resolving whether the defendants’ attempted amendment was valid, but instead adopted the trial court’s conclusion that the church constitution called for a presbyterial form of government, and that the defendants’ attempted amendment was void since it conflicted with the church’s constitution.”

The appeals court continued: “In short, resolving whether the Church was organized on a membership or directorship basis did not require the trial court to entangle itself in any ecclesiastical or religious matter. The trial court therefore did not err by adjudicating plaintiffs’ claim.”

What this means for churches

Some churches have attempted to eliminate the members’ right to vote by amending the church’s governing documents. As this case illustrates, such actions are subject to challenge if not done in strict conformity with the church’s governing documents.

In this case, the defendants’ attempt to eliminate the voting power of members was invalid because it was in violation of the church’s articles of incorporation, and the First Amendment did not prevent the plaintiffs from challenging the unlawful actions in court since no doctrinal considerations were implicated.

Bogle v. Sewell, 2022 WL 1702365 (Mich. App. 2022).

Legal Developments

Church School Not Liable for Alerting Parents of Fired Coach’s Ban from Campus

Invasion of privacy claim failed because of how the school handled public messages about former employee.

Richard R. Hammar, Attorney, CPA

Bio

State: Michigan
Categories: Invasion of Privacy

Key point 4-04 . Many states recognize “invasion of privacy” as a basis for liability. Invasion of privacy may consist of any one or more of the following: (1) public disclosure of private facts; (2) use of another person’s name or likeness; (3) placing someone in a “false light” in the public eye; or (4) intruding upon another’s seclusion.

A Michigan court ruled that a church school did not commit “false-light” invasion of privacy by its disclosure to parents that a coach had been terminated because of unprofessional conduct.

An errant photo leads to investigation, termination, and forced retirement

The plaintiff held two jobs: one in ministry with a Michigan Diocese and one at a Catholic high school as the boys’ varsity tennis coach.

One day after taking a shower, the plaintiff texted one of his players to bring “a pair of shoes belonging to another player” to that day’s practice. The plaintiff later alleged that, soon after sending the initial text, he went to check to see if the player responded and instead accidentally sent a nude picture of himself to the player. The plaintiff then attempted to call and text the player to explain what had happened.

One of the plaintiff’s text messages stated: “… Delete and disregard the prior pic!! I took it accidentally after getting out of the shower and texting you about the players shoes. Again, please delete and ignore!!! A complete accident!”

The plaintiff followed this message with another asking, “Please acknowledge!!”. The plaintiff received no response from the player but still hoped to speak with him before that afternoon’s tennis practice.

Later that day, the plaintiff received a phone call from the Diocese’s human resources director telling him he’d been placed on administrative leave and should avoid coming to his office.

The plaintiff later surrendered his phone to the police and was later told by his supervisor that he “had 24 hours to either resign or be terminated.”

The plaintiff was never charged by police and retired from his position with the Diocese effective October 16, 2017.

The next day, the school’s athletic director emailed the plaintiff to tell him the school would not be bringing him back as a tennis coach for the remainder of the tennis season and that plaintiff’s contract would not be renewed.

About six months later, the plaintiff “stopped by” the school’s tennis courts. Several players witnessed his presence, and he encountered a former student who asked him why he was there and remarked that she thought he was banned from the campus. A few days later, the plaintiff received a text message from the school asking him to not come to the school or attend any tennis matches.

The next day, the school’s principal alerted tennis team parents via email that the plaintiff had shown up at tennis practice, that he had been fired for inappropriate behavior, and that he had agreed to stay off of school grounds, not interact with students nor attend any boys or girls tennis matches, whether at home or away.

In April 2019, the plaintiff sued the diocese, high school, and bishop (the “defendants”) for “invasion of privacy false light.” The trial court dismissed the plaintiff’s claim, and the plaintiff appealed.

“False-light invasion of privacy” not in play

The Michigan Court of Appeals began its opinion by observing:

The tort of invasion of privacy is based on a common-law right to privacy, which is said to protect against four types of invasion of privacy: (1) intrusion upon the plaintiff’s seclusion or solitude, or into his private affairs; (2) public disclosure of embarrassing private facts about the plaintiff; (3) publicity that places the plaintiff in a false light in the public eye; and (4) appropriation, for the defendant’s advantage, of the plaintiff’s name or likeness.

In order to maintain an action for false-light invasion of privacy, a plaintiff must show that the defendant broadcast to the public in general, or to a large number of people, information that was unreasonable and highly objectionable by attributing to the plaintiff characteristics, conduct, or beliefs that were false and placed the plaintiff in a false position.

Further, the defendant must have known of or acted in reckless disregard as to the falsity of the publicized matter and the false light in which the plaintiff would be placed. A plaintiff claiming false-light invasion of privacy must prove that the defendant acted with malice.

The appeals court rejected the plaintiff’s claim of false-light invasion of privacy because (1) the defendants said nothing that was false regarding the plaintiff, and (2) the defendants did not act with malice. In this context, malice means that the defendants knew that what they said about the plaintiff was false or they acted with a reckless disregard as to its truthfulness.

What this means for churches

Church leaders should be familiar with the concept of invasion of privacy. According to many courts, invasion of privacy consists of four distinct violations of a person’s privacy:

(1) intrusion upon the plaintiff’s seclusion or solitude, or into his private affairs;

(2) public disclosure of embarrassing private facts about the plaintiff;

(3) publicity that places the plaintiff in a false light in the public eye; and

(4) appropriation, for the defendant’s advantage, of the plaintiff’s name or likeness.

This case addressed the third variant of invasion of privacy—publicity that places the plaintiff in a false light in the public eye.

Under this variant, the court noted false-light invasion of privacy consists of the following elements:

dissemination to a large number of persons,

of information that was unreasonable and highly objectionable,

by attributing to the plaintiff characteristics, conduct, or beliefs that were false and placed the plaintiff in a false position, and

the defendant acted with malice, meaning that the defendant must have known of or acted in reckless disregard as to the falsity of the publicized matter and the false light in which the plaintiff would be placed.

Church leaders should become familiar with these elements and carefully word any public messages about current or former pastors, employees, or members. For instance, in a 1997 case, a court found a minister placed a female member of the congregation in “false light,” based on the way the minister described a sexual relationship the woman had with another pastor.

Landfair v. Catholic Diocese, 2022 WL 413623 (Mich. App. 2022)

Legal Developments

Pastor Who Revealed Child’s Suicide During a Funeral Sermon Can’t Be Sued

Court: Ecclesiastical abstention doctrine bars lawsuit from the mother of deceased son.

Richard R. Hammar, Attorney, CPA

Bio

State: Michigan
Categories: Invasion of Privacy, Judicial Resolution of Church Disputes

Key point 4-04. Many states recognize “invasion of privacy” as a basis for liability. Invasion of privacy may consist of any one or more the following: (1) public disclosure of private facts; (2) use of another person’s name or likeness; (3) placing someone in a “false light” in the public eye; or (4) intruding upon another’s seclusion.

A Michigan appellate court affirmed a lower court’s ruling that the mother (the “plaintiff”) of a suicide victim was barred by the ecclesiastical abstention doctrine from suing a pastor who, contrary to her insistence upon confidentiality, still disclosed the suicide during the victim’s funeral homily.

Background

In early December 2018, a young man committed suicide. This fact was not publicly disclosed or known to anyone but close family and friends.

The day after their son’s death, the decedent’s parents went to their church and spoke with the pastor to plan their son’s funeral. The pastor informed them that he could conduct a funeral service just a few days later and discussed the format of the service with them.

The parents advised the pastor that they “wanted to celebrate their son’s life and asked that the homily be positive, uplifting, and focused on the importance of kindness.” The pastor agreed to conduct the service in the manner the parents requested.

At no point did the parents inform the pastor that their son had committed suicide, nor did the pastor state he was aware of their son’s cause of death.

On the day of the funeral, “numerous family members, friends, classmates, and community members were in attendance.” The service began and continued as expected until the pastor gave his homily. At that point, the pastor informed those in attendance that the deceased had committed suicide.

According to the plaintiff, “[m]any in attendance . . . immediately became upset and burst out crying.” The pastor’s discussion of suicide stated that it was “condemned by the Church,” a “secular crime,” and “a sin against God with dire eternal consequences.”

As the pastor’s sermon progressed, the deceased’s father approached the pulpit and “pleaded” with the pastor to stop his discussion of suicide. But the pastor did not relent and “openly questioned the eternal fate” of the deceased.

The ecclesiastical abstention doctrine

The plaintiff sued the pastor, church, and archdiocese (the “church defendants”) alleging five bases of liability: (1) intentional infliction of emotional distress; (2) misrepresentation; (3) invasion of privacy; (4) vicarious liability; and (5) negligent hiring, supervision, or retention.

The church defendants asked the court to dismiss the case, arguing that the plaintiff’s claims were barred by the ecclesiastical abstention doctrine because they involved questions of ecclesiastical polity. The church defendants also argued that the pastor’s homily constituted protected speech and, even if the plaintiff’s claims could be adjudicated, they failed as a matter of law.

The plaintiff insisted that the ecclesiastical abstention doctrine did not apply because this case concerned the pastor’s conduct, “not the Church’s creed,” his speech was not protected, and the plaintiff sufficiently stated valid claims against each defendant. The trial court concluded the ecclesiastical abstention doctrine “clearly” applied to the pastor’s sermon and dismissed the lawsuit. The plaintiff appealed.

The appeals court noted this about the ecclesiastical abstention doctrine:

Our Supreme Court has stated that the applicability of the ecclesiastical abstention doctrine in Michigan

reflects [the] Court’s longstanding recognition that it would be “inconsistent with complete and untrammeled religious liberty” for civil courts to “enter into a consideration of church doctrine or church discipline,” to “inquire into the regularity of the proceedings of church tribunals having cognizance of such matters,” or “to determine whether a resolution was passed in accordance with the canon law of the church, except insofar as it may be necessary to do so, in determining whether or not it was the church that acted therein.”

Under the ecclesiastical abstention doctrine, a civil court cannot “substitute its opinion in lieu of that of the authorized tribunals of the church in ecclesiastical matters.” Therefore, the ecclesiastical abstention doctrine “operates to ensure that, in adjudicating a particular case, a civil court does not infringe the religious freedoms and protections guaranteed under the First Amendment.” But the doctrine does not “purport to deprive civil courts of the right to exercise judicial power over any given class of cases.” . . . “What matters instead is whether the actual adjudication of a particular legal claim would require the resolution of ecclesiastical questions; if so, the court must abstain from resolving those questions itself, defer to the religious entity’s resolution of such questions, and adjudicate the claim accordingly.” Thus, the ecclesiastical abstention doctrine “requires a case-specific inquiry that informs how a court must adjudicate certain claims within its subject matter jurisdiction; it does not determine whether the court has such jurisdiction in the first place” [citations omitted].

The appeals court concluded that the trial court did not err when it decided the ecclesiastical abstention doctrine barred the plaintiff’s claims. Any attempt to resolve the plaintiff’s claims would require decisions regarding matters of church doctrine and polity, which the doctrine prohibits.

The plaintiff had argued that her lawsuit did not seek resolution of religious issues. Rather, she asserted her claims “concern an agreement by [the pastor] to preside over the funeral service for her son—for which [the pastor] was compensated through a donation—in accordance with requests from the family regarding the content of the funeral service.”

But the actual adjudication of each of the plaintiff’s claims “would require an inquiry into religious doctrine and practices regarding sermons and funeral services, suicide, as well as why [the pastor] chose the words that he did, and personnel issues regarding hiring practices of the Catholic Church,” the appeals court said.

The appeals court addresses each claim

The appeals court still briefly addressed each of the plaintiff’s claims.

Infliction of emotional distress

In the trial court, the plaintiff had argued that the pastor’s behavior at the funeral amounted to an “intentional infliction of emotional distress.”

To establish a claim for intentional infliction of emotional distress, a plaintiff must prove that: (1) the conduct giving rise to the claim was intentional or reckless; (2) the conduct was extreme and outrageous; (3) the conduct caused emotional distress; and (4) the emotional distress was severe.

The defendant’s conduct must be “so extreme in degree,” as to go “beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community.” The trial court concluded that the church’s conduct did not meet this strict standard. It also ruled that this claim was barred by the ecclesiastical abstention doctrine.

The appeals court concluded that the trial court properly applied the ecclesiastical abstention doctrine to bar the plaintiff’s claim for intentional infliction of emotional distress.

It stressed that “to find that the content of [the pastor’s] homily at the funeral regarding the suicide of the plaintiff’s son was ‘extreme’ or ‘outrageous’ would require the trial court to evaluate Catholic philosophy and doctrine regarding suicide, and whether [the pastor] complied with it.” It would also require “evaluation of procedures for developing and providing religious sermons, which are unequivocally ecclesiastical in nature.”

Misrepresentation and invasion of privacy

The appeals court said the trial court had not erred “when it concluded the ecclesiastical abstention doctrine barred plaintiff’s claims of misrepresentation and invasion of privacy.”

The plaintiff’s claim alleged, in part, that the pastor agreed to deliver a positive, uplifting sermon but, instead, spoke about “the nature of her son’s death,” and how it constituted a sinful act that brought into question “her son’s eternal salvation.”

Further, the plaintiff asserted the pastor “should have known that the cause of death ‘was a personal matter and not of public concern,’ and disclosure of the cause of death ‘was not consistent with any legitimate pastoral duty and/or concern to the public.’”

In rejecting both the misrepresentation and invasion of privacy claims, the appeals court stated:

[A]s with plaintiff’s claim of intentional infliction of emotional distress, evaluation of her misrepresentation and invasion-of-privacy claims requires an inquiry into the decision-making process behind drafting and giving religious sermons, as well as into Catholic doctrine and teachings regarding suicide. . . . [T]he trial court properly concluded that resolution of these claims would require evaluating religious doctrines and, by extension, trigger the ecclesiastical abstention doctrine.

Additionally, regarding the invasion of privacy claim, the appeals court referenced a 1991 Michigan Supreme Court opinion that cited this passage from the Restatement Torts, 2d:

The right protected by the action for invasion of privacy is a personal right, peculiar to the individual whose privacy is invaded. The cause of action is not assignable, and it cannot be maintained by other persons such as members of the individual’s family, unless their own privacy is invaded along with his.

The appeals court then stated it agreed with the trial court’s conclusion:

Consequently, the trial court was correct in concluding that the plaintiff had no cognizable privacy interest in the fact that her son committed suicide.

Vicarious liability and negligent hiring, supervision, or retention

The appeals court concluded that the ecclesiastical abstention doctrine also precluded the plaintiff’s claims for vicarious liability and negligent hiring, supervision, or retention.

Under the claim of vicarious liability, the plaintiff alleged, in part, that the pastor was under the supervision and control of the archdiocese and he “act[ed] in his special role of priest and adviser, using the premises of the Archdiocese’s parish,” and the “trust, power and the authority his position granted him.”

And, under the claim for negligent hiring, supervision, and retention, the plaintiff alleged that the pastor was “unfit and/or incompetent to perform” his pastoral duties and that the archdiocese “knew, or should have known, that he previously engaged in similar conduct as that alleged [by the plaintiff].” The plaintiff alleged that despite the archdiocese’s knowledge of the pastor’s incompetence, it still “hired, supervised, and retained him as the pastor of [the church].”

In response, the appeals court stated:

As [the church] defendants point out, however, “[t]he Roman Catholic Church is an hierarchical organization and the Bishop’s power to make assignments of ministers to a parish is certainly a matter of ecclesiastical polity in which the courts may not interfere.” . . . This point has been repeatedly reaffirmed by other Courts. . . . [T]he “authority to select and control who will minister to the faithful—a matter strictly ecclesiastical—is the church’s alone.”

As a result, the appeals court said, the trial court properly dismissed the plaintiff’s claim involving the hiring, supervision, and retention of the pastor “as those decisions by the Church are constitutionally protected.”

The appeals court also rejected the vicarious liability claim, noting the pastor’s “actions were constitutionally protected, and there can be no liability for a principal if the agent has committed no actionable wrong.”

Final conclusion

In sum, the appeals court concluded:

[The pastor’s] conduct was protected by the ecclesiastical abstention doctrine. As such, we cannot pass judgment on the content of his sermon. Consequently, all of plaintiff’s claims necessarily fail.

What this means for churches

Pastors sometimes say things in a sermon that offend some listeners. This case demonstrates that such offenses generally will not expose the pastor or church to liability because of the ecclesiastical abstention doctrine, which bars the civil courts from resolving internal church disputes involving doctrinal issues.

It is also important to note, as this appeals court observed, that “invasion of privacy” is a personal right, “peculiar to the individual whose privacy is invaded,” and therefore “cannot be maintained by other persons such as members of the individual’s family, unless their own privacy is invaded along with his.”

Hullibarger v. Archdiocese, 2021 WL 2877973 (Mich. App. 2021)

Legal Developments

Youth Pastor Sentenced to Up to 12 Years for Secretly Video Recording Four Girls

Appeals court: consecutive sentencing was reasonable and didn’t “improperly rely on religious grounds.”

Richard R. Hammar, Attorney, CPA

Bio

State: Michigan
Categories: Sexual Misconduct by Clergy, Lay Employees, and Volunteers

Key point 4-11.1. Clergy who engage in sexual contact with an adult or minor are subject to civil liability on the basis of several legal theories. They also are subject to criminal liability .

A Michigan court acted properly in sentencing a defendant who had been convicted of sexually inappropriate behavior with four minors to two consecutive, rather than concurrent, terms of incarceration.

Background: Youth pastor secretly video recorded four minors

A police investigation revealed that during 2015 and 2017, a youth pastor (the “defendant”) used his iPhone to secretly video record three sisters and another girl as they showered and changed clothes in his home while staying there on vacation. At the time of the first recording, the three sisters were 12, 14, and 16 years old. The other girl was 16.

The defendant had made several recordings of the girls in various stages of undressing. Using his computer, the defendant created more than 144 still images from the videos, enhancing them to better show the girls’ nudity.

The defendant pleaded guilty to four counts of capturing or distributing images of an unclothed person, and four counts of use of computers to commit a crime. He was sentenced to serve four concurrent sentences of two to five years’ imprisonment for the four convictions of capturing images of an unclothed person. The defendant was also sentenced to four concurrent sentences of four and one-half to seven years’ imprisonment for the four convictions of use of computers to commit a crime. The two sentences were all to be served consecutively.

Concurrent sentences are served simultaneously, whereas consecutive sentences are served back-to-back. The judge’s decision to go with consecutive, rather than concurrent, sentences meant the defendant’s total prison term would run from six and one-half to twelve years.

The defendant appealed, claiming that the trial judge’s decision for him to serve his sentences consecutively, rather than concurrently, was unreasonable.

Decision wasn’t unreasonable, didn’t “improperly rely on religious grounds”

The appeals court noted that a trial court has considerable discretion in imposing consecutive sentences. In this case, the trial judge had given a lengthy explanation as to why he imposed consecutive sentences based on the defendant’s “background and the nature of the offenses.” The trial judge reasoned that a consecutive sentence was warranted for the defendant’s abuse of the trusted relationship he had with his victims and their families.

The trial judge additionally concluded that the defendant in general was a danger to society and in particular to people who would place their trust in him. Thus, the appellate court concluded, the trial judge did not abuse his discretion by imposing the consecutive sentences and appropriately articulated multiple reasons for his decision.

The defendant also argued that the trial judge impermissibly relied on religious views as the reason for imposing the sentence. At sentencing, the appeals court noted, the trial judge stated:

The Bible speaks to a circumstance like this when our Lord Jesus said, “Whoever causes one of these little ones who believe in me to sin, it would be better for him if a millstone were hung around his neck, and he were drowned in the depths of the sea. . . .”

The appeals court responded:

Although this passage references the Bible [it was] merely a reference to defendant’s abuse of his position in the church to exploit his victims. The trial judge’s reference to Jesus’s admonition against causing children to sin is simply an acknowledgement that crimes involving children are generally considered more serious than crimes involving adults and also could have been a reference to defendant’s previous position as the youth pastor for his victims. There is no basis for an inference that the trial judge imposed the consecutive sentences because defendant or the trial judge was Christian. The record shows that the trial judge relied on objective secular factors in deciding to impose the consecutive sentences. . . . Thus, the trial judge did not improperly rely on religious grounds when sentencing defendant.

What this means for churches

This is yet another case illustrating the risks associated with the use of technology by pastors and church leaders in inappropriate and illegal ways. See also “Former Youth Leader Convicted for Attempting to Engage Minors in Sexting.”

For help confronting and managing the many potential risks related to youth ministry, see “Minimizing the Risks of Child Molestation in Churches” and “Defending Youth Ministries from 8 Critical Risks.” To help train staff and volunteers, see Reducing the Risk—available on DVD or through online streaming video. People v. Enciso, 2020 WL 5985069 (Mich. App. 2020).

Legal Developments

Pastor Allowed to Testify at a Man’s Sexual Abuse Trial

Appeals court determined that the pastor acted in the role of a friend and the clergy-penitent privilege did not apply.

Richard R. Hammar, Attorney, CPA

Bio

State: Michigan
Categories: Confidential and Privileged Communications

Key point 3-07.4. In order for the clergy-penitent privilege to apply, there must be a communication that is made to a minister acting in a professional capacity as a spiritual adviser.

A Michigan appeals court ruled that a trial court did not err in allowing a pastor to testify concerning a criminal defendant’s confession.

The defendant communicated with his pastor “as a friend”

A young girl was repeatedly sexually molested by her stepfather (the “defendant”) beginning when she was 7 years old. The jury found the defendant guilty, and trial court sentenced the defendant to “three concurrent sentences of 25 to 50 years’ imprisonment,” according to the disposition of the court.

The defendant appealed, arguing that his pastor should not have been allowed to disclose a confession he had made to him. The pastor testified that the defendant admitted to him on two separate occasions that he had engaged in sexual intercourse with the victim. The first confession took place in the driveway of defendant’s mother’s house, and the second confession occurred at the office of defendant’s attorney.

The appeals court ruled that the clergy-penitent privilege did not apply. It concluded:

The pastor testified that he was a friend of defendant’s. . . . The trial court determined that defendant had not necessarily communicated with the pastor as a pastor, but instead as a friend from whom defendant sought “help . . . with his mounting serious legal predicament.” We discern no clear error from that conclusion. And . . . we note that . . . defendant’s pastor explicitly testified . . . that he had concluded with his church elders that communications are not considered confidential in their denomination when they involve “harm to anyone else or their immediate family,” or when the communication demonstrates that the congregant is a “threat to themselves or anyone else.” The trial court did not err when it determined that the cleric-congregate privilege was inapplicable.

What this means for churches

For statements to a minister to be protected against involuntary disclosure in a court of law by the clergy-penitent privilege, they must be made to a minister acting in a professional capacity as a spiritual adviser. In this case, the court concluded that this requirement was not met since the defendant was speaking to the minister as a friend rather than as a spiritual adviser.

Many, perhaps most, of the communications made to clergy are not made to them in their professional capacity as spiritual advisers. They are made by church members and nonmembers alike at church functions, following church services, in committee rooms, in hospital rooms, at funeral homes, in restaurants, on street corners, and at social and recreational events.

Such communications ordinarily are not privileged, since other persons typically are present, and it is difficult to conclude that the “counselee” sought out the minister in a professional capacity as a spiritual adviser. This is not a necessary conclusion, since it is possible that such conversations, even if they begin as a purely social exchange, could become spiritual in nature. In other words, by the end of a conversation the counselee may well be communicating with the minister because of his or her status as a spiritual adviser.

There is no reason why such a conversation should not be privileged, assuming that the other requirements are satisfied. On the other hand, even strictly private conversations may be made for purposes other than spiritual advice, and thus are not privileged.

A minister (or court) may need to ascertain the objective of a conversation in determining whether a communication is privileged.

Was the minister sought out primarily for spiritual advice? Were the statements of a type that could have been made to anyone? Where did the conversation take place? Was the conversation pursuant to a scheduled appointment? What was the relationship between the minister and the person making the communication? These are the kinds of questions which help to clarify the purpose of a particular conversation, thereby determining the availability of the privilege.

The applicability of the clergy-penitent privilege can be enhanced if a minister simply asks a person during a conversation, “Are you speaking to me in my professional capacity as a spiritual adviser?” If the counselee responds affirmatively, then there is little doubt that the courts will conclude that the privilege applies.

If, during a conversation with a member (wherever it may occur), it appears to a minister that the other person may intend for the conversation to be confidential and privileged, the minister should confirm this understanding verbally. If the minister is ever called to testify in court concerning the conversation, this verbal confirmation should resolve most questions regarding the applicability of the clergy-penitent privilege. People v. Foy, 2020 WL 3121164 (Mich. App. 2020).

Legal Developments

Appellate Court: Age Discrimination Claim Against Church May Proceed

Lower court instructed to evaluate merits of dismissed employee’s lawsuit, suggesting possible vulnerability for churches.

Richard R. Hammar

State: Michigan
Categories: Judicial Resolution of Church Disputes

Key point 9-07 . The First Amendment allows civil courts to resolve internal church disputes so long as they can do so without interpreting doctrine or polity.

A Michigan appeals court ruled that a trial court was not barred by the “ecclesiastical abstention doctrine” from resolving a dismissed church employee’s age discrimination claim against her former church if it could do so without resorting to church doctrine.

A female employee (the “plaintiff”) had worked for a church for over 30 years. At the time of her termination, she was employed as the church’s business manager. In 2012, the church hired a new senior pastor. Shortly thereafter, the plaintiff claimed that the new pastor began asking her “when are you going to retire,” and generally treating her with disdain and hostility.

In 2015, the tensions between the plaintiff and the pastor came to a head when the pastor discovered that the plaintiff was receiving an additional five weeks of vacation pay in addition to her regular weekly salary.

The plaintiff claimed that a previous pastor had authorized the five weeks of vacation pay for all tenured employees in 1999. The new pastor believed that this agreement was unenforceable because it was made verbally, and he convened a panel to investigate the plaintiff’s salary.

In May 2016, following the investigation, the plaintiff was given two options: continue her employment with the church without the extra five weeks of vacation pay or retire. The plaintiff found neither option acceptable. The plaintiff was ultimately placed on a two-week administrative leave, but was notified on July 28, 2016, that her employment status had been converted to a discharge, effective July 25, 2016.

The plaintiff sued the church and its pastor, alleging age discrimination, hostile work environment, retaliation, wrongful discharge, breach of contract, defamation, and intentional infliction of emotional distress.

The defendants asked the court to dismiss the case on the ground that the lawsuit “seeks intervention by the court on matters that are at the heart of internal church governance.” Accordingly, the defendants sought dismissal of the plaintiff’s complaint on the basis that allowing the trial court to decide her claims would result in the trial court becoming “entangled in ecclesiastical questions of church governance.”

The trial court agreed, and dismissed the case on the basis that it lacked jurisdiction “because resolution of the claims would involve an impermissible inquiry into the church’s internal procedures.” Accordingly, the trial court’s jurisdiction was “prohibited by the First Amendment [of the United States Constitution] and summary disposition is appropriate.” The plaintiff appealed.

The appeals court noted that the trial court’s conclusion that it lacked jurisdiction over the plaintiff’s complaint was based on the ecclesiastical abstention doctrine. This doctrine, and its boundaries, were explained in a recent ruling by the Michigan Supreme Court:

The ecclesiastical abstention doctrine arises from the Religion Clauses of the First Amendment of the United States Constitution and reflects this Court’s longstanding recognition that it would be inconsistent with complete and untrammeled religious liberty for civil courts to enter into a consideration of church doctrine or church discipline, to inquire into the regularity of the proceedings to church tribunals having cognizance of such matters, or to determine whether a resolution was passed in accordance with the canon law of the church, except insofar as it may be necessary to do so, in determining whether or not it was the church that acted therein. Accordingly, we have consistently held that the court may not substitute its opinion in lieu of that of the authorized tribunals of the church in ecclesiastical matters, and that judicial interference in the purely ecclesiastical affairs of religious organizations is improper.

However, simply because a religious organization may be a defendant in a civil action, the ecclesiastical abstention doctrine does not divest the trial court’s jurisdiction. Rather, the “doctrine informs how civil courts must adjudicate claims involving ecclesiastical questions; it does not deprive those courts of subject matter jurisdiction over such claims.” Winkler v. Marist Fathers, 901 N.W.2d 566 (Mich. 2017).

As a result, “when a claim is brought against a religious entity, the relevant inquiry becomes whether the actual adjudication of a particular legal claim would require the resolution of ecclesiastical questions; if so, the court must abstain from resolving those questions itself, defer to the religious entity’s resolution of such questions, and adjudicate the claim accordingly.”

The court concluded that the trial court erred in dismissing the plaintiff’s clams without evaluating whether they could be resolved without recourse to church doctrine. The court remanded the case back to the trial court “in order for the trial court to determine whether and to what extent the adjudication of the legal and factual issues presented by the plaintiff’s claims would require the resolution of ecclesiastical questions.”

What this means for churches

This case illustrates what many courts call the “ecclesiastical abstention” doctrine. Under this doctrine the civil courts are barred by the First Amendment religion clauses from resolving most internal church disputes.

While not using the terminology “ecclesiastical abstention,” the United States Supreme Court described the basic principle in a 1976 ruling in which it noted that the civil courts lack jurisdiction over internal church disputes that are

strictly and purely ecclesiastical in [their] character . . . a matter which concerns theological controversy, church discipline, ecclesiastical government, or the conformity of the members of the church to the standard of morals required of them. Serbian E. Orthodox Diocese v. Milivojevich, 426 U.S. 696 (1976).

Even so, as one court has noted:

Plaintiffs are not categorically prohibited from ever seeking redress from the courts solely because a religious organization is somehow involved in the dispute. When a church-related dispute can be resolved by applying neutral principles of law without inquiry into religious doctrine and without resolving religious controversy, the civil courts may adjudicate the dispute. Gilmore v. Trinity Church, 2018 Mich. App. LEXIS 3258 (Mich. App. 2018), quoting Bendross v. Readon, 89 So.3d 258 (Fla. App. 2012).

Court Not Barred by First Amendment’s Religion Clauses in Donor’s Designated Contribution Claim

The court concluded that each of the plaintiff’s claims could be resolved without recourse to “questions of religious doctrine or ecclesiastical polity,”

Richard R. Hammar, Attorney, CPA

Bio

State: Michigan
Categories: Breach of Contract, Charitable Contributions

Key point. Donors may be able to recover designated contributions to a church if their contributions were not applied to the designated purpose, so long as doing so would not implicate religious doctrine.

A Michigan appeals court ruled that the civil courts are not barred by the First Amendment’s religion clauses from resolving a donor’s claim that the church failed to apply his designated contribution to his designated purpose, so long as religious doctrine was not implicated.

The chairman of a church’s board of trustees (the “plaintiff”) donated more than $41,000 into a restricted fund whose purpose “was to raise money to expand the church and build a fellowship hall.” Several years later, the plaintiff sued the church, claiming that the donated funds had not been used to build a fellowship hall, that the funds were used for other purposes without plaintiff’s permission, and that the plaintiff unsuccessfully asked for a return of the money numerous times.

The lawsuit claimed that the plaintiff was entitled to a refund of his donation on the basis of several grounds, including conversion, breach of contract, and fraud and misrepresentation.

A trial court dismissed the lawsuit, and the plaintiff appealed. A state appeals court began its opinion by noting:

It is well settled that courts, both federal and state, are severely circumscribed by the First and Fourteenth Amendments to the United States Constitution and … the Michigan Constitution in resolution of disputes between a church and its members… . Jurisdiction over disputes between churches and their members is limited to property rights which can be resolved by application of civil law. A court loses jurisdiction over disputes when resolution requires the court to entertain “questions of religious doctrine or ecclesiastical polity.”

In this case, the court concluded, “resolution of the plaintiff’s claims does not require a court to analyze questions of religious doctrine or ecclesiastical polity. The claims are based on the alleged facts that the restricted fund had a designated purpose of expanding the church and building a fellowship hall, that plaintiff donated money into the fund for that purpose, and that plaintiff’s donations were not used for the designated purpose.”

The court analyzed each of the plaintiff’s claims:

Looking to the substance of the specific claims, the conversion claims add additional allegations that plaintiffs were entitled to return of their money, asked for return of the money, and did not receive the money. The contract claims add the allegation that there was an agreement that the donated money would be used for the sole purpose of building a fellowship hall. The fraud claim adds the allegation that defendants made a material misrepresentation that induced them to donate the money… . Under the alleged facts, the dispute does not require a court to analyze questions of religious doctrine or ecclesiastical polity. Rather, resolving the issues merely involves property rights and applying civil law.

On appeal, the church insisted that the plaintiff’s donations had not been used for other purposes, and as proof pointed out that the fund contained more than the $41,000 donated by the plaintiff. The court rejected this defense, noting that the plaintiff had alleged that the donated money was used for other purposes, and the church had not directly rebutted this claim with affidavits or other evidence.

The church cited a previous Michigan case in support of the trial judge’s dismissal of the case. In McDonald v. Macedonia Missionary Baptist Church, 2003 WL 1689618 (Mich. App. 2003), a Michigan appeals court ruled that a married couple did not have a legal right to a refund of a $4,000 contribution they made to their church’s building fund. The congregation planned to construct a new church the following year, but these plans were put on hold when the church received an unused school building. The couple sued their church, seeking a return of their building fund donation on the basis of the church’s “breach of contract.” Church leaders noted that the church had $500,000 in its new building fund and insisted that it still planned to build a new sanctuary as soon as the fund grew to $6 million. A trial court agreed with the couple and ordered the church to refund their contributions. The church appealed.

A Michigan appeals court reversed the trial court’s ruling and dismissed the case. It concluded that the civil courts are barred by the First Amendment guaranty of religious freedom from intervening in such internal church disputes:

We hold that this dispute involves a policy of the church for which our civil courts should not interfere. Because the decision of when and where to build a new church building is exclusively within the province of the church members and its officials, the trial court erred in not dismissing the couple’s lawsuit.

In dismissing the relevance of this case, the appeals court noted in the present case that the McDonald case “is distinguishable because it involved decisions over when and where to build a new church building … not whether funds donated for a specific purpose were being used for a different purpose.”

What this means for churches

Few courts have addressed the right of church members to a return of their designated contributions in the event a church does not apply the funds as the donor specified. The court in this case concluded that such cases may be resolved by the civil courts if they can do so without reference to “questions of religious doctrine or ecclesiastical polity.” The court concluded that each of the plaintiff’s claims could be resolved without recourse to “questions of religious doctrine or ecclesiastical polity,” and therefore the civil courts were not barred by the First Amendment guaranty of religious freedom from resolving the plaintiff’s lawsuit seeking a return of the $41,000 he had donated to his church. Rogers v. Methodist Church, 2017 WL 2791002 (Mich. App. 2017).

Legal Developments

Court Says Ecclesiastical Abstention Prevents Ruling on Student’s Denied Admission to Religious School

Church Law and Tax Report Court Says Ecclesiastical Abstention Prevents Ruling on Student’s Denied Admission

State: Michigan
Categories: Schools

Church Law and Tax Report

Court Says Ecclesiastical Abstention Prevents Ruling on Student’s Denied Admission to Religious School

Key point 9-07. The First Amendment allows civil courts to resolve internal church disputes so long as they can do so without interpreting doctrine or polity.

A Michigan court ruled that it was barred by the “ecclesiastical abstention” doctrine from resolving a claim that a church school committed unlawful discrimination in denying a disabled student admission.An adolescent female (the “plaintiff”) attended seventh and eighth grades at a church-affiliated private school. She claimed that she had been assured by school personnel that if she enrolled at the school for seventh and eighth grade, she would be guaranteed placement in ninth grade. However, plaintiff was denied admission to ninth grade. Some two months after being denied admission, the plaintiff was diagnosed with certain learning disabilities. Thereafter, the plaintiff sued the school for discriminating against her based on her disability. She alleged that despite being “long aware that she had a learning disability,” the school denied her admission to ninth grade and “consistently relied upon her learning disability as a justification” for doing so.

The First Amendment allows civil courts to resolve internal church disputes so long as they can do so without interpreting doctrine or polity.

The school argued that the civil courts lack subject-matter jurisdiction over this claim pursuant to the protections of the First Amendment. The trial court disagreed, and the school appealed. The appeals court observed: “It is well settled that courts, both federal and state, are severely circumscribed by the [First Amendment guarantee of religious freedom] in the resolution of disputes between a church and its members,” and that “whenever the court must stray into questions of religious doctrine or ecclesiastical polity the court loses jurisdiction … . This limitation on civil court jurisdiction is referred to as the ‘ecclesiastical abstention doctrine.'”

The court quoted with approval from an earlier case in which three families sued a parochial school after their children were denied admission. Dlaikan v. Roodeen, 522 N.W.2d 719 (Mich. App. 1994). The court in the previous case concluded that review of the school’s admission decision fell outside the jurisdiction of civil courts, explaining:

When the claim involves the provision of the very services (or as here refusal to provide these services) for which the organization enjoys First Amendment protection, then any claimed contract for such services likely involves its ecclesiastical policies, outside the purview of civil law. In this regard there can be no distinction between a church providing a liturgical service in its sanctuary and providing education imbued with its religious doctrine in its parochial school. A civil court should avoid foray into a “property dispute” regarding admission to a church’s religious or educational activities, the essence of its constitutionality protected function. To do so is to set foot on the proverbial slippery slope toward entanglement in matters of doctrine or ecclesiastical polity.

The Dlaikan court explained that some activity by an ecclesiastical organization may be governed by civil law alone, such as “entering into a contract to buy or sell property or interact some other way with the secular world.” However, claims regarding admission to a church school were “so entangled in questions of religious doctrine or ecclesiastical policy that the civil courts lack jurisdiction to hear them.”

The Michigan court agreed with the previous case:

Here, as in Dlaikan, the plaintiff is suing a parochial school after she was denied admission. Thus, the claim, whether it is premised on a breach of contract as in Dlaikan or disability discrimination as is the case here, “involves the provision of the very services (or as here refusal to provide these services) for which the organization enjoys First Amendment protection.” Pursuant to Dlaikan, “a civil court should avoid foray into a ‘property dispute’ regarding admission to a church’s religious or education activities.”

What This Means For Churches:

This is one of the few cases to address the application of the ecclesiastical abstention doctrine to admissions decisions by church-affiliated schools. According to this court, the civil courts cannot resolve claims of disability discrimination by students denied admission at a church school. Winkler v. Marist Fathers, 2015 WL 7079054 (Mich. App. 2015).

Key point 9-07. The First Amendment allows civil courts to resolve internal church disputes so long as they can do so without interpreting doctrine or polity.

A Michigan court ruled that the "ecclesiastical abstention doctrine" prevented it from resolving claims arising from a pastor's embezzlement of a large sum of church funds that would involve inquiries into church doctrine or polity.

A church's board of deacons became aware that the pastor of their church had engaged in numerous financial irregularities. When confronted, the pastor admitted that on numerous occasions he gave himself raises, used church credit cards for nonchurch purposes, and paid himself monetary honorariums, all without the board's approval or authorization.

The board hired a CPA firm to examine the church finances. During a Sunday morning worship service, the board informed the congregation of the status of the investigation of both the pastor and the church finances. Following this disclosure, the congregation began to split into factions that either supported or opposed the pastor's continuing employment.

The CPA firm eventually released a preliminary report demonstrating that between 2008 and 2010, more than $237,000 had been removed from the church's bank accounts through questionable transactions. The majority of these transactions were for the benefit of the pastor, his wife, and a former church secretary. Shortly after the release of the report, the board of deacons voted to suspend the pastor with pay. A month later, the local prosecutor's office authorized an arrest warrant for the pastor on one count of embezzlement. The pastor later pleaded nolo contendere (or "no contest") to a charge of embezzling more than $50,000 but less than $100,000 and was ordered to pay restitution.

Some church members continued to support the pastor, and did not believe terminating his services was an appropriate response. This faction elected a new board of deacons, although the existing board continued to function, with each board asserting that the other was invalid.

The church filed a lawsuit in civil court against the pastor and his supporters, seeking monetary damages for the pastor's misappropriation of church funds. The pastor and his supporters filed a counterclaim asserting breach of contract and interference with his employment contract. Alternatively, they insisted that the "ecclesiastical abstention doctrine" deprived the court of the authority to resolve the dispute. This doctrine, which is rooted in the First Amendment guaranty of religious freedom, generally bars the civil courts from resolving internal church disputes over doctrinal or governance issues. The trial court agreed with the pastor and his supporters, and dismissed the lawsuit. The church appealed. A state appeals court began its opinion by noting:

It is well settled that courts, both federal and state, are severely circumscribed by the First and Fourteenth Amendments to the United States Constitution … in the resolution of disputes between a church and its members … . Such jurisdiction is limited to property rights which can be resolved by application of civil law. Whenever the court must stray into questions of religious doctrine or ecclesiastical polity the court loses jurisdiction. Religious doctrine refers to ritual, liturgy of worship and tenets of the faith. Polity refers to organization and form of government of the church. Under the ecclesiastical abstention doctrine … civil courts may not redetermine the correctness of an interpretation of canonical text or some decision relating to government of the religious polity.

The court concluded: "Because determining whether the board of trustees had the authority to suspend and eventually terminate the pastor would require determinations of religious polity, the civil courts do not have jurisdiction. Additionally, the counterclaims brought by the pastor involve the provision of his services as pastor to the church, which is the essence of the church's constitutionally protected function, and any claimed contract for such services likely involves its ecclesiastical policies, outside the purview of civil law."

But the court concluded that the church's demand for monetary damages based on the pastor's misappropriation of church funds could be resolved by the civil courts:

The pleadings for money damages seem to imply conversion as the underlying tort by which the church requests money damages. A claim of conversion against an individual facially does not cause the court to stray into questions of religious doctrine or ecclesiastical polity, which is where the court would lose jurisdiction. Because the claim likely does not require the trial court to determine the issue on the basis of religious doctrine or ecclesiastical polity, the claim is likely not barred by the ecclesiastical abstention doctrine.

What this means for churches

This case is instructive for the following reasons. First, it demonstrates the polarizing effect of criminal activity by church leaders. The fact that the pastor stole a large amount of money from the church, and was criminally charged with one count of embezzlement, did not deter a sizable faction from opposing his ouster.

Second, the pastor's misappropriation of church assets was facilitated by the church's weak internal controls. Internal controls are procedures that are designed to minimize the risk of wrongful use of an organization's assets and funds. Basic internal controls would have prevented the pastor from giving himself unauthorized salary increases and using church credit cards for personal expenses.

Third, it is noteworthy that the church employed a CPA firm to review its finances when it became obvious that irregularities existed. This often is an excellent idea. It is important to have a good idea of how much a church employee embezzled before deciding what to do about it. Typically, embezzlers admit to only a small fraction of what they actually took. See the sidebar, beginning on page 22, that addresses 10 items to consider when confronted with a case of embezzlement. Baptist Church v. Pearson, 872 N.W.2d 16 (Mich. App, 2015).

Ten Steps to Consider When Embezzlement Is Suspected

Many churches have experienced one or more incidents of embezzlement. In some cases, the amounts are substantial. Church leaders often do not know how to respond to such incidents. Here are ten steps that can help.

1. Embezzled funds constitute taxable income to the embezzler. The embezzler has a legal duty to report the full amount of the embezzled funds as taxable income on his or tax return, whether or not the employer reports the embezzled funds as taxable income on the employee's W-2 or 1099. If funds were embezzled in prior years, then the employee will need to file amended tax returns for each of those years to report the illegal income since embezzlement occurs in the year the funds are misappropriated.

IRS Publication 525 states: "Illegal income, such as stolen or embezzled funds, must be included in your income on line 21 of Form 1040, or on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) if from your self-employment activity."

2. Federal law does not require employers to report embezzled funds on an employee's W-2, or on a Form 1099. This makes sense, since in most cases an employer will not know how much was stolen. How can an employer report an amount that is undetermined? Embezzlers are not of much help, since even when they confess to their acts they typically admit to stealing far less than they actually took. This means that any attempt by an employer to report embezzled funds on an employee's W-2 or 1099 will almost always represent an understatement of what was taken.

3. In rare cases, an employer may be able to determine the actual amount of embezzled funds as well as the perpetrator's identity. In such a case, the full amount may be added to the employee's W-2, or it can be reported on a Form 1099 as miscellaneous income. But remember, do not use this option unless you are certain that you know the amount that was stolen as well as the thief's identity.

4. In most cases, employers do not know the actual amount of embezzled funds. The embezzler's "confession" is unreliable, if not worthless. Reporting inaccurate estimates on a W-2 or 1099 will be misleading. Also, if you report allegedly embezzled funds on an employee's W-2 or 1099 without proof of guilt, this may expose the church to liability on the basis of several grounds. One of these is section 7434 of the tax code, which imposes a penalty of the greater of $5,000 or actual damages plus attorney's fees on employers that willfully file a fraudulent Form 1099.

5. Employers that cannot determine the actual amount of funds that an employee embezzled, or the employee's identity, will not be penalized by the IRS for failing to file a W-2 or 1099 that reports an estimate of the amount stolen.

Employers that are certain of the identity of the embezzler, and the amount stolen, may be subject to a penalty under section 6721 of the tax code for failure to report the amount on the employee's W-2 or 1099. This penalty is $50, or up to the greater of $100 or 10 percent of the unreported amount in the case of an intentional disregard of the filing requirement. For employers that are certain how much was stolen, and who intentionally fail to report it, this penalty can be substantial. To illustrate, let's say that church leaders know, with certainty, that a particular employee embezzled $100,000, but they choose to forgive the person and not report the stolen funds as taxable income. Since this represents an intentional disregard of the filing requirement, the church is subject to a penalty of up to 10 percent of the unreported amount, or $10,000. But note that there is no penalty if the failure to report is due to reasonable cause, such as uncertainty as to how much was embezzled, or the identity of the embezzler.

6. If the full amount of the embezzlement is not known with certainty, then church leaders have the option of filing a Form 3949-A ("Information Referral") with the IRS. Form 3949-A is a form that allows employers to report suspected illegal activity, including embezzlement, to the IRS. The IRS will launch an investigation based on the information provided on the Form 3949-A. If the employee in fact has embezzled funds and not reported them as taxable income, the IRS may assess criminal sanctions for failure to report taxable income.

In many cases, filing Form 3949-A with the IRS is a church's best option when embezzlement is suspected.

7. In some cases, employees who embezzle funds will agree to pay them back, when confronted, if the church agrees not to report the embezzlement to the police or the IRS. Does this convert the embezzled funds into a loan, thereby relieving the employee and the church of any obligation to report the funds as taxable income in the year the embezzlement occurred? The answer is no.

Most people who embezzle funds insist that they intended to pay the money back and were simply "borrowing" the funds temporarily. An intent to pay back embezzled funds is not a defense to the crime of embezzlement. Most church employees who embezzle funds plan on repaying the church fully before anyone suspects what has happened. One can only imagine how many such schemes actually work without anyone knowing about it. The courts are not persuaded by the claims of embezzlers that they intended to fully pay back the funds they misappropriated. The crime is complete when the embezzler misappropriates the church's funds to his or her own personal use. As one court has noted:

The act of embezzlement is complete the moment the official converts the money to his own use even though he then has the intent to restore it. Few embezzlements are committed except with the full belief upon the part of the guilty person that he can and will restore the property before the day of accounting occurs. There is where the danger lies and the statute prohibiting embezzlement is passed in order to protect the public against such venturesome enterprises by people who have money in their control.

In short, it does not matter that someone intended to pay back embezzled funds. This intent in no way justifies or excuses the crime. The crime is complete when the funds are converted to one's own use—whether or not there was an intent to pay them back.

8. There is yet another problem with attempting to recharacterize embezzled funds as a loan. If the church enters into a loan agreement with the embezzler, this may require congregational approval. Many church bylaws require congregational authorization of any indebtedness, and this would include any attempt to reclassify embezzled funds as a loan. Of course, this would have the collateral consequence of apprising the congregation of what has happened.

9. Embezzlement almost always occurs because of weak internal controls. Internal controls are procedures that reduce the risk of misappropriation in the handling of cash and other assets. One of the big advantages of having a CPA firm audit your church's financial statements and procedures annually is that the CPAs will look for weaknesses in your internal controls, thereby substantially reducing the risk of embezzlement. In short, an audit promotes an environment of accountability in which opportunities for embezzlement (and therefore the risk of embezzlement) are reduced. And, the CPAs who conduct the audit will provide the church leadership with a "management letter" that points out weaknesses and inefficiencies in the church's accounting and financial procedures. This information can be invaluable to church leaders. Yes, the cost of an audit can be substantial, but many consider it a reasonable investment to promote financial integrity. Also note:

Only a certified public accountant (CPA) can "audit" a church's financial statements and records. In most states it is unlawful for anyone other than a licensed CPA to use the term "audit" in examining an entity's financial statements and records and issuing an opinion as to their compliance with generally accepted accounting principles.
In some cases, churches are required to have an audit. Here are three common ways that this occurs: (1) A church's bylaws or other governing document requires an annual audit. (2) Churches that issue securities as part of a fundraising program must have audited financial statements that are included in the "prospectus" or offering circular that is provided to investors and potential investors. (3) In some cases, a bank may require that a church have an audit in order to qualify for a loan.
Churches can control the cost of an audit by obtaining competitive bids. Also, by staying with the same CPA firm, most churches will realize a savings in the second and succeeding years since the CPA will not have to spend time becoming familiar with the church's financial and accounting procedures.

10. Cases of embezzlement raise a number of complex legal and tax issues. Our recommendation is that you retain an attorney to assist you in responding to these issues.

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