Accusing Church Employees of Financial Misconduct

Churches have limited protection if accusations prove false.

Kozar v. Church of St. John the Baptist, 1997 WL 89144 (Minn. App. 1997)

Background. Staff members who make accusations against other staff members or volunteers may be exposing themselves and their church to legal liability for defamation. This concern is especially relevant to church treasurers, since accusations often involve financial misconduct. A recent case in Minnesota involved accusations made by a church business administrator against two other staff members. The case will help church treasurers understand the legal risks of such behavior, and evaluate the possibility of legal liability.

Facts. Mary is a church business administrator. She is responsible for various administrative tasks at the church and is the only person, other than the pastor, with authority to sign checks on behalf of the church. For a two-month period in 1994 Mary was on sick leave recuperating from surgery. During part of the time that Mary was absent, the pastor was on vacation and a need arose for checks to be issued by the church. Terry, a full time receptionist and secretary at the church, signed some of these checks. Unknown to Mary, Terry had permission from the pastor to sign checks in his absence.

When Mary returned to work, she discovered that some checks issued in her absence had not been signed by the pastor. Because the pastor was on vacation, Mary expressed her concern to the chairman of the church's "finance council." The chairman asked Mary to raise the issue at the next finance council meeting. At the next meeting Mary stated that she believed Terry had signed some checks. The council and church trustees were concerned that people might be signing checks without authority. They had recently worked to tighten control of the church's accounts. Somehow, the name of another church member (Sheila) was mentioned by Mary in connection with the unauthorized signing of checks. The minutes of the meeting read as follows with respect to the check signing discussion:

It was brought to the finance council's attention that during Mary's sick leave, a large number of checks were signed by Terry and Sheila under [the pastor's] signature. Neither Terry nor Sheila have signature authority. The bank honored all of the checks. The finance council is very disturbed by these actions and recommends that a record of this be placed in each employee's personnel file with a copy to the personnel committee …. [A motion] was unanimously approved. Mary will report back at the next meeting with further details of the quantity and dollar amounts of the checks signed improperly.

In fact, Sheila had never acted improperly or signed any of the checks in question. There was no proof that she was anything other than a highly respected and valuable church volunteer.

The council's secretary faxed the minutes of the meeting to Mary at the church office. Terry picked up the fax transmission before Mary could retrieve it. Believing it part to be part of her job, Terry copied the minutes and distributed them to the church staff, members of the finance council, and church trustees, and she placed a copy in a binder of finance council minutes.

Terry read the minutes after distributing them, and promptly shared a copy with Sheila. Both women were concerned about the comments in the minutes and immediately spoke with Mary, who said she believed they had written unauthorized checks. Sheila later contacted the chairman of the finance council and expressed her concern about the notes. The chairman suggested that she and Terry attend the next council meeting or write the council a letter to correct the misunderstanding. Sheila retained an attorney who wrote the pastor a letter, and a special meeting of the council was called. At this meeting the minutes were changed to reflect the fact that the council never determined that Sheila had signed any unauthorized checks.

Sheila was not satisfied with this result, and sued her church for defamation. A trial court dismissed the lawsuit on the ground that the allegedly defamatory statements made by the church were subject to a "qualified privilege," and that Sheila failed to rebut this privilege by proving "malice" on the part of the church.

The court's ruling. The court began its opinion by defining defamation. It noted that a statement is defamatory if it is communicated to other persons, is false, and harms another person's reputation. However, a person who makes a defamatory statement may be protected from legal liability by a "qualified privilege." Statements are protected by a qualified privilege if they address a matter of common concern among church members. This means that they cannot be defamatory.

The court cautioned that a qualified privilege may be lost if it is "abused," meaning that the person making defamatory statements did so with "malice." Malice exists if the statements were made out of "ill will and improper motives or … wantonly for the purpose of injuring the [victim]."

Was the church guilty of malice in this case? Were the statements made about Sheila in the council meeting, or in the council's minutes, "malicious"? Sheila argued that the following facts proved malice: (1) the tension and conflict that existed between Mary and Sheila; (2) the church's failure to mail out a retraction; and (3) the church's failure to investigate fully the facts of the case before making the allegedly defamatory statements at the council meeting and in the minutes.

The court rejected Sheila's arguments, and ruled that "there is nothing in the record to indicate that [Mary] or anyone else acted with actual malice."

Key point. The court said that the following factors may tend to establish malice: (1) exaggerated language; (2) the character of the language; (3) an extensive distribution of the defamatory statements; and (4) "other matters in excess of the privilege."

The court noted that while a retraction may have been proper under the circumstances of this case, a failure to make one did not amount to malice. Further, the church's alleged failure to fully investigate the facts of this case did not constitute malice. The court observed that Mary

felt she had reasonable grounds to make the statements she did. Upon her return from sick leave, she discovered that checking account procedures, as she understood them, had not been followed, and some of the checks issued by the church in her absence were apparently signed without authority. In [the pastor's] absence, [she] shared her concerns with … the chair of the church's finance council. The finance council has the responsibility of monitoring church funds. [The chairman] asked [Mary] to raise the issue at the next finance council meeting so it could be discussed.

Employers have legitimate interests in protecting themselves against dishonest employees. Employers are entitled to a qualified privilege if they have reasonable grounds for believing in the validity of a statement, even though hindsight might show the statement to be false. [Mary] was understandably bothered by the situation and took steps to address the apparent breach of authority. She spoke to the person who chairs the committee responsible for monitoring church funds and, on his request, to the entire finance council. We agree with the trial court that [Mary's] actions were reasonable to protect her employer.

What this means for churches

This case illustrates the legal risks associated with statements accusing church employees or volunteers with financial misconduct. Such statements can be defamatory if they are communicated to others, and if they are false and injure another person's reputation. However, the court concluded that statements made among church members (on matters of mutual concern) are protected by a qualified privilege. This means that they cannot be defamatory unless they are made with malice. The court's decision will be helpful in evaluating whether or not a statement is malicious.

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