Ohio

Legal Developments

Court Cannot Rule on Sexual Harassment Claims from Church Employees

Ohio case shows ministerial exception can block sexual harassment claims brought by ministers against their churches.

Richard R. Hammar, Attorney, CPA
Bio

Editor’s Note: On April 6, 2023, an Ohio appeals court affirmed the trial court’s decision to dismiss this case based on the ministerial exception doctrine. “We agree that this is precisely the kind of state inquiry into church employment decisions that the First Amendment forbids,” the appellate court noted in its 18-page decision.

It continued:

Our review of the record and case law convinces us that the trial court’s determination that the ministerial exception prevents application of a secular review and analysis of such claims in this case without engaging in “excessive entanglement” with the ecclesiastical inner workings of the church was supported by competent, credible evidence, and the trial court properly determined that the ministerial exception stripped it of jurisdiction to consider [plaintiffs’] claims that the church had violated state employment laws.

Montgomery v. St. John’s United Church of Christ, 2023 WL 2820472 (Ohio 2023)

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 the employer has 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.

An Ohio court ruled that it was barred by the ministerial exception from resolving a pastor’s sexual harassment claim against her church.

A pair of plaintiffs sued a church and its board president

This case involved allegations of employment-related sexual harassment asserted against a church (“Church”) ’and its board president (“President”) by a female minister (“Minister”) and a pastoral assistant (“Assistant”).

The Minister was employed at the Church from November 2014 until July 2019.

The Assistant was employed from September 2017 until April 2019.

The plaintiffs alleged that they were subjected to sexual harassment by the President individually and in his church leadership capacity and that, as a result of the acts of harassment, a hostile work environment was created. Plaintiffs further alleged that, as a result of their objecting to and resisting these acts of sexual harassment, their employment was terminated.

The Minister also separately alleged that she was terminated as a result of age and sex discrimination because the Defendants wanted to hire a younger, male minister.

In support of her sexual harassment claim, the Minister recounted inappropriate language of a sexual nature by the President at a church conference in 2018, in three telephone calls, and a few conversations in the church parking lot.

However, she admitted the President never:
  • spoke to her in a sexual way about having sex with her,
  • sexually propositioned her or asked her to have a sexual relationship with him,
  • indicated that any kind of sexual activity was required to keep her job,
  • touched her in any unwanted manner,
  • asked her about her own sex life, and
  • threatened her in any way.

Further, there was no evidence that the Minister ever reported any sexually harassing behavior to anyone at the church.

The Assistant recounted similar claims of inappropriate sexual conversations with the President.

In connection with their discrimination claims, Plaintiffs sought a “permanent injunction prohibiting the defendants from engaging in any policy or practice which discriminates on the basis of sex and age.” Plaintiffs also asked the court to “order the defendants to make plaintiffs whole by rehiring them and restoring any seniority with appropriate back pay, front pay and benefits.”

Plaintiffs’ lawsuit also asserted a cause of action for assault and battery against the President individually, as well as a claim of defamation against both Defendants.

In their defamation claim, Plaintiffs alleged that Defendants knowingly published false statements about them and about the reasons for their termination of employment, reflecting poorly on their character and damaging their reputation in the community and impairing their ability to obtain employment.

Plaintiffs alleged these statements were made with malicious intent.

The Minister’s employment was terminated on July 9, 2019, by a written agreement entitled Agreement for Dissolution and Termination of a Pastoral Relationship. The agreement provided for two months of severance pay plus benefits, along with a release of claims by the Minister. That release language reads as follows:

“The minister, acknowledging receipt of financial payments under this agreement, covenants and agrees that he/she waives all rights to demand and/or secure a civil court and/or a jury trial with respect to adjudication of the matters contained in this Dissolution and Termination Agreement, in matters that pertain to her ministry in the church and/or the negotiations that have led up to this agreement.

It is understood that this Dissolution and Termination Agreement is a final disposition of all matters between the pastor and the congregation. This Dissolution and Termination Agreement contains the entire agreement between the parties hereto and any representations made before or during negotiation are hereby merged in their entirety and this Agreement may not be modified.

The undersigned parties have negotiated this Agreement in good faith and have every intention of being in fulfilling it and further agree to the releases contained herein, representing that they understand its contends [sic] and sign it as their own free act after a full review of the contents.”

The document was approved by the church board on July 8, 2019. It was signed on July 9, 2019, by the president and the church board’s vice president, by church executive committee members, by the church treasurer, and by the Minister.

Does the ministerial exception apply?

The Defendants argued that the Plaintiffs’ claims were barred by the ministerial exception. The court observed:


“The [ministerial exception] doctrine shields religious employers from employment discrimination lawsuits brought by their ministers. Rooted in the First Amendment’s Establishment and Free Exercise Clauses, the exception ensures that the authority to select and control who will minister to the faithful—a matter strictly ecclesiastical—is the church’s alone.

For the ministerial exception to apply, the employer must be a religious institution and the employee must have been a ministerial employee. It is undisputed that [the Church] is a religious institution and that [the Minister] is a ministerial employee. …

With regard to [the Minister] it is undisputed that she is an ordained minister. She had performed weddings and funerals and provided pastoral care prior to her employment [with the Church]. She became a member of the church in 2014 and began working as a “pastoral care assistant” in 2018. In that “pastoral” capacity, she ministered to the elderly and homebound members of [the Church], calling them, visiting them, praying with them, informing them about happenings at the church, and so forth.

If [the Minister] was unable to meet with parishioners, [the Assistant] would take on some of [the Minister’s] duties, meeting with parishioners in nursing homes and hospitals, providing pastoral care by phone or in person, giving “solace and comfort” and fulfilling the mission of the church through these pastoral and ministerial duties.

On at least one occasion [the Assistant] led a sermon before the congregation. [The Assistant] was also taking courses to become ordained through the [church’s denomination], and she was a member of the church governing body (the Church Board) where she was in charge of outreach and missions.

Based on the scope and nature of her work, it is clear that [the Assistant] performed primarily religious functions (as opposed to secular), and she regarded herself as being engaged in pastoral, ministerial work. Furthermore, she had received and was continuing to receive specialized religious training, she performed certain “key functions” as an assistant to [the Minister], and she served as an active and visible messenger of the church’s mission and outreach. Clearly, [the Assistant] satisfies numerous factors deemed pertinent by the [United States] Supreme Court in Hosanna-Tabor Evangelical Lutheran Church & School v. E.E.O.C., 565 U.S. 171 (2012) and undoubtedly qualifies as a “ministerial employee” so as to trigger the application of the ministerial exception.”

As ministerial employees, both Plaintiffs’ claims of wrongful termination based on sex discrimination “are explicitly barred by the ministerial exception as mandated by the clear authority of the United States Supreme Court in Hosanna-Tabor Evangelical Lutheran Church & School v. E.E.O.C., 565 U.S. 171 (2012).”

Accordingly, the Ohio court entered summary judgments as a matter of law for both Defendants on the wrongful termination claim.

Court: Ministerial exception bars hostile work environment claims

The Plaintiffs also claimed that they were victims of the Defendants’ sexual harassment based on a hostile work environment.

Are such claims also barred by the ministerial exception? The court concluded that they were, too.

The court noted that “it is settled that the Establishment and Free Exercise Clauses of the First Amendment bar suits brought on behalf of ministers against their churches, claiming termination in violation of employment discrimination laws.” However, “where the claim is one involving discrimination based on a hostile work environment (without necessarily a wrongful termination), there is a split of authority as to whether the ministerial exception should still bar the claim.”

The court noted that the United States Supreme Court “has not directly ruled on this issue,” but it discussed the ways the Hosanna-Tabor decision could inform its ruling here:

In the Hosanna-Tabor case the Supreme Court ruled that the First Amendment bars suits “claiming termination in violation of employment discrimination laws,” the Court also ruled that the ministerial exception precludes application of employment discrimination laws to claims concerning the employment relationship between a religious institution and its ministers.

The phrase “and other employment discrimination laws” would appear to include the laws which form the basis of Plaintiffs’ claims herein. Moreover, it is clear that Plaintiffs’ claims herein “concern the employment relationship.”

Therefore, it is undisputed that Plaintiffs’ hostile work environment claims herein are claims brought pursuant to an “employment discrimination statute”.

Moreover, since Plaintiffs seek, in connection with their workplace discrimination claim, a permanent injunction prohibiting the [Defendants] from engaging in any policy or practice which discriminates on the basis of sex and age and also seek an order requiring Defendants to make plaintiffs whole by rehiring them and restoring any seniority with appropriate back pay, front pay and benefits it is abundantly clear that Plaintiffs’ hostile work environment claims are profoundly entangled with, and explicitly implicate, the employment relationship between Defendants and two of its “ministers”, and such claims are therefore barred by the ministerial exception.

In this case, the Plaintiffs did not allege a “quid pro quo” claim of sexual harassment, but a hostile work environment claim. In order to establish a claim of hostile work environment sexual harassment, a plaintiff must show:

(1) that the harassment was unwelcome, (2) that the harassment was based on sex, (3) that the harassing conduct was sufficiently severe or pervasive to affect the terms, conditions, or privileges of employment, or any matter directly or indirectly related to employment, and (4) that either (a) the harassment was committed by a supervisor, or (b) the employer, through its agents or supervisory personnel, knew or should have known of the harassment and failed to take immediate and appropriate corrective action.

The Ohio court concluded that “the evidence that has been submitted to the Court … clearly establishes that the Court cannot evaluate or adjudicate the hostile work environment claims without excessively entangling itself in the religious workings of the church and the ecclesiastical domain.”

What about the release agreement?

Defendants also asserted that the Minister’s claim was barred as a matter of law by virtue of the Agreement for Dissolution that she signed. The court agreed. It noted that the Agreement

“ … is plainly supported by consideration in the form of two months of severance pay plus benefits, and it contains a release of claims against the Church. In the Agreement, [the Minister] “covenants and agrees that she waives all rights to demand and/or secure a civil court and/or a jury trial with respect to adjudication of the matters contained in this Dissolution and Termination of a Pastoral Relationship Agreement in matters that pertain to her ministry in the church. …”

The Agreement by its very title … evinces its purpose, which is to memorialize a termination of [the Minister]’s employment as [the Defendants]’ pastor. Therefore, the release language contained therein waiving civil court claims as to “the matters contained in this Dissolution and Termination Agreement, in matters that pertain to her ministry in the church” clearly refers to matters relating to her employment with the Church. No other interpretation can be credibly argued.”

The court noted that an executed release is “ordinarily an absolute bar to a later action on any claim encompassed within the release.” Therefore, the court concluded that the Agreement constituted a “clear and unambiguous contract between [the Minister] and the church, and that [the Minister] has released and waived any future claims with respect to matters pertaining to her employment and ministry there.”

[The Minister] attempted to avoid the Agreement on the ground that she had no opportunity to review it and was therefore reluctant to sign it. The court rejected this argument, citing the “parol evidence rule.” The parol evidence rule

is a rule of law that prohibits a party who has entered into a written contract “from contradicting the terms of the contract with evidence of alleged or actual agreements. … [When] two parties have made a contract and have expressed it in a writing to which they have both assented as the complete and accurate integration of that contract, evidence … of [prior] understandings … will not be admitted for the purpose of varying or contradicting the writing. … Therefore, in accordance with well-settled law, the Court will not consider such evidence.”

What this means for churches

This case is important for the following reasons:

1. It demonstrates that the ministerial exception may preclude sexual harassment claims by ministerial employees against their church.

2. It discusses the possible relevance of the parol evidence rule. Your church leaders likely are not familiar with this rule, but it does have potential relevance to any church that fails to include all material terms of a contract and the contract itself.

The important point to note is that the clear meaning of a contract cannot be altered by external evidence outside of the contract itself.

The takeaway point here is that church leaders should take steps to ensure that all material terms are in fact recited in contractual documents that are signed on behalf of the church. Oral understandings of the parties’ intent will not be allowed to alter the meaning of the terms and conditions reflected in a contract.

This rule often comes as a shock to one or both parties to a contract, but note that it can be avoided by a careful reading of any contract prior to signature to ensure the inclusion of all material terms.

3. This case demonstrates the importance of the legal concept of “consideration” in evaluating contracts and agreements. The court noted that the Agreement signed by the Minister and the church “was plainly supported by consideration in the form of two months of severance pay plus benefits.” Consideration, like the parol evidence rule, is a legal doctrine that is not well understood by church leaders. But it should be, since unfamiliarity with it can result in significant liability.
What is consideration, and why is it important?

Consideration is a fundamental requirement in any contract. For a contract to be legally enforceable, each party agrees to do something and must receive something of value in exchange. That “something of value” is called consideration. There is no enforceable contract without it.

Montgomery v. St. John’s United Church of Christ, 2022 Ohio Misc. LEXIS 32 (Ohio App. 2022)

Legal Developments

Court Allows Pastor’s Wrongful Dismissal Lawsuit to Proceed

What church leaders should note about this surprising decision by a federal court in Ohio.

Richard R. Hammar, Attorney, CPA
Bio

Key point 2-04.02. Some courts are willing to resolve disputes over the termination of clergy if they can do so without any inquiry into religious doctrine.

A federal court in Ohio refused to dismiss a minister’s legal challenge to his termination since the termination may have been based on purely secular grounds and a court could potentially resolve the minister’s lawsuit without implicating church doctrine or polity.

The decision represents a surprising departure from numerous ones previously made by state and federal courts, in which deference is shown to churches regarding pastoral dismissals, based on constitutional considerations. This holding offers important cautions and reminders to church leaders when faced with the possibility of firing a pastor.

Pastor: Elders sought to alienate him from his church

In 2020, a pastor alleged that two church elders (the defendants) took it upon themselves to cost him his position by interfering with and terminating his contractual relationship with the church.

In particular, the pastor claimed that the defendants conspired to develop a scheme by which they attempted to alienate him from the church. Among other things, the pastor said the defendants allegedly arranged an unlawful meeting of select members to vote him out of his position and formally terminate his employment with the church.

The pastor asserted that the defendants did not have any authority under the church’s bylaws to call the election. The pastor also said the defendants falsely asserted that they had obtained the requisite number and percentage of votes at the meeting to divest the pastor of his position with the church.

Background

The church hired the pastor in 2000. On or about February 6, 2020, the defendants forwarded a letter to the pastor informing him that, as a result of the vote of the congregation, his employment relationship with the church had ended. The pastor asserted that the defendants provided the local police with a copy of the letter to serve as evidence that the pastor had been terminated.

The pastor claimed the defendants worked in concert and collaboration with the police department. The city assigned an off-duty police detail to accompany the defendants to a church meeting on February 9, 2020. The pastor noted that before doing so, neither the city nor police department sought or obtained a warrant to search the church.

When the defendants and police arrived at the church on February 9, 2020, the officers were dressed in their official police uniforms. The pastor claimed the defendants arranged for the church locks to be changed, and to restrict his access to the front entrance of the church (as well as prevent him from entering private areas inside the church, including his office).

According to the pastor, the church’s sound engineer was ordered to cut the microphone when the pastor began speaking to the congregation and the police officers threatened to arrest him “and have him dragged away in handcuffs” if he did not leave the pulpit because he was trespassing on church property.

The pastor agreed to leave and asked the defendants if he could quickly explain to the congregation why he would not be leading the services that day. This request was denied, and police officers then escorted him from the church.

Pastor claimed wrongful dismissal

The pastor filed a lawsuit against the defendants and the police officers, making a variety of claims pertaining to conspiracy and civil rights violations. The lawsuit also included a wrongful dismissal claim against the defendants. The defendants insisted that “multiple reasons existed for the termination of [the pastor].”

The court concluded:

Defendants . . . [assert] that the actions they took with respect to [the pastor] . . . were to save [the church] from financial ruin and foreclosure and not to violate [his] civil rights or participate in a conspiracy against him and, thus, there are no genuine issues of material fact regarding the attempt to terminate [him] and they are entitled to judgment as a matter of law.

However, the court noted that the defendants “provide alternative theories as to why [the pastor] was terminated,” precluding dismissal of the plaintiff’s claims. The court therefore ordered the case to proceed to trial.

What this means for churches

Church leaders should note that this case deviates from the vast majority of court rulings refusing to resolve internal church disputes involving the fitness or tenure of a pastor.

Most courts have concluded that the relationship between a church and its pastor inevitably implicates religious issues that are off limits to the courts due to First Amendment protections.

All courts would agree that attempts by dismissed ministers to challenge their dismissal cannot be adjudicated by the civil courts if doing so would involve interpretation of doctrine or polity, again due to First Amendment considerations.

While the decision by this court made it possible for this case to proceed, it remained to be seen whether a trial court ultimately could resolve this legal dispute without still running afoul of the First Amendment.

Nevertheless, this decision illustrates the caution church leaders must take when contemplating the dismissal of a pastor. The church’s bylaws must be reviewed to determine the proper process for a removal, since a failure to do so could offer a path for a court to decide if a dismissal was properly handled according to the church’s own governing documents.

Additionally, qualified local legal counsel should be consulted before pursuing a termination, both to ensure the church’s governing documents are followed and to ensure other neutral principles of law not invoking church doctrine or polity are correctly handled.

For additional insights on this topic, see the two case studies in “Civil Court Review of Clergy Termination Disputes—Limited Exceptions to the General Rule” in the Legal Library.

Couzens v. City of Forest Park, 2021 WL 2000399 (S.D. Ohio 2021).

Legal Developments

Sexual Harassment Claim by a Minister Dismissed for Lack of Proof

But federal court also says “ministerial exception” was not an available defense to hostile environment allegation.

Richard R. Hammar, Attorney, CPA
Bio

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.

Key Point 8-10.1. The civil courts have consistently ruled that the First Amendment prevents them from applying employment laws to the relationship between a church and a minister.

A federal court in Ohio ruled that a female church employee’s sexual harassment claim had to be dismissed for lack of proof. However, the church was unsuccessful in its attempt to invoke the “ministerial exception”—a key judicial doctrine affording churches great latitude with hiring and firing ministers—prior to the dismissal.

Background: Employee alleged gender and racial harassment

A church hired an African-American female (the “plaintiff”) as its Minister for Youth Advocacy and Leadership Formation. Over the next few years, the plaintiff alleged that she experienced several incidents of gender and racial harassment:

First, a constituent told her: “I thought you only got the job because you are young and black.”

Second, a supervisor called her a “sassy, young, African-American woman.”

Third, another employee refused to communicate with the plaintiff and spread false information about her work.

Fourth, when the plaintiff complained about biases and stereotypes among the church’s managerial staff, her supervisor advised her to “work harder to get along with persons holding racist, sexist and discriminatory views because of the money they give to [the church].”

Finally, she alleged that her supervisor engaged in “rude, unprofessional, and insensitive conduct” during a meeting regarding her advocacy” at a denominational meeting. When the plaintiff stated she wanted to report her concerns to the church’s human resources department, her supervisor allegedly responded: “Go right ahead. You take everything else to HR.”

She reported her concerns to the HR director but alleged that nothing was done.

A lawsuit followed the employee’s termination

The church terminated the plaintiff’s employment, and she responded by suing the church in federal court claiming that it was liable on the basis of “hostile environment” sexual harassment.

The church asked the court to dismiss the lawsuit on the ground that it was barred by the ministerial exception. The ministerial exception generally bars the civil courts from resolving discrimination claims brought by church employees. But the plaintiff insisted that the ministerial exception did not bar claims of “hostile environment” sexual harassment by church employees.

The court observed:

[T]he court concludes that a minister’s hostile work environment claim can survive the ministerial exception—at least when the claim does not entail excessive entanglement with religious matters. And after examining [the plaintiff’s complaint] the court concludes that it does not implicate ‘any matters of church doctrine or practice.’ . . . [The plaintiff’s] hostile workplace claim involves allegations of racial and gender harassment that are wholly unrelated to [the church’s] religious teachings. [The church does] not claim that such insults are part of [church] policies or religious beliefs. . . . Consequently, because ruling on [the plaintiff’s] hostile workplace claim would not require the court to delve into religious doctrine or other ecclesiastical domains, the court finds that the ministerial exception does not apply to [her lawsuit].

However, the court concluded that while the plaintiff’s sexual harassment claim was not barred by the ministerial exception, “[t]o maintain a hostile work environment claim under Title VII, the victimized employee must allege that ‘the workplace is permeated with discriminatory intimidation, ridicule, and insult that is sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment’” (quoting the US Supreme Court’s decision in Harris v. Forklift Systems, 510 U.S. 17 (1993)).

The court continued:

Courts look to the totality of the circumstances to assess such claims. While there are no hard and fast rules as to how much harassment is enough harassment to qualify as severe or pervasive . . . the Supreme Court has provided a non-exhaustive list of factors to consider when deciding whether a hostile work environment exists including: “the frequency of the discriminatory conduct; its severity; whether it is physically threatening or humiliating, or a mere offensive utterance; and whether it unreasonably interferes with an employee’s work performance” (quoting Harris).

The court concluded:

To support her claim, the plaintiff “recounts several incidents that allegedly occurred during her employment [summarized above]. . . . Taking these allegations as true and considering them in the light most favorable to [her], the court concludes that the Complaint fails to state a plausible claim for hostile work environment. While [the plaintiff] describes interactions that are unprofessional and unpleasant, none of the alleged conduct was physically threatening or humiliating. At most, these sporadic comments constituted “offensive utterances,” which “do not rise to the level required by the Supreme Court’s definition of a hostile work environment. Mere utterance of an . . . epithet which engenders offensive feelings in an employee . . . does not sufficiently affect the conditions of employment to implicate Title VII.”

That these incidents occurred sporadically over five years further undermines the plaintiff’s claim. . . . Because [she] does not allege severe or pervasive conduct, her allegations do not support a plausible hostile work environment claim. Accordingly, the court grants the church’s motion to dismiss [the sexual harassment claim].

What this means for churches

Sexual harassment is a form of “sex discrimination” prohibited by Title VII of the Civil Rights Act of 1964. Equal Employment Opportunity Commission (EEOC) regulations define sexual harassment as follows:

(a) Harassment on the basis of sex is a violation of Sec. 703 of Title VII. Unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature constitute sexual harassment when (1) submission to such conduct is made either explicitly or implicitly a term or condition of an individual’s employment, (2) submission to or rejection of such conduct by an individual is used as the basis for employment decisions affecting such individual, or (3) such conduct has the purpose or effect of unreasonably interfering with an individual’s work performance or creating an intimidating, hostile, or offensive working environment.

This definition confirms the conclusion reached by numerous state and federal courts that sexual harassment includes at least two separate types of conduct:

(1) “quid pro quo” harassment, which refers to conditioning employment opportunities on submission to a sexual or social relationship, and

(2) “hostile environment” harassment, which refers to the creation of an intimidating, hostile, or offensive working environment through unwelcome verbal or physical conduct of a sexual nature.

Note. The above information was taken from section 8-12.5 of Richard Hammar’s Pastor, Church & Law, Fifth Edition. Turn to this section for additional information on the application of sexual harassment laws to churches. It’s also available in the Legal Library.

The court in this case concluded that the ministerial exception does not prevent the civil courts from resolving ministers’ “hostile environment” sexual harassment claims against a church employer so long as the claim “does not entail excessive entanglement with religious matters.” The court was able to resolve the plaintiff’s sexual harassment claim because “it does not implicate any matters of church doctrine or practice” and was “wholly unrelated to [the church’s] religious teachings.”

Perhaps the most important aspect of the court’s opinion was its conclusion that the plaintiff’s sexual harassment claim had to be dismissed because her claims of harassment were not sufficiently serious.

As the Supreme Court has observed, “to maintain a hostile work environment claim under Title VII, the victimized employee must allege that the workplace is permeated with discriminatory intimidation, ridicule, and insult that is sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment.”

The Supreme Court has provided an inexhaustive list of factors to consider when deciding whether a hostile work environment exists, including:

  • the frequency of the discriminatory conduct;
  • its severity;
  • whether it is physically threatening or humiliating, or a mere offensive utterance; and
  • whether it unreasonably interferes with an employee’s work performance.

Middleton v. United Church of Christ Bd. 483 F. Supp. 3d 489 (N.D. Ohio, Eastern Division 2020).

Legal Developments

Court Rules Church’s Insurance Policy Exclusion Precludes Coverage for Church in Negligence Lawsuit

Sexual misconduct exclusions in church insurance policies may apply even though a church is being sued on the basis of vicarious liability, negligence, or some other form of “indirect” liability.

Richard R. Hammar, Attorney, CPA
Bio


Key point 10-16.7. A liability insurance policy provides a church with a legal defense to lawsuits claiming that the church is responsible for an injury, and it will pay any adverse settlement or judgment up to the limit specified in the policy. Liability insurance policies exclude a number of claims. For example, some policies exclude injuries based on criminal or intentional acts and claims for punitive damages. A church has an obligation to promptly notify its insurer of any potential claim, and to cooperate with the insurer in its investigation of claims.

The Ohio Supreme Court ruled that an exclusion in a church's insurance policy for criminal or intentional acts precluded coverage not only for the person committing the wrongful act, but also for the church, even though it was being sued for negligence.

In May 2006, a married couple (the "plaintiffs") dropped off their 2-year-old son at a church-operated preschool. When the plaintiffs picked up their son that afternoon they noticed bright red marks and abrasions on the boy's rear end, back, and upper thigh areas. The child complained of pain and stated that a teacher had beaten him with a knife. The plaintiffs contacted the church to report the injuries and to request disciplinary action against the teacher. The church responded by sending them a letter, through its headmaster, informing them not to bring their son back to the preschool under threat of trespass charges.

The plaintiffs sued the church and preschool, asserting claims of assault and battery against the teacher, and claims of negligent hiring and supervision, and "vicarious liability" (employer liability for the acts of its agents) against the church. The plaintiffs sought an award of compensatory damages, punitive damages, and attorney fees, plus interest and costs.

At the time of the incident, the church was insured under a commercial policy issued by an insurance company (the "insurer"). In response to the lawsuit, the church submitted a claim to its insurer asking it to provide a legal defense. The insurer agreed to defend the matter, and retained a law firm to do so, but also expressly reserved its right to deny coverage and refuse payment of any claim.

The case proceeded to a trial, and the jury entered a verdict in favor of the plaintiffs and against the church. The jury awarded $764,235 in compensatory damages and $5 million in punitive damages, and attorney fees.

The insurer declined to pay any portion of the jury verdict, prompting the church to sue it for breach of contract and "bad faith." Specifically, the church alleged that the insurer improperly refused to indemnify it for any portion of the judgment awarded to the plaintiffs.

The Ohio Supreme Court, on appeal, focused on an "Abuse or Molestation Exclusion" (the "abuse exclusion"), that stated:

This insurance does not apply to "bodily injury," "property damage" or "personal and advertising injury" arising out of:

  1. The actual or threatened abuse or molestation by anyone of any person while in the care, custody or control of any insured, or
  2. The negligent:
  3. Employment;
  4. Investigation;
  5. Supervision;
  6. Reporting to the proper authorities, or failure to so report, or
  7. Retention;

    8. of a person for whom any insured is or ever was legally responsible … .

    The question to be resolved, the court observed, was whether "a commercial liability policy containing an Abuse or Molestation Exclusion which excludes damages arising out of abuse 'by anyone' of any person in the care, custody or control of any insured, as well as the negligent employment or supervision of an abuser, eliminates coverages of sums awarded based on the insured's vicarious liability for its employee's abuse of a child in the insured's care and custody." The church insisted that only those damages awarded because of the direct liability of a wrongdoer and the direct liability of the employer would be excluded from coverage, not those damages based on the employer's vicarious liability for its employee's abuse.

    The court began its opinion by noting that "an exclusion in an insurance policy will be interpreted as applying only to that which is clearly intended to be excluded. Ambiguity in the policy language is construed against the insurer and liberally in favor of the insured, particularly when the ambiguity exists in a provision that purports to limit or qualify coverage under the insurance policy."

    The court noted that "the language of the abuse exclusion is broad" and excludes from coverage bodily injury arising out of "the actual or threatened abuse or molestation by anyone of any person while in the care, custody or control of any insured." It excludes from coverage actual or threatened abuse or molestation. And it covers actual or threatened abuse or molestation by anyone. Additionally, the abuse exclusion eliminates coverage for "damages awarded for claims of bodily injury arising from the insured's negligence in employing, investigating, supervising, or retaining the bad actor, as well as from negligence in reporting, or failing to report, the abuse or molestation to the authorities."

    Significantly, the court did not find "any language in the abuse exclusion that limits its application to damages awarded for an insured's direct liability. The failure to include an express denial of coverage for claims of secondary, or vicarious, liability does not support the interpretation advanced by the church, i.e., that the policy must therefore cover vicarious liability. Nor does it render the exclusion ambiguous … . We find that the abuse exclusion simply does not limit the exclusion to claims for bodily injury arising from direct liability, while failing to exclude claims for bodily injury arising from secondary, or vicarious, liability for the same conduct. Indeed, the language in the exclusion is simple and unambiguous: there is no coverage for any injury arising from abuse or molestation. To hold otherwise, we would have to insert language into the exclusion. We may not do so, particularly when the terms of the policy are clear and unambiguous."

    What this means for churches

    This case suggests that sexual misconduct exclusions in church insurance policies may apply even though a church is being sued on the basis of vicarious liability, negligence, or some other form of "indirect" liability. While some courts have disagreed with this conclusion, church leaders should examine their insurance policies to see if a sexual misconduct exclusion exists. If so, do not assume that it will not apply to vicarious liability or negligence claims brought against the church resulting from the sexual misconduct of an employee or volunteer.

    Church leaders should discuss this coverage issue with their insurance agent. If the policy does not provide coverage in the event the church is sued on the basis of negligence for the sexual misconduct of an employee or volunteer, then this represents a potentially significant uninsured risk that needs to be addressed, either through a separate endorsement with the current insurer, if available, or by switching to another insurer that will insure against this risk. 148 Ohio St.3d 11 (Ohio 2016).

Legal Developments

Trial Court’s Order Banning Man Guilty of Food Stamp Fraud from Food Pantries Ruled Unlawful

Churches that run food pantries need to ensure that beneficiaries are not obtaining food and then selling their food stamps to raise money for themselves.

Richard R. Hammar, Attorney, CPA
Bio

Key point. It is illegal for food stamp recipients to obtain free food from churches and other charities and then sell their food stamps to raise money for themselves. Churches that operate a food distribution program should be alert to this risk, and seek guidance from state and federal welfare agencies, and other charities, on steps that can be taken to mitigate it.

An Ohio court overturned a trial court's order banning an adult male who committed food stamp fraud from visiting food pantries.

An adult male (the "defendant") engaged in a scheme to use food stamps to buy groceries for others in exchange for cash payments. His scheme was uncovered, and a grand jury returned an indictment that charged him with 11 counts of the illegal use of food stamps in violation of state law. The defendant pleaded guilty to four counts in exchange for the dismissal of the remaining counts. The trial court accepted appellant's pleas and scheduled the matter for sentencing.

At the sentencing hearing, the trial court imposed the following punishments and sanctions: (1) restitution of $1,711.50; (2) community service; (3) 180-day jail sentence; (4) permanent "disqualification" for food stamps; and (5) an order that the defendant "not enter food pantries for assistance." The defendant appealed, claiming that the trial court erred by ordering that he be banned from entering food pantries in the future. He did not challenge the other punishments.

A state appeals court ruled that the ban on visiting food pantries could be overturned only if it was unreasonable, arbitrary, or unconscionable, and it "reluctantly'' concluded that this test was met. It began its opinion by noting:

At the outset we wish to point out that we share the trial court's outrage about the events of this case. When asked at [a hearing before the trial court] how he fed his family, the defendant responded that he did not sell all of his food stamps and, in any event, visited food pantries to make up for the food that he did sell. At [another hearing] the trial court remarked: "And the food pantry folks kept saying that they couldn't keep anything on their shelves, because people that were getting food stamps were selling their food stamps, and then coming and taking all the food from them, and that the truly needy people couldn't get food … . What little food they had was all being taken because of people abusing food stamps."

The appeals court found the trial court's comments were "remarkably restrained in light of the extent to which the defendant's behavior deprived many others of local, charitable nutrition assistance." However, the appeals court concluded that the trial court's order to bar the defendant's future entry to food pantries was unreasonable. It concluded that the restriction was unlawful because it was overbroad:

The offense for which the defendant was convicted did not directly involve the local food pantry. The state cited no authority as precedent for this kind of restriction, nor have we found any such authority. To this extent, we agree the court's ruling is unreasonable … . We point out, however, that local charities may choose to exercise control over their premises, as all land owners are permitted to do, and deny the defendant access to the premises under the threat of a trespass violation … . In the end, the prohibition is purely a punitive sanction that does nothing to ensure future good behavior. We are aware of nothing that would prohibit a private charity from refusing to assist the defendant in response to his abuse of their beneficence.

What This Means For Churches

Nearly 50 million Americans rely on food stamps (Supplemental Nutrition Assistance Program, or SNAP) to help pay for food. And, many churches operate food distribution ministries. Are there steps that these churches can take to ensure that beneficiaries are not obtaining food and then selling their food stamps to raise money for themselves? Such fraudulent practices are illegal, but they can and do occur. For recommendations on reducing the risk of fraud, churches that operate food pantries should consult with other churches in the community with similar programs, along with state and federal welfare agencies that oversee the food stamps program. State v. Chamblin, 59 N.E.3d 537 (Ohio 2016).

Posted:

Legal Developments

Church Not Liable for Camp Attendee’s Death Due to Lack of Foreseeability

Church Law and Tax Report Church Not Liable for Camp Attendee’s Death Due to Lack

Church Law and Tax Report

Church Not Liable for Camp Attendee’s Death Due to Lack of Foreseeability

Key point 10-11. A church may be legally responsible on the basis of negligent supervision for injuries resulting from a failure to exercise adequate supervision of its programs and activities.

An Ohio appeals court ruled that a church was not liable, on the basis of negligent supervision, for the choking death of a minor while attending a church camp, since such an accident was not reasonably foreseeable. A minor (the “victim”) died from choking and asphyxiation while attending a church camp. It was his 18th birthday. The victim’s mother sued the church, claiming that it was responsible for her son’s death based on its negligent supervision of the church camp. She claimed that her son had asked her if he could attend the camp, and that she had met with the church’s youth pastor to discuss the camp. She specifically asked him about supervision during the camp and was told “not to worry about it, we will take good care of him, he is a good kid.” The mother thereafter agreed to let her son attend the camp. While at the three-day camp, the victim called his mother on his 18th birthday and said, “Hey, mom, I’m a man now, I’m 18.” His mother reminded him that because he was born at 5:06 p.m., he was not “fully a man until 5:06.”

Later that day the victim’s mother received a phone call informing her that her son “had an accident,” and was told to call the local police. The police connected her with a hospital, and a doctor informed her that her son had died after being found “hung with a belt” at the camp. The doctor gave her no indication that her son’s death was a suicide. The first time she heard anyone mention suicide was when she went to the hospital to identify her son’s body and a nurse offered her condolences and said, “Suicide is a hard thing.” The suggestion of suicide made the mother “irate” because it “was never his nature,” as he was “happy-go-lucky,” and not depressed.

The death certificate issued by the local coroner listed the victim’s cause of death as asphyxiation due to, or as a consequence of, hanging. It further listed the manner of death as suicide.

Sometime after the victim’s death, another boy who had been at the camp met with the mother. The mother asked him to describe what happened to her son. The boy told her that he was the one who found her son hanging from a tree and cut him down. The boy told the mother that he believed that her son was depressed.

The mother also met with the youth pastor who told her that on the morning that her son died, it “seemed like everything was going well” and they sang “Happy Birthday” to him. When one of the kids told him something had happened to the victim, he ran to where his body was and attempted to perform CPR. He had no recollection of seeing a belt around the victim’s neck. When the mother asked him how this could have happened, the youth pastor told her, “I’m sorry, we screwed up. We didn’t watch the boys.” The church’s senior pastor later informed the mother that they had found a document in the victim’s handwriting that indicated some suicidal thoughts and that the church had turned that document over to police and so the mother was unable to view it.

The camp director stated that the victim was found in a section of the camp property that was “very difficult to get into,” and that in his 26 years at the camp, he had not “seen anybody in that section of woods other than deer hunters.” When the director reached the victim, he found the youth pastor on his knees attempting CPR. The director contacted the police, and assisted first responders, including paramedics, the fire department, and the sheriff’s department, to find the exact location in the woods.

The director later told police investigators that he at first thought the victim had committed suicide, but upon further reflection noted that “there was a possibility that it wasn’t a suicide, but it might have been the choking game” that kids played.

The mother’s lawsuit against the church claimed that the church had “assumed the duty to supervise this youth camp outing and ensure the safety of [the participants],” and that the church “negligently supervised” both her son and the other campers allegedly responsible for harming her son.

At the close of the mother’s case, the church moved for a directed verdict in its favor. The trial judge granted the church’s motion, concluding that the church “was under no duty to supervise the victim as he was an adult at the time of his death,” and that “there was no evidence presented that the injury or harm to [the victim] was reasonably foreseeable to [the church].” The mother appealed.

A state appeals court affirmed the directed verdict in the church’s favor. It noted that even if it accepted the mother’s account that her son’s death had been due to his participation in a “choking game,” any duty the church owed to the victim was dependent on the foreseeability of the prank. The mother asserted that pranking was foreseeable because she received an information sheet from the church that specifically prohibited campers from bringing “prank items” to the youth retreat. However, the court concluded:

[The mother] presented no evidence of prior pranks at the church, the camp, or by the campers attending the camp. In fact, the evidence presented demonstrated that pranks were specifically prohibited by the church and the camp. It is hard to imagine how the prohibited conduct could be foreseeable. Even if the evidence that pranks were prohibited made pranks somehow foreseeable, there was no evidence that the so-called “choking game” was the type of prank that fell within the “prank items” described in the flyer, or that anyone at the youth retreat knew of the choking game or could have anticipated that any of the retreat attendees would have participated in the choking game while at the camp. The mother does not explain how the church’s prohibiting prank items makes it foreseeable that some campers might engage in a choking game prank.

Ultimately, the record provided to this court demonstrates that the mother failed to present any evidence that the church reasonably could have or should have foreseen the “prank” that led to the victim’s injury and death. Without any indication of foreseeability, the church could not have had a duty to supervise or protect the victim and the mother’s negligent supervision claim fails as a matter of law… . Following our independent review of the record … we conclude reasonable minds could come to but one conclusion that the “prank” leading to the victim’s death was not foreseeable. Accordingly, the trial court did not err in granting the church’s motion for directed verdict.

What This Means For Churches:

This case is instructive for two reasons. First, churches are not guarantors of the safety of minors during church activities, nor are they automatically liable for every injury that occurs. Second, while a church has a duty to provide reasonable supervision of minors who participate in its programs and activities, this duty only applies to foreseeable harm. The appeals court concluded that the church was not responsible for the victim’s death because death by choking was not foreseeable. 41 N.E.3d 1275 (Ohio App. 2015).

Legal Developments

In Pastor and Deacons Conflict, Court Says Intervention Barred by First Amendment

Church Law and Tax Report In Pastor and Deacons Conflict, Court Says Intervention Barred by

Church Law and Tax Report

In Pastor and Deacons Conflict, Court Says Intervention Barred by First Amendment

Key point 2-04.1. Most courts have concluded that they are barred by the First Amendment guarantees of religious freedom and nonestablishment of religion from resolving challenges by dismissed clergy to the legal validity of their dismissals.

An Ohio court ruled that it was barred by the First Amendment guaranty of religious freedom from resolving an internal church dispute involving the validity of a pastor’s removal by the church’s board of deacons. For many years, a church was governed by its articles of incorporation and a document titled “Preamble,” which apparently served as a set of bylaws. Notably, the Preamble states that the government of the church “is vested in the body of believers who compose it. It is subject to the control of no other ecclesiastical body.” Further, the Preamble establishes several offices within the church, including, among others, a pastor, deacons, and trustees. Under the Preamble, the deacons are the “helpers, counselors and assistants to the pastor.” Likewise, the trustees are charged with carrying out the “directions of the pastor and the church that have been voted and adopted by the majority membership.” Amendments to the Preamble were provided for within the document, which permitted amendments, additions, or repeal of the Preamble by a vote of “at least two-thirds of the members present at the annual business meeting.”

The church hired a pastor in 1990, at which time the church’s business and financial affairs were managed by the trustees. According to the Preamble, the trustees were responsible for holding title to the church’s property in trust. In addition, the Preamble states that the function of the trustees was to “affix their signatures to legal documents involving the sale, mortgage, purchase, or rental of property, or other legal documents where the signature of trustees is required.” However, the Preamble is careful to note that the trustees “have no power to buy, sell, mortgage, lease or transfer any property without a specific vote of the Church authorizing each action.”

Over time, the trustees stopped meeting, eventually disbanding in 1998. Thereafter, the deacons began managing the business and financial affairs of the church under the pastor’s supervision.

In 2000, the Board of Deacons approved the purchase of a Volvo for the pastor’s personal use. Three years later, the pastor, acting on behalf of the church, purchased a $58,000 Mercedes-Benz E Class for his personal use. He did not inform the Board of Deacons of his intent to purchase the Mercedes-Benz, nor did he obtain the Board’s consent prior to completing the purchase. Likewise, in 2005, he obligated the church to pay for a $48,000 Lexus GS 300 that he purchased without the knowledge and consent of the Board of Deacons.

Meanwhile, in 2004, the church obtained a credit card for the pastor and certain members of the Board of Deacons to use for church business. The use of the church credit card appears to have continued without incident for many years. However, in 2009, the Board of Deacons was notified that the pastor used the church’s credit card to purchase $4,000 in furniture for his son. Although he asserted that his use of the credit card was justified, he eventually reimbursed the church for the cost of the furniture out of his own funds.

In addition to his alleged misuse of the church’s credit card, the pastor also transferred the title to the 2000 Volvo and 2003 Mercedes-Benz to himself. He allegedly failed to seek the Board of Deacons’ permission to transfer the vehicles.

In June 2010, the Board of Deacons formed a task force charged with developing an employee handbook and other governance documents. Additionally, the Board began working toward the adoption of a code of regulations to govern the church. Six months later, the Board approved a code of regulations and submitted it to the task force. At its annual congregational meeting, the congregation conditionally adopted the code of regulations and the employee handbook with the stipulation that the congregation would be permitted to review the documents and raise any concerns or questions at the next annual meeting.

Under the code of regulations, the Board of Deacons was granted broad powers over the administration of the church. Specifically, the board was empowered to “direct all Church business and affairs and control its property.” Concerning the oversight of the pastor, the code of regulations provides:

The Deacons, acting as a Board shall have powers:

(a) To fix, define and limit the powers and duties of all officers, and to fix the salaries of all officers and employees;

(b) To appoint, remove or suspend, with or without cause, any officer, agent or employee of the Church as they deem advisable, and to determine their duties and fix their compensation.

The code of regulations describes the role, responsibilities, and authority of the pastor of the church as follows:

1. Pastor. The Board of Deacons, acting for the Church, shall employ a pastor to direct and be responsible for the spiritual affairs of the Church, in accordance with the terms and conditions of employment set forth in the Employee Policy Manual.

2. Authority of Pastor. The pastor shall have the authority to handle his immediate staff within the budget approved by the Finance Committee. The pastor shall have no authority or responsibility over any other program operated under aegis of the Church or in conjunction with the Church.

Following the provisional adoption of the code of regulations, and in light of the pastor’s noncompliance with the Board of Deacons’ requests for information, the Board decided to terminate his employment. Thereafter, the Board drafted a letter of termination, which was hand-delivered to the pastor at his personal residence.

Two days after receiving the letter of termination, the pastor sent a response letter to the Board of Deacons, refusing to acknowledge the Board’s authority to terminate his employment in light of his understanding that the congregation had appointed him as the “leader of the Church in all areas.” On the following Sunday, the pastor appeared before the church and proceeded to the pulpit, where he called for a meeting of church members to discuss his termination. At that meeting, the pastor asked to be declared the leader of the church by its members and to have the code of regulations promulgated by the Board of Deacons dissolved. Having apparently received the consent of the members present at the meeting, the pastor proceeded to exercise his authority as leader of the church by dismissing the members of the Board of Deacons from their positions.

The ousted Board filed a lawsuit seeking the following relief: (1) a judgment declaring that the code of regulations was validly enacted and that the Board of Deacons established thereunder had the authority to manage the church and its finances; (2) a judgment declaring that the pastor’s employment was properly terminated by the Board of Deacons; (3) a finding that the pastor was liable for trespassing as a result of his continued performance of church duties without the consent of the Board following the termination of his employment; (4) a determination that the pastor was liable for conversion for refusing to return the church’s automobiles, namely the 2000 Volvo, 2003 Mercedes-Benz, and 2006 Lexus; (5) a judgment that the pastor misappropriated church funds by, among other things, using the church credit card for personal use, transferring ownership of the automobiles, and using church funds to pay off the outstanding loans on the vehicles; and (6) an accounting of all transactions made by the pastor using church monies.

The pastor asked the court to dismiss the lawsuit on the ground that the issues regarding “the authority of a Deacon Board to terminate a Pastor” were ecclesiastical issues barred by the First Amendment to the United States Constitution under the ecclesiastical abstention doctrine. The trial court granted the pastor’s request to dismiss the case, and the Board members appealed.

An appeals court noted that “generally, the question of who will preach from the pulpit of a church is an ecclesiastical question” that cannot be resolved by the civil courts. The Board members conceded that a determination of who should speak from the pulpit was ecclesiastical in nature, but they insisted that they were merely asking the court to enforce their decision to terminate the pastor’s employment pursuant to the code of regulations. In other words, they were merely requesting the court’s involvement to enforce church action that had already occurred, not to direct the church’s actions going forward.

The court disagreed with the Board members’ characterization of the dispute as purely secular:

[The Board members] characterize this case as one involving only the secular determination of the validity of certain actions previously taken concerning the removal of the pastor. We disagree. Although seemingly secular, we find that the issues in this case concerning the adoption of internal governance documents, the resolution of conflicts in competing governance documents, and the enforcement of action taken to remove a pastor, fall within the ambit of the ecclesiastical abstention doctrine as they essentially relate to who should preach from the pulpit. We conclude that the trial court properly refrained from deciding which governance documents should control the church and whether the pastor was properly terminated. To hold otherwise would lead to trial courts impermissibly interfering with a congregation’s autonomy by instructing the church on matters of internal governance. Put simply, the issues present in this case must be resolved by the church, through its congregation.

What This Means For Churches:

Two aspects to this case are noteworthy.

First, the case illustrates the application of the ecclesiastical abstention doctrine to internal church disputes. The court rebuffed the Board members’ attempt to characterize this dispute as secular rather than ecclesiastical in nature, since the core issue was “who would preach from the pulpit.”

Second, an issue that the court did not address are the tax consequences of the pastor’s use of church funds for personal benefit. Section 4948 of the tax code gives the Internal Revenue Service authority to impose an excise tax against a “disqualified person,” and in some cases against church board members individually, if excessive compensation is paid to the disqualified person. Most senior pastors will meet the definition of a disqualified person. These taxes are substantial: up to 225 percent of the amount of compensation the IRS determines to be in excess of reasonable compensation.

Further, the IRS deems any taxable fringe benefit provided to an officer or director of a tax-exempt charity (including a church), or a relative of such a person, to be an automatic excess benefit that may trigger intermediate sanctions, regardless of the amount of the benefit, unless the benefit was timely reported as taxable income by either the recipient or the employer.

As a result, governing boards or other bodies that determine clergy compensation should be prepared to document any amount that may be viewed by the IRS as excessive. This includes salary, fringe benefits, and special-occasion gifts. If in doubt, the opinion of a tax attorney should be obtained. And taxable fringe benefits, such as personal use of a church vehicle or church credit card, will constitute “automatic excess benefits” regardless of amount, if not reported as taxable income. Again, the penalty can be severe, and implicates the board members who authorized the excess benefit as well as the recipient. 56 N.E.3d 245 (Ohio App. 2015).

Legal Developments

A Church’s Knowledge and Liability

Key point 8-24. A reference letter is a letter that evaluates the qualifications and suitability

Key point 8-24. A reference letter is a letter that evaluates the qualifications and suitability of a person for a particular position. Churches, like other employers, often use reference letters to screen new employees and volunteers. Churches often are asked to provide reference letters on current or former workers. The law generally provides employers with important protections when responding to a reference letter request. However, liability may still arise in some cases, such as if the employer acts with malice in drafting a reference letter.

Key point 10-16.5. The legal liability of churches and their officers, directors, and volunteers, is limited by state and federal “charitable immunity” laws.

An Ohio court ruled that a church was liable for a former pastor’s rape of a minor in another church since it had recommended him for a pastoral position despite knowledge of at least two incidents of child molestation. A 15-year-old girl (the “victim”) was raped by the senior pastor of her church (“Church A”) in the pastor’s office during a counseling session in 2008. The pastor (the “defendant”) pled guilty to two counts of sexual battery and was sentenced to two consecutive four-year prison terms.

The victim later learned that the defendant had previously worked in another church (“Church B”) as a youth pastor; that in the early 1990’s Church B learned that the defendant had engaged in sexually inappropriate sexual conduct with a minor female but took no action; that in 2001, Church B learned that the defendant had made inappropriate sexual comments to and inappropriately touched a female he was counseling but took no action; and, that in 2004, the defendant left his employment at Church B to become senior pastor of Church Awith the assistance, financial support, guidance, and supervision of Church B.

The victim sued Church B for negligent hiring, retention, or supervision, or negligent recommendation, promotion or support. During the trial, a young woman testified that in the early 1990’s, when she was between 13 and 16 years of age, her church went on a joint mission trip with Church B. The defendant was the youth pastor of Church B at the time. The woman testified that while at a concert during the mission trip, the defendant started rubbing her shoulders, moved his hand down her back between her shirt and the overalls she was wearing, and continued to move his hand down so his hand was on her skin on her lower back and the top area of her buttocks. The woman jerked forward and left the concert. She told her mother about the incident when she returned home. The mother informed the pastor of her church, and a meeting was convened with the mother and her daughter, the defendant, members of the church board, and representatives of Church B in attendance. During the meeting, the woman gave a full account of what happened to her, including that she felt scared and uncomfortable. The defendant apologized and said he was sorry if she felt uncomfortable. The woman testified that the representatives from Church B made light of this incident and acted as if she were making it up. The mother stated that, at the end of the meeting, one of the men from Church B said, “let’s just keep this quiet to protect our brother.” The mother was upset and felt the representatives from Church B were protecting the defendant. Neither the mother nor her daughter reported the incident to law enforcement and neither contacted Church B after the meeting to find out if it had taken any action with regard to the defendant.

The jury returned a verdict in favor of the victim in the amount of $1.5 million for past non-economic damages, $150,000 for future economic damages, and $2 million for future non-economic damages. The trial judge applied Ohio’s damages cap statute to reduce the award.

Another witness at the trial (“Amy”) testified that she attended Church B when the defendant was the youth pastor. In 2002, when she was eighteen (18) years old, she applied to go on a mission trip and had to meet with a pastor as part of the application process. When she met with the defendant, he did several things she felt were inappropriate, such as sharing the details of his sex life with his wife with her, touching her inappropriately, and telling her he could get away with having sex with her right there and then in his office, but his guilty conscience would stop him. Amy reported the incident to the pastor of Church B, who contacted the defendant for an explanation. The defendant claimed he did not remember saying or doing those things, but if he did, he was sorry.

The pastor of Church B testified that in 2002 he was the acting senior pastor at the church. He confirmed that though the defendant was leaving to be the senior pastor at Church A, he remained on the payroll of Church B until the end of 2005. Church B’s current pastor testified that the previous pastor did not inform him of the 2002 allegations by Amy; that the defendant’s behavior was inappropriate and should have been reported; and that if he had known of the 2002 incident he would not have recommended the defendant for the senior pastor position at Church A.

The defendant reported weekly to Church B’s elder board regarding his activities as senior pastor at Church A and, for a period of time, Church B’s pastor acted as his supervisor.

The jury found that Church B was liable for the victim’s injuries based on negligence since it was aware of the past behavior of the defendant and failed to do a proper investigation and documentation of the previous two incidents and, as a result, the defendant was empowered to a greater responsibility as senior pastor at Church A. The jury returned a verdict in favor of the victim in the amount of $1.5 million for past non-economic damages, $150,000 for future economic damages, and $2 million for future non-economic damages, for a total of $3.65 million.

The trial judge applied Ohio’s damages cap statute to reduce the award for the victim’s past and future non-economic damages to $350,000, and entered judgment for the victim in the amount of $500,000. The victim appealed.

The appeals court’s ruling

The appeals court began its opinion by noting that “the existence of an employer-employee relationship imposes a duty upon the employer to prevent foreseeable injury to others by exercising reasonable care to refrain from employing an incompetent employee. Injury is foreseeable if a defendant knew or should have known that his act was likely to result in harm to someone.” The foreseeability of a criminal act such as rape “depends upon the knowledge of the defendant, which must be determined by the totality of the circumstances.” The court concluded:

In this case, the two prior incidents which Church B became aware of both consisted of sexual misconduct and involved minor females being supervised or counseled by the defendant as a church employee either at the church or at a church camp. In light of this similar prior conduct, we find the totality of the circumstances indicates that a reasonable jury could have found that Church B should have reasonably foreseen the 2008 incident.

The court also refused to reverse the jury’s conclusion that Church B failed to take reasonable steps to protect the victim and whether the prior incidents should have influenced the church’s retention and promotion of the defendant to Church A.

Finally, the court rejected the victim’s argument that an Ohio statute that capped future noneconomic damages (i.e., pain and suffering) at $350,000 was unconstitutional.

What This Means For Churches:

This case illustrates the legal risk that is assumed by a church in not handling allegations of sexual misconduct properly, in not reporting child abuse to the civil authorities, and in affirmatively recommending perpetrators of child abuse for positions in other churches.

On the other hand, the court affirmed the constitutionality of a $350,000 cap on future, noneconomic damages in civil cases. Some states have enacted such laws, and they may protect a church from runaway verdicts. Simpkins v. Grace Church, 16 N.E.3d 687 (Ohio App. 2014).

* See also “Insurance,” Interstate Fire & Casualty Company v. Roman Catholic Church of Diocese, 761 F.3d 953 (9th Cir. 2014), in the Recent Developments section of this newsletter.

Legal Developments

First Amendment Doesn’t Keep Court from Resolving Defamation Claims

Ohio court not barred on grounds that resolution won’t change church doctrine or governance.


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 6-10.2. According to the minority view, the civil courts may engage in "marginal review" of disputes involving the discipline of a church member, in a few limited circumstances if they can do so without inquiring into religious doctrine or polity. For example, a few courts have been willing to review membership dismissals in one or more of the following limited circumstances: (1) the church interfered with a member's civil, contract, or property rights; (2) the disciplining body lacked authority to act; (3) the church failed to comply with its governing documents; (4) the church's decision was based on fraud or collusion; or (5) interpretation of contested terminology in the church's governing documents.

An Ohio court ruled that it was not barred by the First Amendment guaranty of religious freedom from resolving a former member's claims of defamation and emotional distress since a resolution of these claims would not implicate church doctrine or governance. A woman in her eighties (the "plaintiff") was a 50-year member of a church. In 2010, following the church's selection of a new pastor, the plaintiff began to disagree with the direction of the church. She communicated her disagreement over various matters, including church doctrine, governance, and finances, with other church members, administrative staff, and the pastor.

After several months of discord, the pastor gave the plaintiff a letter maintaining that she had committed offenses against him and the church, including a statement that she had attempted to steal church property (a picture of the former pastor). The plaintiff claimed that the pastor informed her that her membership had been revoked and that she would not be permitted back in the church.

Nevertheless, the plaintiff attended worship services the following week, and, at the direction of the pastor, the police were notified and removed her from church property. The pastor later read the letter he had previously sent to the plaintiff to the congregation, which contained the charges against her, including the fact that she had attempted to steal church property.

The plaintiff sued the pastor, alleging "defamation per se" and intentional infliction of emotional distress. Defamation per se occurs when a statement is defamatory on its face, consisting of words which import a criminal offense involving moral turpitude, such as theft of church property. The pastor asked the court to dismiss the lawsuit on the grounds that the plaintiff's claims stemmed from her church membership and that his allegedly wrongful acts related to ecclesiastical matters that were outside of the court's jurisdiction. The court granted the pastor's motion to dismiss the case, concluding that it had no jurisdiction to determine the claims of defamation and emotional distress because the pastor's actions were ecclesiastical matters.

A state appeals court reversed the trial court's ruling, and ordered the case to proceed to trial. The court concluded:

Courts properly decline jurisdiction on "purely ecclesiastical" grounds such as appointing or removing pastors and inquiring into church finances … . The First Amendment has been generally interpreted to mean that courts are barred from inquiring into purely ecclesiastical questions and from resolving disputes over church doctrines and practices. On the other hand, courts retain jurisdiction on "purely secular" matters, i.e., non-doctrinal disputes which can be resolved by employing neutral principles of law. Defamation per se is a legal issue that is purely secular in nature and can be resolved by applying neutral principles of law … . Thus, defamation per se is a clearly delineated set of statements that secular courts have determined are intrinsically defamatory.

Upon review, we find the plaintiff's two claims, defamation per se (based upon an indictable criminal offense involving moral turpitude) and intentional infliction of emotional distress (based upon the defamation), are secular. Therefore, basic tort principles apply. Simply because one of the parties includes a religious figure does not necessarily make the matter ecclesiastical. The record in this case establishes that the plaintiff's claims are governed by clearly defined principles of secular law and do not require an interpretation or decision involving church doctrinal matters. Accordingly, her claims are not "purely ecclesiastical" and are within the jurisdiction of the trial court. Therefore, since the issues here are secular, the trial court erred in [dismissing the case].

What This Means For Churches:

This demonstrates that not all internal church disputes are beyond the reach of the civil courts. If a dispute can be resolved on the basis of "neutral principles of law" not requiring any interpretation of church doctrine, some courts are willing to resolve them. But many other courts disagree, especially when a dispute involves the status of church membership. Most, if not all, courts would agree that a church's decision to revoke a person's church membership implicates doctrine and church governance and therefore could not be reviewed by the civil courts. Many courts have expanded this principle to include other bases of liability, such as defamation and invasion of privacy, that are collateral to the decision to revoke the person's membership. Ciganik v. York, 2013 WL 6881611 (Ohio App. 2013).

Legal Developments

Tax Exemption for Church-Owned Land

Land that is used for recreational activities may qualify for exemption from taxation.

Richard R. Hammar, Attorney, CPA
Bio

Church Law & Tax Report

Tax Exemption for Church-Owned Land

Land that is used for recreational activities may qualify for exemption from taxation.

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

Key point. Church-owned land that is used for recreational activities may qualify for exemption from taxation as either a religious or charitable use.

The Ohio Supreme Court ruled that an entire 79-acre tract owned by a church qualified for exemption from property taxation. After many years of expansion, a church decided to open a second church. It acquired 79 acres on which it constructed a large church building with classrooms. The property includes two softball diamonds, a soccer field, and a jogging path that follows the circumference of the property. The church views itself as conducting a sports ministry in connection with the recreational portions of the property and conducts fourteen events, including church-sponsored soccer teams and flag football games. Most of the participants in those events are community members who are not congregants of the church. The city also has sports leagues that use the property. During the summer months, the church stages a day camp for children ages six through eighth grade with several hundred participants. The jogging path is used by the general public without restriction. An estimated 3,000 people utilize the property each year, most of whom were not congregants of the church.

The church paid all costs to develop and maintain the property but does not charge the public to use the recreational facilities. The property does not generate income for the church. The mayor of the city testified that the city itself benefited because the church developed and made the property available for public use, thereby providing public recreational facilities that the city would otherwise have to pay for itself.

The church filed an application that sought to exempt the property from taxation. The application asked for an exemption of 58 acres as land associated with a house of public worship and sought exemption for another 21 acres as land used exclusively for a charitable use. A city tax commission ruled that the 21 acres, which were used exclusively for recreational purposes, did not qualify for exemption as land devoted to a charitable use. The commission concluded that the recreational property was used by the public, not the church, and therefore it was not eligible for exemption. The church appealed.

The Ohio Supreme Court ruled that the disputed 21 acres were exempt from taxation under a state law that exempted ‘property belonging to institutions that is used exclusively for charitable purposes.’

The Ohio Supreme Court ruled that the disputed 21 acres were exempt from taxation under a state law that exempted “property belonging to institutions that is used exclusively for charitable purposes.” It rejected the commission’s argument that “merely holding the property open to the public and allowing various third parties to use it” is not a charitable use and “does not qualify [the property] for exemption.” It also rejected the argument that church-owned property cannot qualify for a charitable exemption, noting that “any institution, irrespective of its charitable or noncharitable character, may take advantage of a tax exemption if it is making exclusive charitable use of the property.”

What This Means For Churches:

This case is a useful precedent for any church that owns land that is used for recreational purposes. While not binding in any state other than Ohio, the case can be cited as persuasive authority for the proposition that land owned by a church and used for recreational purposes qualifies for exemption from taxation. The Chapel v. Testa, 950 N.E.2d 142 (Ohio 2011).

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

Legal Developments

Who Is Covered on a Release Form?

Woman injured on inflatable obstacle course sues facility.

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

Who Is Covered on a Release Form?

Woman injured on inflatable obstacle course sues facility.

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

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.

Many churches use release forms as a means of managing legal risks. Some churches require parents to sign a release form in order for their children to participate in church-sponsored trips and activities, while others require adults to sign a release form in order to participate on a short-term missions project or church construction or maintenance project. Are such forms legally enforceable? And, are they appropriate? Four recent cases address the legal enforceability of release forms. Each of these cases is summarized below, followed by an assessment of the relevance of such cases to church practices.

An Ohio court ruled that a release form signed by an adult was legally enforceable and barred her from suing a commercial facility where she was injured. A child received an invitation to attend a birthday party at the Just for Fun Party Center (the “Center”). A half-page “Waiver/Release” form accompanied the invitation. The release stated, in part:

In consideration for being allowed to enter into the play arena and/or participate in any activities, events, parties or programs at the Just For Fun Play Center the undersigned, on his or her own behalf and on the behalf of the minor identified below and those persons and entities set forth in numbered paragraph 4, acknowledges and agrees that …

(2) there is a risk of injury from this equipment, and from participation in the activities engaged in, and while particular rules, equipment and personal discipline may reduce the risk, the risk still exists and is accepted and assumed by me; and

(3) I knowingly and freely assume all such risks, both known and unknown, and however arising, even if arising from the negligence of other participants and employees. I will assume full responsibility for the participants listed below. I agree to assume liability for all medical costs, attorneys’ fees and any and all other expenses and damages resulting from injury to myself, the participants listed below and those persons and entities set forth in numbered paragraph 4 below, and

(4) I, for myself and on behalf of my spouse (if any), children … hereby release and hold harmless Just For Fun Party Center and its employees and all other participants with respect to any and all expenses, medical bills, causes of action, claims, injury, disability, loss and damage to person or property to the fullest extent permitted by law.

At the bottom of the release form was a line for “Participant Name.” The child’s mother (the “plaintiff”) printed the name of her daughter on that line. The form also had a separate line for the “Adult Guardian Signature,” and this was the line the plaintiff signed.

On the day of the party, the plaintiff and her husband brought their daughter to the Center. While there, the parents were shown an area that contained inflatable obstacle courses intended for older children and adults. An employee of Just for Fun offered to allow some of the adults to try one of the courses. After another couple had gone through the course, the plaintiff and her husband entered. While navigating the obstacle course the plaintiff fell, sustaining an injury to her shoulder. She later sued the Center, claiming that it was negligent in supervising its facilities. A trial court ruled that the release form barred the plaintiff’s claims. A state appeals court began its opinion by stating the following general rule regarding the legal status of release forms:

A participant in a recreational activity is free to contractually relieve the operator of liability for injuries that might be negligently caused. The participant must make a conscious choice to accept the consequences of the other party’s negligence. That conscious choice is manifested through an agreement that states a clear and unambiguous intent to release the party from liability.

The plaintiff argued on appeal that the release form that she signed was not enforceable because it was unclear that the release applied to her as well as to her daughter. In particular, she insisted that the reference to a “participant” would have led a reasonable person to believe that the release applied only to her daughter, since she did not know at the time of signing the release that she would also participate in the activities.

The court concluded that the release form was

neither unclear nor ambiguous as to whom it referred. The first paragraph referred to ‘the undersigned’ as acting ‘on his or her own behalf and on behalf of the minor identified below and those persons and entities set forth in numbered paragraph 4.’ Thus, the release applied to three groups of people: (1) the person who signed the form (the plaintiff), (2) the minor identified below (the plaintiff’s daughter), and (3) those listed in the fourth paragraph (“my spouse”) ….

While paragraph three did state that “I also assume full responsibility for the participants listed below,” it went on to state that [the plaintiff] was assuming the risk of injury “to myself, the participants listed below and those set forth in numbered paragraph 4.” She was assuming this risk, even if the injury arose “from the negligence of other participants and employees.”

Additionally, [the plaintiff’s] argument that she was not signing as a participant is without merit. The signatory signed the release “in consideration for being allowed to enter the play arena and/or participate.” The plaintiff’s argument assumes its own conclusion—that the release referred only to injuries sustained by the child participants. Since the form clearly and repeatedly indicated that Just for Fun would not be liable for injuries to the participants, the signatory, or those related to the signatory, the fact that the plaintiff did not intend to “participate” had no relevance. Baker v. Just for Fun Party Center, 923 N.E.2d 224 (Ohio App. 2009).

This Recent Development first appeared in Church Law & Tax Report, July/August 2010.

Legal Developments

Follow Procedural Requirements for Church Business Meetings

Follow your church’s bylaws and state law to ensure the validity of your membership meetings.

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

Follow Procedural Requirements for Church Business Meetings

Follow your church’s bylaws and state law to ensure the validity of your membership meetings.

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

Key point 6-12.1. Church membership meetings must be conducted in accordance with the procedural requirements ordinarily specified in the church’s governing documents. The most common requirements pertain to notice, quorum, and voting.

Key point 6-12.4. Most courts refuse to intervene in church disputes concerning the validity of a membership meeting that was not conducted in accordance with the procedural requirements specified in the church’s governing documents. However, some courts are willing to intervene in such disputes if they can do so without inquiring into religious doctrine or polity.

An Ohio court ruled that a church business meeting was invalid since the pastor had moved the time of the meeting from “immediately following the morning service” to 1:00 PM that afternoon. A church’s bylaws provide that its pastor and elders must be reaffirmed on an annual basis. They also provide that the church must give 14 days written notice before its annual meeting. On January 14, 2007, the church mailed a letter to its members, telling them that it would hold its annual meeting on January 28, 2007. The letter said that the meeting “will follow the morning service after which we will share a carry-in fellowship dinner together.”

The pastor began the January 28, 2007, service at 10:00 AM by announcing that the time for the annual meeting “would be moved from immediately following the morning worship service to 1:00 p.m. on the same date, following the carry-in dinner at noon.” At noon, the church held a potluck dinner, followed by the meeting that the pastor had announced. At the afternoon meeting, a majority of the members in attendance voted to reaffirm the pastor and the existing church elders.

The church asked a civil court to issue a “declaratory judgment” affirming the validity of the business meeting that had been conducted at 1:00 PM on the afternoon of January 28, 2007, and declaring the pastor and board members to have been lawfully re-elected for an additional term.

The trial court ruled that the church had failed to establish that the afternoon meeting was conducted in accordance with its bylaws, the notice it had sent, and state law. The church appealed this ruling, arguing that the meeting held on the afternoon of January 28, 2007, complied with the church’s bylaws and state law and, therefore, was valid.

A state appeals court noted that the church was a nonprofit corporation, and that the state nonprofit corporation law specifies that nonprofit corporations shall hold “an annual meeting of voting members for the election of directors … on a date designated by or in the manner provided for in the articles or the regulations.” Unless a corporation’s articles or regulations provide otherwise, “written notice stating the place, if any, and the time of a meeting … shall be given … not less than ten or not more than sixty days before the date of the meeting.”

The church’s bylaws provide that its members “shall have 14 days written notice in advance of the [annual] meeting.” The church argued that it complied with this requirement because it sent a letter to its members on January 14, 2007, informing them that its annual meeting would be held on January 28, 2007, and, though the pastor changed the time of the meeting, the notice was valid because the meeting was still held on January 28, 2007. The court rejected this argument: “The letter that the church sent to its members met the requirements of [the nonprofit corporation statute] and the church’s bylaws. When the pastor changed the time of the meeting, however, he did not give its members proper notice …. Accordingly, the trial court correctly ruled that the meeting that the church held on the afternoon of January 28, 2007, was not valid.”

Application. This case illustrates an important point. Procedural requirements for church business meetings generally are described in a church’s governing documents. These requirements should be strictly followed to avoid the possibility that a meeting will be deemed to be legally invalid. Mt. Eaton Community Church, Inc. v. Ladrach, 2009 WL 56923 (Ohio App. 2009).

This Recent Development first appeared in Church Law & Tax Report, January/February 2010.

Legal Developments

Church Preschool Sued for Spanking Incident

Be careful to supervise employees who work with small children.

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

Church Preschool Sued for Spanking Incident

Be careful to supervise employees who work with small children.

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

Key point 10-09.1. Some courts have found churches liable on the basis of negligent supervision for a worker’s acts of child molestation on the ground that the church failed to exercise reasonable care in the supervision of the victim or of its own programs and activities.

Key point 10-17.1. Punitive damages are monetary damages awarded by a jury “in addition to compensation for a loss sustained, in order to punish, and make an example of, the wrongdoer.” They are awarded when a person’s conduct is reprehensible and outrageous. Most church insurance policies exclude punitive damages. This means that a jury award of punitive damages represents an uninsured risk.

A trial court in Ohio awarded nearly $6 million to the parents of a 2-year-old child who was spanked with a ruler by a teacher in a church-operated preschool. A family’s two minor children were enrolled in a church-operated preschool. One evening, after the father picked up his children from the preschool, he observed numerous fresh cuts, welts, and red marks on his two-year-old son’s back, buttocks and thighs. The marks were consistent with being hit by a ruler. The boy told his father that a male preschool employee had “spanked” him with a “knife.” The worker was a 58-year-old male who had served in various compensated and volunteer positions in the church, and who served on an “as needed” basis in the church’s school and preschool. Though he was not a licensed teacher and never had a prior job that required him to work with young children, he was occasionally assigned by the church to work at the school or preschool. Because of ratio requirements and the large number of children in the preschool program, at least one other adult always was working with him.

At home, upon being shown pictures of various objects, the boy pointed to a ruler as the object used to “spank” him. After the boy’s mother arrived home and looked at the marks on her son, she spoke with their pediatrician and the police, who advised her to take the child to a hospital. The emergency physicians found the boy’s injuries to be consistent with physical abuse, and the matter was forwarded to the local Division of Family Services and police for investigation. When the preschool director was shown photos of the boy’s injuries, she was “shocked” and provided no explanation. The boy’s parents attempted to speak with preschool employees to ascertain what happened. They soon received a letter from the church ordering them not to come on the property and threatening them with criminal prosecution for trespass if they returned to the preschool. The parents had no further contact with church or preschool staff.

The parents, on behalf of their minor son, sued the church and the male preschool worker who the boy claimed had spanked him (the “defendants”). The parents asserted claims of battery and intentional infliction of emotional distress against the preschool worker and claims of negligent supervision and intentional infliction of emotional distress against the church. Following a seven-day jury trial, the jury returned verdicts against both defendants, and awarded the parents compensatory damages of $134,865 and punitive damages of $100,000 against the preschool worker, and compensatory damages of $764,235 and punitive damages of $5 million against the church. The jury also found plaintiffs entitled to attorney fees of nearly $700,000 from the church. These damages were later reduced by the trial court to $3 million. The defendants appealed.

Negligent supervision

The court noted that for the parents to prevail on their claim of negligent supervision against the church, they had to establish (1) the existence of an employment relationship between the church and the perpetrator; (2) the perpetrator had a propensity to physically harm or abuse minors in his care; (3) the church had actual or constructive knowledge of this propensity; (4) the perpetrator’s act or omission caused the injuries; and (5) the church’s negligence supervising the perpetrator was the cause of the victim’s injuries. The defendants only challenged the third element—that the church knew or should have known of the perpetrator’s propensity to abuse minors. The court noted that the perpetrator had been left alone with children in the preschool on only two occasions. On the first such occasion, a three-year-old child sustained a fractured skull. The perpetrator claimed that the child had “bumped heads” with another child, but the other child exhibited no evidence of such a collision. The second incident, a few months later, was the injury in this case. The church acknowledged that it was aware of the first incident, but had no way of knowing that it was due to child abuse rather than an accident. As a result, it had no elevated duty of supervision. The court disagreed:

The record also indicates that although its administration knew [the other child] was seriously injured while in [the perpetrator’s] sole care [the church] conducted no investigation of the incident, did not make further inquiries of [the perpetrator] concerning the matter, did not provide him with further training to prevent serious injury from occurring to another child, and, most importantly, did not change how it supervised [the perpetrator] after the incident. Approximately three months later, the very next time the church permitted him to be alone with the young children [he] physically abused the victim.

Based on such evidence, the jury reasonably could infer that the circumstances surrounding [the other child’s] injury were suspicious: he received a skull fracture and concussion when he purportedly “bumped heads” with another boy who suffered no apparent injury. Moreover, not only did the church’s witnesses provide inconsistent and contradictory testimony surrounding the incident, but the church failed to investigate the incident, to provide the incident report to [the other boy’s] mother upon her request, and to inform any of the other [children’s] parents about the serious injury to [the other child]. With that evidence, the jury reasonably could conclude that the church knew or strongly suspected that he had something to do with [the other child’s] serious injury but nevertheless again allowed the perpetrator, without further training or more supervision, to be the sole care provider for the young children.

The court further noted that the church “engaged in a concerted effort to cover up what had happened. Immediately after it became aware of the allegations of physical abuse [church officials] spoke with church employees and allowed them to coordinate their stories before the formal investigations began.”

Emotional distress

The court noted that prior to the incident, the victim was a happy, easy-going, content child who was independent, fully potty trained, did not mind being alone, and shut the door when he went to the bathroom. After the incident, his personality changed. He was often unhappy, became frantic if separated from his parents or other family members, was fearful of being in a room alone, was clingy and wanted to be held, often wet the bed, and would not shut the door when he went to the bathroom. A treating psychologist opined that the child was suffering from post-traumatic stress disorder.

The court concluded that there was substantial evidence to affirm the trial court’s findings of “extreme and outrageous conduct” by the church that led to the victim’s extreme emotional distress.

Punitive damages

Most of the monetary damages the jury awarded were based on punitive damages. The court noted that punitive damages are recoverable if there is clear and convincing evidence that a defendant in a civil case acted with malice. Malice is defined as either (1) a state of mind under which a person’s conduct is characterized by hatred, ill will or a spirit of revenge, or (2) a conscious disregard for the rights and safety of others that has a great probability of causing substantial harm. Actual malice “can be inferred from conduct and surrounding circumstances which may be characterized as reckless, wanton, willful or gross.” The court concluded that the following factors supported the conclusion that the church acted with malice in this case:

Application. This case is instructive for the following reasons:

1. The injury in this case probably would not have occurred had the church not violated its own “two adult” policy that mandated the presence of a second adult when preschool children were present. Church leaders should understand that courts and juries will expect churches, like any other organization, to abide by their policies. A failure to do so may be used as evidence of negligence.

2. The perpetrator in this case was a 58-year-old male who had no prior experience working with preschool children, and was not a licensed teacher. This arrangement was irregular at best.

3. The church’s liability for both negligent supervision and emotional distress was based almost entirely on the church’s failure to respond adequately to the prior head-bumping incident. The court faulted the church for not investigating that incident adequately; not increasing its supervision of the perpetrator (in whose sole custody the accident had occurred); and failing to enforce its two-adult policy following the head-bumping incident. The court also cited the following additional factors in support of its ruling: The church failed to adequately investigate the second incident involving the victim in this case; failed to notify the parents of other children in the preschool program that children in the classroom were seriously injured; failed to notify parents when allegations of physical abuse were made against a staff member who cared for their children; and refused to have any contact or communication with the victim’s parents.

4. The court concluded that the church’s actions supported the punitive damages verdict. This is significant for two reasons. First, punitive damages generally are not covered under any insurance policy, since insuring against the “malicious” conduct that supports such damages would be contrary to public policy. Second, the malice standard that supports punitive damages is similar to the standard that supports personal liability of church board members. Every state has a law that provides limited immunity to uncompensated officers and directors of nonprofit organizations. This immunity is “limited” in the sense that it does not apply in cases of willful or wanton misconduct or gross negligence. As a result, punitive damages and personal liability of church board members may go hand in hand.

5. This case illustrates the importance of retaining legal counsel when handling any claim of personal injury, especially to a child. Churches should immediately notify their insurer of such claims. In most cases, the insurer will promptly appoint legal counsel to advise the church. 2008 WL 5423454 (Ohio App. 2008).

For more information on keeping children safe in your ministry, go to ReducingTheRisk.com.

This Recent Development first appeared in Church Law & Tax Report, November/December 2009.

Legal Developments

Age Discrimination Lawsuits

A federal court in Ohio ruled that a dismissed church employee could sue her church for age discrimination.

Richard R. Hammar, Attorney, CPA
Bio

Church Law & Tax Report

Age Discrimination Lawsuits

A federal court in Ohio ruled that a dismissed church employee could sue her church for age discrimination.

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

Key point 8-07. Employees and applicants for employment who believe that an employer has violated a federal civil rights law must pursue their claim according to a specific procedure. Failure to do so will result in the dismissal of their claim.

Key point 8-09. The federal Age Discrimination in Employment Act prohibits employers with 20 or more employees, and engaged in interstate commerce, from discriminating in any employment decision on the basis of the age of an employee or applicant for employment who is 40 years of age or older. The Act does not exempt religious organizations. Many states have similar laws that often apply to employers having fewer than 20 employees.

* A federal court in Ohio ruled that a dismissed church employee could sue her church for age discrimination. A church hired a 63-year-old woman (Nancy) as an office secretary. Her duties included preparing the church bulletin and maintaining the church calendar, along with a number of other office and administrative tasks. Nancy’s supervisor considered her job performance to be less than satisfactory. As a result, Nancy was placed on probation for three months. At the end of her probationary period, her supervisor felt that she was still making too many mistakes. Examples included a missed home communion visit; double-booking of events caused by errors in the calendar; wrong names placed on baptismal certificates; and an incident involving a volunteer whom Nancy told to come back another time because she was too busy to do the project the volunteer had come to the church to do.

Nancy’s supervisor, and the senior pastor, met with her and told her she would be “retired.” Nancy protested that she didn’t want to retire, but was told the church needed someone better on the computers. She asked what would happen if she did not retire; her supervisor told her she would be fired. Nancy also asked about her pension, because her five-year vesting period would not expire for several months. She was offered the option of staying with the church in a part-time position, at a lower hourly rate, to qualify her for a pension. Nancy declined the offer of a part-time job, and her employment was terminated.

The church’s “Personnel Policy Guidelines” state that “dismissal is generally a last resort and occurs after the employee has received a written warning and has been given an opportunity to improve performance or conduct.” The written warning is to be signed by the employee and the supervisor, and placed in the employee’s personnel file. The church never gave Nancy a formal written warning about her job performance.

Another church employee claimed that Nancy’s supervisor informed her, prior to Nancy’s termination, that the church would probably have to let her go because she was “old and losing it.”

Nancy sued the church in federal court for age discrimination in violation of the federal Age Discrimination in Employment Act, which prohibits employers with 20 or more employees and engaged in interstate commerce from discriminating in employment decisions on the basis of the age of employees who are 40 years of age or older. The church filed a motion for summary judgment with the court.

The court noted that an employee may establish an age discrimination claim by offering either direct or circumstantial evidence of age discrimination.

direct evidence

The court concluded that Nancy had produced sufficient “direct evidence” of age discrimination to overcome the church’s motion for summary judgment. The court defined direct evidence as “evidence that proves the existence of a fact without requiring any inferences,” or, in this case, “evidence that leads directly to the conclusion that age discrimination was a motivating factor in Nancy’s termination.”

The court referred to the following two cases: (1) A federal appeals court ruled that a supervisor’s statement that he and a co-supervisor had a plan to get rid of older workers and replace them with younger, faster workers was direct evidence of discriminatory intent. Ezell v. Potter, 400 F.3d 1041 (7th Cir.2005). (2) A federal appeals court characterized as direct evidence a supervisor’s statement in response to a question about why the plaintiff had been terminated: “Think of it like this. In a forest you have to cut down the old, big trees so the little trees underneath can grow.” Wichmann v. Board of Trustees of Southern Illinois University, 180 F.3d 791 (7th Cir.1999).

The court concluded that the comments attributed to Nancy’s supervisor regarding the reason for her termination were sufficient to defeat the church’s motion for summary judgment. The court stressed that “the evidence must show that the employee’s age was a substantial factor in her termination.” This test was met, the court concluded.

The court ordered Nancy’s direct evidence claim to proceed to trial. It noted that once direct evidence of age discrimination is presented, the burden shifts to the employer to convince the jury that it was more likely than not that the church would have terminated Nancy absent consideration of her age. For its part, the church “can present its evidence to the jury that Nancy’s termination was premised upon her job performance and not upon her age.” That is, if the church convinces a jury that Nancy was fired for poor job performance rather than her age, then her discrimination claim will fail.

circumstantial evidence

Age discrimination can be proven with circumstantial as well as direct evidence. The court defined circumstantial evidence as “evidence that does not on its face establish discriminatory intent, but does allow a jury to draw a reasonable inference that discrimination occurred.” It noted that for a plaintiff to establish an age discrimination claim based on circumstantial evidence, she must initially prove a “prima facie case” by showing that “she is a member of a protected class, she suffered an adverse employment action, she was qualified for her job, and she was replaced by a substantially younger person.” If a plaintiff is successful in proving a prima facie case of discrimination, then a presumption of discrimination arises, and the burden shifts to the employer to show a legitimate, nondiscriminatory reason for the adverse employment decision. If the employer demonstrates a nondiscriminatory reason for the adverse employment action, then the presumption is rebutted and the plaintiff must prove that the nondiscriminatory reason was a pretext for discrimination.

The court concluded that Nancy failed to prove the fourth element of her prima facie case (that she was replaced by a substantially younger person) and therefore it granted the church’s motion for summary judgment with respect to her age discrimination claim based on circumstantial evidence.

Application. This case is important for two reasons. First, it demonstrates that discrimination claims can be proven by either direct evidence or circumstantial evidence. And second, it illustrates how the “burden shifting” analysis that is applied in employment discrimination claims is generally limited to those claims of discrimination that are based on circumstantial rather than direct evidence. Listermann v. Roman Catholic Archdiocese, 2007 WL 1057381 (S.D. Ohio 2007).

Legal Developments

Unlawful Termination

The civil courts have consistently ruled that the First Amendment prevents the civil courts from applying civil rights laws to the relationship between a church and a minister.

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

Unlawful Termination

The civil courts have consistently ruled that the First Amendment prevents the civil courts from applying civil rights laws to the relationship between a church and a minister.

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

Key point 2-04.1. Most courts have concluded that they are barred by the First Amendment guarantees of religious freedom and nonestablishment of religion from resolving challenges by dismissed clergy to the legal validity of their dismissals.

Key point 8-06. The civil courts have consistently ruled that the First Amendment prevents the civil courts from applying civil rights laws to the relationship between a church and a minister.

* An Ohio court ruled that it was barred by the First Amendment from resolving the claims of two former church employees that their church acted unlawfully in terminating their employment. A church terminated the employment of two employees (the plaintiffs). The plaintiffs sued the church for wrongful dismissal and for unlawfully retaliating against them for criticizing what they believed to be a discriminatory employment practice. The trial court dismissed the lawsuit on the basis of the so-called ministerial exception to state and federal employment laws which “precludes any inquiry whatsoever into the reasons behind a church’s ministerial employment decision.”

The trial concluded that both plaintiffs were ministers, and so the ministerial exception applied. The court noted that one plaintiff had been employed by the church as its staff development director, which required her to oversee the spiritual well-being of the staff. She had been responsible for administering a “spiritual assessment” to applicants for employment with the church. The assessment examined an applicant’s faith journey and spiritual development. She had been charged with evaluating an applicant’s answers to the assessment to determine whether the candidate should advance within the hiring process. She had implemented the church’s hiring policy, which mandated staff members’ agreement with the church’s statement of faith and guiding principles.

The trial court found that the other plaintiff had been employed by the church as an associate pastor, charged with “providing leadership, vision, values and direction; ensuring spiritual health and growth of attendees, maintaining Biblical Integrity among staff and leaders, supervising staff and directing the ministry areas toward the fulfillment of the Vision/Mission.” This plaintiff had been a member of the church’s senior leadership team, a body that developed the church’s spiritual direction.

The trial court also noted that the church had issued ministry licenses to both plaintiffs. The ministry licenses stated that each of them was certified “as a minister of the Gospel of Jesus Christ [and has] completed all the studies and has met all the requirements of this body for recognition of such office; further, by rite of license, he or she is duly licensed to perform all ministerial functions without limit as accorded by the laws of the land and in compliance with the ordinances of God’s holy church as set forth in God’s Holy Word.” Both plaintiffs were certified by the state of Ohio as ministers authorized to solemnize marriages.

For federal income-tax purposes, both plaintiffs received a housing allowance from their church, which is only available to “a minister of the gospel.”

A state appeals court agreed that the plaintiffs were ministers, and that the ministerial exception barred any review of their claims. It began its opinion by observing: “While we agree that matters regarding who should preach from the pulpit are fundamentally and unquestionably beyond the jurisdiction of secular courts … the cases demonstrate that all matters of the propriety of internal church discipline … whether taken against a clergyman or a church member, are beyond the jurisdiction of secular courts.”

The court agreed with the plaintiffs that the church’s “internal characterization” of them as “ministers” was not dispositive of their status for purposes of the ministerial exception, but if found “somewhat disingenuous” their argument that they were not ministers. The court noted that the trial court “did not rely solely on the church’s labeling of [the plaintiffs]. Instead, in making its determination that [they] were ministers, the trial court considered their actual duties within the church, as well as their licensing as ministers with both the church and the state, and their utilization of ministerial tax exemptions.”

Application. This case is important because of the court’s practical approach to defining “ministers” for purposes of the ministerial exception. In agreeing with the trial court that the plaintiffs were ministers, the court stressed that a church’s characterization of a person as a minister does not necessarily trigger the ministerial exception. Instead, a court must consider the functions the employee performs. The court listed three of them: (1) The plaintiffs’ duties directly furthered the church’s core mission and purposes. (2) The church had issued ministerial credentials to the employees, thus enabling them to perform the rites and ordinances of the church. (3) The plaintiffs were authorized by the state of Ohio to perform marriage ceremonies. (4) The church treated the plaintiffs as ministers for purposes of the housing allowance. Horine v. Vineyard Community Church, 2006 WL 3690309 (Ohio App. 2006).

Legal Developments

Civil Liability for Failure to Report Child Abuse

Mandatory reporters who fail to report abuse can be subject to possible criminal liability and can be sued for money damages by the victims of abuse.

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.

A federal court in Washington ruled that a mandatory child abuse reporter’s failure to report the abuse of a minor by a church worker could result not only in criminal liability for the reporter, but also civil liability for the reporter and his employing church. A minor (the “plaintiff”) who was sexually molested by a church worker sued the church, claiming that it was liable for the worker’s acts on the basis of its failure to comply with the state child abuse reporting statute.

The church insisted that the state child abuse reporting law imposes criminal liability on mandatory reporters who fail to report abuse, but does not explicitly impose civil liability, and therefore the plaintiff could not sue the church for monetary damages in a civil lawsuit. The court conceded that courts in other states have generally refused to allow victims of child abuse to sue mandatory reporters who fail to report, but it noted that all of those rulings were in other states.

The plaintiff acknowledged that the reporting statute did not explicitly authorize civil lawsuits for failure to report, but argued that such a right could be “implied” from the statute. It pointed to a Washington Supreme Court case that articulated three factors for the courts to consider in deciding if a statute creates a civil remedy: “First, whether the plaintiff is within the class for whose benefit the statute was enacted; second, whether legislative intent, explicitly or implicitly, supports creating or denying a remedy; and third, whether implying a remedy is consistent with the underlying purpose of the legislation.”

The court concluded that these factors supported a finding in this case that the state child abuse reporting law created a civil remedy in favor of abused minors and against mandatory reporters who fail to report abuse:

The plaintiff, a victim of childhood sexual abuse, certainly falls within the class of persons the statute is designed to protect. Washington courts have clearly stated that the mandatory reporting statute is designed “to secure prompt protection or treatment for the victims of child abuse ….” Second, the legislative intent behind the statute supports the creation of a civil remedy. It is true that [the statute] provides a penal remedy, but not a civil remedy. [The church] asserts that such a penal remedy indicates that the legislature did not intend to imply a civil remedy also. However, this court recognizes, just as Washington state courts have recognized, that when a statute is enacted for the protection of a particular class of individuals, a violation of its terms may result in civil as well as criminal liability, even though the former remedy is not specifically mentioned therein …. The logical conclusion is that the legislative intent supports the creation of a civil remedy for victims of child sexual abuse when those mandated to report the abuse fail to do so. Likewise, the Court finds that implying a civil remedy is consistent with the underlying purpose of the statute. The declared intent of the statute is “to prevent further abuses, and to safeguard the general welfare of such children.” RCW 26.44.010. Implying a civil cause of action against those who are mandated to report child abuse, but fail to do so, will motivate those required to report to take action, and furthers the goals of the statute itself. Accordingly, the Court finds that there is an implied private cause of action stemming from the statutory requirement to report child abuse.

Application. Eight states (Arkansas, Colorado, Iowa, Michigan, Montana, New York, Ohio, and Rhode Island) have enacted laws that create civil liability for failure to report child abuse. In these states victims of child abuse can sue adults who failed to report the abuse. Not only are adults who fail to report abuse subject to possible criminal liability (if they are mandatory reporters), but they also can be sued for money damages by the victims of abuse. In each state, the statute only permits victims of child abuse to sue mandatory reporters who failed to report the abuse. No liability is created for persons who are not mandatory reporters as defined by state law.

Most state child abuse reporting laws do not specifically authorize victims of abuse to sue mandatory reporters who failed to report the abuse. Several courts have addressed the issue of whether to recognize such a civil remedy apart from any specific language in the statute creating one. Most have not. The decision of the Washington federal court reflects the minority position. As a result, mandatory reporters in Washington may be subject to both criminal and civil liability for failing to report known or reasonably suspected incidents of child abuse. Fleming v. Corporation of the President of the Church of Jesus Christ of Latter Day Saints, 2006 WL 753234 (W.D. Wash. 2006).

See a summary of the child abuse reporting laws of all 50 states.

Legal Developments

Personal Injuries on Church Property and During Church Activities

Key point 7-20.1. In most states, whether a church is liable for injuries occurring on

Richard R. Hammar, Attorney, CPA
Bio

Key point 7-20.1. In most states, whether a church is liable for injuries occurring on its premises will depend on the whether the victim is an invitee, a licensee, or a trespasser. Churches, like any property owner, owe the highest degree of care to invitees, a lesser degree of care to licensees, and a very minimal degree of care to trespassers. As a result, it is more likely that churches will be liable for injuries to persons who meet the definition of an 'invitee.'
Premises Liability

An Ohio court ruled that a church was not responsible for injuries sustained by a woman who slipped on a wet floor and broke her leg while attending a wedding reception on church property since the wet condition was an obvious risk. A woman (the 'victim') was seated with friends and family at a wedding reception in a church. While on her way to the restroom, she stepped in some liquid, slipped and fell. She did not see the liquid on the floor, but three witnesses did see it. No one saw an actual spill occur or any cup or ice discarded on the floor, but the area was wet from the spilling of beverages being carried from the serving area and had been wet for most of the evening. One witness claimed that she had seen liquid on the floor for 45 minutes to an hour before the victim slipped. However, no one suggested prior to the victim's fall that the wet condition was a hazard, or expressed any apprehension about passing through the area.

None of the witnesses informed anyone from the church of the wet condition, nor did they warn the victim of the wet floor when she set off for the restroom although they were aware of the condition. The victim claimed that she had not been looking where she was walking, but had been focused on the restroom. Therefore, she did not know what liquid she had slipped in, the size of the puddle, the exact location, how long it had been there, or if anyone from the church had been aware of it. In fact, she only believed it to be liquid because her dress was wet after the fall.

The victim sued the church, claiming that it was responsible for her injuries on the basis of negligence. A trial court dismissed the lawsuit, and the victim appealed. A state appeals court began its opinion by noting that the victim was a 'business invitee' since she was on church premises by the implied invitation of the church. In general, a landowner 'owes a duty to an invitee to use ordinary care for the invitee's safety, and to keep the premises in a reasonably safe condition (and to use ordinary care to provide notice of any concealed dangers of which the owner of the premises has knowledge, or which by using ordinary care should have been discovered).' However, 'an owner is under no duty to protect its customers from dangers known to the customer, or otherwise so obvious and apparent that a customer should reasonably be expected to discover them and protect herself from them.'

The rationale behind this 'open and obvious doctrine' is that 'the open and obvious nature of the hazard itself serves as a warning, and allows the owner to expect visitors to discover the danger and take appropriate actions to protect themselves.' The presence of wet floors 'is a frequently encountered condition that a reasonable person would be expected to recognize and exercise caution to protect herself from.' The court concluded, 'Although the room was darkened, the other [witnesses] spotted the liquid. The victim … conceded that her view was not obstructed and she merely failed to look where she was walking. Thus, she is alone among her witnesses in failing to observe this wet condition, and by her own admission, this was due to her own inattentiveness. Simply put, the fact that she stepped in an obviously wet spot because she was not looking makes it irrelevant whether the liquid had been on the floor for 45 minutes or 45 seconds, she would have slipped and fallen either way ….The open and obvious nature of the liquid obviates a duty.'


Application
. In many cases, a church's liability for injuries occurring on its premises will depend on the victim's status. It is more likely that a church will be found liable if the victim is an invitee, since a church owes a much greater duty of care to invitees than to either licensees or trespassers. However, this case demonstrates that churches generally will not be liable for injuries to invitees resulting from hazards that are 'open and obvious.' Andamasaris v. Annunciation Greek Orthodox Church, 2005 WL 313691 (Ohio App. 2005).

Legal Developments

Sexual Misconduct by Clergy, Lay Employees, and Volunteers

An Ohio court ruled that an employer could not be responsible for a former employee’s acts of child molestation.

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.

Key point 8-23. A reference letter is a letter that evaluates the qualifications and suitability of a person for a particular position. Churches, like other employers, often use reference letters to screen new employees and volunteers. Churches often are asked to provide reference letters on current or former workers. The law generally provides employers with important protections when responding to a reference letter request. However, liability may still arise in some cases, such as if the employer acts with malice in drafting a reference letter.

Key point 10-04. A church may be liable on the basis of negligent selection for a worker's molestation of a minor if the church was negligent in the selection of the worker. Negligence means a failure to exercise reasonable care, and so negligent selection refers to a failure to exercise reasonable care in the selection of the worker. Liability based on negligent selection may be imposed upon a church for the acts of employees and volunteers.

Clergy Malpractice

Seduction of Counselees and Church Members

An Ohio court ruled that an employer could not be responsible for a former employee's acts of child molestation on the basis of a failure to report prior suspicions of abuse to civil authorities, but it could be liable on the basis of a positive reference it provided to a prospective employer regarding the employee.

A hospital accepted the resignation of a staff counselor (Ron) due to inappropriate acts with minors, and because of a reference belatedly received from the counselor's prior employer disclosing that Ron had been charged with child molestation years earlier. After Ron's resignation, he continued to communicate with some of the children he had counseled at the hospital. On one occasion, he invited one of these former counselees to spend the weekend with him. The counselee was now 13 years old. The boy's mother had not been informed that Ron no longer worked at the hospital, and so she called his former hospital supervisor to ask what she thought about allowing the boy to spend the weekend with Ron. The supervisor gave a positive reference about Ron, and said that spending time with Ron "would be good." She did not tell the mother about any suspicions concerning Ron or that Ron was no longer employed at the hospital. Based in part on the supervisor's statements, the mother allowed her son to spend the weekend with Ron. That weekend, and over the course of the next few months, Ron gave the boy drugs and sexually molested him. He also threatened the boy with harm if he told anyone what was going on or refused to return for future visits. Eventually, the boy disclosed how he had been molested. Ron was later convicted of crimes relating to the molestation.

The boy's mother later sued the hospital, alleging that it was responsible for Ron's acts on the basis of its failure to report child abuse, negligent hiring, and negligent supervision. A trial court dismissed the lawsuit on the ground that the hospital could not be legally responsible for Ron's actions. The mother appealed.

failure to report child abuse

The mother claimed that the hospital violated the provisions of the state child abuse reporting law and on this basis should be liable for Ron's acts of child molestation. The appeals court acknowledged that the reporting law made most hospital employees mandatory reporters of child abuse if, while acting in their official or professional capacity, "know or suspect" that a child under eighteen years of age has suffered abuse. The mother alleged that the hospital and its employees should have reported their suspicions about Ron, especially after her phone call to Ron's former supervisor concerning whether her son should be allowed to spend time with him. The court ruled that the hospital "did not have a statutory duty to report Ron when he quit his employment. At that time, the hospital had no reason to know or suspect that any particular child was being abused or in danger of being abused by Ron. Therefore, the trial court properly dismissed this claim."

negligent hiring

The mother claimed that the hospital was liable for Ron's acts on the basis of negligent hiring. The court disagreed, "At the time the boy suffered his alleged injuries, an employment relationship did not exist between Ron and the hospital. Additionally, there was no evidence to establish that prior to hiring Ron, the hospital knew or should have known that Ron was incompetent. Therefore, the mother has failed to establish a claim of negligent hiring or retention."

liability for providing a positive reference

The mother also claimed that the hospital was liable for Ron's acts on the basis of the positive reference that Ron's former supervisor provided to her. She relied on section 323 of the Restatement of Torts (an authoritative legal treatise), that provides, "One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of the other's person or things, is subject to liability to the other for physical harm resulting from his failure to exercise reasonable care to perform his undertaking, if the harm is suffered because of the other's reliance upon the undertaking."

The court observed that the theory of recovery under section 323 is that "when one undertakes a duty voluntarily, and another reasonably relies on that undertaking, the volunteer is required to exercise ordinary care in completing the duty." The court concluded,

One of the theories of recovery the mother has set forth in her complaint is that [Ron's former supervisor] gratuitously offered a recommendation to her regarding a former employee of the hospital, Ron …. Once the supervisor decided to give a recommendation about Ron, she was required to exercise due care in giving the recommendation. The mother believes that the supervisor did not exercise due care, resulting in injury to the minor child.


Application
. This case is significant for three reasons. First, the court concluded that an employer's duty to report child abuse ends with the termination of an employee. As a result, the hospital in this case could not be liable for Ron's future acts of molestation on the basis of information it received following Ron's termination indicating that he had molested a child. Second, the court ruled that an employer cannot be liable for negligent hiring of an employee who molests a child after the termination of his employment. Third, and perhaps most importantly, the court concluded that an employer may be liable for providing a positive reference on a former employee when the employer has acquired information (since the employee's termination) suggesting that he poses a risk of harm. The court bases this conclusion on section 323 of the Restatement of Torts, The court stressed that an employer is under no obligation to respond to a request for a reference on a former employee, but, if it agrees to do so, it is required "to exercise due care in giving the recommendation." The appeals court ruled that the trial court had erred in rejecting this basis of liability. Douglass v. Salem Community Hospital, 794 N.E.2d 107 (Ohio App. 2003).

Legal Developments

Is Your CPA Firm Liable If Embezzlement Occurs?

Recent Ohio case addresses this issue.

Richard R. Hammar, Attorney, CPA
Bio

Thoma v. Barnes, Dennig & Company, 784 N.E.2d 1207 (Ohio 2003)

Background. Can an employer sue its accountants for failing to discover that a bookkeeper was embezzling large sums of money over a 6-year period? This is the question addressed by an Ohio court in a recent case. While the case involved a for-profit business, the court's conclusions are equally relevant to churches and other nonprofit organizations.

For twelve years a company used a local CPA firm to perform yearly "reviews." In a review, the CPAs review the client's financial documents (including bank statements), speak with the client's employees, and create financial statements for the client. During a review, a CPA firm would also perform "analytical tests" on account balances to verify that those figures were calculated using generally accepted accounting principles. A review is more thorough than a "compilation," which only requires the CPA to place the client's internal income statement and balance sheet into a financial-statement format, but less thorough than an audit, which requires the accountant to verify the financial information (account balances) it received from the client by contacting the appropriate financial institutions.

Over the course of six years, the company's internal bookkeeper ("Sarah") embezzled more than $120,000 from its corporate accounts. The embezzlement was finally discovered by employees of the company's bank. To accomplish her thefts, Sarah either changed the payee's name on the company's checks or wrote in her own name as the payee when the officers signed corporate checks in blank.

After learning of the embezzlement, the company sued its CPA firm for professional negligence in failing to discover Sarah's thefts while conducting the annual reviews. The company asserted that its CPA firm negligently relied on Sarah's "verbal assurances" that the cash reported on the company's internal balance sheet each year was the same as the balance on its year-ending bank statement. The company claimed that if the CPAs had requested a copy of the year-end bank statements each year, they would have discovered Sarah's thefts.

To support these claims, the company relied on the testimony of an accounting expert who stated that there was no requirement that an accountant performing a review obtain the client's year-end bank statement. Instead, this was a matter committed to the accountant's professional judgment. The expert also testified that the person responsible for writing checks and recording them in the corporate ledger should not have been the same person who reconciled the bank account. In other words, one person should have been "controlling the cash," and a different person should have been "recording the cash." The evidence presented at trial indicated that under the company's internal accounting system Sarah performed both of these jobs.

In its defense, the CPA firm claimed that it was up to an accountant's professional judgment whether to seek a complete year-end bank statement, and that the company's own negligence in failing to discover Sarah's thefts had contributed to its losses. Specifically, the CPA firm presented evidence that the company knew that Sarah had experienced emotional problems that had hampered her job performance, and knew that she had purchased a large amount of consumer goods, such as new cars and expensive clothing. The company also knew that many of its vendors had not been paid.

A jury concluded that the embezzlement was due to the company's own negligence rather than to the negligence of its CPA firm. The company appealed.

The court's ruling. An appeals court affirmed the trial court's ruling in favor of the CPA firm. It concluded that there was ample evidence that the company's own negligence was the main reason that Sarah was able to embezzle funds. It cited the company's "failure to adequately supervise and evaluate Sarah, its failure to monitor internal accounting controls, and its awareness of signs of Sarah's mental and emotional instability."

What this means for churches

This case is important for the following two reasons.

First, it illustrates that CPA firms can perform a number of services besides a full audit. These "limited engagements" include compilations and reviews. Limited engagements may not be adequate to detect embezzlement and other financial fraud in a church. While they are cheaper, any cost savings comes at a price. The CPA firm undoubtedly would have detected Sarah's embezzlement in this case had it been hired to perform an audit. Because it only performed a review, the embezzlement was not detected.

Second, the case demonstrates that a church may not be able to blame its CPA firm for financial fraud that is made possible by the church's own negligence. The negligent acts in this case that prevented the company from transferring fault to its CPA firm included "its failure to adequately supervise and evaluate Sarah, its failure to monitor internal accounting controls, and its awareness of signs of Sarah's mental and emotional instability."

One more point. It is common for churches' governing documents (e.g., bylaws) to require an "annual audit." Many churches with such a provision in their bylaws elect to have a CPA firm perform a limited engagement (review or compilation), usually to reduce the cost. This would constitute a violation of the church bylaws. Either the bylaws should be amended to allow limited engagements instead of audits, or full audits should be performed.

If your church is not required to have an audit, there are still compelling reasons why you should consider having one. These include the following:

Legal Developments

Personal Injuries on Church Property and During Church Activities – Part 1

An Ohio court ruled that an indemnification clause in a “facility use agreement” required a charity that used a nonprofit camp to reimburse the camp for any legal judgments or settlements arising out of injuries occurring at the camp.

Richard R. Hammar, Attorney, CPA
Bio

• 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.

* An Ohio court ruled that an indemnification clause in a "facility use agreement" required a charity that used a nonprofit camp to reimburse the camp for any legal judgments or settlements arising out of injuries occurring at the camp. A child ("Kyle") attended a week-long summer camp for childhood cancer patients sponsored by the American Cancer Society (ACS) at a Girl Scouts campground. Children were not charged a fee for attending the camp. The campground in question is owned by a regional entity of the Girl Scouts, and is frequently used by other groups for a fee pursuant to a "facility use agreement." At the time of the camp that Kyle attended there were 92 campers, 28 counselors, and 10 camp staff members on the premises. The Girl Scouts provided the horses to camp participants. While engaged in horseback riding at the camp, Kyle was involved in an accident that resulted in serious injuries. He died from his injuries a few months later. His parents sued the Girl Scouts, claiming that it was responsible for Kyle's death on the basis of its negligence. The Girl Scouts filed a cross claim against the ACS. Kyle's parents eventually settled all their claims out of court against both organizations. The Girl Scouts then sued the ACS, seeking a refund of its share of the settlement and payment of its attorneys' fees. The Girl Scouts relied on provisions in the facility use agreement that obligated the ACS to defend the Girl Scouts in the event of any claim, and "indemnify" the Girl Scouts for any judgment or settlement it paid as a result of injuries occurring during the use of the campground by the ACS. A trial court ruled in favor of the Girl Scouts, and ordered the ACS to pay the entire settlement amount plus an additional $120,000 of attorneys' fees incurred by the Girl Scouts in defending against the lawsuit. The ACS appealed.

The court began its opinion by noting that indemnification "is the right of a party, who has been compelled to pay what another should have paid, to require reimbursement. It arises from a contract, either express or implied." That is, an indemnification clause is a clause obligating one party to pay any judgment or settlement assessed against another party. Such clauses are usually included in facility use agreements, and specify that organizations using the landowner's property must indemnify the landowner against any expenses incurred as a result of accidents occurring on the property. The ACS insisted that the indemnification provision in the facility use agreement did not apply to Kyle's injury because horseback riding was "outside the scope" of this provision. The indemnification clause stated:

ACS agrees to indemnify, defend, and hold [the Girl Scouts] harmless from and against any and all claims, damages, demands, actions, duties, causes of action, judgments, costs, (including attorney fees), controversies and liabilities whether known or unknown, fixed or contingent, arising out of contract, tort or otherwise, in law or in equity, asserted by third parties (including but not limited to ACS participants) for damage to person or property, including but not limited to, consequential or incidental damages arising out of or related to: (a) ACS's failure to perform any and all of its obligations or liabilities under the Agreement or under any other agreement; (b) CF's use of the camp facility; (c) the negligent, willful or intentional acts/omissions of ACS or any of its agents, employees, invitees, or licensees; (d) the failure of ACS or any of its agents, employees, invitees or licensees to comply with all applicable federal, state and local laws, ordinances, statutes, regulations and rules, including but not limited to discrimination laws, the Americans with Disabilities Act (ADA) and environmental laws.

ACS claimed that horseback riding was not a "use" of the camp, but rather was a "service," and therefore the indemnification clause did not apply. The court disagreed, "The plain language of [the agreement] states that ACS agrees to indemnify and hold [the Girl Scouts] harmless from and against any and all claims … asserted by third parties for damage to person or property …. Giving the language [its] commonly understood meaning, we conclude that [it] contemplates indemnification by ACS for claims asserted by third parties, including its participants such as the decedent herein, for injuries to decedent's person which are related to ACS's use of the camp facility …. Horseback riding by ACS participants is within ACS's use of the camp facility. Therefore, the indemnification provision is applicable."

ACS also claimed that the indemnification clause was an attempt by the Girl Scouts to avoid liability for its own negligent acts, and was therefore unenforceable as against public policy. The court noted that "an agreement may exculpate a person from negligence only where the language doing so is clear and unambiguous." ACS insisted that the facility use agreement "does not contain clear and unambiguous language indemnifying the Girl Scouts for its own negligence." Again, the court disagreed. It noted that "exculpatory clauses" that seek to avoid liability for one's own negligence are not necessarily contrary to public policy so long as they are clear and unambiguous, and the parties have roughly the same bargaining power. The court concluded that the Girl Scouts and ABS were both "sophisticated long-standing corporations" equal in bargaining position, and therefore the indemnification clause was enforceable. The court conceded that the clause did not specifically mention "negligence," but it did identify "any and all" claims relating to ACS's use of the camp, whether the negligence was perpetrated by Girl Scouts or not.

The ACS argued that Kyle's accident was caused by the Girl Scouts' "willful and wanton misconduct," and so the indemnification clause did not apply. The court agreed that "one may not contractually relieve oneself for responsibility for acts constituting willful and wanton misconduct." It concluded that the evidence was not adequate to determine if the Girl Scouts engaged in such conduct, and so it sent the case back to the trial court for further consideration.


Application
. This case demonstrates the legal significance of indemnification clauses. Churches that use the property of another organization for recreational or any other use are sometimes asked to sign a facility use agreement, and church leaders are often surprised to learn that the church is responsible for any costs incurred by the facility owner during the church's use of its facility even if those costs are a result of the facility's own negligent acts. The court in this case acknowledged that indemnification clauses cannot relieve a facility owner of liability for its willful and wanton conduct. This is a common limitation recognized in many states. But, willful and wanton conduct is a difficult standard to prove, which means that in most cases a church will be called upon to pay any damages associated with injuries occurring during its use of another facility, even if those injuries were caused by the negligence of the facility owner. Weiner v. American Cancer Society, 2002 WL 1265575 (Ohio 2002).

© Copyright 2003 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: m58 c0503

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