Minnesota

Legal Developments

Property Tax Exemption Does Not Apply to Municipal Special Assessment

Court ruled that the exemption of church property from taxation did not bar cities from requiring churches to share in the costs of public improvements, such as street resurfacing, that directly benefited them

Richard R. Hammar, Attorney, CPA
Bio

Key point. Churches are exempt from property or ad valorem taxes in every state, but this exemption does not necessarily apply to special assessments that require landowners to pay for improvements that directly benefit them.

A Minnesota appeals court ruled that a city’s imposition of a special assessment on abutting landowners to cover the costs of street resurfacing could be applied to churches.

In 2016, a city imposed a special assessment of $31,191.30 against a church related to a street resurfacing project. The church was informed that it was required to pay off the amount in five annual principal installments beginning in 2017. The church challenged the assessment, claiming that it violated a provision in the state constitution exempting from taxation “public burying grounds, public school houses, public hospitals, academies, colleges, universities, all seminaries of learning, all churches, church property, houses of worship, institutions of purely public charity, and public property used exclusively for any public purpose … except as provided in this section.” The constitution goes on to provide that “the legislature may authorize municipal corporations to levy and collect assessments for local improvements upon property benefited thereby without regard to cash valuation.”

A state appeals court ruled that the exemption of church property from taxation did not bar cities from requiring churches to share in the costs of public improvements, such as street resurfacing, that directly benefited them:

A municipality’s taxing authority is conferred by the legislature. Entities exempt from taxation under … the Minnesota Constitution (such as all churches, church property, and houses of worship) must still pay special assessments for local improvements. This is because the underlying idea of all such assessments is that the payers of the assessment constitute a portion of the community … specially benefited in the enhancement of property peculiarly situated… .

What this means for churches

This case demonstrates that while church property is exempt from taxation in every state, this exemption does not necessarily apply to municipal special assessments that apportion the cost of improvements to those property owners, including churches, that are directly benefited by them. Bryant Avenue Church v. City of Minneapolis, 892 N.W.2d 852 (Minn. App. 2017).

Legal Developments

Court Rules First Amendment Bars Its Involvement in Defamation Claim Against Couple’s Former Pastor and Church

Case illustrates the reluctance of the civil courts to resolve internal church disputes involving the discipline or dismissal of members.

Richard R. Hammar, Attorney, CPA
Bio


Key point 6-10.1. According to the majority view, the civil courts will not resolve disputes challenging a church's discipline of a member since the First Amendment guaranty of religious freedom prevents them from deciding the members who are in good standing of a church.

The Minnesota Supreme Court ruled that it was barred by the First Amendment's guaranty of religious freedom from resolving a defamation claim brought by a married couple against their former pastor and church.

Prior to 2011, a married couple (the "plaintiffs") had been longstanding members of a Lutheran church affiliated with the Lutheran Church-Missouri Synod. On August 22, 2011, the plaintiffs received a letter signed by the church's pastors that contained several allegations regarding their conduct over the preceding two years, but focused on complaints that the plaintiffs had been engaged in "slander and gossip" against the leadership and ministry of the congregation. In addition to criticizing the plaintiffs' behavior, the letter advised them that they had "excommunicated themselves" from the church and informed them that their church membership had been terminated.

Subsequent to this letter the Lutheran Church-Missouri Synod advised the leadership of the plaintiffs' former church to hold a "special voters' meeting" so that the congregation could vote to affirm or reject the excommunication decision. The plaintiffs and approximately 89 church members attended the special voters' meeting, which was held on September 25, 2011. A pastor addressed the meeting, reading from a set of prepared remarks, and published the August 22 letter to those present at the meeting. According to the plaintiffs, the pastor's remarks and the letter contained several defamatory statements, including:

  • The plaintiffs were actively involved in slander, gossip, and speaking against the pastors and board of elders.
  • Plaintiffs had intentionally attacked, questioned, and discredited the integrity of the pastors and other church leaders.
  • Other people had observed the plaintiffs display anger and disrespect toward the pastor.
  • The plaintiffs had publicly engaged in "sinful behavior" inside and outside the church.
  • The plaintiffs had engaged in behavior unbecoming of a Christian.
  • The plaintiffs had engaged in a "public display of sin."
  • The plaintiffs had refused to meet for the purpose of confession and forgiveness.
  • The plaintiffs had "refused to show respect" toward church leaders.
  • The plaintiffs had led other people into sin.
  • The plaintiffs had engaged in slander and gossip and had refused to stop engaging in slander and gossip.
  • The plaintiffs had refused to follow the commands and teachings of God's word.

Following the pastor's remarks, ballots were distributed and the congregation voted to affirm the pastor's decision to terminate the plaintiffs' membership at the church. Following this meeting, a Missouri-Synod panel held a hearing to reconsider the plaintiffs' excommunication, and it also affirmed the plaintiffs' excommunication.

On August 16, 2013, the plaintiffs sued the pastor and church (the "defendants") claiming that many of the statements made about them were defamatory. The trial court concluded that the First Amendment deprived it of jurisdiction to resolve the defamation claim, and dismissed the plaintiffs' case. A state appeals court agreed with the trial court, and the case was appealed to the Minnesota Supreme Court. The court began its analysis by summarizing the leading decisions of the United States Supreme Court:

First, a court cannot overturn the decisions of governing ecclesiastical bodies with respect to purely ecclesiastical concerns, such as internal church governance or church discipline. Second, a court may not entertain cases that require the court to resolve doctrinal conflicts or interpret church doctrine. Finally, a court may decide disputes involving religious organizations, but only if the court is able to resolve the matter by relying exclusively on neutral principles of law, the court does not disturb the ruling of a governing ecclesiastical body with respect to issues of doctrine, and the adjudication does not interfere with an internal church decision that affects the faith and mission of the church itself.

The court noted that the plaintiffs had conceded that the majority of the statements detailed in their lawsuit could not serve as the basis for a defamation claim, since "adjudicating the truth or falsity of the statements would require the court to consider and interpret matters of church doctrine." For example, "a court could not decide whether the plaintiffs were engaged in a 'public display of sin' without interpreting the meaning of the word 'sin' as a matter of Lutheran doctrine—a determination that would clearly be unconstitutional."

But the plaintiffs insisted that four of the statements referenced in their lawsuit could be adjudicated without violating the First Amendment: (1) that the plaintiffs "perpetuated falsehoods" about the church and its pastors, (2) that the pastors had received numerous complaints about the plaintiffs' slander and gossip, (3) that the plaintiffs accused one pastor of stealing money from the church, and (4) that the plaintiffs committed "breaches of confidentiality." The plaintiffs argued that a court could use neutral principles of law to determine the truth of these statements and, consequently, adjudicating a claim based on these four statements would not lead to excessive entanglement with religion. The defendants countered that allowing a court to adjudicate a claim based on statements made during a church disciplinary proceeding would unduly entangle the court with religion and severely interfere with the ability of religious organizations to govern their own affairs. To begin with, the defendants pointed out that because the statements were made during the course of a church disciplinary hearing, each statement has some religious meaning and a court could not simply sort so-called "secular" statements from "religious" ones.

The court conceded that this argument had merit:

Many of the statements the plaintiffs identified in their complaint were obviously religious in nature. Although other statements seem more secular in nature, it would certainly be difficult to differentiate between secular and religious statements, especially when the context in which the statements were made was clearly religious. A statement-by-statement analysis would be, at best, a difficult endeavor and, at worst, a court might be forced to interpret doctrine just to determine whether or not a statement had a religious meaning. It is precisely this sort of complicated and messy inquiry that we seek to avoid by prohibiting courts from becoming excessively entangled with religious institutions.

The defendants further asserted that the plaintiffs' claims were nothing more than an attempt to circumvent Supreme Court rulings and obtain judicial review of the decision to excommunicate them. The court responded:

There is no doubt that the First Amendment protects the right of churches and religious organizations to make decisions regarding their membership. To some degree, the plaintiffs' defamation claims are a request to evaluate the accuracy of the facts used to support the church's decision to excommunicate the plaintiffs. Some courts that adopt an absolute position on adjudicating suits arising out of church disciplinary proceedings reason that "the First Amendment's protection of internal religious disciplinary proceedings would be meaningless if a parishioner's accusation that was used to initiate those proceedings could be tested in a civil court." Hiles v. Episcopal Diocese, 773 N.E.2d 929, 937 (2002).

In essence, the defendants argue that immunity from defamation suits based on statements made during church disciplinary proceedings must necessarily be included within a church's First Amendment right to make membership decisions, lest that right ring hollow. The defendants stress that this is particularly true because exposing these proceedings and their participants to civil litigation will lead to a chilling effect. If church disciplinary proceedings are not shielded from the scrutiny of civil courts, there is a very real risk that those who participate will censor themselves in order to avoid liability or the threat of a lawsuit … .

[W]e hold that the First Amendment prohibits holding an individual or organization liable for statements made in the context of a religious disciplinary proceeding when those statements are disseminated only to members of the church congregation or the organization's membership or hierarchy. As a result, the district court properly dismissed the claims brought by the plaintiffs against the church and its pastors.

What this means for churches

This case illustrates the reluctance of the civil courts to resolve internal church disputes involving the discipline or dismissal of members. This reluctance led the court to reject the plaintiffs' claim that they had been defamed by the church and its pastor. Some courts have concluded that defamation claims arising out of statements made in church disciplinary proceedings may be adjudicated by the civil courts if they can do so without interpreting or applying religious doctrine. But given the difficulty of this task, such a position remains a minority view. Pfeil v. Lutheran Church, 877 N.W.2d 528 (Minn. 2016).

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Legal Developments

Court Dismisses Negligent Supervision Lawsuit in Student Sexual Abuse Case

Case illustrates the importance of “foreseeability” in finding a school or church liable on the basis of negligent supervision for acts of child molestation.

Richard R. Hammar, Attorney, CPA
Bio


Key point 10-09.2. Some courts have found churches not liable on the basis of negligent supervision for a worker's acts of child molestation on the ground that the church exercised reasonable care in the supervision of the victim and of its own programs and activities.

A Minnesota court dismissed a lawsuit claiming that a school was responsible, on the basis of negligent supervision, for a coach's sexual abuse of a minor student.

In the fall of 2009, an adult male (the "defendant") was employed as a football coach and weight room supervisor at a public high school. Prior to hiring the defendant, the school district interviewed him, checked his references, and conducted a criminal background check. During the hiring process, the school district did not discover anything that suggested he posed a risk to students.

When the defendant was hired, he received a copy of the school district's employee handbook, which contained policies regarding how employees should interact with students. One policy stated, "Sexual relationships between school district employees and students, without regard to the age of the student, are strictly forbidden and may subject the employee to criminal liability." The policy also prohibited employees from dating students, having sexual interactions with students, and committing or inducing students to commit immoral or illegal acts. The policy directed employees to "employ safeguards against improper relationships with students or claims of such improper relationships." The defendant acknowledged he knew during the fall of 2009 that the policy prohibited school district employees from dating or having sexual interactions with students.

A 13-year-old female student (the "victim") in the school's eighth grade met the defendant when he was coaching the eighth-grade football team. At that time, the victim was friends with football players on the team and would stop by and say hello to her friends at football games. The victim and defendant got to know each other better at the start of her ninth-grade year, as she continued to visit her friends on the ninth-grade football team that the defendant then coached.

After a football game in the fall of 2009, the victim borrowed the defendant's cell phone to call her parents for a ride home. When she got home, she used the caller ID feature of her home telephone to acquire the defendant's cell phone number and proceeded to initiate correspondence with him under a false identity. The victim used her personal cell phone to send the defendant text messages, pretending to be an adult woman interested in having a sexual relationship with him. After a week of exchanging text messages, the victim admitted to him that she was the person who was sending the text messages. The defendant was initially angry with her, but he soon resumed texting with her, even though he knew that she was a ninth-grade student. Over the following weeks, the two exchanged hundreds of text messages, many of which contained graphic sexual content. The defendant also emailed two explicit photographs of himself.

During this time period, the two saw each other in person mainly in the school weight room that the defendant supervised. While the two engaged in sexual touching on only one occasion, they continued to engage often in sexually explicit emails and text messages.

On November 17, 2009, the mother of another student contacted the victim's mother and told her that the defendant and victim had been exchanging sexually explicit text messages. The next day, that student told a school official about the defendant's inappropriate relationship with the victim. The school district called the police the same day to report the sexual abuse. The defendant was arrested, and his employment was terminated shortly thereafter. In 2011, he pleaded guilty to one count of fourth-degree criminal sexual conduct and two counts of solicitation of a minor to engage in sexual conduct.

In October 2011, the victim filed a complaint against the school district, alleging negligence and negligent supervision. The trial court dismissed both claims against the school, and the victim appealed.

The appeals court began its opinion by noting that "for purposes of a negligence claim, there is no general duty to protect another from harm, but a duty to protect arises if there is a special relationship between the parties and the risk is foreseeable." To prove negligent supervision "the plaintiff must prove (1) the employee's conduct was foreseeable and (2) the employer failed to exercise ordinary care when supervising the employee." Therefore, "to succeed on a claim of either negligence or negligent supervision, a plaintiff must prove that the risk in question was foreseeable."

In the context of negligence and negligent supervision claims, foreseeability means "a level of probability which would lead a prudent person to take effective precautions … . In determining whether a danger is foreseeable, courts look at whether the specific danger was objectively reasonable to expect, not simply whether it was within the realm of any conceivable possibility." Sexual abuse of minors, the court stressed, "will rarely be deemed foreseeable in the absence of prior similar incidents."

The victim argued that the existence of several "red flags" should have put the school district on notice that the defendant's sexual abuse of the victim was foreseeable. These red flags included:

  • While attending a football practice the victim shouted at the defendant, "I love you!"
  • On one occasion, the defendant was seen talking with the victim following a football practice in a school parking lot while they were "alone."
  • Another coach saw the victim using a computer in the weight room office while the defendant was away.
  • A weight room supervisor saw the defendant alone with an unknown "young girl" in the weight room on a Saturday morning when he was supervising the weight room.

The court concluded that these incidents failed to make the defendant's sexual contact with the victim foreseeable, and therefore the school was not guilty of negligence or negligent supervision:

Even viewing the record in the light most favorable to the victim, these alleged red flags were insufficient to raise a genuine issue of material fact as to whether the defendant's sexual abuse of the victim was foreseeable. Taken in context, the incidents she cites are not sufficiently similar to or indicative of sexual abuse as to give the school district notice that an inappropriate relationship existed between her and the defendant. First, the victim's "I love you" shout was a single statement by a teenage girl at a football practice, the defendant did not react to the shout, and the victim was instructed to leave the practice after she shouted. Second, as to the observation of the victim talking to the defendant in the school parking lot, the record indicates that they were not alone and that it was common to see coaches talking with students in the parking lot after sports practices. Third, the observation of the victim using a computer in the weight room office while the defendant was supervising other students in the weight room is not an objectively reasonable indicator of a potentially inappropriate relationship between them. Fourth, observations of the defendant and an unidentified young female alone in the weight room on a Saturday do not raise any reasonable inferences of potential or ongoing sexual abuse. Furthermore, there is no evidence that any school district employee observed physical contact or sexual conduct of any kind between the two.

What this means for churches

This case illustrates three important principles.

First, the case illustrates the importance of "foreseeability" in finding a school or church liable on the basis of negligent supervision for acts of child molestation. Foreseeability means knowledge of prior similar incidents or credible allegations indicating that the perpetrator could engage in such behavior. Conversely, if church leaders do have information suggesting that a person might engage in sexual assaults, then it may be liable for any future assaults on the basis of either negligent supervision or negligent retention.

Second, in concluding that the defendant's sexual relationship with the victim was not foreseeable, the court pointed to the fact that when he was hired, the school interviewed him, checked his references, and conducted a criminal background check. During the hiring process, the school district did not discover anything that suggested he posed a risk to students.

Third, the court dismissed the "red flags" that the victim claimed made the defendant's wrongful acts foreseeable. Doe v. School District, 873 N.W.2d 352 (Minn. App. 2016).

Legal Developments

Minnesota Court Rules on the Extent of First Amendment Protections for Church Discipline

Key point 6-10.1. According to the majority view, the civil courts will not resolve disputes

Richard R. Hammar, Attorney, CPA
Bio

Key point 6-10.1. According to the majority view, the civil courts will not resolve disputes challenging a church's discipline of a member since the First Amendment guaranty of religious freedom prevents them from deciding who are members in good standing of a church.

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.

Key point 10-15. The First Amendment limits, but does not eliminate, a church's liability for defamation.

A Minnesota court ruled that it was barred by the "ecclesiastical abstention" doctrine from resolving two church members' claims that they had been defamed by statements made about them in a church disciplinary meeting.

An elderly married couple (the "plaintiffs") were longstanding members of a Lutheran church. The church leadership convened a special membership meeting to determine if the plaintiffs should be excommunicated. At this meeting, the pastor read from a prepared document and made numerous statements about the plaintiffs. These statements included:

  • The plaintiffs were "actively involved in slander, gossip, and speaking against the pastor, the pastor's wife, and the church, including the claim that the pastor was stealing money from the church."
  • The plaintiffs had "intentionally attacked, questioned, and discredited the integrity" of the pastor and other church leaders.
  • Members had seen the plaintiffs display "anger and disrespect" toward the pastor.
  • The plaintiffs had publicly engaged in "sinful behavior" inside and outside the church.
  • The plaintiffs had engaged in behavior unbecoming of Christians.
  • The plaintiffs had "refused to meet for the purpose of confession and forgiveness."
  • The plaintiffs had "refused to show respect" toward the church's leadership.
  • The plaintiffs had "led other people into sin."
  • The plaintiffs had engaged in "slander and gossip" and refused to stop.
  • The plaintiffs had "refused to follow the words and teachings of God."

During the same meeting, the pastor displayed a document containing additional statements about the plaintiffs. These referenced numerous alleged defamatory statements made by the plaintiffs against the pastor, and accused the plaintiffs of "breaches of confidentiality" and causing dissention among the membership.

The plaintiffs sued the pastor and church, claiming that their statements about the plaintiffs were defamatory and injured their character and reputation in their small community. The pastor and church asked the court to dismiss all of the plaintiffs' claims on the ground that they pertained to church governance, membership, and discipline and therefore the civil courts were barred by the First Amendment guarantee of religious freedom from resolving them.

The trial court concluded that because all of the alleged defamatory statements "were made in the context of internal church governance and involve the reasons and motives for disciplining the plaintiffs," the court lacked jurisdiction under the so-called "ecclesiastical abstention" doctrine to resolve the plaintiff's claims. The plaintiffs appealed.

A state appeals court began its opinion by noting:

Under the ecclesiastical abstention doctrine, courts lack subject-matter jurisdiction if the disputed topic is "strictly and purely ecclesiastical in its character, a matter over which the civil courts exercise no jurisdiction, 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" (quoting the Supreme Court's decision in Serbian E. Orthodox Diocese v. Milivojevich, 426 U.S. 696 (1976).)

The court referenced its previous decision in Schoenhals v. Mains, 504 N.W.2d 233, 235 (Minn. App. 1993). The Schoenhals case was based on a letter a married couple received from their pastor terminating their membership in their church. The pastor read the letter to the entire congregation and discussed it separately with the couple's son, who was also a member of the church. The letter set forth the following reasons for terminating the couple's membership in the church:

  • A lack of financial stewardship with consistency and faithful tithing and offering over a given period of time.
  • A desire to consistently create division, animosity, and strife in the fellowship.
  • Direct fabrication of lies with the intent to hurt the reputation and the establishment of the church.
  • Backbiting, accusations, division, and lying are some of the most serious sins found in the Bible.

The couple sued the church and its pastor alleging defamation, among other claims. The trial court dismissed the couple's claims on the basis of the ecclesiastical abstention doctrine, and a state appeals court affirmed this ruling since any examination as to the truth of the pastor's statements would "require an impermissible inquiry into church doctrine and discipline" in violation of the First Amendment.

The court acknowledged that one of the pastor's statements—the accusation that the couple had fabricated lies intended to hurt the reputation and establishment of the church—appeared unrelated to church doctrine. But it reasoned that the statement "related to the church's reasons and motives for terminating the couple's membership" and therefore any examination into those reasons and motives "would also require an impermissible inquiry into church disciplinary matters." In addition, the court noted that the letter "was disseminated only to other congregation members, which strengthened its conclusion that the pastor's statements were related and limited to internal church disciplinary proceedings."

The court concluded that the plaintiffs' statements, like the statements in Schoenhals, were all related to "the church's motives and reasons for excommunicating them," and that "any examination as to the truth of these statements would be an impermissible inquiry into church doctrine under the First Amendment. Adjudicating the truth of statements concerning sin and Christian doctrine cannot be done without impermissibly intruding on issues that are strictly and purely ecclesiastical in their character."

The plaintiffs' attorney conceded that the court could not examine the truth of the statements concerning "sin" and Christian doctrine without violating the First Amendment. Nevertheless, he argued that four categories of statements—the breach of confidentiality, lying or perpetuating false information, accusing the pastor of stealing money, and the reported complaints of other congregation members concerning the plaintffs' behavior—could be resolved by the court based on secular, legal principles. The court disagreed:

This argument overlooks why the statements were made and the context in which they were made. In Schoenhals, we declined to inquire into any statements that related to a church's reasons and motive for terminating membership, even if the alleged defamatory statements appear unrelated to church doctrine on their face. Likewise here, any examination into whether the statements were truthful would be an "impermissible inquiry into church doctrine and discipline, because the statements were directly related to the church's reasons for excommunicating the plaintiffs. Furthermore, these statements all occurred during the context of internal church disciplinary proceedings … that were specifically designed to determine membership status at the church.

The court concluded: "In concluding that the plaintiffs' claims must be dismissed, we do not minimize the concerns that brought them to court … . But the separation of church and state, a principle enshrined in the Minnesota and United States Constitutions, prevents a court from determining the merits of the plaintiffs' dispute with their former church. Our decision here does not excuse any defamatory behavior that may have occurred in a sacred setting; it merely honors the separation of church and state by avoiding secular intrusion into the heart of religious concerns: who may be a member of the church; what standards of behavior are required of them; and how and when members may be disciplined."

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). The concept of ecclesiastical abstention prevented the Minnesota court from resolving the plaintiffs' defamation claims.

There is one additional point in the court's decision worth noting. In the court's previous decision in the Schoenhals case, it concluded that allegedly defamatory statements disseminated only to other congregation members "strengthens" the conclusion that such statements "are related and limited to internal church disciplinary proceedings" that are beyond the jurisdiction of the civil courts. For the greatest protection, statements concerning the discipline of members should be disclosed only to church members, since this may trigger the "qualified privilege" that protects the limited disclosure of statements pertaining to matters of "common interest" from defamation and similar claims. Pfeil v. St. Matthew Church, 2015 WL 134055 (Minn. App. 2015).

Legal Developments

Denominational Due Diligence

Key point 10-09.2. Some courts have found churches not liable on the basis of negligent

Key point 10-09.2. Some courts have found churches not liable on the basis of negligent supervision for a worker’s acts of child molestation on the ground that the church exercised reasonable care in the supervision of the victim and of its own programs and activities.

Key point 10-18.2. Most 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.

Key point 10-18.3. There are several legal defenses available to a denominational agency that is sued as a result of the acts or obligations of affiliated clergy and churches. These include a lack of temporal control over clergy and churches; a lack of official notice of a minister’s prior wrongdoing in accordance with the denomination’s governing documents; lack of an agency relationship; the prohibition by the First Amendment of any attempt by the civil courts to impose liability on religious organizations in a way that would threaten or alter their polity; and elimination or modification of the principle of joint and several liability.

The Minnesota Supreme Court ruled that a state denominational agency was not responsible for the molestation of an adolescent boy by a youth leader because of the agency’s limited involvement in the selection and supervision of the volunteers in affiliated churches. In 1991, an adult male (Paul) began working as a youth pastor at a local church (the “church”). Shortly thereafter, he obtained credentials as an ordained Assemblies of God minister. During his ministry at the church, members raised concerns regarding his inappropriate relationships with male adolescents. The church’s senior pastor learned that Paul had hosted a sleepover and insisted that a young male sleep in the same bed with him. Two or three months later, another family notified the senior pastor that Paul had pressured their son to sleep in the same bed with him. The senior pastor ordered Paul to stop the sleepovers but did not make a report to police because no one alleged any sexual misconduct. Eventually the church advised Paul that he must “resign under discipline” or be terminated. He elected to resign under discipline.

After resigning, Paul worked in the information technology field. He also began volunteering with the youth-ministry program at another Assemblies of God church. Volunteers in the youth-ministry program were not required to have ministerial credentials, and received all of the training required of lay volunteers.

After approximately three years of volunteer work, Paul became a “volunteer captain.” He led “cell group” meetings, which were Friday evening gatherings for either middle school or high school students. Sometimes students would stay overnight at Paul’s home.

In 2005, Paul sexually abused an adolescent male (the “victim”) during two sleepovers. When it learned of these allegations of abuse, the ministry ended Paul’s volunteer work. In 2010, Paul pled guilty to two counts of criminal sexual conduct in the fourth degree arising out of his abuse of the victim and another youth.

At the time Paul abused the victim, he still maintained his ministerial credentials. Each year he submitted a renewal application to the District Council, whose role was to make a recommendation to the denomination’s governing body, the General Council of the Assemblies of God (General Council). Only the General Council had the authority to renew Paul’s credentials, which it did every year.

In 2004, the senior pastor at the church where Paul had worked as a youth pastor joined the District Council as an officer. In 2004 and 2005, the District Council recommended that the General Council again renew Paul’s credentials, effective for the years 2005 and 2006. The General Council did so, as it had done before. In a deposition, a District Council officer testified that, in recommending renewal, he did not “make a recommendation as to Paul’s fitness” or any other applicant. Rather, the District Council’s responsibility was to verify that the applicant had completed all of the preliminary steps in the renewal process. The officer described the General Council as the organization responsible for assessing an applicant’s “fitness.”

Under Assemblies of God polity, the District Council did not control or supervise the youth-ministry programs, or volunteers, of any of its affiliated churches.

In 2011, the victim sued Paul, the church in which Paul served as a volunteer leader, and the District Council. A trial court dismissed all claims against the District Council, and the victim appealed. A state appeals court reversed the trial court’s ruling, concluding that there was sufficient evidence for a jury to conclude that the District Council’s conduct created a foreseeable risk of injury to a foreseeable plaintiff, and thus, the District Council owed the victim a duty of care, even in the absence of a special relationship. The court of appeals also held that the First Amendment did not bar the victim’s negligence claim. The District Council appealed to the state supreme court.

In most cases, the denomination retains no authority to supervise or control the day-to-day activities of ordained or licensed ministers.

The court began its opinion by defining negligence: “Negligence is the failure to exercise the level of care that a person of ordinary prudence would exercise under the same or similar circumstances. To recover on a claim of negligence, a plaintiff must prove: (1) the existence of a duty of care; (2) a breach of that duty; (3) an injury; and (4) that the breach of the duty was a proximate cause of the injury.”

The key issue in this case, the court concluded, was whether the District Council had a duty of care toward the victim. It referenced “the general common law rule that a person does not owe a duty of care to another—e.g., to aid, protect, or warn that person—if the harm is caused by a third party’s conduct.” However, the court noted an exception to this general rule when “the defendant’s own conduct creates a foreseeable risk of injury to a foreseeable plaintiff.” The court added:

When we refer to the defendant’s own conduct, we mean misfeasance, which is “active misconduct working positive injury to others.” Nonfeasance, which is “passive inaction or a failure to take steps to protect [others] from harm,” is not enough. Once we identify the defendant’s “own conduct,” we then determine whether that conduct created a foreseeable risk of injury to a foreseeable plaintiff …. To determine whether the risk of injury to the plaintiff is “foreseeable,” we “look at whether the specific danger was objectively reasonable to expect, not simply whether it was within the realm of any conceivable possibility.” The risk must be “clear to the person of ordinary prudence.” If the connection between the danger and the defendant’s own conduct is too remote, there is no duty.

The court concluded that “the District Council did not create a foreseeable risk of injury to the victim, and thus the District Council did not owe him a duty of care. Simply put, the link between the District Council and the victim’s injury is too attenuated. Several undisputed facts, considered together, establish that the connection is remote”:

First, the District Council did not employ Paul, control the local church’s youth-ministry program, or supervise its volunteers. The church, not the District Council, had the responsibility to vet, train, and supervise Paul. Second, according to the church’s youth pastor who supervised Paul’s volunteer work, Paul’s credentials from the General Council “didn’t short circuit [the volunteer process] in any way.” Third, Paul was a well-established volunteer at the church long before 2004 when the District Council became aware of his history … . By 2005, when he assaulted the victim, Paul had served as a volunteer for approximately six years, including approximately three years as a captain. Finally, in the credentials renewal process it was the General Council’s responsibility, not the District Council’s, to determine fitness. Therefore the District Council did not create a foreseeable risk of injury to a foreseeable plaintiff. Thus, as a matter of law, the District Council had no duty to the victim.

What This Means For Churches:

Negligence is one of the most common forms of church liability. As this case illustrates, for a church or denominational agency to be responsible for an injury on the basis of negligence, it must be first established that it owed a duty of care to the victim. And, importantly, the court stressed that, as a general rule, one does not owe a duty of care to protect others from harm caused by the conduct of third parties. In this case, that means that the District Council could not be liable for the victim’s injuries caused by the actions of Paul. The court recognized two exceptions to this rule. First, a duty may arise in the case of a “special relationship” between a church or denominational agency and a victim of harm. But the court refused to find that a special relationship existed between a church or denominational agency and a minor participating in church activities. The second exception to the general rule that one cannot be liable for injuries caused by third parties may occur when “the defendant’s own conduct creates a foreseeable risk of injury to a foreseeable plaintiff.” The court concluded that “the District Council did not create a foreseeable risk of injury to the victim, and thus the District Council did not owe him a duty of care. Simply put, the link between the District Council and the victim’s injury is too attenuated.” This conclusion was based on the following facts: (1) The District Council did not employ Paul, control the local church’s youth-ministry program, or supervise its volunteers. (2) Paul’s credentials from the General Council “didn’t short circuit [the volunteer process] in any way.” (3) Paul was a well-established volunteer at the church long before 2004 when the District Council became aware of his history. (4) In the renewal of Paul’s ministerial credentials, the District Council claimed that it was the General Council’s responsibility, not the District Council’s, to determine fitness for ministry. Therefore the District Council did not create a foreseeable risk of injury to a foreseeable plaintiff, and as a matter of law, the District Council had no duty to the victim.

In recent years, a number of lawsuits have attempted to hold denominational agencies legally accountable for the acts of ministers that they ordain or license. The argument is that the act of issuing credentials to a minister, and the retention of authority to discipline or dismiss a minister for misconduct, constitutes sufficient “control” to make the denomination liable for the minister’s actions. In most cases, such efforts will fail. It is true that many denominational agencies ordain or license ministers; require ministerial credentials to be renewed annually; and reserve the authority to discipline or dismiss clergy whose conduct violates specified standards. In some cases, ministers are required or expected to provide annual contributions to the denomination. However, in most cases, the denomination retains no authority to supervise or control the day-to-day activities of ordained or licensed ministers. It may be authorized to discipline or dismiss a minister following an investigation, but ordinarily it has no authority to independently monitor or supervise the day-to-day conduct of ministers, and no such authority is ever exercised. It is important to point out that most denominations are “delegated powers” institutions, meaning that they can only exercise those powers that have been delegated to them by their constituent members in their governing documents. If these documents confer no authority to monitor and supervise the day-to-day activities of clergy, the denomination is prohibited from doing so.

The authority of many denominations to license and ordain clergy, require annual renewals of ministerial credentials, and discipline or dismiss clergy found guilty of specified misconduct, is precisely the same authority that is exercised by state professional accrediting organizations, such as the bar association. Like such denominational agencies, the bar association has the authority to license attorneys, require annual renewals, and discipline or dismiss attorneys for proven misconduct in violation of professional standards. In addition, many require annual contributions. However, this limited authority does not give the bar association any right to control or supervise the day-to-day activities of attorneys, and it is for this reason that no bar association has ever been sued on account of the malpractice or misconduct of a licensed attorney, much less found liable. State bar associations have never been sued or found liable for the numerous incidents of attorney misconduct and malpractice that occur each year, and religious organizations should be treated no differently.

An earlier Minnesota case reached such a conclusion. The court applied the “bar association analogy” in concluding that a regional church and national church (the “church defendants”) were not liable for the sexual misconduct of a pastor since the relationship between them and credentialed clergy (which resembled the relationship between state bar associations and licensed attorneys) was too attenuated to justify the imposition of liability for clergy misconduct.

In Minnesota, the supreme court “through the Rules of Professional Conduct, sets forth the rules and standards by which lawyers must adhere. If these rules are violated, the court may discipline the responsible attorney. But this relationship between the supreme court and the disciplined attorney is not an employment relationship. There has to be something more.” Similarly, the regional and national churches in this case had “limited control over the pastor.” But, “the congregation, not the umbrella entity, has the responsibility for hiring and firing the pastor, setting forth the terms and conditions of employment, supplying the pastor with parsonage, vacation and supplies, and paying the pastor. [It] is the congregation, not the [regional or national churches], which employs the minister.” The court concluded that the church defendants were not liable on the basis of respondeat superior for the pastor’s acts of molestation because an employment relationship did not exist. In addition, his wrongful acts were not committed in the course of his employment, as required by the respondeat superior doctrine. Doe 169 v. Brandon, 845 N.W.2d 174 (Minn. 2014).

Legal Developments

Release Forms and Personal Injury

Key point 10-16.6. A release form is a document signed by a competent adult that

Key point 10-16.6. A release form is a document signed by a competent adult that purports to relieve a church from liability for its own negligence. Such forms may be legally enforceable if they are clearly written and identify the conduct that is being released. However, the courts look with disfavor on release forms, and this has led to several limitations, including the following: (1) release forms will be strictly and narrowly construed against the church; (2) release forms cannot relieve a church of liability for injuries to minors, since minors have no legal capacity to sign such forms and their parents' signature does not prevent minors from bringing their own personal injury claim after they reach age 18; (3) some courts refuse to enforce any release form that attempts to avoid liability for personal injuries on the ground that such forms violate public policy; and (4) release forms will not be enforced unless they clearly communicate that they are releasing the church from liability for its negligence.

A federal district court in Minnesota ruled that the mother of a college student who was killed while participating in an "outdoor leadership school" in India was barred from suing the school because of a release form that her son had signed as part of the registration process. The National Outdoor Leadership School (NOLS) is a Wyoming corporation that organizes remote wilderness expeditions for students. In 2011, an adult male (the "victim") enrolled in a NOLS course in India. At the time he enrolled in the course, the victim signed a document (the Agreement) titled "NOLS Student Agreement (Including Assumption of Risks and Agreements of Release and Indemnity)." The agreement referred to several other documents and stated that the vicitm "has read and understands the general information about NOLS and its courses … including NOLS' Admission Policies, the statement titled Risk Management at NOLS, the NOLS Enrollment Packet and other material provided by NOLS describing or related to the program." The agreement also contained a clause providing that "any dispute between [the victim] and NOLS will be governed by the laws … of the State of Wyoming, and any mediation or suit shall occur or be filed only in the State of Wyoming." The victim further agreed that the terms of the agreement would "be binding upon him, his heirs, estate, executors and administrators."

(C)hurch leaders who are apprised that someone has made threats against the church, or individual members in the church, should be aware of the possible risk of liability.

A few weeks after signing the agreement, the victim began a 30-day hike near the Gori Ganga River in India, accompanied by other students and NOLS staff. Heavy rain caused the deterioration of trail conditions. During the hike, the victim fell down a steep incline and is presumed dead.

The victim's mother sued NOLS, claiming that the release provision in the agreement was invalid and unenforceable, and that NOLS was responsible for her son's death on the basis of negligence.

validity of the agreement
The mother argued that the agreement was invalid for lack of independent consideration. The court noted that "formation of a contract requires a specific and definite offer, acceptance, and consideration," and "consideration may consist of either a benefit accruing to a party or a detriment suffered by another party." Further, "it is well-established that a contract may consist of more than one document." The court, in concluding that the agreement was a valid contract, observed: "Here, the Agreement included [the victim's] representation that he 'read and understood … NOLS' Admission Policies, the statement titled Risk Management, the NOLS Enrollment Packet and other material provided by NOLS,' rendering those documents part of the Agreement.'

In concluding that the agreement was supported by valid consideration, the court noted that the victim "received several benefits from the Agreement in the form of college credit and participation in the program. In return, his father paid tuition and other expenses charged by NOLS. Such benefits and detriments constitute valid consideration for the Agreement."

applicability of the release provision to the victim's mother
The mother claimed that she was not a party to the agreement, and therefore the release provision did not apply to her. The court disagreed, noting that "it is well-established that a decedent may bind his heirs by contract," and "indeed, the plain language of the Agreement indicates that it was intended to bind the victim's heirs."

contract of adhesion
The mother claimed that the agreement was invalid because it was a "contract of adhesion."

Specifically, she argued that NOLS presented the agreement on a take-it-or-leave-it basis and that the victim's signature was the result of unequal bargaining power. The court noted:

Adhesion contracts are imposed on the public for a necessary service on a "take it or leave it" basis. Even though a contract is on a printed form and offered on a "take it or leave it" basis, those facts alone do not cause it to be an adhesion contract. There must be a showing that the parties were greatly disparate in bargaining power, that there was no opportunity for negotiation and that the services could not be obtained elsewhere. Here, the mother argues that her son was a college student and that NOLS is a corporation with substantial resources and comparatively greater sophistication. She does not, however, allege that there was fraud or coercion, that her son unsuccessfully sought to negotiate the clause or that NOLS insisted upon its inclusion. Indeed, NOLS states that in response to previous requests by participants, it had negotiated and in many instances agreed to change the terms of an agreement… . Further [the victim] was in no way obligated to enroll in the NOLS course or agree to the terms of the Agreement, and his mother has not argued that he could not have obtained the services offered by NOLS elsewhere. Nor does she argue that NOLS provided a necessary service. As a result, the [Agreement] is not a contract of adhesion.

What This Means For Churches:

A release form is a document signed by a competent adult that purports to relieve a church from liability for its negligence. The courts look with disfavor on release forms, and this has led to several limitations, including the following:

(1) Release forms will be strictly and narrowly construed against the church.

(2) Release forms will not be enforced if they are ambiguous.

(3) Release forms cannot relieve a church of liability for injuries to minors, since minors have no legal capacity to sign such forms and their parents' signature does not prevent minors from bringing their own personal injury claim after they reach age 18.

(4) Some courts refuse to enforce any release form that attempts to avoid liability for personal injuries on the ground that such forms violate public policy.

(5) Some courts refuse to enforce release forms that attempt to avoid liability for intentional acts, gross negligence, or willful or wanton conduct. If a release form does not explicitly exclude such conduct from its terms, the form may be invalidated by a court.

(6) Release forms will not be enforced unless they clearly communicate that they are releasing the church from liability for its negligence.

(7) Some courts refuse to enforce release forms if they are "contracts of adhesion" based on a gross disparity in bargaining power between the releasor and releasee. To illustrate, if the person signing a release form has no ability to change it, this may suggest an unenforceable adhesion contract. On the other hand, some courts have ruled that a release form is not an unenforceable contract of adhesion if the party signing the form could walk away from the transaction and do business elsewhere. This exception may or may not apply to a church, depending on the circumstances. After all, is it realistic to say that a church member has the right to walk away and attend another church, and therefore a release form is not a contract of adhesion?

(8) Some courts refuse to enforce a release form that is inconspicuous. To illustrate, if the language of release is buried in another, larger document, without a bold heading and other devices to draw attention to it, it may be unenforceable.

(9) Some courts have ruled that release forms that do not contain a signature by the releasor are unenforceable. To illustrate, if the language of release is contained in a larger document, a signature line should appear directly after the language of release as well as at the end of the document.

Churches should not use releases without discussing them with their insurance agent and an attorney. Brenner v. National Outdoor Leadership School, 2014 WL 2069364 (D.Minn. 2014)

Tip. Churches that send groups of adults to other locations for short-term missions projects should consider having each participating adult sign an assumption of risk form. So long as these forms clearly explain the risks involved, and leave no doubt that the signer is assuming all risks associated with the trip, they may be enforced by the courts. This assumes that the signer is a competent adult. Churches should consult with an attorney about the validity of such forms under state law.

Parental Permission and Medical Consent Forms

Churches should not allow a minor child to participate in any church activity (such as camping, boating, swimming, hiking, or some sporting events) unless the child's parents or legal guardians sign a form that (1) consents to their child participating in the specified activity; (2) certifies that the child is able to participate in the event (e.g., if the activity involves boating or swimming, the parents or guardians should certify that the child is able to swim); (3) lists any allergies or medical conditions that may be relevant to a physician in the event of an emergency; (4) lists any activities that the parents or guardians do not want the child to engage in; and (5) authorizes a designated individual to make emergency medical decisions for their child in the event that they cannot be reached.

Ideally, the form should be signed by both parents or guardians (if there are two), and the signatures should be notarized. If only one parent or guardian signs, or the signatures are not notarized, the legal effectiveness of the form is diminished. Having persons sign as witnesses to a parent's signature is not as good as a notary's acknowledgment, but it is better than a signature without a witness. The form should require the parent or guardian to inform the church immediately of any change in the information presented, and it should state that it is valid until revoked by the person who signed it. The parent or guardian should sign both in his or her own capacity as parent or guardian, and in a representative capacity on behalf of the minor child.

Legal Developments

Law Against Clergy-Counselee Sexual Relationships is Constitutional

Minnesota Supreme Court rules state law against sexual relationships within clergy-counselee relationships doesn’t violate the religion clause.

Church Law and Tax Report

Law Against Clergy-Counselee Sexual Relationships is Constitutional

Minnesota Supreme Court rules state law against sexual relationships within clergy-counselee relationships doesn’t violate the religion clause.

Key point 8-12.5. Sexual harassment is a form of sex discrimination prohibited by Title VII of the Civil Rights Act of 1964. It consists of both “quid pro quo” harassment and “hostile environment” harassment. Religious organizations that are subject to Title VII are covered by this prohibition. An employer is automatically liable for supervisory employees’ acts of harassment, but a defense is available to claims of hostile environment harassment if they have adopted a written harassment policy and an alleged victim fails to pursue remedies available under the policy. In some cases, an employer may be liable for acts of sexual harassment committed by nonsupervisory employees, and even nonemployees.

The Minnesota Supreme Court ruled that a state law making it a felony for clergy to engage in sexual contact with counselees in the course of spiritual counseling did not violate the First Amendment’s nonestablishment of religion clause (“Establishment Clause”). A Catholic priest (the “defendant”) heard a woman’s confession and agreed to serve as her regular confessor. A friendship developed between them, and they often spent time together in various social contexts. They shared their personal concerns and struggles and often talked for hours about theological matters. The relationship eventually involved sexual contact, which occurred biweekly for a year until the woman disclosed the relationship to church officials and eventually to the police.

The defendant was charged with criminal sexual conduct under a state law that states, in part:

A person who engages in sexual penetration with another person is guilty of criminal sexual conduct in the third degree if any of the following circumstances exists:

(l) the actor is or purports to be a member of the clergy, the complainant is not married to the actor, and:

(i) the sexual penetration occurred during the course of a meeting in which the complainant sought or received religious or spiritual advice, aid, or comfort from the actor in private; or

(ii) the sexual penetration occurred during a period of time in which the complainant was meeting on an ongoing basis with the actor to seek or receive religious or spiritual advice, aid, or comfort in private. Consent by the complainant is not a defense.

Following a trial, the jury convicted the defendant for sexual conduct occurring “during the course of a meeting” where religious advice or assistance was sought or received in private. A state appeals court ruled that the statute did not, at least on its face, violate the First Amendment since it incorporated “neutral standards” that would not necessarily result in “excessive entanglement of government and religion in all cases.” However, the court concluded that, as applied to the defendant, the statute was unconstitutional because religion was excessively entangled in his trial. The state supreme court agreed to determine whether the clergy-sexual-conduct statute violated the First Amendment’s Establishment Clause.

The court’s ruling
The Establishment Clause of the First Amendment provides that “Congress shall make no law respecting an establishment of religion.” The United States Supreme Court has ruled that the Establishment Clause forbids state action that: (1) lacks a secular purpose; (2) has the primary effect of advancing or inhibiting religion; or (3) fosters excessive entanglements with religion. Lemon v. Kurtzman, 403 U.S. 602 (1971) (the “Lemon test“). State action violates the Establishment Clause if any of the three prongs of the Lemon test is violated.

Secular Purpose
The first prong of the Lemon test requires that state action have a secular purpose. The defendant claimed that the clergy-sexual-conduct statute did not have a secular purpose because it regulated “only the conduct of clergy” and treated “clergy members separately from other counselors.” The court disagreed, and concluded that the statute had a legitimate secular purpose, namely “to protect Minnesota citizens from sexual exploitation.”

Primary Effect
The second prong of the Lemon test examines whether a statute has the primary effect of advancing or inhibiting religion. The defendant claimed that the clergy-sexual-conduct statute inhibits religion. The court agreed that the clergy-sexual-conduct statute has an incidental effect on clergy members “because it covers behavior committed by clergy within the scope of the clergy-parishioner relationship.” But a law is not unconstitutional merely because it incidentally or indirectly inhibits religion. The question instead is whether the statute has the primary effect of inhibiting religion:

The clergy-sexual-conduct statute’s primary effect is to protect individuals that the legislature deems vulnerable, and it covers only those clergy who choose to use their position as a clergy member, or who hold themselves out as a clergy member, to enter into sexual relationships with vulnerable individuals. The statute does not impose burdens on becoming or remaining a clergy member of any religion, and it does not prevent individuals from seeking religious or spiritual aid, advice, or comfort or otherwise interfere with efforts to seek such assistance. And, because the statute covers relationships in which a parishioner is seeking any type of “religious or spiritual advice, aid, or comfort,” regardless of the substance of that “advice, aid, or comfort,” the statute does not interfere with the practice of any particular religious doctrine or only certain religions.

The defendant insisted that the clergy-sexual-conduct statute violates the Establishment Clause because it directly targets clergy. The court disagreed. The court referred to a previous case in which the United States Supreme Court upheld a statute that funded a program to prevent teenage pregnancy, even though part of the program specifically identified religious organizations as institutions receiving funding. Bowen v. Kendrick, 487 U.S. 589 (1988). The Supreme Court held that the statute did not have the primary effect of advancing religion, in part, because similar standards applied to other organizations, which reflected the statute’s maintenance of neutrality between religion and nonreligion. Similarly, the Minnesota court concluded that the clergy-sexual-conduct statute

specifically addresses religion through its prohibition of certain conduct committed by members of the clergy. But the inclusion of religious actors does not violate the Establishment Clause because the limitation on members of the clergy is part of a larger statutory scheme that regulates the behavior of those involved in certain sexual relationships—relationships for which the legislature has determined there is a power imbalance between the parties … . The clergy-sexual-conduct statute not only criminalizes certain sexual relationships between clergy and parishioners, but it could also criminalize certain sexual relationships for physicians, psychologists, nurses, chemical dependency counselors, social workers, marriage and family therapists, mental health service providers, or others persons who provide psychotherapy; government and private correctional employees; and masseuses … . The legislature did not single out clergy members because of their affiliation with a religious group. Instead, the legislature identified the existence of a power imbalance between clergy members (or purported clergy members) and their parishioners in certain situations—similar to power imbalances created between other professionals and their clients.

Excessive Government Entanglement with Religion
The third prong of the Lemon test prohibits state action that excessively entangles the government with religion. Under this prong, “a state may not inquire into or review the internal decision making or governance of a religious institution.” However, “no entanglement problem exists when civil courts use neutral principles of law—rules or standards that have been developed and are applied without particular regard to religious institutions or doctrines—to resolve disputes even though those disputes involve religious institutions or actors.” The court concluded:

The clergy-sexual-conduct statute does not create an excessive entanglement with religion because it applies neutral principles of law and regulates only secular aspects of clergy-parishioner relationships … . Under the statute, the State must prove the complainant sought or received “advice, aid, or comfort” from a clergy member. But “advice, aid, [and] comfort” are secular concepts that a jury or court can assess without delving into religious doctrine.

The court rejected the defendant’s argument that the clergy-sexual-contact statute, even if constitutional on its face, was unconstitutional as applied to him.

What This Means For Churches:

Note the following key points:

  1. The following 12 states have laws that specifically make sexual contact between a minister and a counselee a crime: Arkansas, Connecticut, Delaware, Iowa, Minnesota, Mississippi, New Mexico, North Dakota, South Dakota, Texas, Utah, and Wisconsin. The Minnesota Supreme Court’s ruling supports the constitutionality of these laws.
  2. Several states have laws that make sexual contact between a “psychotherapist” and a counselee a crime, and do not specifically define “psychotherapist” to include a member of the clergy. However, the definition of “psychotherapist” under some of these laws may be broad enough to include a member of the clergy.
  3. Every state has enacted laws making it a crime to engage in nonconsensual sexual contact with another person. These laws constitute another potential basis of criminal liability for ministers who engage in sexual contact with a counselee or member of their congregation. A typical statute makes it a felony for anyone to “engage in sexual contact with another person without consent of that person.”
  4. Every state has enacted a law making assault and battery a crime. These laws constitute another potential basis of criminal liability for ministers who engage in nonconsensual sexual contact with a counselee or member of their congregation.
  5. Church insurance policies exclude any claims based on intentional or criminal misconduct. As a result, ministers who are prosecuted for a sexual offense involving a counselee or member of their congregation ordinarily cannot expect the church insurance company to pay for a legal defense.
  6. There are many other consequences of clergy sexual misconduct. To illustrate, clergy who engage in such behavior may have to register as a sex offender under state law; and, churches and denominations increasingly are revoking the ministerial credentials of ministers who engage in such behavior. Removal of ministerial credentials generally is motivated by several considerations, including the protection of others, the scriptural standards for ministry, accountability, and an avoidance of legal liability for a minister’s future misconduct.
  7. Clergy who engage in inappropriate sexual behavior with other church employees may be liable for sexual harassment under state or federal law. State v. Wenthe, 839 N.W.2d 83 (Minn. 2013).

Legal Developments

Liability for Retirement Fund Losses

Protect your retirement fund and its governing board from liability for losses.

Richard R. Hammar, Attorney, CPA
Bio

Church Law & Tax Report

Liability for Retirement Fund Losses

Protect your retirement fund and its governing board from liability for losses.

Richard R. Hammar, J.D., LL.M., CPA

A federal court in Minnesota ruled that a national denomination was not liable for losses suffered by beneficiaries of a denominational retirement plan because it did not exercise sufficient control over the fund to be liable for the actions of the fund’s managing board.

Four retired ministers (the “plaintiffs”) sued their denomination (the “national church”) to recover losses they incurred in a denominational pension fund. The pension fund is a defined contribution retirement plan under section 403(b) of the tax code. The plan is a “church plan” that is exempt from ERISA, absent an election to the contrary. Under the plan, defined contributions are made on behalf of participating members into their individual accounts. Plan participants have options for directing their plan accumulations. Before retirement, the accounts are considered “active,” and plan participants can direct their accumulations into funds invested in the equity or fixed income markets.

In December 2008, the plan sent a letter to the plaintiffs stating that their retirement accounts were subject to market risk and that they should expect their distributions to be decreased in 2010. In September 2009, the plan informed participants that, due to the market downturn, it was underfunded by 26 percent and that, effective January 1, 2010, monthly payments would decrease by 9 percent and would likely decrease by an additional 9 percent in both 2011 and 2012.

Plaintiffs sued the national church and the board of pensions that managed the retirement plan (the “defendants”), asserting that, under state law, the defendants were required to invest and manage retirement funds as a prudent investor, and that the defendants breached their fiduciary duties by failing to prudently invest and manage the retirement fund and failing to preserve the trust corpus which caused the fund to become significantly underfunded and reduce plaintiffs’ monthly payments.

fiduciary duties

The court concluded that the national church was not a fiduciary with respect to the retirement plan, and so the plaintiffs’ breach of fiduciary claim against the national church had to be dismissed. The court noted that the plan’s managing board, and not the national church, was the plan fiduciary in charge of administering and managing the plan. It pointed to language in the national church’s governing documents making the plan’s managing board, rather than the national church, responsible for the plan’s investment and administration.

Plaintiffs argued that the national church was a fiduciary with respect to its duty to elect members of the plan’s governing board, and that this imposed on it a limited duty to monitor the board’s activities. It observed that “a person with discretionary authority to appoint, maintain and remove plan fiduciaries is himself deemed a fiduciary with respect to the exercise of that authority. Implicit in the fiduciary duties attaching to persons empowered to appoint and remove plan fiduciaries is the duty to monitor appointees. The scope of the duty to monitor appointees is relatively narrow.” The court stressed that “the duty to monitor is limited and does not include a duty “to review all business decisions of plan administrators” because “that standard would defeat the purpose of having trustees appointed to run a benefits plan in the first place.” The court concluded that the plaintiffs’ lawsuit did not allege that the national church violated any duty to monitor, and therefore it failed to adequately allege that the national church violated a fiduciary duty owed to the plaintiffs.

“church plan” status

The court rejected the plaintiffs’ assertion that the plan’s status as a church plan somehow made the national church liable for the actions of the plan’s managing board. It acknowledged that a church plan must be “established and maintained … by a church,” and that a plan maintained by a third party, such as a pension board, is “established and maintained … by a church” if the third party “is controlled by or associated with a church or a convention or association of churches.” Church plan status is awarded not only to plans controlled by a church, but also to plans associated with a church. An organization is “associated with” a church “if it shares common religious bonds and convictions with that church.”

The court concluded that “the plan’s status as a church plan did not require that the [national church] exercise control over the board or plan, let alone control over the board’s actions at issue in this lawsuit, to the extent that [national church] is liable for the board’s actions. Here, the [plaintiffs] do not allege that [the national church] controls the board with regard to the decisions at issue in this litigation.”

alter ego liability

As an alternative means of holding the national church liable, the plaintiffs alleged that the plan and its governing board were an “alter ego” of the national church and that “injustice and fundamental unfairness would result if the national church was not held accountable” for the board’s misconduct.

The court noted that “there is a presumption of separateness between a parent and subsidiary corporation,” and that “a court may pierce the corporate veil to hold a party liable for the acts of a corporate entity if the entity is used for a fraudulent purpose or the party is the alter ego of the entity. When using the alter ego theory to pierce the corporate veil, courts look to the reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation.”

Under Minnesota law, piercing the corporate veil “requires (1) analyzing the reality of how the corporation functioned and the defendant’s relationship to that operation, and (2) finding injustice or fundamental unfairness.”

The court listed the following factors that are significant in applying the first prong: “whether there is insufficient capitalization for purposes of corporate undertaking, a failure to observe corporate formalities, nonpayment of dividends, insolvency of debtor corporation at time of transaction in question, siphoning of funds by dominant shareholder, nonfunctioning of other officers and directors, absence of corporate records, and existence of the corporation as merely a facade for individual dealings.”

The plaintiffs did not allege any improper transfer of assets between the national church and the plan or its board. Nor did they allege any other type of misuse of the corporate form or plan to harm the plaintiffs. The plaintiffs alleged that the plan is undercapitalized, but “there is no allegation that the national church played any role in that situation. Beyond the conclusory allegation of undercapitalization, there are no factual allegations to support the first prong of piercing the corporate veil.”

The court acknowledged that the national church and the retirement plan “share a close relationship.” However, it concluded:

The national church’s Constitution shows the separation of the corporate structures governing the national church and the board. For example, the Constitution provides that ‘separate incorporation shall be maintained’ for the board. It enumerates the board’s responsibilities in operating and managing benefit plans, which include autonomy and independence. The documents referenced [by the plaintiff] demonstrate that the national church and the board are separate corporate entities, and the plaintiffs provide no factual allegation that these corporate formalities have been disregarded.

The court also concluded that the plaintiffs failed to establish the second prong. It noted that the plaintiffs’ lawsuit alleged that the plan’s board was “an alter ego or instrumentality of the [national church], and injustice and fundamental unfairness would result if the [the national church] is not held accountable for the liabilities resulting from shortfalls in the retirement plan due to undercapitalization or the board of pensions’ lack of resources to cover its liabilities.” But the court stressed that this “barebones allegation that injustice or fundamental unfairness will result” if the national church is not liable was insufficient. It noted that there was no allegation in the plaintiffs’ lawsuit that the national church played any role in any underfunding or that the plan was underfunded when the national church created it. As a result, the plaintiffs “failed to allege facts to support their legal conclusion of injustice or unfairness.”

The court concluded that “although corporations are related, there can be no piercing of the veil without a showing of improper conduct” by the parent corporation.

breach of contract

The plaintiffs’ final argument was that the retirement plan and its governing board were guilty of a breach of contract. The court agreed that the retirement plan constituted a contract with the plaintiffs and other beneficiaries, and it concluded that the plaintiffs’ allegations of a breach of the contract were sufficient to avoid a dismissal of this theory of liability: “The [plaintiffs] claim that the board breached the terms of the plan because, although the plan promised that plaintiffs’ annuity benefits were guaranteed for life and that all increases to those benefits would be permanent, the board implemented an across-the-board 9% decrease in the participants’ monthly annuity benefits.”

The board insisted that its actions were a response to the adverse economic conditions caused by the recession, and were necessary to preserve and maintain the plan. The court concluded that it “did not have the information necessary to conclude whether, in fact, a cut in payments was required to preserve the fund, the amount of any required cut, or whether the fund’s underfunding was, itself, a breach of fiduciary duty. The question of whether the board’s actions were required by—or a breach of—its fiduciary duty is one that cannot be resolved at the motion to dismiss stage.”

What This Means For Churches:

Many beneficiaries of denominational retirement plans have suffered substantial losses during the “great recession.” But, as this case illustrates, those losses are not necessarily attributable to the denomination itself if the retirement plan is a separate corporation with a separate board, and the denomination exercises little, if any, supervision or control over the management decisions of the plan. Further, retirement funds, and their governing boards, are not necessarily liable for beneficiaries’ losses if the individual accounts are self-directed, and no promises are made that are later broken. There are several ways for retirement funds to reduce their risk of liability, including allowing beneficiaries to direct their own investments, by providing educational and training resources to beneficiaries, and by repeatedly stressing that all investments involve risk. 2011 WL 2970962 (D. Minn. 2011).

This Recent Development first appeared in Church Law and Tax Report, July/August 2012.

Legal Developments

Legal Liability When a Pension Plan Fails

Denominations could be responsible for failure to provide for plan members.

Richard R. Hammar, Attorney, CPA
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Church Law & Tax Report

Legal Liability When a Pension Plan Fails

Denominations could be responsible for failure to provide for plan members.

Richard R. Hammar, J.D., LL.M., CPA

Key point 10-18.3. There are several legal defenses available to a denominational agency that is sued as a result of the acts or obligations of affiliated clergy and churches. These include a lack of temporal control over clergy and churches; a lack of official notice of a minister’s prior wrongdoing in accordance with the denomination’s governing documents; lack of an agency relationship; the prohibition by the First Amendment of any attempt by the civil courts to impose liability on religious organizations in a way that would threaten or alter their polity; and elimination or modification of the principle of joint and several liability.

Key point. “Church plans” are exempt from ERISA coverage.

A federal court in Minnesota dismissed a lawsuit brought by several participants in a denominational pension plan citing ERISA violations and state law claims for breach of trust, breach of contract, breach of fiduciary duty, and consumer fraud. In 1939 a pension plan was established for the benefit of employees and retirees of a denominational publishing house (the “publisher”) that provided books and other materials to affiliated churches. The plan was terminated in 2010 at which time there were approximately 500 participants, of which 175 had already retired. A number of participants (the “plaintiffs”), on behalf of the entire plan, sued the publisher as well as the parent denomination. The plaintiffs claimed that as recently as 1999 the publisher was debt-free and had $18 million in reserves, and that it experienced financial difficulties beginning in 2002 that resulted in a severe drop in reserves and assets. The plaintiffs claimed that, despite these financial setbacks, the publisher continued to promote its retirement plan and repeatedly distributed written statements to employees promising benefits—despite knowing that the plan was severely underfunded. The plaintiffs sued the publishing house and parent denomination on several grounds under both ERISA and state law. The plaintiffs asserted that the impact on current employees and retirees has been catastrophic. Of the 500 participants, 175 have already retired, and of those, some are too old or sick to reenter the work force. All of them have lost most, and many all, of their expected retirement income.

ERISA

The court concluded that the retirement plan was a “church plan” that was exempt from ERISA, and dismissed the plaintiffs’ ERISA claims. ERISA defines “church plans” as “a plan established and maintained … for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax” under section 501(c)(3) of the tax code. The definition of “church plan” further provides that an employee of a church or a convention or association of churches includes “an employee of an organization, whether a civil law corporation or otherwise, which is exempt from tax under [section 501(c)(3) of the tax code] and which is controlled by or associated with a church or a convention or association of churches.” An organization is “associated” with a church or a convention or association of churches “if it shares common religious bonds and convictions with that church or convention or association of churches.”

The court concluded: “The court has thoroughly reviewed the applicable law and the arguments of counsel, and finds no support for plaintiffs’ position that a single employer benefit plan, established and maintained by an organization controlled by or associated with a church, is not a church plan as defined by ERISA. Rather, the court finds that the statutory language defining ‘church plan,’ as well as the applicable agency determinations and court decisions support a finding that the plan is a church plan.”

state law claims

The plaintiffs asserted that the parent denomination (the “national church”) was liable for the plaintiffs’ losses since the publisher was the “alter ego” of the national church.

Generally, one corporation cannot be liable for the acts and obligations of another corporation, even though there is some connection between the two. This is due to the fact that corporate status erects a “firewall” that prevents one corporation from being liable for the acts of the other. But under the so-called “alter ego” doctrine, one corporation can be liable for the acts of another if its control over the other is so dominant that the other has no independent existence apart from the dominant corporation and is nothing more than an alter ego, or extension, of it. The court observed:

Factors considered significant in the determination [of an alter ego relationship] include: insufficient capitalization for purposes of corporate undertaking, failure to observe corporate formalities … insolvency of debtor corporation at time of transaction in question, siphoning of funds by dominant shareholder, nonfunctioning of other officers and directors, absence of corporate records, and existence of corporation as merely facade for individual dealings.

In support of the alter ego theory, the plaintiffs cited the following evidence:

The court declined the national church’s motion to dismiss the plaintiffs’ alter ego claim. It observed:

The alter ego doctrine is designed to impose liability on the true defendant, rather than a corporate form. In doing so, the court is to analyze the “reality” of the corporate functions and to find injustice or fundamental unfairness. With this in mind, the court finds that plaintiffs have asserted sufficient factual allegations to support an alter ego theory. Plaintiffs’ theory is based on allegations that [the national church] is entwined in a close relationship with [the publisher] as evinced by its tight control of the publisher, the publisher’s misleading statements, which were known to the national church, and by the transfer of a revenue source worth $10 million [a denominational magazine] all while the publisher was underfunding its pension plan apparently due to financial distress. Plaintiffs have also alleged facts that raise questions as to the publisher’s solvency at the time of the termination and as to corporate siphoning ….

There are also allegations as to misconduct. Plaintiffs allege they were misled in two ways about the plan. First, they were misled into believing they would receive pensions. Plaintiffs were repeatedly given written statements that they would receive pension benefits when they retired. Second, the publisher’s CEO frequently described the publisher and the national church as partners, which implied that they would stand together, look after each other and their employees.

What This Means For Churches:

This case represents one of the few cases to recognize the viability of an alter ego claim against a national church organization on the basis of the acts and obligations of an affiliate. Most courts have concluded that the alter ego theory’s strict requirements generally are not met in cases involving national churches and their affiliated churches and agencies. One authority lists the following factors to consider in applying the alter ego doctrine:

The factors include whether: (1) the parent and subsidiary have common stock ownership; (2) the parent and subsidiary have common directors and officers; (3) the parent and subsidiary have common business departments; (4) the parent and subsidiary file consolidated financial statements and tax returns; (5) the parent finances the subsidiary; (6) the parent caused the incorporation of the subsidiary; (7) the subsidiary operates with grossly inadequate capital; (8) the parent pays the salaries and other expenses of the subsidiary; (9) the subsidiary receives no business except that given to it by the parent; (10) the parent uses the subsidiary’s property as its own; (11) the daily operations of the two corporations are not kept separate; and (12) the subsidiary does not observe the basic corporate formalities, such as keeping separate books and records and holding shareholder and board meetings. Fletcher Cyc. Corp. § 43.

Obviously, few if any churches or agencies would be deemed an “alter ego” of a national church under this analysis.

It must be stressed that the court did not find the national church liable on the basis of the alter ego theory for the publisher’s obligations. Rather, it rejected the national church’s request that the alter ego claim be dismissed. The court’s decision will allow the plaintiffs to pursue their alter ego claim in the trial court. Thorkelson v. Publishing House, 764 F.Supp.2d 1119 (D. Minn. 2011).

This Recent Development first appeared in Church Law and Tax Report, March/April 2012.

Legal Developments

When Church Employees Get Laid Off

Who’s eligible for unemployment benefits?

Richard R. Hammar, Attorney, CPA
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Irvine v. St. John's Lutheran Church of Mound, 779 N.W.2d 101 (Minn. App. 2010)

A church in Minnesota employed a woman as its business administrator for two years. The church's employment handbook indicated that the church paid unemployment taxes and implied that its employees would receive unemployment benefits if they lost their jobs. The administrator's employment ended through no fault of her own and she applied for unemployment benefits and attempted to establish a benefit account, but was notified by the state Department of Employment and Economic Development (the "Department") that employment with a church could not be used to establish a benefit account. She appealed to the civil courts.

Under state law, the Department pays unemployment benefits to an applicant who meets certain requirements. First, the applicant must file an application for unemployment benefits and establish a benefit account. After the application is filed the Department calculates the applicant's unemployment benefit, if any, based on "all the covered employment in the base period." To establish a benefit account, however, the applicant must have earned a certain minimum dollar amount of "wage credits." Wage credits are defined as "the amount of wages paid within an applicant's base period for covered employment." Employment with a church that is operated primarily for religious purposes is "noncovered employment."

A state appeals court, in rejecting the administrator's entitlement to unemployment benefits, observed: "It is undisputed that [the employing church] met these criteria; thus [the administrator's] employment with the church is noncovered employment." The court acknowledged that a church may elect to have its employees qualify for unemployment benefits, but it found no evidence that the church had done so.

The court rejected the following four arguments made by the former administrator in support of her eligibility for unemployment benefits:

The church's employment manual

The court acknowledged that the church's employment manual stated, incorrectly, that unemployment benefits would be available to church employees separated from employment through no fault of their own. However, it rejected the former administrator's claim that the manual constituted an affirmative election of unemployment coverage: "Representations by an employer regarding eligibility for unemployment benefits are not binding on the Department."

Medicare and Social Security taxes

The former administrator argued that since the church paid Medicare and Social Security taxes, it was a "taxpaying employer" that should have to pay unemployment taxes as well. The court disagreed: "The fact that the employer and employee pay other taxes is irrelevant to whether the employer must pay unemployment taxes; instead, the latter issue is decided under the provisions of unemployment-insurance law."

Posting notices

The former administrator argued that because the state unemployment law requires employers to post and maintain a printed notice of the right to unemployment benefits, the church should have posted notices or informed its employees that they did not have the right to unemployment benefits. In rejecting this argument the court noted that "the statute contains no such requirement, and [the administrator's] argument would be more appropriately addressed to the legislature, which solely has the power to amend the law."

Equitable relief

The former administrator, citing the purpose of the unemployment law and its remedial nature, argued that she should receive benefits because she was unemployed through no fault of her own. She cited the following statement in the unemployment law: "The public good is promoted by providing workers who are unemployed through no fault of their own a temporary partial wage replacement to assist the unemployed worker to become reemployed." Once again, the court rejected this argument: "The Department will pay unemployment benefits only to an applicant who meets all of the requirements. Without having met the requirement of establishing an unemployment-benefit account, [the former administrator] cannot obtain unemployment benefits, and no liberal construction of the statute in favor of its remedial purpose or narrow construction of ineligibility requirements can allow us to reach the result she seeks …. Consequently, she cannot prevail on her argument that she should receive unemployment benefits as a matter of equity."

This case highlights the reality that most church employees will not qualify for unemployment benefits if they are laid off, even if an employee handbook erroneously indicates otherwise. Be sure to check your state law to determine whether this is the case for your church.

Legal Developments

Property Tax Exemption

To be exempt from taxation, property must be regularly used for church purposes.

Richard R. Hammar, Attorney, CPA
Bio

Church Law & Tax Report

Property Tax Exemption

To be exempt from taxation, property must be regularly used for church purposes.

Richard R. Hammar, J.D., LL.M., CPA

Key Point In many states, church property is exempt from taxation only if it is regularly used for church purposes. Other states define the exemption more narrowly to cover only those church-owned properties that are regularly used for religious worship.

The Minnesota Tax Court ruled that there was insufficient support for the exemption of three church-owned wooded lots from property taxation to grant the church’s motion for summary judgment in its favor. A church owned three unimproved wooded lots that were close, but not contiguous to, the church building. A legal dispute arose over the tax status of these lots. A county tax assessor determined that they were subject to property taxation, while the church insisted that they were exempt. The church asked the court to summarily rule in its favor.

The Minnesota Constitution states that “churches, church property, [and] houses of worship … shall be exempt from taxation.” The Tax Court noted that “when determining whether church property is tax exempt, Minnesota courts consider whether the property is devoted to and reasonably necessary to the accomplishment of church purposes. In other words, exemption depends upon ownership by a church and use of the property for church purposes.”

The Court noted that since ownership was not at issue in this case, the central question was on the church’s use of the property. The church claimed that the lots were entitled to exemption as a matter of law because they were devoted to, and reasonably necessary to, the accomplishment of church purposes. It pointed out that the lots were used for prayer, reflection, and Christian education including a Vacation Bible School. The county argued that it was unclear whether and how the lots were used to further church goals, and as a result it would be inappropriate for the Court to summarily rule in the church’s favor.

The Court, in agreeing with the county’s position, observed:

Here, very little, if any, factual information has been provided about the use of the lots …. The church asserts that the lots are used for Vacation Bible School and nature walks, among other things. However, its self-serving statements are not enough to overcome the presumption that the land is taxable and to carry the burden of proof that it is exempt. The closest Petitioner has come to providing any specific information is that the church conducted a Vacation Bible School in 2007, and the participants went on nature walks through the church’s property. We do not know which parcel(s) the Vacation Bible School used or whether the walk “through” referred to a walk on the public right-of-way, which is next to the non-contiguous lots. Moreover [the evidence] indicates that the lots may be accessed only by means of an unimproved public road, and that there are no paths, clearings, amenities, improvements or visual evidence of active use of or entry upon any of those parcels. The evidence does not corroborate the church’s statements that there is any active use of those parcels.

Application. Every state exempts church property from taxation. Some states limit the exemption to church-owned property that is regularly used for worship. Other states more broadly exempt church-owned property that is regularly used for church purposes. While this exemption is broad, it has limits. To be exempt, property must be actively used for the accomplishment of the church’s purposes. Vague and self-serving statements will not suffice. A church must be able to present proof that the property is regularly used for activities in furtherance of its purposes. Advent Evangelical Lutheran Church v. County of Ramsey, 2008 WL 3892374 (Minn. Tax Court 2008).

Resource. For the text of the property tax exemption laws of all 50 states, see Table 12-4 in Richard Hammar’s 2009 Church & Clergy Tax Guide, available from the publisher of this newsletter by calling 1-800-222-1840 or by visiting our website, www.ChurchLawandTax.com.

This Recent Development first appeared in Church Law & Tax Report, July/August 2009.

Legal Developments

The “Bar Association” Analogy

A Minnesota court recognizes an important principle.

Richard R. Hammar, Attorney, CPA
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A Minnesota court recognizes an important principle, C.B. ex rel. L.B. v. Evangelical Lutheran Church in America, 726 N.W.2d 127 (Minn. App. 2007)

• Article summary. In a case of enormous importance to denominational agencies, a Minnesota appeals court applied the "bar association analogy" in concluding that a regional and national church were not liable for the sexual misconduct of a pastor since the relationship between the church entities and credentialed clergy (which resembled the relationship between state bar associations and licensed attorneys) was too attenuated to justify the imposition of liability on the church entities for clergy misconduct. This case is the second court to recognize this important analogy. The court's ruling also addressed a number of other significant issues. This article will summarize the facts of the case, review the court's opinion, and assess its significant.

• Key point 10-02.1. Employers may be liable on the basis of respondeat superior only for the acts of employees.

• Key point 10-02.3. Churches can be legally responsible on the basis of the respondeat superior doctrine for the actions of their employees only if those actions are committed within the course of employment and further the mission and functions of the church. Intentional and self-serving acts of church employees often will not satisfy this standard.

• Key point 10-09.2. Some courts have found churches not liable on the basis of negligent supervision for a worker's acts of child molestation on the ground that the church exercised reasonable care in the supervision of the victim and of its own programs and activities.

• Key point 10-18.3. There are several legal defenses available to a denominational agency that is sued as a result of the acts or obligations of affiliated clergy and churches. These include a lack of temporal control over clergy and churches; a lack of official notice of a minister's prior wrongdoing in accordance with the denomination's governing documents; lack of an agency relationship; the prohibition by the First Amendment of any attempt by the civil courts to impose liability on religious organizations in a way that would threaten or alter their polity; and elimination or modification of the principle of joint and several liability.

A Minnesota appeals court ruled that a local church, as well as regional and national denominational agencies, were not liable for the sexual molestation of a young girl by a retired pastor. The court's ruling addressed several key issues, all of which are summarized in this feature article.

Facts

A pastor (Pastor Owen) and his wife returned to their farm following his retirement. Shortly after returning to his home community, Pastor Owen occasionally conducted worship services in his former church for a fixed fee when the current pastor was unavailable. He also resumed a close friendship with a former parishioner and her husband and two young children. The two families often spent Christmas and birthdays together, and Pastor Owen and his wife regularly babysat the two children. The children frequently visited the farm to play with the animals. Eventually, the children began referring to Pastor Owen and his wife as "grandpa" and "grandma."

Eventually, one of the two children, a young girl (the "victim"), started spending the night at the farm. At about the same time, the victim was having difficulty with her school work. Because Pastor Owen's wife was a retired teacher, she began helping the child improve her grades.

One morning, after having spent the previous evening at the farm, the victim told her mother that she had been sexually abused by Pastor Owen. The parents sought the advice of their current pastor, who they claim instructed them to "stay silent." The police were not informed of the abuse until several months later when an unnamed person made a report. Pastor Owen was charged with child abuse, and pleaded guilty to second-degree criminal sexual conduct. Both Pastor Owen, and the pastor who advised the family to "stay silent," were asked to resign their ministerial credentials by their denomination (the "regional church").

The victim, through her parents, sued Pastor Owen. She also sued the local church and regional and national denominational offices (the "church defendants"). The victim claimed that the church defendants were responsible for Pastor Owen's misconduct on the basis of respondeat superior, negligent supervision, and ratification. Under the legal doctrine of respondeat superior, an employer generally is responsible for the negligent acts of its employees committed within the course of their employment. A trial court dismissed the victim's claims against the church defendants, but allowed her claims against Pastor Owen to proceed. The victim appealed the dismissal of her claims against the church defendants.

The Court's Ruling

Summarized below are the court's responses to each of the victim's three theories of liability—respondeat superior, negligent supervision, and ratification.

(1) Respondeat superior

The appeals court noted that under the respondeat superior doctrine, "an employer is vicariously liable for the acts of an employee committed within the course and scope of employment." The victim argued that an employment relationship existed between Pastor Owen and the church defendants because he was an ordained minister in good standing and his name was on the "clergy roster." Further, she claimed that the regional and national churches exercised enough control over a pastor's ministry to give rise to an employment relationship. In particular, she noted that the regional and national churches (1) determine who is qualified to be a minister; (2) demand that ministers agree and abide by their constitutions and bylaws; and (3) retain the authority to discipline ministers, including the authority to remove them from their pastoral ministry. Such evidence, the victim concluded, was sufficient evidence of control by the regional and national churches to establish an employment relationship between them and all ordained clergy.

The court acknowledged that there was evidence tending to support the existence of an employment relationship between the regional and national churches and ordained clergy:

Both the [regional and national churches] have constitutions under which a minister must abide. There is evidence in the record that both the [regional and national churches] can be involved in the disciplinary process. For example, testimony by church officials indicated that if the [regional and national churches] became aware of inappropriate behavior by a minister, the church entities could request that the minister resign. If the pastor declined to resign, the [regional and national churches] could use the process of discipline outlined in the constitutions to force his or her resignation.

Nevertheless, the court concluded that the fact that the regional and national churches "set certain standards for ministers, and can be involved in disciplinary proceedings, does not automatically mean a true employment relationship exists" that would support the imposition of liability on the church entities for the misconduct of ministers.

The court drew an analogy to the relationship between attorneys and the state supreme court. In Minnesota, the supreme court "through the Rules of Professional Conduct, sets forth the rules and standards by which lawyers must adhere. If these rules are violated, the court may discipline the responsible attorney. But this relationship between the supreme court and the disciplined attorney is not an employment relationship. There has to be something more." Similarly, the regional and national churches in this case had "limited control over the pastor." But, "the congregation, not the umbrella entity, has the responsibility for hiring and firing the pastor, setting forth the terms and conditions of employment, supplying the pastor with parsonage, vacation and supplies, and paying the pastor. [It] is the congregation, not the [regional or national churches], which employs the minister."

The court further concluded that Pastor Owen was not an employee of the local church where he occasionally filled in: "When the church needed a fill-in pastor because the full-time pastor was unavailable, the church would contact a retired pastor, such as Pastor Owen, and request that he fill in. When Pastor Owen filled in as a retired pastor, he was paid approximately $60-80 for each day that he provided his service. The church did not withhold taxes from his paycheck and he was not provided with vacation or health benefits. The record shows that he occasionally served as a fill-in pastor at other churches …. As a retired minister, he was more of an independent contractor than an employee of the church."

The court concluded that the church defendants were not liable on the basis of respondeat superior for Pastor Owen's acts of molestation because an employment relationship did not exist. In addition, his wrongful acts were not committed in the course of his employment, as required by the respondeat superior doctrine. Rather, the occurred at Pastor Owen's farm where the victim was visiting to obtain tutoring assistance from Pastor Owen's wife. The victim never alleged that she went to visit Pastor Owen "for any type of religious counseling or any other reason connected to his status as a retired minister." In fact, she testified that she never attended any religious service conducted by Pastor Owen, and knew him only as a family friend.

(2) Negligent supervision

The court noted that for the victim to prevail on her negligent supervision claim, she had to prove that Pastor Owen's conduct was foreseeable, and that the church defendants failed to exercise reasonable care in supervising him. The court defined foreseeability as "a level of probability that would lead a prudent person to take effective precautions." If Pastor Owen's abusive behavior was objectively foreseeable, then the inquiry must focus on whether the employer took reasonable precautions to prevent the abuse.

The victim claimed that Pastor Owen's abuse was foreseeable because of the following "red flags": (1) the victim's frequent overnight visits with Pastor Owens and his wife; (2) the lavishing of inappropriate and expensive gifts on the victim by both Pastor Owens and his wife; and (3) on at least one occasion, the victim had to be dragged, kicking and screaming, by her parents to Pastor Owen's car to spend time with him and his wife.

The court concluded that the victim failed to establish that the church defendants were responsible for Pastor Owen's acts on the basis of negligent supervision, because (1) Pastor Owen was not an employee of any of the church defendants, and (2) his abusive acts were not foreseeable. The court observed:

[The victim has] failed to provide any evidence that any of the church entities were aware of the alleged "red flags." Even if they were aware of the alleged "red flags," [the victim] fails to establish how these "red flags" should have put [the church defendants] on notice of the abuse. In light of [victim's] relationship with [Pastor Owen and his wife] it would not be abnormal for her to spend the night at [their home] or for [them] to buy nice gifts for somebody they considered to be their granddaughter. It is not abnormal for a teenager to put up a fuss when instructed that she spend time with a tutor to work on her school work. There is nothing in these "red flags" to indicate that Pastor Owen was abusing the vicitm, or that [the church defendants] were aware of the existence of these "red flags."

Ratification

The victim asserted that the church defendants were responsible for her injuries as a result of their "ratification" of Pastor Owen's behavior. Specifically, she claimed that by not taking immediate disciplinary action against him when they learned of the abuse, the church defendants ratified his behavior. The court acknowledged that an employer can be liable for the wrongful acts of an employee "by approving and ratifying such conduct, irrespective of whether that conduct is intentional or negligent." However, the court concluded, "ratification is inapplicable here because ratification has only been found in the context of an employer-employee relationship."

Relevance to other churches and ministers

What is the relevance of this case to church leaders? Consider the following points:

1. In general. A decision by a Minnesota appeals court is not binding in any other state, and may be reversed by the state supreme court. However, there are some aspects to the court's decision that are instructive for all churches.

2. The significance of employee status. The court concluded that the victim's lawsuit had to be dismissed because Pastor Owen was not an employee of any of the church defendants. Without an employment relationship, the court observed, there could be no liability based on respondeat superior, negligent supervision, or ratification. The court acknowledged that each of the church defendants had some ties with Pastor Owen, but nothing close to the level of control required for an employer-employee relationship.

• Key point. The court's decision would have been quite different had Pastor Owen been an employee of the local church rather than a "fill-in" pastor. The church may well have been found liable on the grounds of respondeat superior or ratification. The court's conclusion that Pastor Owen's abusive conduct was not foreseeable would have precluded liability based on negligent supervision.

3. Negligent supervision. The court noted that an employer's liability based on negligent supervision requires not only an employer-employee relationship, but also an injury that was reasonably foreseeable. The court concluded that the following "red flags" did not render Pastor Owen's abusive acts foreseeable: (1) the victim's frequent overnight visits with Pastor Owen and his wife; (2) the lavishing of inappropriate and expensive gifts on the victim by both Pastor Owen and his wife; and (3) on at least one occasion the victim had to be dragged, kicking and screaming, by her parents to Pastor Owen's car to spend time with him and his wife. However, the court stressed that it was the long-standing, close relationship between Pastor Owen and the victim's family that prevented these "red flags" from making Pastor Owen's abusive acts foreseeable.

• Key point. Without Pastor Owen's long and close relationship with the victim's family, the "red flags" cited by the victim may well have been sufficiently suspicious to make his abusive acts reasonably foreseeable. Many cases of child molestation have occurred while minors are spending the night in a staff member's home. Many of these cases have been addressed in previous issues of this newsletter. Church leaders should view this as a high risk practice that should be prohibited except in the most limited circumstances (i.e., the staff member is a close relative of the minor).

4. The "bar association analogy." Perhaps the most significant aspect of the court's decision was its use of the "bar association analogy." In recent years several plaintiffs have attempted to hold denominational agencies liable for the acts of ministers that they ordain or license. The argument is that the act of ordaining or licensing to a minister, and the retention of authority to discipline or dismiss a minister for misconduct, constitutes sufficient "control" to make the denomination liable for the minister's actions.

It is true that many denominational agencies ordain or license ministers; require ministerial credentials to be renewed annually; and reserve the authority to discipline or dismiss ministers whose conduct violates specified standards. In some cases, ministers are required or expected to provide annual contributions to the denomination. However, in most cases, the denomination retains no authority to supervise or control the day-to-day activities of ministers. It may be authorized to discipline or dismiss a minister following an investigation, but ordinarily it has no authority to independently monitor or supervise the day-to-day conduct of ministers, and no such authority is ever exercised.

The authority of many denominations to license and ordain clergy, require annual renewals of ministerial credentials, and discipline or dismiss clergy found guilty of specified misconduct, is precisely the same authority that is exercised by state professional accrediting organizations, such as bar associations. Like denominational agencies, the bar association (or, in some states, the state supreme court) has the authority to license attorneys, require annual renewals, and discipline or dismiss attorneys for violations of professional standards. In addition, many require annual contributions. However, this limited authority does not give the bar association any right to control or supervise the day-to-day activities of attorneys, and it is for this reason that no bar association has ever been sued on account of a licensed attorney's malpractice, much less been found liable, and religious organizations should be treated no differently.

An identical analogy can be made to any professional licensing organization (e.g., physicians, CPAs, veterinarians, dentists, nurses, morticians), since they all exercise about the same degree of control—they issue licenses and retain the right to discipline or dismiss licensees for violations of a professional code of conduct, but they have no authority to supervise licensees' day-to-day activities.

The civil courts are beginning to recognize the bar association analogy. The first court to do so was a federal appeals court in the case of Alford v. Commissioner, 116 F.3d 334 (8th Cir. 1997). The court, in addressing the question of whether Pastor Alford, an Assemblies of God minister, was an employee of the national church ("General Council") and one of its regional agencies ("District Council"), made the following observation:

The General Council's and District Council's right to control Alford during the relevant years extended primarily to their function in awarding credentials to ministers like himself. Generally, the church has established certain criteria that must be met for an individual such as Alford to obtain credentials initially and to renew that status annually. There are standards for the education a minister must acquire (which he must obtain and pay for himself) and for his performance on certain tests. Other requirements include subscribing to the doctrinal statement of the Assemblies of God, which sets forth the religious beliefs of the church, its ministers, and its members, and to the form of church government. Ordained ministers must preach thirteen times a year, but topics are not decreed by the regional or national organizations. Ministers holding credentials cannot preach in churches other than Assemblies of God churches without permission of the District Council. Ministers may be disciplined for what the church considers failure to follow church doctrine and for lapses in personal conduct, and may, in fact, have their credentials revoked. With some exceptions not relevant here, a minister must tithe to both the regional and national organizations. Attendance at certain meetings is expected, but not required. Thus it is apparent that, while the regional and national churches had doctrinal authority to exercise considerable control over Alford as regards his beliefs and his personal conduct as a minister of the church, they did not have "the right to control the manner and means by which the product [was] accomplished."

The [trial court] and the United States make much of the fact that Alford, as a minister holding credentials, was "amenable" to the General Council and to the District Council in matters of doctrine and conduct. But this is not unusual in such a profession, and actually is merely a shorthand way of describing the parent church's doctrinal and disciplinary control discussed above. The control exercised by the regional and national organizations, and their right to control Alford, was no more nor less than most professions require of individuals licensed or otherwise authorized to work in the profession. State bar associations, for example, have certain education requirements and demand a certain level of performance on a bar examination before an individual can be licensed to practice law. On an annual basis, such associations require the payment of dues and often the completion of continuing legal education in order for an attorney to retain his license. State bar associations are empowered to monitor attorneys' behavior and to discipline them as they see fit, including the revocation of an attorney's license to practice law (disbarment). Yet no one would suggest that, by virtue of this right to control an attorney's working life, the bar association is his employer, or even one of his employers.

Obviously, the importance of this case cannot be overstated. It will effectively refute, in many cases, attempts by plaintiffs to hold denominational agencies accountable for the acts of their ordained and licensed ministers.

The second reference to the bar association analogy was the Minnesota appeals court decision addressed in this article. The court compared a religious denomination's ordination and discipline of ministers to similar functions performed by the state supreme court. In Minnesota, the state supreme court licenses attorneys and retains the authority to discipline those who violate a code of professional ethics. The appeals court concluded that this relationship was too attenuated to establish an employment relationship, and as a result the regional and national churches could not be liable for Pastor Owen's abusive acts.

• Key point. Any regional or national church that issues ministerial credentials, and that disciplines ministers who violate a code of conduct, can use the bar association analogy. It is a powerful and compelling argument. The bottom line is this—no bar association has ever been sued, much less found liable, for the malpractice of an attorney; why should religious organizations be treated differently?

• Example. The Alabama Supreme Court compared an attempt to impute legal liability to a denomination as a result of the misconduct of a minister "to situations where a young man may be in a seminary and the seminary is asked to supply a preacher or a minister for a congregation. The fact that the young minister may have some alma mater does not make the seminary responsible for his behavior in the event he elects to commit a burglary or some other act which he might consider to be ordained by divine aegis or providence. It would not in and of itself make the seminary responsible for his behavior." Wood v. Benedictine Society of Alabama, Inc., 530 So.2d 801 (Ala. 1988).

© Church Law & Tax Report is published six times a year by Christianity Today International, 465 Gundersen Dr. Carol Stream, IL 60188. (800)222-1840. © 2007 Christianity Today International. editor@churchlawandtax.com All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Annual subscription: $69. Subscription correspondence: Church Law & Tax Report, PO Box 37012, Boone, IA 50037-0012.

Legal Developments

Child Abuse Reporting

A Minnesota court ruled that a failure by church leaders to report known cases of child abuse as required by state child abuse reporting law did not expose the church to liability.

Richard R. Hammar, Attorney, CPA
Bio

Key point 4-08. Every state has a child abuse reporting law that requires persons designated as mandatory reporters to report known or reasonably suspected incidents of child abuse. Ministers are mandatory reporters in many states. Some states exempt ministers from reporting child abuse if they learned of the abuse in the course of a conversation protected by the clergy-penitent privilege. Ministers may face criminal and civil liability for failing to report child abuse.
Failure to Report Child Abuse

A Minnesota court ruled that a failure by church leaders to report known cases of child abuse as required by state child abuse reporting law did not expose the church to liability.

Two adult females (the plaintiffs) claimed that they had been sexually molested over several years when they were minors by the same adult male (Don). They also claimed that their parents were aware of the molestation, and reported it to the elders of their Jehovah's Witness church. The plaintiffs alleged that Jehovah's Witnesses doctrine requires members "to associate only with other members of the Jehovah's Witnesses organization and avoid association with other people who are not Jehovah's Witnesses." They also alleged that members are expected to bring all allegations of wrongdoing to church elders. If a member makes an allegation of wrongdoing to anyone other than an elder, including law enforcement, that person can be accused of gossip or slander, which are punishable offenses within the church. According to Jehovah's Witnesses doctrine, wrongdoing cannot be proven without two eyewitnesses to the wrongful act, nondisputable evidence, or confession by the wrongdoer. According to the presiding overseer of the plaintiffs' church, upon hearing allegations of child abuse the elders are supposed to contact legal counsel at the Jehovah's Witnesses national headquarters and make a report to civil authorities if directed to do so by counsel.

When the plaintiffs' parents informed church elders of the molestation of their daughters, the elders investigated the allegation, did not immediately report the information to law enforcement, informed the national headquarters, and allowed Don to continue as a member of the church. The elders instructed the parents not to report the abuse to anyone and threatened to "disfellowship" (excommunicate) them if they did so.

The plaintiffs later sued their church and national headquarters, claiming that the "church defendants" were responsible for Don's acts because they failed to report his conduct to civil authorities as required by the state child abuse reporting law. A trial court dismissed the plaintiffs' lawsuit, and they appealed.

A state appeals court ruled that the state nonprofit corporation law, which requires ministers and other "mandatory reporters" to report known or reasonably suspected incidents of child abuse, "does not create a private cause of action for violation of its reporting requirements or create a duty which could be enforced through a common-law negligence action." Therefore. the plaintiffs' claims had to be rejected.

The court also rejected the plaintiffs' claim that the church defendants had a legal duty to protect them against a known child molester. It observed, "The fact that an actor realizes or should realize that action on his part is necessary for another's aid or protection does not of itself impose upon him a duty to take such action unless a special relationship exists between the actor and the other which gives the other the right to protection." The plaintiffs claimed that a special relationship existed between them and church elders as a result of Jehovah's Witnesses doctrine which requires members to rely on congregation elders for all of their concerns, and that allows members to associate only with other Jehovah's Witnesses who are in good standing with the church. The plaintiffs insisted that this amounted to significant control which deprived them of normal opportunities for self-protection. The court disagreed noting that special relationships typically involve custody exercised by one person over another, and in this case the church had not exercised custody over the plaintiffs at the time the molestation occurred. Rather, the molestation occurred at Don's residence, on a snowmobile, and in an automobile.

The court concluded that "providing faith-based advice or instruction, without more, does not create a special relationship …. Mere knowledge coupled with power is insufficient to impose a duty." Further, the church's doctrine that requires members to bring complaints exclusively to the attention of elders did not constitute an affirmative duty to investigate allegations of wrongdoing and protect congregants from future wrongful acts. The church "did not assume a duty to the plaintiffs but rather acted within their constitutional right to religious freedom, which includes the authority to independently decide matters of faith and doctrine." Meyer v. Lindala, 675 N.W.2d 635 (Minn. App. 2004).

Legal Developments

Recovering Embezzled Funds from a Bank

Unfortunately, the chances of doing so are unlikely.

Richard R. Hammar, Attorney, CPA
Bio

The American Parkinson Disease Association, Inc. v. First National Bank, 584 N.W.2d 437 (Minn. App. 2000)

Background. If church funds are embezzled, can the church recover any of its losses from its bank? Probably not, according to a recent case in Minnesota. An officer of a national charity embezzled a substantial amount of his charity's funds. He authorized a volunteer worker to establish a bank account in a local bank for a "local chapter" that the officer said he was creating. The officer then stole contribution checks made payable to the charity, and sent them to the volunteer for deposit in the new bank account. The volunteer deposited the checks, and then sent either checks or money orders back to the officer "to further the work of the charity." Over the course of seven years, the officer embezzled more than $1 million. The scheme was discovered shortly after the officer retired.

The charity sued the bank in which the "local chapter" account had been established. It claimed that the bank was legally responsible for the embezzlement, and asked to be compensated for all the funds the officer embezzled. The charity based its case for recovery on two arguments, which are summarized below:

(1) Unreasonable commercial practice. The charity asserted that the bank engaged in a commercially unreasonable practice by accepting checks payable to the national charity for deposit in an account bearing the name of the local chapter. The court noted that the local chapter's account included the name of the national charity, and that it used the national charity's tax-exempt number. As a result, it was not unreasonable for bank employees to accept checks payable to the national charity for deposit in the local chapter's account.

(2) Lack of authority. The charity also argued that the officer was not authorized to open an account that he planned to use in his embezzlement scheme, and therefore the bank was liable for allowing him to do so. The court disagreed, noting that the officer did have the "apparent authority" to open bank accounts. It also observed, "the fact that he [opened] an account for fraudulent purposes does not convert his authorized actions into unauthorized actions."

What this means for churches

Embezzlement is an all-too-common occurrence in churches, often because of sloppy controls over cash handling. In some cases church funds have been embezzled because of schemes similar to the one involved in this case. A pastor or church officer opens a separate "church" account, usually at a different bank. Sometimes the church name is used together with a second name (such as missions or building fund). Some church checks are then deposited in this second account, with the embezzler having sole signature authority. This case suggests that a church in such a case will not be able to recover the embezzled funds from the second bank, since (1) it is highly unlikely that the second bank would be guilty of an unreasonable commercial practice under these circumstances, and (2) the pastor or officer in most cases would be deemed to have "apparent authority" to open the second account. Any recovery of the embezzled funds ordinarily must come from the embezzler, or in some cases an insurance company (if the church has insurance to cover such a loss).

The only way for churches to prevent these embezzlement schemes involving second "church accounts" is to exercise sufficient control over cash and checks, including those that come to the church office in the mail.

Legal Developments

Recent Developments in Minnesota Regarding Personal Injuries

A Minnesota court ruled that a school district acted properly in dismissing rather than temporarily suspending an elementary school custodian for inappropriate behavior with children.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax1999-03-01

Personal Injuries

Richard R. Hammar, J.D., LL.M., CPA

• Key point. The appropriate response to incidents of misconduct involving youth workers will depend on a number of factors, including the nature and severity of the conduct, how long ago it occurred, and the strength of the evidence.

1. A Minnesota court ruled that a school district acted properly in dismissing rather than temporarily suspending an elementary school custodian for inappropriate behavior with children. This case will be relevant to church leaders in deciding the appropriate punishment for volunteers or employees who engage in similar behavior. These questions are often very difficult for church leaders to resolve, and so any guidance from the civil courts is instructive. The custodian in this case was accused of multiple acts of misconduct involving elementary age children, including (1) allowing two children to explore the roof of the school, unattended, though the roof lacked any fencing; (2) twirling children around even after they begged him to stop because he was hurting them; (3) giving money to young children for “helping” him with his duties; (4) playing “flashlight tag” in the darkened school building with 8 children following the close of a school day; (5) hiding under a teacher’s desk with a girl while playing flashlight tag (he later hurt the girl when he grabbed her and lifted her off the ground); (6) participating in a “water fight” with 5 children, chasing them through the school’s hallways while throwing cups of water at them. School officials were tipped off to the custodian’s behavior when a parent complained. The custodian was immediately suspended pending an investigation. During the investigation, school officials learned for the first time that the custodian had previous criminal convictions for trespassing, burglary, and invasion of privacy, and was a suspect in several rape cases. School officials dismissed the custodian based on his behavior with the children, his criminal record, and “misconduct with women” (referring to the rape allegations).

The custodian appealed his dismissal to a state civil rights commission. The commission decided that dismissal was an excessive and inappropriate response because of the following “extenuating circumstances”: the custodian was a good employee with an excellent work record, and an excellent role model; this was his first disciplinary incident; no rules existed governing the interaction of employees with children; and, the school’s decision was based in part on the prior criminal convictions and the unproven rape allegations. The commission concluded that a 90-day suspension was an appropriate sanction. The case was appealed to a state appeals court, which reversed the civil rights commission’s decision and upheld the school’s dismissal of the custodian.

The court rejected each of the “extenuating circumstances” noted by the commission. First, it disagreed that the custodian was a good role model for children. This conclusion was at odds with giving children money to help him with his work, playing flashlight tag with children in a darkened school building, and urging children to go to the school’s unprotected roof and telling them to lie about it if they were later questioned. Second, the court rejected the commission’s conclusion that the custodian should be treated leniently since this was his first offense. It noted that “in an elementary school setting where his conduct directly affects young children, [the custodian’s] numerous acts of misconduct constituted gross and repeated misconduct … sufficiently serious to warrant immediate dismissal.” Third, the court rejected the commission’s conclusion that the school’s lack of rules governing interaction between employees and children made dismissal too harsh a remedy. It observed: “It is common sense that children should not be allowed on the roof of the school, janitors should not play flashlight tag with the children in the darkened school building after hours or have water fights with the children, and that physically handling and hurting the children is not appropriate.” Fourth, the court rejected the commission’s conclusion that the school should not have based its decision to dismiss the custodian on his previous criminal record or the unproven rape allegations. It noted that school officials insisted that they would have dismissed the custodian even without knowledge of the criminal record or rape allegations, and that this information had little if anything to do with the decision to dismiss.

Application. This case illustrates several important points: (1) It demonstrates the importance of immediately suspending an employee or volunteer who is accused of inappropriate behavior with children. An investigation into the charges can then be conducted, after which the person’s status can be determined. Note that if the charges involve child abuse, then church leaders must immediately determine if a reportable offense has occurred. Check with a local attorney to be certain you are complying with state law. If you report child abuse to state authorities, then the church ordinarily should discontinue its investigation pending the outcome of the state’s investigation. (2) This case demonstrates that employees and volunteers may be dismissed for inappropriate conduct with minors not involving sexual contact. While sexual misconduct has received the most attention in recent years, there are other kinds of behavior involving children that warrant dismissal. (3) The court strongly inferred that unproven rape allegations surfacing after a public school employee is hired would not be a sufficient basis for dismissing the employee. Not every court will agree with this conclusion. Our consistent recommendation has been to investigate such allegations to the extent possible. Contact the police department or local prosecutor, and ask for information regarding the allegations. Often, they will be willing to provide you with sufficient details for you to take action. The evidence may not yet be strong enough for a criminal prosecution, but it may be enough for a church to remove a person from a position of contact with innocent and defenseless children. Again, the counsel of a local attorney is essential in such cases. (4) Some criminal convictions do not necessarily disqualify a person from working with children. Neither the school officials nor the court in this case seemed concerned about the custodian’s prior criminal convictions for trespassing, burglary, or invasion of privacy. These crimes do not involve personal assaults or injury, and are less strongly correlated with child molestation. The relevance of some crimes is unclear. Our recommendation is that you contact your state agency that licenses child care centers, and ask for a list of crimes that disqualify persons for employment. By basing your decisions on the state’s own guidelines in the context of licensed child care centers, you are reducing your risk of being found liable for negligent hiring. Wagner v. Minneapolis Public Schools, 569 N.W.2d 529 (Minn. App. 1998). [Termination of Employees, Negligence as a Basis for Liability]

© Copyright 1999 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m65 m58 m43 c0299

Legal Developments

Recent Developments in Minnesota Regarding Accidental Deaths and Liability

A Minnesota court ruled that a pastor who accidentally killed a church trustee while deer hunting was not acting within the scope of his employment and therefore the church could not be liable for his negligence.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax1998-07-01

Accidental Deaths and Liability

Richard R. Hammar, J.D., LL.M., CPA

• Key point. Churches are liable for the negligence of their employees committed within the scope of their employment. Not every action by an employee is within the scope of his or her employment.

A Minnesota court ruled that a pastor who accidentally killed a church trustee while deer hunting was not acting within the scope of his employment and therefore the church could not be liable for his negligence. On a Saturday morning in 1993 the pastor of a church went hunting with two parishioners. One of the parishioners was a church trustee, and the other was a member of the church’s strategic planning committee. While the three men were tracking a deer, the pastor’s gun accidentally discharged, killing the trustee. The trustee’s widow brought a wrongful death action against her pastor and church. The sole issue at trial was whether the pastor was acting within the scope of his employment with the church when his gun accidentally discharged and killed the trustee. If he was, then the church was liable for his negligence on the basis of the “respondeat superior” doctrine. Under this doctrine employers generally are liable for the negligence of their employees committed within the scope of their employment. The widow insisted that this test was met. She noted that it was very important for a pastor to cultivate relationships with members, and therefore the hunting trip was within the scope of his employment. While the pastor may not have been “on duty,” he was “on call.” The church disagreed. It pointed out that the hunting trip was on the pastor’s “day off,” and that nothing “spiritual” was discussed during the trip. The trial court found that the pastor was acting within the scope of his employment while hunting. A state appeals court disagreed. It began its opinion by observing that “to support a finding that an employee’s negligent acts occurred within his scope of employment, it must be shown that the conduct was, to some degree, in furtherance of the interests of his employer.” This test was not met:

The evidence established that [the pastor] had changed his day off, had taken a vacation day, and had cancelled a religious education class scheduled for that day. He testified that he took the day off “for his own sake” to go hunting, and that he would have gone hunting even by himself if [the other two] could not have gone. He went hunting with them because of their close relationship, not because they were church members. He testified that he did not go hunting to benefit the church. The only benefit to the church is an indirect and nonspecific benefit from participating in social and recreational events with parishioners. We recognize that the ministers who testified for [the widow] stated that social and recreational interaction was important to pastoral—parishioner relationships and in some instances this benefit is the planned purpose for the interaction. The undisputed facts in this case, however, demonstrate that the deer hunting did not have the planned purpose of furthering pastoral—parishioner relationships. At best the testimony establishes the residual benefit to the church of fostering an ongoing relationship between [the pastor and his two companions] that could benefit the church and help [the pastor] to be a better minister. On these facts, where the act of hunting occurred off church property on [the pastor’s] day off, was not sponsored by the church, and was outside the church’s physical and spiritual influence, the residual benefit of fostering ongoing pastoral—parishioner relationships is too tenuous in its connection to [the pastor’s] employment to support a determination that he was acting within its scope.

The court concluded its opinion by noting that an employer’s liability for the acts of its employees “is not carried to the point where an employer is absolutely liable for every tortious act of his employees.” Rather, “when the connection between the activity and the employer’s interest is as marginal as established on these facts, the rationale for the doctrine does not support the extension of the employer’s liability; the doctrine of vicarious liability does not transform an employer into a comprehensive insurer.” Hentges v. Thomford, 569 N.W.2d 424 (Minn. App. 1997).
[Negligence as a Basis for Liability]

© Copyright 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m86 m29 c0498

Legal Developments

Recent Developments in Minnesota Regarding Restraining Orders

A Minnesota court upheld the legal validity of a restraining order prohibiting a disruptive individual from entering onto a church’s premises.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax1998-03-01

Richard R. Hammar, J.D., LL.M., CPA

• Key point. Churches do not have to tolerate persons who disrupt worship services. Churches can obtain “restraining orders” prohibiting such persons from entering onto church property.

A Minnesota court upheld the legal validity of a restraining order prohibiting a disruptive individual from entering onto a church’s premises. A person (the “defendant”) disrupted services at a Catholic church. The church’s board of directors adopted a resolution authorizing the pastor to send a letter to the defendant banning him from church property, and to enforce the ban through appropriate legal action. This letter was hand—delivered to the defendant. Later, on three separate occasions, the defendant attended services at the church despite being banned from the premises. The church board asked a court to issue a “harassment restraining order”. Following a hearing, a court issued a restraining order that provided: “[The defendant] shall not enter upon the premises of the [church] and/or any other church property.” The defendant challenged the legality of this order on appeal. A state appeals court ruled that the order was valid and enforceable. The court noted that the first amendment prohibits civil courts from deciding ecclesiastical or doctrinal disputes, but that “civil courts can hear non—doctrinal disputes that can be determined utilizing neutral principles of law.” The court concluded that the church board’s resolution banning the defendant from the property was a “secular” document that provided the court “with a familiar and neutral basis to decide the harassment action before it”. The court also rejected the defendant’s claim that the restraining order was too broad.

Application. A number of churches have had the unpleasant experience of having a disruptive person attend worship services or other church activities. Church leaders often are unsure how to respond to such outbursts. This case demonstrates that churches do not have to tolerate such behavior, and that the civil courts will issue appropriate restraining orders if warranted by the facts. Naumann v. Zimmer, 1997 WL 10520 (Minn. App. 1997). [Removing Disruptive Individuals]

© Copyright 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m21 c0298

Legal Developments

Recent Developments in Minnesota Regarding Officers, Directors, and Trustees

The Minnesota Supreme Court has issued an important ruling addressing the personal liability of members of the board of a nonprofit corporation.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax1998-03-01

Officers, Directors, and Trustees

Richard R. Hammar, J.D., LL.M., CPA

• Key point. In most states, uncompensated directors of nonprofit corporations are not liable for their ordinary negligence. They are liable only for acts of gross negligence or willful and wanton misconduct.

• Key point. The immunity of uncompensated board members of nonprofit corporations from liability for their ordinary negligence is not necessarily an “affirmative defense” that is lost if not claimed in an answer to a lawsuit.

The Minnesota Supreme Court has issued an important ruling addressing the personal liability of members of the board of a nonprofit corporation. While the case involved a director of a local “humane society,” it has direct relevance to board members of churches and other religious organizations. An uncompensated director of a humane society was sued by an employee who was injured when he attempted to disinfect some animal cages using a formaldehyde solution prescribed by the director. The director’s answer to the lawsuit failed to mention a state law granting immunity to uncompensated directors of nonprofit corporations. This law provides:

A person who serves without compensation as a director, officer, trustee, member, or agent of an organization exempt from state income taxation … is not civilly liable for an act or omission by that person if the act or omission was in good faith, was within the scope of the person’s responsibilities as a director, officer, trustee, member or agent … and did not constitute willful or reckless misconduct.

The victim claimed that the director lost this defense by not raising it in her answer. The state supreme court disagreed. It acknowledged that “affirmative defenses” are waived if not asserted in an answer to a lawsuit. However, the court ruled that the state law protecting uncompensated board members was an “immunity” rather than an affirmative defense, and it was not waived by being omitted in the director’s answer to the lawsuit. The court concluded that the director’s actions did not constitute “willful or reckless misconduct” and therefore she was protected from liability by the statute.

The victim made an interesting argument. He conceded that the immunity statute protects directors, but he insisted that directors only can act collectively as a board. Therefore, the director in this case was not eligible for protection under the statute since her recommendations were made alone and without any participation by the board. The court rejected this novel argument. It acknowledged that “it is a longstanding tenet of corporation law that a member of the board has no authority to act individually unless specifically authorized by the corporate bylaws or articles of incorporation.” However, the court noted that the statute protects more than directors. It also protects officers, trustees, members, and agents, and these individuals (unlike directors) can act individually rather than collectively. The court observed:

Were we to adopt [the victim’s] position, a director who decides to donate her individual time will receive no protection because those actions always fall outside the very narrow scope of her technical responsibilities as a director. Meanwhile, a nondirector who decides to donate her time will receive protection because her actions always fall within the broad scope of her responsibilities as either a member or agent of the organization. The legislature certainly could not have intended such an absurd result …. To the contrary … the intent of the legislature was to provide a broad protection to all uncompensated contributors. By listing all of the various “hats” that volunteers might wear, the statute … plainly provides protection to all volunteers …. Consequently, we hold that the broad wording of [the statute] protects all uncompensated persons acting on behalf of the nonprofit corporation, and not just those uncompensated persons acting within the specific scope of their duties as defined by their official position. As a result, a director acting outside the specific scope of his or her duty as a member of the board will receive the statute’s protection so long as the director is acting on behalf of the nonprofit corporation.

Application. This case is important for two reasons. First, it may be used to excuse an inadvertent failure to raise the director immunity statute in an answer to a lawsuit. Church board members have been named as defendants in numerous lawsuits, and occasionally their attorneys fail to assert this defense in their answer to a lawsuit. In some states, the immunity statute will be deemed an “affirmative defense” that is waived if not asserted in the answer. But this case illustrates that this is not always the case. In Minnesota, and in any other state that follows this same rationale, the director immunity statute is an “immunity” rather than an affirmative defense, and it is not waived if not mentioned in the answer to the lawsuit. Second, the court ruled that the director immunity statute applied to individual directors even if they were not acting collectively as a board. The only requirement is that their acts must have been on behalf of the corporation. This conclusion was based on the wording of the immunity statute, which also protects “officers, trustees, members, and agents.” Since these persons often can act individually rather than collectively on behalf of a corporation, and since most directors occupy at least one of these positions, they are protected by the immunity statute for their individual actions on behalf of the corporation. Church board members should review their own state directory immunity law to see if protection is extended to officers, members, and agents. If so, then it is more likely that the statute will apply when they are acting individually (rather than collectively). Rehn v. Fischley, 557 N.W.2d 328 (Minn. 1997). [ Personal Liability of Church Officers, Directors, and Trustees]

© Copyright 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m56 m09 c0298

Legal Developments

Husband Sues Church Over Wife’s Affair with Minister

Who can sue for damages resulting from an affair?

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1997-11-01

Sexual Misconduct-by Clergy and Church Workers

Richard R. Hammar, J.D., LL.M., CPA

• Key point. In many states, a husband is barred from suing a minister for seducing his wife and breaking up his marriage. The husband also may be barred from suing the minister’s employing church. However, the wife is not necessarily prevented from maintaining her own lawsuit against the minister and church.

A Minnesota court ruled that a pastor who engaged in a sexual relationship with a woman could not be sued directly by the woman’s husband. The husband and his wife were members of the same church and sought out their pastor for marital counseling. As a result of this counseling, the pastor entered into a sexual relationship with the wife over a period of several months. As a result of this relationship, the husband and wife were separated and later divorced. The former husband sued the pastor and his church, alleging a number of theories of liability including breach of a fiduciary duty, emotional distress, breach of a duty of reasonable care, and negligent hiring. A trial court dismissed the lawsuit against the minister on the ground that the state’s abolition of “alienation of affections” as a basis of liability prevented the husband from recovering damages from the minister. The husband appealed, and a state appeals court affirmed the trial court’s ruling. The court noted that the state legislature abolished alienation of affections in 1978. The effect of this action was to prevent persons from being legally responsible for seducing another person’s spouse. The husband alleged that he continued to suffer severe mental and emotional distress as a result of the minister’s actions, which imposed upon him the difficulties of dealing with spousal guilt, depression, unhappiness, and low self—esteem and led to poor work performance, the termination of his employment, an unprofitable career change, and related medical expenses. The court concluded that “because these losses flow from the alienation of his former wife’s affections, they generally are no longer recoverable because the legislature has outlawed [such] actions.”

The husband claimed that his losses did not arise from the sexual and emotional relationship that caused the break—up of his marriage. Instead, he argued that the minister had a “fiduciary duty” not to act against his interests that arose from the relationship of trust created by their counseling arrangement. The court ruled that even if the husband’s claim was sufficiently distinct from alienation of affections, his lawsuit still had to be dismissed because he “cannot show the adequacy of available damages to redress his injuries.” The court noted that the husband was seeking compensation for severe mental and emotional distress, resulting in the loss of his job, his acceptance of a lower—paying position outside of his career field, and increased medical expenses. But “money damages” are a “legal” remedy which, the court ruled, do not apply to a breach of a fiduciary duty which is “equitable” in nature. Equitable remedies consist of such non—monetary relief as an injunction or restitution, and neither remedy was appropriate in this case.

Application. The court’s ruling demonstrates the difficulty that spouses experience in suing a counselor or pastor for alienating a spouse’s affections through a sexual relationship. Further, this court ruled that monetary damages are not an appropriate remedy for a violation of a fiduciary duty, and this is a point that any church or minister could raise that is sued for a breach of fiduciary duties. Finally, while the court ruled that the husband could not sue the pastor, this does not mean that the pastor was free from liability. He still faced possible criminal liability, and he could have been sued by the wife on the basis of a number of theories. Also remember that the church was sued in this case, and it faces potential liability for the pastor’s acts. R.E.R. v. J.G., 552 N.W.2d 27 (Minn. App. 1996). [Seduction of Counselees and Church Members]

© Copyright 1997, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m67 m29 c0697

Legal Developments

Former Minister Sues Church for Wrongful Dismissal

Courts generally will not intervene in churches’ ministerial employment decisions.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1997-09-01

Clergy—Removal

Richard R. Hammar, J.D., LL.M., CPA

• Key point. It is the prevailing view that the civil courts are prohibited by the first amendment guaranty of religious freedom from resolving lawsuits brought by dismissed clergy challenging their dismissals, particularly if the resolution of such a dispute would require consideration of ecclesiastical matters. Most courts have concluded that this prohibition on judicial intervention in clergy employment decisions extends to collateral claims, such as defamation.

A Minnesota court ruled that an assistant pastor who was dismissed by his employing church after the congregation voted to eliminate his position for financial reasons could not sue the church for breach of contract or defamation. An ordained minister was hired as assistant pastor by a local church in 1990, and was dismissed in 1992 after the congregation voted to eliminate his position. The church claimed that this action was taken for financial reasons. The dismissed pastor sued his church and synod, claiming that he was terminated in retaliation for reporting certain information about the church’s senior pastor. He claimed that the church and synod were liable on the following grounds: (1) interference with contract, (2) wrongful discharge, (3) defamation, (4) violation of the state “whistleblower statute,” and (5) negligent hiring and retention. The dismissed pastor’s contract claims were based on his “letter of call” and provisions of the church constitution regarding termination procedures. A trial court dismissed the lawsuit, and the dismissed pastor appealed. A state appeals court upheld the dismissal of the case. The court began its opinion by observing that “the first amendment precludes civil courts from resolving disputes involving churches if a resolution of the disputes cannot be made without extensive inquiry by civil courts into religious law and polity.” The court acknowledged that it could resolve a church property dispute on the basis of “neutral principles of law,” but it concluded that this dispute did not involve church property. It rejected the former pastor’s claim that “a pastor’s breach of contract claim that does not necessarily entangle the court in matters of church doctrine would not be outside the court’s jurisdiction.” The court concluded that the former pastor’s breach of contract claim is “based on the letter of call and the church constitution. Resolution of these issues would require this court to interpret ecclesiastical documents regarding discipline, discharge, and proper expenditure of church funds and thus would be improper under the first amendment.”

The court also rejected the former pastor’s claim that he had been defamed. The lawsuit alleged that a bishop of the synod falsely stated that the former pastor (1) was “on leave without call”; (2) had “physically threatened” him; (3) was a “troublemaker”; and (4) was “pathological” and “obsessive—compulsive.” The former pastor further asserted that he had been warned by the bishop that he would not get another call unless he underwent counseling, and that the bishop called two other pastors and told them not to believe anything the former pastor said. The court concluded that such statements did not amount to defamation. It observed that “because these alleged defamatory statements relate to [the bishop’s] reasons and motives for making employment decisions, such an inquiry is barred by the first amendment.”

Application. This case illustrates the difficulty ministers encounter when they attempt to sue a former church for wrongful termination. Nearly every court that has addressed the issue in recent years has concluded that the first amendment guaranty of religious freedom protects churches in making decisions regarding the tenure, status, and dismissal of ministers. Civil court meddling with such decisions would amount to an unconstitutional interference with religious freedom. Further, this case illustrates that the general rule of judicial non—intervention in clergy dismissal disputes extends to collateral claims such as defamation. Also note that the court refused to address the former pastor’s claim that he had been dismissed in retaliation for “raising questions” about the church’s senior pastor, and therefore his dismissal violated the state’s “whistleblower” statute. Olson v. Luther Memorial Church, 1996 WL 70102 (Minn. App. 1996). [ Termination, Judicial Resolution of Church Disputes, The Free Exercise Clause]

© Copyright 1997, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m31 m86 c0597

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