South Carolina

Legal Developments

Religious Corporation’s Attempt to Block IRS Summons Rejected by Federal District Court

This case provides a helpful review of some of the protections of the Church Audit Procedures Act that were set forth in section 7611 of the tax code.

Richard R. Hammar, Attorney, CPA
Bio

Key point. The tax code provides several protections available to churches in the event the IRS serves notice of a “church tax inquiry” or “church tax examination.”

A federal district court in South Carolina rejected an attempt by a religious corporation to block an IRS summons seeking the production of the corporation’s bank records at eight banks.

A religious corporation (the “plaintiff”) was incorporated as a nonprofit entity in 1972. In its early years, the plaintiff’s primary function was to produce and broadcast a weekly radio program. At some point, the plaintiff began a weekly faith-based television program. In 2015, the plaintiff was informed by the IRS that it had been selected for audit and that the IRS would be seeking access to its bank records. The plaintiff’s accountant informed the IRS agent in charge of the audit that the plaintiff was claiming church status and all the protections of the Church Audit Procedures Act (section 7611 of the tax code). In response, the IRS sent the plaintiff a “notice of church tax inquiry” listing the following areas of concern:

  • Whether the plaintiff had engaged in excess benefit transactions with disqualified persons. The IRS noted that the plaintiff’s chief officer was paid $371,445 in “reportable compensation” plus an additional $48,000 in “other compensation,” described as a parsonage allowance. The next highest paid employee received compensation of $125,596, consisting of a base salary and “commission income based on a fixed percentage of broadcast placement revenue.”
  • Whether the plaintiff had received unrelated (and unreported) business income from the rental of various properties.
  • Whether all compensation was properly reported on W-2s.
  • Whether the plaintiff’s claim of church status was warranted.

The notice asked for several items of information regarding the plaintiff’s religious activities, revenue and expenses, and detailed information on compensation paid to the officers. The plaintiff did not respond to these inquiries on the ground that the IRS officer who signed the notice was “director, exempt organizations,” and not a “high level IRS official” required to sign any notice of church tax inquiry by section 7611 of the tax code.

The IRS informed the plaintiff that “because you did not provide the information we requested, we still think an examination of the organization’s books and records may be necessary.” This letter identified the same concerns previously noted (possible excess benefit transactions, receipt of unrelated business income, failure to report all compensation, and claim of church status).

Rather than further pursuing a church tax examination, the IRS issued summonses to the plaintiff’s banks in 2016. The plaintiff sought to quash the eight summonses on the following grounds:

(1) The purpose was improper because the summonses were issued in support of a church tax inquiry that was not properly authorized under section 7611.

The court noted that section 7611 of the tax code, which incorporates the Church Audit Procedures Act, defines a “church tax inquiry” as “any inquiry to a church to serve as a basis for determining” whether the church is exempt from tax due to its status as a church or is subject to taxation for some other reason (e.g., because it is carrying on an unrelated trade or business). IRC 7611(h)(2).

Section 7611 defines a “church tax examination” as any examination of (A) Church Records at the request of the IRS, or (B) the religious activities of any church. IRC 7611(h)(3). “Church Records” is defined to exclude records acquired “pursuant to a summons to which Section 7609 applies.” IRC 7611(h)(4). “Thus, church tax inquiries and church tax examinations are two distinct investigatory tools used for the same purpose and are directed to the church or to records in the church’s custody (as opposed to church-related records held by a third party).”

The court continued:

Presumably because church examinations are more intrusive, section 7611 provides that a church must be offered a conference before a church tax examination is conducted. Church records and activities may, moreover, only be examined “to the extent necessary to determine” liability for tax or whether the entity was, in fact, operating as a church during the relevant period ….

Third-party summonses are governed by section 7609, not section 7611, even when the summons is issued in connection with a church tax inquiry …. Legislative history confirms that section 7611 is inapplicable to third-party summonses …. The House Conference report [in connection with section 7609] stated the “church audit procedures” did not apply to examination of the types of third-party records sought here, explaining as follows: “Records held by third parties (e.g., cancelled checks or other records in the possession of a bank) are not considered church records for purposes of the conference agreement. Thus … the IRS is permitted access to such records without regard to the requirements of the church audit procedures.

(2) The IRS failed to provide the plaintiff with the required tax inquiry notice before issuing the summonses.

The plaintiff claimed that the IRS had failed to provide proper notice that it might seek information from third parties. The court disagreed, noting that the IRS has provided the plaintiff with this information by providing it with a copy of IRS Publication 1, which advises taxpayers that the IRS may “sometimes talk with other persons if we need information that you have been unable to provide.”

(3) The summonses violate section 7611’s prohibition on repetitive church inquiries.

The court noted that “if any church tax inquiry or examination with respect to any church is completed and does not result in [an adverse consequence] no other church tax inquiry or examination may begin with respect to such church during the applicable 5-year period unless such inquiry or examination is approved in writing by the Treasury Secretary or does not involve the same or similar issues involved in the preceding inquiry or examination.” IRC 7611(f)(1).

The court concluded that occasional correspondence from the IRS that did not constitute church tax inquiries did not count in applying this provision.

What this means for churches

This case provides a helpful review of some of the protections of the Church Audit Procedures Act that were set forth in section 7611 of the tax code. They may be summarized as follows:

Tax inquiries and examinations of churches

Congress has imposed special limitations, found in section 7611 of the tax code, on how and when the IRS may conduct civil tax inquiries and examinations of churches. The IRS may only initiate a church tax inquiry if an appropriate high-level Treasury Department official reasonably believes, based on a written statement of the facts and circumstances, that the organization: (a) may not qualify for the exemption or (b) may not be paying tax on an unrelated business or other taxable activity.

Restrictions on church inquiries and examinations

Restrictions on church inquiries and examinations apply only to churches and conventions or associations of churches. They don’t apply to related organizations. For example, the rules don’t apply to schools that, although operated by a church, are organized as separate legal entities. Similarly, the rules don’t apply to integrated auxiliaries of a church.

Restrictions on church inquiries and examinations do not apply to all church inquiries by the IRS. The most common exception relates to routine requests for information. For example, IRS requests for information from churches about filing of returns, compliance with income or Social Security and Medicare tax withholding requirements, supplemental information needed to process returns or applications, and other similar inquiries are not covered by the special church audit rules.

Restrictions on church inquiries and examinations don’t apply to criminal investigations or to investigations of the tax liability of any person connected with the church, such as a contributor or minister.

The procedures described in section 7611 are used in initiating and conducting any inquiry or examination into whether an excess benefit transaction has occurred between a church and a pastor or other insider.

Audit process

The sequence of the audit process is:

  • If the reasonable belief requirement is met, the IRS must begin an inquiry by providing a church with written notice containing an explanation of its concerns.
  • The church is allowed a reasonable period in which to respond by furnishing a written explanation to alleviate IRS concerns.
  • If the church fails to respond within the required time, or if its response is not sufficient to alleviate IRS concerns, the IRS may, generally within 90 days, issue a second notice, informing the church of the need to examine its books and records.
  • After issuance of a second notice, but before commencement of an examination of its books and records, the church may request a conference with an IRS official to discuss IRS concerns. The second notice will contain a copy of all documents collected or prepared by the IRS for use in the examination and subject to disclosure under the Freedom of Information Act, as supplemented by code section 6103 relating to disclosure and confidentiality of tax return information.
  • Generally, examination of a church’s books and records must be completed within two years from the date of the second notice from the IRS.

If at any time during the inquiry process the church supplies information sufficient to alleviate the concerns of the IRS, the matter will be closed without examination of the church’s books and records. There are additional safeguards for the protection of churches under section 7611. For example, the IRS can’t begin a subsequent examination of a church for a five-year period unless the previous examination resulted in a revocation, notice of deficiency or assessment, or a request for a significant change in church operations, including a significant change in accounting practices. Bible Study Time v. United States, 2017 WL 897818 (D.S.C. 2017).

Legal Developments

Denominational Church Has No Ownership Interest in Breakaway Church, Rules South Carolina Court

Church Law and Tax Report Denominational Church Has No Ownership Interest in Breakaway Church, Rules

Church Law and Tax Report

Denominational Church Has No Ownership Interest in Breakaway Church, Rules South Carolina Court

Key point 7-03.3. Most courts apply the “neutral principles of law” rule in resolving disputes over the ownership and control of property in “hierarchical” churches. Under this rule, the civil courts apply neutral principles of law, involving no inquiry into church doctrine, in resolving church property disputes. Generally, this means applying neutral legal principles to non- doctrinal language in any one or more of the following documents: (1) deeds to church property;(2) a church’s corporate charter; (3) a state law addressing the resolution of church property disputes; (4) church bylaws; or (5) a parent denomination’s bylaws.

Key point 7-04.Churches and denominational agencies can avoid church property disputes by adopting appropriate nondoctrinal language in deeds, trusts, local church bylaws, or denominational bylaws.

A South Carolina appeals court ruled that a denomination did not have a legal interest in the property of a local church that voted to disaffiliate from the denomination. A regional denominational agency of the African Methodist Episcopal Church (the “regional church”) claimed an interest in a 5-acre tract and bank account of a church that voted to disaffiliate from the denomination. A trial court ruled that the regional church failed to prove any ownership interest in the property or bank account, and the regional church appealed.

A state appeals court agreed with the trial court. In rejecting the regional church’s argument that the properties of all affiliated churches were held in trust for the national church according to the denomination’s Book of Discipline, the court pointed to a state law specifying that “to be valid, a trust of real property, created by transfer in trust or by declaration of trust, must be proved by some writing signed by the party creating the trust.” The court referred to a ruling by the state supreme court that provisions in denominational governing documents purporting to impose a trust on the property of affiliated churches “could not have created a trust over the local church’s property because, without legal title to the property, a denominational church could not declare the property was held in trust … . It is an axiomatic principle of law that a person or entity must hold title to property in order to declare that it is held in trust for the benefit of another or transfer legal title to one person for the benefit of another.” All Saints Parish Waccamaw v. Protestant Episcopal Church, 685 S.E.2d 163 (S.C. 2009).

The court noted that “nothing in the chain of title for the 5-acre tract suggests [that the local church] intended to hold the property in trust for the [national church] … . The [regional church] presented no signed documentation to indicate [the local church] ever intended or explicitly agreed to hold such property in trust for the [national church].”

The court also noted that simply including the denomination’s name in the church’s name did not demonstrate that the 5-acre tract was held in trust for the national church.

The court agreed with the trial court’s determination that the denomination had no legal interest in the church’s bank account. It noted that the disputed account consisted largely of donations by members for repair of the sanctuary, and that there was no evidence that the church intended for these funds to be held in trust for the denomination.

The church also owned a 13-acre tract, and when this tract was purchased, the deed provided that the tract was held in trust for the denomination. The court concluded that this tract was held in trust for the denomination, and that the church could not, on its own initiative, avoid this limitation: “A trust does not terminate or lapse merely by reason of the violation of the trust by the trustee.” The court noted that there was no evidence that the national church authorized the local church to convey the property to itself. Further, there was no evidence that the church had authority to revoke the trust or that the national denomination approved such a transfer.

What This Means For Churches:

This case illustrates the “neutral principles of law” approach to resolving disputes over the ownership of the property of local churches that vote to disaffiliate from a parent denomination. According to this court, a provision in a denomination’s governing document purporting to impose a trust upon the property of every affiliated church in favor of the denomination will be enforceable only if it comports with the requirements of a valid trust prescribed by state law. And, in South Carolina, this requires signed consent by a church to the imposition of the trust. It cannot be done unilaterally without the express consent of the churches that will be directly affected.

Note two important points. First, not all courts agree with this case. While a majority of courts have endorsed the neutral principles approach, many apply the “compulsory deference rule,” which allows denominations themselves to sort out and resolve controversies over the ownership of church property. Second, even in states recognizing the neutral principles approach, there are at least three ways for denominational agencies to respond:

1. They can create trust provisions in their governing documents that are affirmatively accepted by affiliated churches. While the South Carolina court did not mention it, an argument can be made that churches in some cases do affirmatively consent to provisions in the governing documents of a parent denomination that seek to impose a trust on church property if, for example, churches and their representatives comprise some or all of the voting delegates at denominational meetings in which governing documents are adopted and amended. Under these circumstances, which are common, denominational governing documents are not imposed unilaterally by the national church on affiliated churches. Rather, the churches themselves, by their delegates and representatives, adopt and amend the denominational governing documents at the official meetings of the denomination. This provides a compelling case of an affirmative assent by affiliated churches to the provisions of their denominational governing documents, but it is an argument that the South Carolina court failed to address, perhaps because it was not raised.

2. It is possible in some cases that church property is subject to an implied or resulting trust in favor of a denominational agency. Again, there must be an affirmative manifestation of intent by a church that its property is subject to such a trust.

3. The United States Supreme Court noted in the Jones case that there may be cases where a denomination’s governing documents incorporate “religious concepts in the provisions relating to the ownership of property. If in such a case the interpretation of the instruments of ownership would require the civil court to resolve a religious controversy, then the court must defer to the resolution of the doctrinal issue by the authoritative ecclesiastical body.” Jones v. Wolf, 443 U.S. 595 (1979). This means that it may be possible for the governing documents of national and regional churches to include provisions addressing ownership of local church property in a way that directly implicates religious doctrine. In such cases, the courts may be compelled to defer to the resolution of property disputes by the denominational authorities. McPherson v. Banks, 2015 WL 4275948 (S.C. App. 2015).

Legal Developments

Defamation Claim Against Church

Courts may resolve church disputes if they can do so without inquiring into church doctrine.

Richard R. Hammar, Attorney, CPA
Bio

Church Law & Tax Report

Defamation Claim Against a Church

Courts may resolve church disputes if they can do so without inquiring into church doctrine.

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

Key point 6-06.4. Church officers and directors can be removed from office in the manner authorized by the church’s governing documents. It is common for church bylaws to give the membership the authority to remove officers and directors who engage in specified misconduct or change their doctrinal position.

A South Carolina court ruled that it could resolve a defamation claim brought by dismissed church board members against their church since it could do so solely on the basis of neutral principles of law without any inquiry into church doctrine. A church relocated to a new facility. The congregation thereafter approved the church board’s request to borrow funds to purchase and improve a nearby apartment building. After the purchase, the apartment building caught fire and the church learned it did not have insurance on the building. The church also learned that church property was serving as collateral for the loan used to purchase the apartment building. At a congregational meeting, the pastor made a presentation to the congregation providing the reasons he believed the board members should be removed from office.

The dismissed board members (the “plaintiffs”) sued the pastor and church for negligence, and the pastor for defamation and emotional distress. The plaintiffs alleged that at the congregational meeting, the pastor told the congregation that the plaintiffs had placed a $300,000 mortgage on the church property to purchase some nearby apartments without his knowledge and failed to insure them. They asserted that the pastor also informed the congregation that they had mismanaged money and money was missing from the church. They further alleged that the pastor informed the congregation that he had been constantly deceived by the plaintiffs and that they should be removed from the board. A trial court dismissed the lawsuit, and the plaintiffs appealed.

The appeals court began its opinion by noting that when resolving church disputes, most courts apply the “neutral principles of law approach.” Under this approach: “(1) courts may not engage in resolving disputes as to religious law, principle, doctrine, discipline, custom, or administration; (2) courts cannot avoid adjudicating rights growing out of civil law; [and] (3) in resolving such civil law disputes, courts must accept as final and binding the decisions of the highest religious judicatories as to religious law, principle, doctrine, discipline, custom, and administration.”

The court concluded that the plaintiffs’ defamation claim could be resolved using legal principles without examining any religious questions, and, “because the trial court can completely resolve a church dispute on neutral principles of law, the First Amendment commands it to do so.” It stressed that the trial court “would not need to look at the church’s beliefs to determine if the statements constitute defamation. Accordingly, the trial court erred in dismissing the defamation cause of action. Therefore, the dismissal of the defamation action should be reversed and the action remanded for trial.” The court noted that courts in other states had refused to resolve defamation claims involving church leaders, but concluded that those courts “could not determine if the claim was defamation without looking into the churches’ beliefs.”

The court agreed with the pastor and church that the plaintiffs’ negligence claim had to be dismissed since it could not be resolved without delving into church doctrine. It noted that the plaintiffs alleged that the church had been negligent in hiring the pastor and not conducting its own investigation into the facts before the congregational meeting was held. The negligence claim against the pastor alleged that he was negligent in asking the congregation to remove the members of the board and in not conducting his own investigation of the facts before the meeting was held. The court concluded: “All of these allegations involve the administrative procedures of the church which … courts cannot examine.”

What This Means for Churches:

This case illustrates the view of some courts that the First Amendment does not prohibit the civil courts from resolving defamation claims against churches and church leaders so long as such claims can be resolved solely on the basis of neutral principle of law without reference to church doctrine or polity.

There is another interesting aspect of this case that should be noted. The plaintiffs relied upon the minutes of the congregational meeting in supporting their claim of defamation. The minutes taken at the congregational meeting reflect that the pastor stated “the church had been mortgaged and there was no insurance on the buildings that had been purchased,” a $300,000 mortgage he did not know about had been placed on the church building, and he had been “constantly deceived throughout.” This illustrates the importance of using care in drafting minutes of membership or board meetings to ensure that statements are not being recorded that can be used against the church in subsequent litigation. Banks v. St. Matthew Baptist Church, 706 S.E.2d 30 (S.C. App. 2011).

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

Legal Developments

Employer Not Liable for Man’s Rape of Coworker

Employers are only liable on the basis of negligent hiring if the worker’s act was foreseeable.

Richard R. Hammar, Attorney, CPA
Bio


Key Point 10-05. A church may be liable on the basis of negligent selection for a worker's molestation of an adult 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.

Key Point 10-05.2. Some courts have found churches not liable on the basis of negligent selection for the sexual misconduct of a minister or other church worker involving another adult since the church exercised reasonable care in the selection of the worker.

Key Point 10-05.3. Churches can reduce the risk of liability based on negligent supervision for sexual misconduct involving adult victims by adopting risk management policies and procedures.

A South Carolina court ruled that an employer's knowledge that an employee had been convicted six years earlier for the misdemeanor offense of publicly exposing himself in a park did not make it foreseeable that the employee would rape a coworker, and therefore the employer was not liable on the basis of negligent hiring for the employee's assault. A male employee ("Mark") at an assisted living center for the mentally disabled raped a co-employee (the "plaintiff") while at work. The plaintiff sued her employer, claiming that it had been negligent in hiring Mark, and that its negligence resulted in the assault. When it hired Mark, the employer ran a criminal background check. The background check revealed one misdemeanor charge for disorderly conduct as a result of exposing himself in a public park, and one speeding violation. As company policy, the employer relies on self-disclosure by its employees to report any criminal convictions that occur after an employee is hired. Mark did not inform his employer of any criminal convictions after being hired. During his five years of employment, Mark was accused on two occasions of sexually molesting a patient. Both accusations were investigated, and later dropped due to a lack of evidence. Mark was allowed to continue his employment without restriction.

The employer asked the court to dismiss the plaintiff's lawsuit on the ground that there was no evidence that Mark would sexually assault a co-worker. In opposition, appellant argued that, and so it had not been negligent in hiring, supervising, or retaining him. The court agreed with the employer, and dismissed the lawsuit. The plaintiff appealed.

On appeal, the plaintiff argued that although the employer performed a criminal background check, it did not conduct any additional inquiry or investigation to discover that Mark's conviction for disorderly conduct was sexual in nature. She cited a detective's testimony that the disorderly conduct conviction was for public exposure in a public park that "is known for sexual activity."

The court began its opinion by noting that "in a negligent hiring context, a plaintiff must show at a minimum, that the employer knew, or should have known, of the employee's criminal propensities. When determining the foreseeability of a criminal act, a court must look at the totality of the circumstances, and only when the circumstances are somewhat overwhelming can an employer be held liable."

Criminal records check

The court concluded that the plaintiff had failed to prove that Mark's assault was reasonably foreseeable.

Before hiring him, the employer performed a criminal background check through the Ohio Bureau of Criminal Investigation. His conviction for disorderly conduct was included on the BCI report. The plaintiff argues that the employer should have conducted periodic background checks while Mark was employed. However, there is no evidence that any additional crimes would have shown up on these reports nor does appellant present any evidence that he actually committed any crime while he was employed.

In rejecting the plaintiff's claim that Mark's conviction for disorderly conduct made her rape foreseeable, the court noted that Mark's act of exposing himself in the public park "was not a physical assault that would demonstrate to his employer that he would potentially rape a fellow employee …. It would be quite a stretch to suggest that his disorderly conduct charge from 1999 demonstrates that he would be likely to commit a rape in 2005."

The two previous accusations

The court also rejected the plaintiff's claim that the two prior accusations of sexual misconduct made her rape foreseeable, and therefore the employer was liable on the basis of negligent hiring:

The plaintiff notes that the allegations were found to be "unsubstantiated," but implies that the assault actually occurred and shows that the rape was foreseeable. Her argument is unpersuasive. Both the [local and county] police investigated the matter and concluded that the allegation was unfounded. The resident had a history of making false allegations. Further, Mark had four years of experience at the time of the allegation with no prior allegations of abuse and passed a lie detector test. There is no evidence that the employer acted unreasonably during the situation.

Mental health issues

The plaintiff noted that a detective had informed the employer, prior to the rape, that she found Mark to be "odd," and that he was not taking his medicine for borderline schizophrenia and bipolar disorder. Further, the plaintiff claimed that Mark took an FMLA leave-of-absence for these issues. The plaintiff concluded that the employer should have conducted an independent evaluation of Mark's mental health before allowing him to return to work. The court disagreed, noting that "this does not show foreseeability of the rape." To the contrary, the employer testified that she never saw any signs that Mark was mentally unstable or threatening in any way. Even if he was suffering from these disorders, "there is no evidence that they would make him violent or prone to commit a sexual assault. Further, his doctor released him to return to work without restriction following his FMLA leave. Accordingly, the plaintiff fails to demonstrate that a genuine issue of material fact exists regarding negligent hiring, supervision or retention.

Application. This case is instructive for the following five reasons. First, the court correctly noted that an employer generally cannot be liable on the basis of negligent hiring for an employee's criminal act unless the act was reasonably foreseeable based on what the employer knew or in the exercise of reasonable care should have known.

Second, the court concluded that an employee's misdemeanor conviction for public exposure in a park did not make it foreseeable that the employee would rape a coworker six years later, even if the park had a reputation for illegal sexual activity. In particular, the court noted that Mark's act of exposing himself in the public park "was not a physical assault that would demonstrate to his employer that he would potentially rape a fellow employee …. It would be quite a stretch to suggest that his disorderly conduct charge from 1999 demonstrates that he would be likely to commit a rape in 2005."

Third, the court concluded that the employer's failure to conduct periodic criminal background checks on Mark did not make it negligent, since "there was no evidence that any additional crimes would have shown up on these reports" and there was no proof that Mark "committed any crime while he was employed."

Fourth, the court concluded that the two previous accusations of sexual misconduct against Mark did not make his subsequent rape of the plaintiff foreseeable, since (1) those accusations were investigated by local and county police and adjudged to be unsubstantiated, and (2) the purposed victim had a reputation for making false accusations.

Fifth, Mark's mental health problems did not make his rape of the plaintiff foreseeable, and therefore the employer could not be liable on the basis of negligent hiring. Prewitt v. Alexson Services, Inc., 2008 WL 3893575 (Ohio App. 2008).

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

Legal Developments

Property Disputes and Bylaws

Churches and denominational agencies can avoid church property disputes by adopting appropriate nondoctrinal language in deeds, trusts, local church bylaws, or denominational bylaws.

Richard R. Hammar, Attorney, CPA
Bio

Key point 7-04. Churches and denominational agencies can avoid church property disputes by adopting appropriate nondoctrinal language in deeds, trusts, local church bylaws, or denominational bylaws.

A South Carolina court ruled that the property of a church that voted to disaffiliate from a parent denomination belonged to the denomination as a result of provisions in the denomination's bylaws.

In 1988 an Assembly of God church established a mission church (the "church") as an outreach to another area of the community. The church initially met in various locations, including a daycare center and theater. It purchased property in 1994 on which it later built a worship facility. According to the Article XI, section 2(a) of the Constitution of the South Carolina District Council of the Assemblies of God, "groups of believers which are still in the formative stages shall be recognized as District Affiliated Assemblies" and "shall be under the supervision of the District Presbytery which shall serve as trustees thereof."

This section further provides that "District Affiliated Assemblies which have matured sufficiently to accept their full share of responsibility for the maintenance of scriptural order, shall be entitled to recognition as autonomous General Council affiliated churches." The term "General Council" refers to the national Assemblies of God church.

In 1999, the church, having formerly been under the supervision of the South Carolina District Council of the Assemblies of God successfully applied for affiliation with the General Council.

While the church initially supported district-wide activities sponsored and planned by the District Council, its involvement in these programs began to decline in 2002. In 2003, the District Superintendent wrote the church expressing his concerns about the decreased participation. The church responded with a letter renouncing all ties to the Assemblies of God. The letter stated that the church would hold a business meeting to discuss changes in its bylaws, including a vote by the congregation regarding a proposed change in affiliation. With this letter the pastor enclosed his license as an Assemblies of God minister.

Before the District Council received this letter, however, the pastor had already met with members of the church board about his intended change in affiliation, consulted a lawyer about whether the congregation could keep the worship facility if they followed him, and announced to the congregation that he was leaving the Assemblies of God to join another group. He assured the congregation that "this building belongs to us. The district had nothing to do with this."

After reviewing the pastor's actions, the District Council no longer considered him to be "a credentialed minister in good standing," a condition necessary for the church's continued affiliation with the General Council. Several current and former church members sent letters to the District Council expressing their dismay about the pastor's plans to disaffiliate the church from the Assemblies of God. Notwithstanding these complaints, the pastor convened a business meeting at which the congregation voted sixty-three to three to leave the Assemblies of God. Thereafter, the District Council initiated formal disciplinary proceedings against the pastor; and the General Council stripped him of his credentials to serve as a minister in the Assemblies of God.

Since the vote to disaffiliate, the church continued to occupy and possess the property. The District Council and three members of the congregation who remained loyal to the Assemblies of God (the "plaintiffs") asked a court to determine the status of the church's property in light of its purported disaffiliation. A trial court ruled that the District Council controlled the church property. It relied on Article VI, Section 5 of the General Council bylaws, which provides:

If a General Council affiliated church is unable to meet any of the criteria for affiliation as set forth in the Constitution, Article XI, Section 1, paragraph a, it shall seek the assistance of the District officers for help in maintaining the minimal requirement for General Council affiliation. The District may use any means prescribed by its bylaws to assist the church in returning to a position of strength. If the minimal requirements have not been attained, the church shall revert to District affiliated status until the minimal requirements for General Council affiliation have been attained.

The court noted that one of the criteria for affiliation spelled out in the constitution was "a credentialed minister in good standing" with the Assemblies of God. Since this requirement was no longer met after the District Council revoked the pastor's credentials, the church automatically reverted to District affiliated status, meaning that the District Council was in charge of church property and governance. The court stressed that Article VI, Section 5, states that "if the minimal requirements [for affiliation of a local church with the General Council] have not been attained, the church shall revert to District affiliated status until the minimal requirements for General Council affiliation have been attained."

A state appeals court agreed with the trial court's conclusions: "Based on [Article VI, Section 5, of the General Council bylaws] and the absence of 'a credentialed minister in good standing' with the General Council, we hold the trial court correctly found [the church] had reverted to district-affiliated status and, pursuant to Article VII, section 1(b) of the bylaws of the South Carolina District Council, was thus required to 'conduct all its business in accordance with the Constitution and Bylaws for District Affiliated Assemblies as provided by the South Carolina District Council.'" Because the church had become a district-affiliated church, the District Council was entitled to its assets upon the congregation's decision to leave the Assemblies of God. In support of its finding, the court cited Article XI, section 1(b) of the Constitution and Bylaws for District Affiliated Assemblies in Affiliation with the South Carolina District Council of the Assemblies of God, which provides as follows:

In the event this local assembly should at any time cease to function as an Assemblies of God church under the jurisdiction of the South Carolina District Council of the Assemblies of God … then the tangible property belonging to said church, real or personal, and all the interest of said church, real or equitable, in any and all property shall be and thereupon become the property of the South Carolina District of the Assemblies of God.

The court concluded: "Under the above-quoted provisions, when the congregation voted to disaffiliate from the Assemblies of God, it ceased to function as an Assemblies of God church under the jurisdiction of the District Council and the church property thereupon [became] the property of the South Carolina District of the Assemblies of God."

The church argued that according to Article VI, Section 5, of the General Council bylaws, a reversion did not immediately follow from a church's failure to meet the affiliation requirements. The court disagreed: "The plain and unambiguous language of the bylaw, however, undermines that argument. Nowhere does the bylaw prescribe an amount of time that must pass before a reversion can occur."

Finally, the church contended that the court should have resolved this dispute on the basis of a "neutral principles of law" analysis that is commonly used in the resolution of church property disputes. Under this analysis, the civil courts apply neutral principles of law involving no inquiry into church doctrine in resolving church property disputes.

Generally, this means applying neutral legal principles to nondoctrinal language in any one or more of the following documents: (1) deeds to church property; (2) a church's corporate charter; (3) a state law addressing the resolution of church property disputes; (4) church bylaws; or (5) a parent denomination's bylaws.

The court noted that "to the extent this argument applies to the trial court's determination that the church's property reverted to the District Council upon its attempted secession from the Assemblies of God, we note that under the neutral principles of law doctrine, if the resolution of a church property dispute requires the interpretation of a religious doctrine as stated in a constitution, then a civil court hearing the case must defer to the authoritative ecclesiastical body's interpretation of that doctrine. Because the dispute in this case required such an interpretation, the trial court properly deferred to the opinions of the officials of the District Council and the General Council about the changes in the status of the church and the pastor's status as a credentialed minister in good standing." South Carolina District Council of Assemblies of God v. River of Life International Worship Center, 643 S.E.2d 104 (S.C. App. 2007).

Legal Developments

Discrimination Liability for Churches of Less Than 15 Employees

A federal district court in South Carolina ruled that only employers with at least 15 employees are subject to the nondiscrimination provisions of Title VII of the Civil Rights Act of 1964.

Richard R. Hammar, Attorney, CPA
Bio

Church Law & Tax Report

Discrimination Liability for Churches of Less Than 15 Employees

A federal district court in South Carolina ruled that only employers with at least 15 employees are subject to the nondiscrimination provisions of Title VII of the Civil Rights Act of 1964.

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

Key point 8-05.1. Many federal employment and civil rights laws apply only to those employers having a minimum number of employees. In determining whether or not an employer has the minimum number of employees, both full-time and part-time employees are counted. In addition, employees of unincorporated subsidiary ministries of a church are counted. The employees of incorporated subsidiary ministries may be counted if the church exercises sufficient control over the subsidiary.

* A federal district court in South Carolina ruled that only employers with at least 15 employees are subject to the nondiscrimination provisions of Title VII of the Civil Rights Act of 1964, and that the 15 employee requirement could not be achieved by combining a local church’s employees with the employees of a Diocese. A woman (Nancy) was employed by a church as a secretary. The church choir director used a sexually offensive term in speaking with Nancy on one occasion. When she complained, a member of the church board told her that the church could not guaranty that language offensive to her would not be used in the church office and suggested that she resign if she could not work without such a guaranty. Nancy quit shortly after this conversation, and later sued the church for sexual harassment and retaliation in violation of Title VII of the Civil Rights Act of 1964 (Title VII). At the time of Nancy’s resignation, the church had three other paid employees (the pastor, choir director, and a Sunday nursery worker).

Title VII prohibits employers that have at least 15 employees, and are engaged in interstate commerce, from discriminating in any employment decision on the basis of race, color, national origin, sex (including sexual harassment), and religion. Nancy conceded that Title VII only applied to employers having at least 15 employees, but she claimed that this requirement was met under the so-called “integrated employer” test by combining the church’s employees with those of the Diocese with which the church was affiliated.

The court conceded that under the integrated employer test, “several companies may be considered so interrelated that they constitute a single employer.” In deciding whether to treat separate corporate entities as an integrated employer, “the factors courts have considered include: (1) common management; (2) interrelation between operations; (3) centralized control of labor relations; and (4) degree of common ownership/financial control. However, no single factor is conclusive and the test is not uniformly applied.”

The court concluded that the facts in this case did not support application of the integrated employer test:

Taken in the light most favorable to the plaintiff the only evidence is that the church is part of the Diocese, the Diocese provides funding to the church and the church provides funding to the Diocese, the Diocese currently employs over 15 employees at the Diocese office, plaintiff was provided health insurance through the Diocese office, the Diocese provides resolutions to the church, and the church is organized under the Diocese.

More specifically the undisputed facts are that the rector manages the day-to-day operations of the church by supervising the staff as well as conducting planning and looking after the well-being of the parish. Plaintiff was hired by the church vestry, not the Diocese. Plaintiff has always been supervised by the current or former rector of the church. Plaintiff’s job essentially entailed performing whatever tasks the rector asked of her. The rectors of the church are hired by the church and not the Diocese. The vestry is a twelve member board of directors elected by members of the church. Each Episcopal church, or parish, operates pursuant to its own bylaws, and every parish’s bylaws are different. The rector, and not the Diocese, was responsible for supervising the staff of [the church]. Finally while the Diocese provided the church with income to finish a renovation, since then, the church has been fully self supporting but does send money each year to the Diocese.

The court concluded that “these facts fail to support the plaintiff’s claim of an integrated employer in order to meet the numerosity requirements of [Title VII].”

Application. This case is of great importance. If the employees of regional and national denominational agencies can be added to those of local churches in meeting Title VII’s 15-employee requirement, this would expose virtually every church in America with a denominational affiliation, regardless of size, to the proscriptions and potential liabilities of Title VII. Churches with only one or two employees would be subject to Title VII and EEOC scrutiny. The court’s decision in this case is reasonable and correct. The limited ties that generally characterize the relationship between churches and denominational agencies is far short of the “domination and control” needed to trigger “integrated employer” status. This case will be directly relevant to any church in defending against Title VII coverage based on the integrated employer doctrine. This doctrine is sometimes called the “single entity” or “single employer” doctrine. Cox v. St. Stephen’s Episcopal Church, 2006 WL 2668782 (D.S.C. 2006).

Legal Developments

Building Rental for Church Use

A federal court in South Carolina ordered a public school district to continue allowing a church to rent a school building for weekly worship services.

Richard R. Hammar, Attorney, CPA
Bio

Church Law & Tax Report

Building Rental for Church Use

A federal court in South Carolina ordered a public school district to continue allowing a church to rent a school building for weekly worship services.

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

Key point 14-05. The First Amendment permits religious congregations to use public property for church services so long as the use is temporary and the congregation pays fair rental value.

* A federal court in South Carolina ordered a public school district to continue allowing a church to rent a school building for weekly worship services, and rejected the school district’s arguments for discontinuing the arrangement. A church used a public school building to conduct weekly services pursuant to a school district policy that allowed “recognized nonprofit community organizations” to use school facilities. The school district initially granted the church permission to use the school for a three month period. The church paid a rental fee of $250 per week and $15 per hour for the services of a custodian who was present at the school as required by the policy. At the end of the three month term, the school district granted the church permission to use the school for an additional three months. At the end of this second three month term the church asked for an additional three months since it was still finalizing arrangements to hold services at another location. However, the school district informed the church that its occupancy would not be extended. A school district officer explained that the district did not want to set a precedent by allowing the church to use school facilities for an extended period because then other “undesirable” groups such as religious cults would want to use the facilities.

The church asked a court to issue a preliminary injunction allowing it to use the school for an additional three months. The court noted that in deciding whether or not to issue a preliminary injunction it had to consider four factors: (1) the likelihood of “irreparable harm” to the plaintiff if the preliminary injunction is denied; (2) the likelihood of harm to the defendant if the requested relief is granted; (3) the likelihood that the plaintiff will succeed on the merits; and (4) the public interest. The court concluded that the first factor was met, since a denial of the injunction would prevent it from exercising its First Amendment rights of speech and religion. The court agreed, noting that “the loss of First Amendment freedoms, for even minimal periods of time, unquestionably constitutes irreparable injury.”

The school district insisted that the second factor required the court to reject the church’s request for an injunction. It noted that an injunction would harm the school district in three ways: (1) An injunction would expose the school district to potential penalties under the Fair Labor Standards Act as a result of the church asking the school custodian to be present several hours each week in addition to his regular 40-hour job. (2) An injunction would expose the school district to potential violations of the Americans with Disabilities Act since the church used a wheelchair ramp to store various items used during its Sunday worship services. (3) An injunction would expose the school district to a violation of the First Amendment ban on an establishment of religion since it would “subsidize” religion by allowing the church to continue using public property at a “below market” rental fee. The court rejected all of these examples of harm to the school district. It pointed out that any violation of the Fair Labor Standards Act’s overtime requirement could be remedied by ensuring that the church complies with the law. Similarly, the alleged ADA violation could be avoided by requiring the church to comply with the rental agreement which prohibited any storage of materials on the premises. The court further noted that all users of school property were charged the same amount, and so no “subsidy” was being provided to religion. Any “harm” to the school district “was a result of its own actions.”

The court next addressed the third and fourth factors to be considered in deciding whether to issue a preliminary injunction. It concluded that both factors supported the issuance of the injunction. Gracepointe Church v. Jenkins, 2006 WL 1663798 (D.S.C. 2006).

Legal Developments

Recent Developments in South Carolina Regarding Personal Injuries

A South Carolina court ruled that a church was not liable for injuries sustained by a person when he was attacked on church property.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax1999-03-01

Personal Injuries

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

• Key point. A church is not necessarily liable for assaults that occur on its premises unless it knew or should have known that the offender was likely to engage in such acts.

A South Carolina court ruled that a church was not liable for injuries sustained by a person when he was attacked on church property. A church owned an apartment complex that is used as low income housing. Despite the fact that the apartment building was in a high-crime area, and church leaders were aware of numerous incidents of criminal behavior occurring within the building, the church did not provide a security guard. A man (the “victim”) was injured when he was attacked while visiting a friend in the apartment building. The victim sued the church, claiming that it was responsible for his injuries on the basis of negligence. A state appeals court disagreed. The court observed:

A [property] owner has a duty to take reasonable care to protect invitees. However, this duty does not extend to protection from criminal attacks from third persons unless the owner knew or had reason to know the criminal attack would occur… . In this case [the victim and his mother] stated they knew of criminal activity that had occurred at [the apartment building] in the past, including an alleged shooting. In addition [the victim] asserted he knew [his attacker] was a violent person and that he had seen [him] involved in other fights at the complex. However, there is no evidence in the record that [the church] was aware of [the attacker’s] previous fights or of any incident that day that would put management on notice the attack [on the victim] might occur. Therefore [the church] had no duty to protect [the victim] from an intentional attack ….

Application. Unfortunately, church members occasionally are assaulted on church property. To illustrate, members have been assaulted on church parking lots while walking toward their car at night after a service or event at their church. Is the church legally responsible for such assaults? This case suggests that the church can be responsible only if it was aware of previous assaults on its premises. Property owners are not liable for such assaults unless they know or have reason to know the criminal attack would occur. As a result, churches that have had members assaulted in their parking lot, or on other portions of their premises, should recognize that they are at a higher risk of liability for injuries suffered by future assault victims. The church may be legally responsible for such injuries unless it can demonstrate that it used reasonable care in protecting against such attacks. How can a church do so? Churches have used some or all of the following measures: (1) Provide adequate illumination of the parking lot. (2) Designate “escorts” who will accompany persons to their car upon request. (3) Station volunteers in the parking lot. (4) Install a wide-angle video camera on the church roof. (5) Have a uniformed security guard, or off-duty police officer, monitor the parking lot. For more suggestions, church leaders should contact their insurance agent. Goode v. St. Stephens United Methodist Church, 494 S.E.2d 827 (S.C. 1998). [Premises Liability]

© Copyright 1999 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m58 m86 c0299

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Legal Developments

Dismissed Ministers’ Rights to Pension Benefits

Court rules that it is permitted to resolve claim.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1997-11-01

Retirement Plans

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

• Key point. The civil courts are prohibited by the first amendment guaranty of religious freedom from resolving lawsuits brought by dismissed clergy challenging a loss of their retirement benefits based on their dismissed status, especially if the resolution of such a dispute would require consideration of ecclesiastical matters.

The South Carolina Supreme Court ruled that the civil courts could resolve a dispute over a dismissed minister’s right to pension benefits. A minister served from 1952 until he retired in 1986 in churches of the Church of God (the Church). During his 33—year active ministry, he made the required monthly contribution to the Aged Ministers Pension Plan Fund of 4 percent of his gross income from the ministry. Following his retirement, he began receiving payments from the Fund. Payments from the Fund are governed by the Minutes of the Church of God, which provide that “any aged minister receiving benefit from the Aged Ministers’ Fund whose ministry has been revoked shall cease to draw compensation from the fund.” The Minutes further provide that “the license of a minister must be revoked when found guilty of adultery or fornication.” In 1989 the Church revoked the minister’s license after he confessed to adultery, and he stopped receiving pension payments. The minister sued the Church claiming that although the Church revoked his pastoral “license,” the Church did not thereby effectively revoke his “ministry.” He also argued that the Church could not have revoked his ministry by revoking his license because once he retired he had no “ministry” to revoke. A trial court agreed with the minister that his pension benefits had been wrongfully terminated by the Church, and awarded him $71,000 in damages. The state supreme court disagreed. It began its opinion by identifying the following three principles that emerge from a reading of decisions by the United States Supreme Court:

(1) courts may not engage in resolving disputes as to religious law, principle, doctrine, discipline, custom, or administration; (2) courts cannot avoid resolving rights growing out of civil law; and (3) in resolving such civil law disputes, courts must accept as final and binding the decisions of the highest religious judicatories as to religious law, principle, doctrine, discipline, custom, and administration.

The court concluded that the first amendment did not prevent it from resolving this case, since it was not being asked to adjudicate a matter of religious law, principle, doctrine, discipline, custom, or administration.” Rather, it was being asked to resolve a contractual dispute: “The issue here is the effect of the revocation of [the pastor’s] ministry on the pension agreement he had with the Church. This case simply requires the application of neutral principles of contract law and very little inquiry into religious law.” The court noted that the Church’s Minutes were “very clear” that if the pastor’s ministry was revoked he was not entitled to draw compensation from the Aged Ministers’ Fund. The court refused to address the former pastor’s claims that as a retired minister he had no ministry to “revoke,” and that revocation of a license to preach is not the same as revocation of ministry. These claims were “foreclosed by the fact that a court must accept the doctrinal and administrative determinations of the highest ecclesiastical body of the Church.” The court concluded that “because the [Minutes] unambiguously allowed the Church to discontinue [the former pastor’s] pension payments as a result of the revocation of his ministry, the trial court should have directed a verdict in favor of the Church.” Pearson v. Church of God, 478 S.E.2d 849 (S.C. App. 1995). [Termination, Judicial Resolution of Church Disputes]

© Copyright 1997, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m63 c0697

Legal Developments

Denomination Not Liable for Pastor’s Misconduct

A denomination is not necessarily responsible for the acts of its pastors.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1997-07-01

Sexual Harassment

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

• Key Point. Denominational agencies are not necessarily liable for a pastors acts of sexual harassment on the basis of negligence, invasion of privacy, breach of fiduciary duty, emotional distress, fraud, or clergy malpractice.

A South Carolina court ruled that a denominational agency and one of its officials were not liable on the basis of negligence, invasion of privacy, fiduciary duty, emotional distress, or fraud for a pastors acts of sexual harassment. Three female church members claimed that their pastor sexually harassed and abused them over a period of several months. The district superintendent of a state denominational agency (the “Conference”) learned of the allegations, and asked the three women to appear before a “staff—parish relations committee” of their church. At the meeting each woman was given an opportunity to describe the pastors allegedly inappropriate behavior. The pastor attended this meeting, but the women were not permitted to hear his responses to their complaints. After hearing the accusations against their pastor, the committee gave the pastor a vote of “no confidence” and submitted the charges to the Conference for a full review. The pastor then requested six weeks’ paid vacation followed by a leave of absence, and the committee granted his request. The pastor spoke to the church congregation the following Sunday, and explained he was taking a paid vacation. In advance of this service the pastor telephoned several members of the congregation to gain support in response to the three womens charges. The women later claimed that the tone of the pastors voice as he spoke to the congregation made it appear that he had been falsely charged. The district superintendent visited the church the following two Sundays to explain the pastors leave of absence. He informed the congregation that allegations had been made but did not reveal the true nature of the complaints or that any investigation was being conducted.

The pastor resigned from his denomination before it could review the charges of sexual harassment. The Conference accepted the resignation as a “withdrawal under complaint or charges,” and discontinued its investigation into the womens charges. The Conference later spent $4,000 for training pastors in handling sex abuse allegations and for sending the three women to a “survivors of clergy sexual abuse” retreat. The women later met with the bishop to discuss their disappointment with the handling of their complaints by both the district superintendent and Conference. They assured the Bishop that they did not want to bring a lawsuit against the church, but they wanted the situation resolved. The bishop allegedly assured them that someone would write a letter to the church congregation explaining what really happened between the pastor and the three women, and that the women would have input in the establishment of the sexual ethics policy that was to be presented at the next annual meeting of the Conference. The bishop in fact presented the women with a copy of the proposed policy at the annual meeting and solicited their input. They informed him that the proposed policy was a start but that the Conference “had a long way to go.” The Conference adopted the policy. However, no one ever wrote the church explaining what actually happened between the pastor and the three women. The women later learned that certain ministers in the Conference knew that the pastor had previously acted inappropriately toward women while ministering at another church but “swept it under the rug.”

The women sued the Conference and district superintendent, claiming that they were responsible for the pastors sexual harassment on the basis of negligence, invasion of privacy, breach of fiduciary duty, emotional distress, fraud, and clergy malpractice.

Negligent hiring and negligent supervision

The court ruled that the women were barred by the statute of limitations from suing the Conference for negligent hiring or supervision. Had the women filed their lawsuit earlier, the Conference might have been found liable on the basis of negligent hiring since there was evidence that it was aware of prior incidents of misconduct involving the pastor, but took no action.

Negligence in responding to the womens complaints

The women claimed that the Conference and district superintendent “had a duty to prevent the sexual harassment of its parishioners by a member of the clergy and to help in healing afterward rather than being indifferent.” They insisted that the Conference should be found guilty of negligence for violating this standard. The court disagreed, noting that the women “have cited no precedent and we are aware of none that stands for the proposition a church owes its parishioners a duty of care regarding its handling of their complaints.”

Clergy malpractice

The court concluded that South Carolina does not recognize clergy malpractice as a basis for legal liability.

Invasion of privacy

An invasion of privacy may occur in a number of ways. One way is for a person to publicly disclose private information about another-even though the information is true (and therefore cannot be defamatory)-if the disclosure would be highly offensive and likely to cause serious mental injury to an ordinary person. A second way is to publicly place another person in a “false light.” The women claimed that the Conference and district superintendent committed one or both of these kinds of invasion of privacy by the following actions: (1) They asked the women to appear before a church committee to disclose their accusations; (2) they permitted the pastor to make some final remarks to the congregation, at which time he made it appear that he was being falsely accused; (3) they “acquiesced” in the decision of the staff—parish relations committee to permit the pastor to go on paid vacation after his final service, and this further implied that the womens charges were groundless; and (4) they failed to inform the congregation of the true reason for the pastors resignation.

The court ruled that neither the Conference nor the district superintendent was guilty of invasion of privacy. In concluding that the first type of invasion of privacy (public disclosure of private facts) had not occurred, the court observed:

First, the only “publicizing” of facts concerning the [women] was done by the [women] themselves. [They] communicated their complaints to a small committee of the local church. There is no evidence that either [the Conference or district superintendent] “publicized” [the womens] complaints other than within the official channels of the local church and Conference and to those charged with dealing with such allegations. Further, insofar as [the pastor] was the pastor of the church, allegations of his sexual misconduct were certainly matters of some notoriety within the church community. [Finally] the facts disclosed were of some legitimate public interest, albeit to a limited group. [The women] made their disclosures expecting and intending that both the committee and [Conference] would act on those complaints. [They] therefore intended that their complaints should become public to the limited extent that occurred under these circumstances. [The actions of the Conference and district superintendent] were nothing more than an attempt to further the legitimate interests of all parties involved, including [the women].

With regard to the womens claim that the Conference and district superintendent invaded their privacy by publicly placing them in a “false light,” the court simply noted that no South Carolina case has recognized this theory of liability. And, even if it were to be recognized, neither the Conference nor district superintendent did anything to “give rise to such a claim under these circumstances.”

Breach of fiduciary duty

The court rejected the womens claim that the Conference and district superintendent breached a fiduciary duty. First, it concluded that no fiduciary relationship existed between the women and either the Conference or district superintendent. It noted that the women had no contact with the Conference and their only direct contact with the district superintendent was a single meeting involving one of the women. The court stressed that while the district superintendent received the womens initial accusations, “his mere occupation of the position of superintendent did not create a fiduciary relationship with these [women].” Further, the womens personal expectation that the Conference or district superintendent would “take action” on their complaints did not create a fiduciary relationship: “The steps taken unilaterally by the [women] do not constitute an attempt on their part to establish the relationship alleged, and there is no evidence that [the Conference or district superintendent] accepted or induced any special, fiduciary bond with any of [the women] under these facts in any event.”

The court also concluded that even if a fiduciary relationship did exist, it was not violated since “there is no evidence of a breach of that duty. There is no evidence that [the Conference or district superintendent] acted other than in good faith and with due regard to [the womens] interests.”

Emotional distress

Did the actions of the Conference and district superintendent amount to an intentional infliction of emotional distress? No, said the court, since nothing in the actions of the Conference or district superintendent “could be characterized as extreme and outrageous, as exceeding possible bounds of decency, or which might be regarded as atrocious and utterly intolerable in a civilized community.”

Fraud

The women claimed that the Conference and district superintendent were guilty of fraud because they fraudulently represented that they would (1) provide counseling to the women to help in the healing and recovery process, and (2) create a policy on sexual harassment for presentation and adoption at an annual meeting of the Conference. The court noted that “[t]here is no evidence that whatever statements were made by church officials were more than representations or promises of future action, which cannot be the basis for a cause of action for fraud. In order to be actionable, the representations must be a statement concerning an existing fact.” Further, the court pointed out that the Conference in fact did make funds available to the women for counseling. The court observed: “It is apparent [the womens] contentions in this regard amount to nothing more than mere disappointment with the level of response of the Conference and [district superintendent]. That disappointment is not legally actionable on any basis, much less fraud.” With regard to the womens claim that the Conference failed to adopt a sexual harassment policy, the court noted that this claim “was completely contradicted by the clear evidence in this case.”

Application. This case illustrates a number of important points: (1) It demonstrates once again the risk that churches and denominational agencies face when they receive allegations of misconduct involving a pastor or other staff member and take no action. As noted above, had the women filed their lawsuit earlier, the Conference might have been found liable on the basis of negligent hiring since there was evidence that it was aware of prior incidents of misconduct involving the pastor, but took no action. (2) The court rejected the womens claim that the Conference could be legally liable for failing to properly handle allegations of sexual harassment. (3) The court noted that the Conference could not be liable on the basis of invasion of privacy for publicly disclosing private facts about the women since the women themselves had revealed the same information. In other words, if church leaders share private facts about a member to others, the member cannot claim that the church has “invaded his privacy” if he previously disclosed the same information himself. Brown v. Pearson, 1997 WL 115857 (S.C. App. 1997). [Invasion of Privacy, Clergy Malpractice, Seduction of Counselees and Church Members, Negligent Selection as a Basis for Liability, Negligent Supervision as a Basis for Liability, Denominational Liability]

© Copyright 1997, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m66 m40 c0497

Legal Developments

Counselors’ Liability for Counselees’ Actions

Counselors may sometimes be legally responsible for injuries caused by their counselees.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1997-05-01

Counseling

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

• Key point. Counselors may not be legally responsible for injuries caused by their counselees, unless they are aware of a specific threat of harm toward a particular victim

• A South Carolina court ruled that a counselor was not legally responsible for the murder of an individual by one of his counselees since the counselee never made a specific threat toward the murder victim. A psychiatrist had as a patient a severely disturbed woman who worked as a nurses’ aid in a nursing home. The woman attempted to commit suicide while at work, and was hospitalized in a psychiatric ward for one month. She returned to work following her release, and within a few days set fire to several rooms. Her actions resulted in the death of one resident. Several others were injured. The family of the deceased resident sued the psychiatrist, claiming that he was guilty of negligence in failing to warn nursing home employees and residents of the danger his patient posed to them. A state appeals court ruled that the psychiatrist was not liable. It noted that South Carolina, like most states, does not recognize “a general duty to warn of dangerous propensities of others.” However, a duty to warn arises “when a person … has made a specific threat of harm directed at a particular person.” The court stressed that “it is not simply foreseeability of the victim which gives rise to a person’s liability for failure to warn; rather, it is the person’s awareness of a distinct, specific, overt threat of harm which the individual makes towards a particular victim.” The psychiatrist certainly was aware of his patient’s emotional problems, and perhaps could have anticipated that she might pose a risk of harm to others. The court concluded that such knowledge is not enough to impose a duty to warn. The psychiatrist must have been aware of specific threats made by this patient toward the individual who was killed. Since no such threats were ever made, the psychiatrist could not be liable.

Application. Are pastors or church counselors personally liable for injuries caused by their counselees? Do they have a legal duty to warn persons of a counselee’s potentially dangerous propensities? These are important questions that many counselors have asked. The court in this case concluded that counselors will not be legally responsible for failing to warn of a counselee’s dangerous propensities unless the counselee made specific threats involving an identified person. A “generalized” risk of harm is not enough. This conclusion is sensible. After all, if a counselee has emotional problems making him or her a “generalized” risk of harm to others, who should the counselor warn? Where would the duty to warn end? Very few courts have addressed these difficult questions, which makes this decision especially important. Gilmer v. Martin, 473 S.E.2d 812 (S.C. App. 1996). [Clergy Malpractice]

© Copyright 1997, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m37 c0397

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Legal Developments

Disaffiliated Church’s Property Reverts to Denomination

A local church may lose the right to its property when it leaves its denomination.

Richard R. Hammar, Attorney, CPA
Bio

Key point. A parachurch ministry may qualify for property tax exemption as a "house of public worship" though it is not formally affiliated with a church and does not have members.

Key point. Vacant land may be exempt from property taxation if it is primarily for religious purposes.

A Michigan court ruled that an 1,800-acre retreat owned by a parachurch ministry was exempt from property tax as a “house of public worship.” The Institute in Basic Life Principles is a religious organization founded by Rev. William Gothard in 1961. Its purpose is to "give clear instruction on how to apply God's basic principles of life as revealed it the Scriptures" through seminars, meetings, literature, and broadcasting. The Institute owns an 1,800-acre conference center that includes a lodge, a hotel with 90 rooms, an auditorium where worship services are conducted, a dining room for guests, and a gymnasium. The founder also uses the property to write religious materials for his seminars. A state tax agency determined that the entire property was subject to property tax, since it did not qualify for exemption under state law. Michigan law exempts:

Houses of public worship, with the land on which they stand, the furniture therein, and all rights in the pews, and any parsonage owned by the religious society of this state …. Houses of public worship include buildings or other facilities owned by a religious society and used predominantly for religious services or for teaching the religious truths and beliefs of the society.

The state tax agency determined that the Institute was not a religious society since it had no members and no "prescribed form of worship." Further, the agency concluded that the Institute's property did not qualify as a "house of public worship." The Institute appealed, and a state appeals court ruled that the entire property was entitled to exemption.

The court concluded that the term "religious society" includes any organization, such as the Institute, whose "predominant purpose and practice include teaching religious truths and beliefs." The court referred to the Institute's bylaws for proof that its purpose was to teach religious truths. It further noted that more than 2.5 million persons have attended seminars presented by the Institute. With regard to the Institute's lack of members, the court simply noted that state nonprofit corporation law did not require religious corporations to have members.

Finally, the court concluded that the property could be viewed as a "house of public worship," noting that "[a]lthough [the Institute] may not fall within the traditional definition of a religious society, that does not mean that it is not entitled to an exemption as a religious society under the house of public worship exemption."

The court refused to limit the property tax exemption to those portions of the 1,800 acres actually used for religious teaching and worship, since engaging in such an analysis "would unnecessarily intrude into the affairs of religious organizations." Instead, the court asked "whether the entire property was used in a manner consistent with the purposes of the owning institution."

This test "avoids undue entanglement in the province of religious entities, and more closely conforms with the requirement under the exemption statute that the property be used predominantly for reaching the religious truths of the society." The court noted that the Institute conducts religious seminars on the property and

provides its seminar attendees access to the lakes on the property and has paved seven miles of road for bicycling. The large areas of undeveloped land permit the participants to walk through the woods and think about what they have heard …. The record contains no evidence that the property was being used for purposes outside those enumerated in [the Institute's] bylaws. Because the [Institute] and its guests use the property in a manner consistent with [its] stated purposes, the property should be exempt from taxes.

What this means for churches

This case is important for the following reasons: (1) It contains a broad definition of "religious society" that will be useful to other parachurch ministries whose "religious" status is questioned by governmental agencies. (2) It contains a broad definition of "house of public worship" that will be useful to other parachurch ministries and churches when a tax assessor questions the exempt status of some or all of their property. (3) It will be useful to churches and other religious organizations that own undeveloped land in the event the tax-exempt status of the land is questioned.

According to this court, a tract of property should be viewed as a whole. The courts and tax assessors should not attempt to divide the property into those parcels that are used for religious purposes and those that are not. Any other result would impermissibly "entangle" the courts and tax assessors with questions of what is "religious". The proper question is whether the property as a whole is used for exempt purposes, and these purposes may include strolling or bicycling about on largely undeveloped property by persons who attend seminars in classrooms located on the property. Institute in Basic Life Principles, Inc. v. Watermeet Township, 551 N.W.2d 199 (Mich. App. 1996).

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Legal Developments

Disaffiliated Churches’ Property

When a church leaves its denomination, who keeps the property?

Richard R. Hammar, Attorney, CPA
Bio

Key point. The property of a local church affiliated with a hierarchical denomination may revert to the denomination if the church votes to disaffiliate.

A South Carolina court ruled that a national church retained title to the property of a local church that voted to disaffiliate.

The national church was established in 1898 and has assisted in the establishment of several local churches. A local church purchased property in 1975 in the names of three trustees, and, with financial assistance from the national church, constructed a building on the property. A dispute developed between the national church and the local congregation which in 1994 culminated in the local congregation's formal resignation from the national church.

At the same time the trustees under the 1975 deed executed a document purporting to convey the property to the local congregation. After the local congregation's withdrawal, the national church served the local congregation with a notice stating that the national church owned the local church building and property, and ordering the local congregation members to vacate the premises. The members of the local congregation continued to use the property.

In January 1995, the national church brought a lawsuit alleging that pursuant to its Book of Discipline and the 1975 deed, it is the owner of the local church building and property. A trial court ruled that the national church owned the local congregation's property, and the case was appealed.

On appeal, the local congregation insisted that it had not been incorporated into the national church's hierarchical structure and that the 1994 deed purporting to convey the subject property to the local congregation was therefore void. The court disagreed.

[T]he trial court properly found the local congregation was a part of the national church's organizational structure. Without question, the national church is a hierarchical church, composed of bishops, ruling elders, and other officers, as well as trustees. Moreover, the local congregation has always operated as a part of the national church. Since its inception as a mission church, the local congregation consistently sent delegates to the national church's annual convention and submitted annual reports to the national church. The National Church contributed $5,000 to the local congregation to help construct the church building. The current minister of the local church was appointed by the Bishop of the national body at its annual convention. Finally, by letter dated November 16, 1994, the entire local congregation submitted its resignation from the national church, evidencing that the members of the local congregation considered themselves members of the national church. We find no error in the trial court's conclusion that the local congregation was an affiliate of the national church ….

The law is well settled that when a church splits, the courts will not undertake to inquire into the ecclesiastical acts of the several parties, but will determine the property rights in favor of the party or division maintaining the church organization as it previously existed. When the entire congregation withdraws from the hierarchical church, the title to the church property remains in the church and does not follow the congregation. In this case, the title to the property at issue remained with the national church, and title is in the trustees, who are under a duty of loyalty to act solely in the best interest of the national church.

The court also rejected the relevance of the local congregation's claim that the 1975 deed did not contain the language required by the national church's Book of Discipline:

The interpretation of the Discipline, and what it mandates, is a matter for the ecclesiastical tribunal of the national church, not the civil court. Absent fraud or collusion, the decisions of the proper church tribunals on matters purely ecclesiastical, although affecting civil rights, are accepted in litigation before the secular courts as conclusive because the parties in interest made them so by contract or otherwise …. While not inquiring into the wisdom or correctness of ecclesiastical decisions, the court will make sure that the civil right is in fact dependent upon an ecclesiastical matter; it will determine whether the ecclesiastical body had jurisdiction; it will look to see if the steps required by the religious society have been taken; and will inquire into any charges of fraud or collusion. It will go no further.

In this case, a civil right, the ownership of property, is dependent upon an ecclesiastical matter, the interpretation of the national church's rules as promulgated in its Discipline. Having found the local congregation was a part of the national church organization, and because the local congregation has abandoned its claims of fraud and misrepresentation, this court must accept as conclusive the decisions of the national church with regards to the subject property. Fire Baptized Holiness Church of God of the Americas v. Greater Fuller Tabernacle of Fire Baptized Holiness Church, 475 S.E.2d 767 (S.C. App. 1996).

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Legal Developments

Member Sues Unincorporated Church

He was injured while repairing the church’s sound system.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax1992-11-01Recent Developments

Taxation – Church Property

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

• The South Carolina Supreme Court ruled that a church member could sue his unincorporated church for injuries sustained while repairing the church sound system, but he could not recover more than the $200,000 “cap” allowed by state law. The member volunteered to enter the church attic to repair the sound system. While in the attic, he fell through the ceiling and landed on a concrete floor some ten feet below. His injuries required him to miss work for nearly a year. The victim sued his church, pastors, and church board members, alleging that they were all negligent and responsible for his injuries. A jury awarded him $300,000, and the defendants appealed. A state appeals court reversed the jury’s award and the case was appealed on to the state supreme court. The supreme court ruled that the injured member could sue his church, even though it was unincorporated. However, the court refused to permit the injured member to sue the pastors and church board members personally. It based its decision on a South Carolina statute that prevents individual members from being sued personally unless it is established that they acted “in a reckless, willful, or grossly negligent manner.” Since the injured member had failed to prove that the pastors and board members had acted recklessly or with gross negligence, these individuals could not be personally liable. Finally, the court reduced the jury’s award from $300,000 to $200,000 on the basis of a South Carolina statute that provides: “Any person sustaining an injury or dying by reason of the tortious act … of an employee of a charitable organization, when the employee is acting within the scope of his employment, may only recover in any action brought against the charitable organization in an amount not exceeding two hundred thousand dollars.” The court concluded that a church fit “squarely within the definition of a charitable organization” for purposes of this law. This case illustrates the importance of the South Carolina “charitable immunity” law which prohibits charities (including churches) from being sued for more than $200,000. It also illustrates that unincorporated churches may be sued in South Carolina by their members as a result of injuries sustained during church activities. Crocker v. Barr, 409 S.E.2d 368 (S.C. 1992).

See Also: Unincorporated Associations | Charitable Immunity

© Copyright 1992, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m77 m86 c0692

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Legal Developments

State Sales Tax Law Violated First Amendment

The South Carolina law exempted sales of religious books and magazines from sales tax.

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1992-07-01 Recent Developments

Taxation – Sales

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

• The South Carolina Supreme Court ruled that a state law exempting sales of religious books and magazines from sales tax violated the nonestablishment of religion clause of the first amendment. A South Carolina law exempted “religious publications” from sales and use taxes. “Religious publications” were defined to include “books, periodicals, pamphlets and other printed matter, which are devoted to man’s relationship to Divinity; to reverence, worship, obedience and submission to mandates and precepts of supernatural or superior beings.” The state supreme court ruled that this exemption violated the first amendment’s nonestablishment of religion clause. The court observed that its decision was controlled by a 1989 decision of the United States Supreme Court, in which the Court ruled that an exemption granted by Texas law to periodicals published or distributed by a “religious faith and that consist wholly of writings promulgating the teaching of the faith and books that consist wholly of writings sacred to a religious faith” violated the nonestablishment of religion clause. The South Carolina Supreme Court concluded: “Reading South Carolina’s exemption and regulations together, we can discern no substantive difference between the statute at issue in [the Texas Monthly case] and [the South Carolina exemption statute] as it regards religious publications. Like the Texas exemption, [the South Carolina exemption] is confined impermissibly to publications advancing the tenets of a religious faith.” The United States Supreme Court conceded in the Texas Monthly decision that a sales tax exemption benefitting a broad class of charitable, educational, and religious organizations could be constitutionally permissible. However, the South Carolina exemption, by singling out religious publications rather than exempting a broad class of exempt publications (including religious publications) did not satisfy the requirements of the Texas Monthly decision. Further, the court concluded that the first amendment’s guaranty of religious freedom does not require a state to exempt religious materials from sales and use taxes. In summary, the South Carolina statute exempting religious publications from sales and use taxes is unconstitutional. However, the state is free to rewrite its exemption statute in a way that exempts a broad class of publications, including religious publications. According to the United States Supreme Court’s decision in the Texas Monthly case, such a statute would be permissible. Thayer v. South Carolina Tax Commission, 413 S.E.2d 810 (S.C. 1992).

See Also: State Sales Taxes

© Copyright 1992, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m72 m47 c0492

Legal Developments

Unincorporated Churches and Members’ Lawsuits

Can an unincorporated church be sued by a member?

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1992-03-01 Recent Developments

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

• A South Carolina appeals court ruled that a member of an unincorporated church could not sue his pastor and members of the church board for injuries he suffered in an accident on church property. A member volunteered to maintain the sound system of his church. He was injured when he fell from some loose rafters in the church attic while attempting to remove some wire. A trial court ruled in favor of the victim, and awarded him $300,000 in damages. The pastor and church board appealed, and a state appeals court dismissed the lawsuit against them. The appeals court concluded that all members of an unincorporated church have “equal ownership of the equitable title to the property including the right of occupancy and possession.” The accident victim, pastor, and board members, along with the other members of the church, “are cotenants with respect to the right of possession or occupancy of the church premises.” The court continued: “The simple issue then is whether the [pastor and board], who owned the right of possession of the property as cotenants with [the victim] and the other members of the congregation, owed a duty to their cotenants to inspect the unfloored portion of the attic to determine if there were any loose rafters …. We hold that a cotenant does not owe his cotenant a duty to so inspect for latent defects.” This case illustrates a potential consequence of the unincorporated form of organization—inability of a church member to sue for monetary damages on account of an injury occurring on church property. Crocker v. Barr, 397 S.E.2d 665 (S.C. App. 1990).

See Officers, directors, and trustees, Benjamin Plumbing, Inc. v. Barnes, 470 N.W.2d 888 (Wis. 1991).

See Also: Unincorporated Associations

© Copyright 1992, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m77 m58 m29 m56 c0292

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Legal Developments

Church Property and Withdrawal from a Denomination

A local church may lose its property upon leaving its denomination.

Richard R. Hammar, Attorney, CPA
Bio

A South Carolina appeals court ruled that a national church organization was entitled to the property of a local church that withdrew from the organization.

All of the members of a local church voted to withdraw from a parent religious denomination, and continued to use the church property. The national church sought a court order confirming that it was the lawful owner of the local church's property.

A trial court ruled in favor of the national church, finding that it was an hierarchical organization, and that its "decree book" (which was binding upon all local congregations) clearly specified that the national church owned all local church property.

The local church appealed, and a state appeals court ruled in favor of the national church. The court observed: "The governing body of a religious society may adopt a constitution and prescribe rules and regulations as to the government of the society and as to the discipline, worship and doctrine of the group.

Such constitution, rules, and regulations are obligatory among the members, congregations and officers of such societies and are given effect by the civil courts so long as they are reasonable and not inconsistent with or repugnant to the laws of the land, and so long as they are conformable and subordinate to the charter of the society where incorporated." The local church was bound by the provision in the national church's "decree book" specifying that all local church properties belonged to the national church. The court further explained:

The main issue of this case is whether when the congregation of an hierarchical church withdraws from the church, the congregation is entitled to the church property. The well-settled answer to this question is that the title and right of possession of the church property remains in the hierarchical church …. The South Carolina appellate courts have yet to face a situation in which the congregation as a whole withdrew and contended that the church property belonged to it.

The law on this question is settled. The South Carolina Supreme Court has held that when a church splits, the courts will not undertake to inquire into the ecclesiastical acts of the several parties, but will determine the property rights in favor of the party or division maintaining the church organization as it previously existed. We accordingly hold that when the entire congregation withdraws from the hierarchical church, the title to the church property remains in the church and does not follow the congregation …. Accordingly, we affirm the trial judge's holding that [the officers of the national church] are entitled to the beneficial use of the church property, including the right of possession and the right of control of the property. Dillard v. Jackson, 403 S.E.2d 136 (S.C. App. 1991).

Legal Developments

Disputes Over Congregational Churches’ Property

A South Carolina court recently ruled on this issue.

Richard R. Hammar, Attorney, CPA
Bio

A South Carolina court ruled that a local Baptist church congregation had the authority to authorize its trustees to obtain financing to purchase a new building by mortgaging the existing facility.

In 1952, a minister deeded a church building and lot to 5 individuals as trustees of his church. The deed provided that the trustees would hold the property for the benefit of the congregation, and subject to the "laws" of the Baptist church.

In 1983, the church membership became divided over the issue of moving to a new building. The existing sanctuary had become dilapidated, and repairs were not feasible. The majority of the congregation voted to move to a new facility and to change the church's name. The minority resolved to remain in the old building and continue using the church's original name.

Two of the original trustees, representing the majority faction, deeded the old church property to themselves as trustees of the new church. Later, these same trustees mortgaged the old building to a local bank in order to secure financing to purchase a new church building. Two of the other original trustees filed a lawsuit seeking to have title to the old church building vested in themselves as trustees, and to invalidate the mortgage.

A state appeals court ruled that the congregation is the governing body in a Baptist church, and that "the actions of the [church] in changing its name, moving to a new location, transferring the property, and mortgaging it were valid and consistent with Baptist church policy." Further, "because such actions are ecclesiastical in nature, they are not reviewable by this court in the absence of fraud, collusion, or arbitrariness."

The court noted that the 2 trustees representing the minority faction did not have "standing" to sue because they were not members of the present congregation. Finally, the court felt that its decision was bolstered by the wording of the original deed, which was made subject to the "laws" of the Baptist church. It observed: "Surely by providing in their deed that the trustees would hold the property subject to the laws of the Baptist church, the [donors] knew that in the event of a schism in the church the majority would continue to control the property under Baptist church policy." Blair v. Blair, 396 S.E.2d 374 (S.C. App. 1990).

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Legal Developments

Workers’ Compensation

Church Law and Tax 1990-03-01 Recent Developments Workers’ Compensation Richard R. Hammar, J.D., LL.M., CPA

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1990-03-01 Recent Developments

Workers’ Compensation

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

• A South Carolina state appeals court ruled that a construction company president who donated his labor in constructing a new church was not eligible for workers’ compensation benefits following an injury on the job. The court noted that workers’ compensation benefits are available only to “employees,” and that state law defined the term “employee” as one who works for wages under a written or oral contract of hire. The injured worker in this case “donated his labor in the construction of the church. There is no evidence he was paid wages or had a right to demand payment. There is also no evidence [that he] entered into a tithing agreement with [the church] so that his work could be considered as a credit toward his tithe obligation. We find no evidence of an employment relationship between [him and the church]. He was not hired by [the church] and he was not performing any paid service for [the church].” As a result, the court concluded that the worker “was a volunteer and not an employee” under the state workers’ compensation law. Accordingly, the church, through its workers’ compensation insurance carrier, was not obligated to pay benefits to the injured worker. McCreery v. Covenant Presbyterian Church, 383 S.E.2d 264 (S.C. App. 1989).

© Copyright 1990, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m81 m35 c0290

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Legal Developments

Wills, Trusts, and Estates – Part 2

Church Law and Tax 1989-03-01 Recent Developments Wills, Trusts, and Estates Richard R. Hammar, J.D.,

Richard R. Hammar, Attorney, CPA
Bio

Church Law and Tax 1989-03-01 Recent Developments

Wills, Trusts, and Estates

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

• A South Carolina court rejected a claim that an elderly decedent’s will, which left the bulk of her estate to the Lutheran Church in America (“LCA”), was the product of “undue influence” and accordingly invalid. The decedent executed her first will at the age of 78. This will left 10% of her estate to her local church, 40% to various relatives, and 50% to another charity. At the age of 87, the decedent began changing her will. The fourth and final amendment of her will, executed when she was 88 years old, placed the bulk of her estate in a charitable trust, the income from which was distributed to the LCA. The final will was challenged by a beneficiary whose share of the estate had been reduced. The beneficiary argued that the final will was invalid since it had been the product of undue influence. The court acknowledged that undue influence can invalidate a will, but it denied that the decedent’s final will had been the result of undue influence. The court observed that undue influence must be proven by the person challenging a will, and that it consists of “influence amounting to coercion destroying free agency on the part of the [decedent]” so that the will was the result of “force and fear.” The court, in rejecting the allegation of undue influence, observed that the final version of the decedent’s will had been executed “when she was in reasonably good health, and during her latter years [when] she continued to work in her yard, talk with her neighbors, do some cooking and go to a grocery store ….” In short, she still possessed sufficient independence and health to support the conclusion that “she was the ultimate decision maker.” Accordingly, the allegation of undue influence was rejected and the validity of the will upheld. Many wills leaving substantial portions of estates to churches and other charities have been challenged by “disinherited heirs” on the basis of undue influence. Persons bringing such lawsuits often recognize that they have a weak case, but they sue anyway, hoping that the church will quickly “settle” with them in order to avoid the potential “adverse publicity” associated with such lawsuits (what church wants to be accused publicly of coercing elderly members into making gifts to the church). If your church receives a gift under a will that is challenged on the basis of undue influence, be sure to bear in mind a couple of considerations. First, undue influence usually is very difficult to prove, particulary when the decedent was in reasonably good mental and physical health at the time the will was executed. Second, in many states, undue influence must be proven by “clear and convincing evidence”—a more difficult burden of proof than the ordinary “preponderance of the evidence” standard. A church that becomes aware that an elderly or infirm person is considering leaving a portion of his or her estate to the church can reduce the possibility of undue influence even further by ensuring that the person obtains the independent counsel of an attorney in drafting the will or trust. First Citizens Bank & Trust v. Inman, 370 S.E.2d 99 (S.C. App. 1988).

© Copyright 1989, 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m80 c0289

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