December 14, 2009

Religious Institutions Update: December 2009

Holland & Knight Update
Nathan A. Adams IV

Timely Topics

There is no gainsaying this economy is tough. Many religious institutions are barely surviving. In times like these, many institutions see risk management and strategic planning as the least of their concerns. But the truth is that these two things are as or more relevant during tough times as any other. Good strategic planning recommits an institution to its foremost causes and promotes effective stewardship. It trims away unnecessary spending and channels resources toward the key mission and vision of the organization. In addition, it enables the institution to anticipate and manage change, improve the decision-making process, and align the direction of the board and staff.

Legal risk management and planning is essential to the strategic planning process. Whereas strategic planning identifies the existing strengths in an organization and requires the structure to serve only these purposes, legal risk management and planning is the tool by which this can be done. Borrowing from economics, the right amount is that for which the cost of reducing an additional unit of risk exceeds the additional benefit to the organization of the risk reduction. To be sure, every faith-based organization must accept some legal risk to function, but accepting more than it is cost-effective to eliminate is not wise stewardship. Not knowing the risks is perhaps the least sensible. Consequently, even institutions that are focused on survival need to think about strategic planning and legal risk management.

Key Cases

Ohio Denomination’s Administrative Offices Not Tax-Exempt

The Church of God in Northern Ohio unsuccessfully appealed lower court rulings that its State Executive Offices and Ministry Training Center was not tax-exempt. In Church of God in Northern Ohio, Inc. v. Levin, Case No. 2008-2462, 2009 WL 4067224 (Ohio 2009), the church characterized the building as the home for office and support staff for the Administrative Bishop, who oversees 121 congregations, and of offices for “Youth and Christian Education, Women’s Ministries, and Evangelism and Home Missions.” The court affirmed lower holdings that the property was being used “for purposes that are merely supportive of public worship,” rather than exclusively for public worship itself, which was an exempt category. A second exempt category was for property used exclusively for charitable purposes; however, the court found that “the definition of charity does not encompass public worship.” As a result, a building not used exclusively for worship, but only for support of worship, was not tax-exempt.

U.S. Supreme Court Agrees to Review Key Case

The U.S. Supreme Court agreed to hear Christian Legal Soc’y Chapter of Univ. of Cal. v. Kane, 319 Fed. Appx. 645 (9th Cir. 2009), cert. granted, Christian Legal Society Chapter v. Newton, __ S.Ct. __, 2009 WL 1269076 (Dec. 7, 2009). In Kane, the Ninth U.S. Circuit Court of Appeals ruled that the Christian Legal Society’s law student chapter at the University of California failed to state a claim for a violation of its constitutional rights when the law school prohibited the group from registering as a student organization, because its officers and voting members were required to adhere to a Statement of Faith and code of conduct. The Christian Legal Society asserted violations of its members’ rights to free speech, free association, free exercise and equal protection. The Court of Appeals affirmed the district court’s holding that the school’s nondiscrimination policy was viewpoint neutral and reasonable, without commenting on the court’s additional holdings – for example, that the policy was a valid regulation of conduct, not speech, and was a compelling interest of the college in furthering public accommodations laws. The district court also held that the policy did not violate the group’s associational rights because it could meet off campus, did not impair the group’s ability to convey its beliefs, and was a neutral and generally applicable policy.

RLUIPA Case Dismissed for Lack of Ripeness

In Shenkel United Church of Christ v. North Coventry Township, Case No. 09-1823, 2009 WL 3806769 (E.D. Pa. Nov. 13, 2009), Shenkel United Church of Christ sued North Coventry Township when it forbade the church from providing shelter for homeless people during one month in the winter as part of a round-robin sharing of the ministry burden by several local churches. The Township took the position that the church must receive a variance to accommodate homeless persons and could not accommodate more than 16 people per night. Without conceding the point, the church filed an application but withdrew it roughly nine months later. It sued, alleging that the Township had violated the Religious Land Use and Institutionalized Persons Act (RLUIPA) and the Free Exercise Clause. Ruling in favor of the Township, the court joined a growing list of others finding that a zoning board must reach a final decision in a matter before a church may state a claim under RLUIPA. Until then, the case is premature and not ripe for a decision.

Minister Failed to State a Claim Against Church

The so-called ministerial exception was applied to a Connecticut minister’s claims against his former church for breach of contract, breach of an implied covenant of good faith and fair dealing, negligent infliction of emotional distress, intentional infliction of emotional distress, and false light when he was terminated after requesting an increase in pay and medical benefits and reimbursement of church funds purportedly borrowed improperly by another church member. Guerrier v. S. New England Conf. Ass’n of Seventh-Day Adventists, Inc., No. CV085007824, 2009 WL 4282894 (Conn.Super. Nov. 12, 2009). The court held that all of the plaintiff’s contract and tort claims had to be dismissed, “because they inevitably require the defendant to justify why it chose to terminate and fail to reappoint the plaintiff as a minister….These counts cannot be adjudicated without delving into the reasons why the plaintiff was terminated as a minister.” The minister argued that the alleged motives for his termination had no relation to church doctrine, teaching or administration, but the court held “it matters only that the allegations require an inquiry into the church’s reasons for the termination.”

Fair Housing Act Supports Intentional Religious Discrimination Claim

In Bloch v. Frischholz, No. 06-3376, 2009 WL 3789996 (7th Cir. Nov. 13, 2009), Jewish condominium owners brought an action under the Fair Housing Act (FHA) against their condominium association when it repeatedly removed religious objects (specifically, a mezuzah) outside of their unit entrance doors. The key legal question was whether the FHA’s anti-discrimination provision baring discrimination in the sale or rental of a dwelling may reach post-acquisition discriminatory conduct – after the buyer or renter signs on the dotted line. Although the court struck some of the claims, it held that the FHA could support a claim for post-acquisition intentional religious discrimination. In addition, the court indicated that, had the plaintiffs alleged it, they might have stated a claim under the FHA for a so-called “redlining rule,” imposing liability for a rule stating, in effect, “No observant Jews allowed.” Religious institutions with public housing facilities should take heed.

Religious Institutions in the News

The Swiss voted to ban the construction of minarets or tower-like structures capped with crowns used for the call to prayer for Muslims, on the theory that minarets are symbols of Islamic intolerance. See Swiss vote to ban minaret construction; and Swiss Ban on Minaret Building Meets Widespread Criticism.

Places of worship and other religious properties have joined the glut of houses for sale as bank foreclosures accelerate, yet religious institutions are sometimes shunned as buyers. The recession is taking a toll on religious institutions in other ways as well. See Recession takes its toll on religious institutions.

Court battles over the assets of religious institutions are resulting in mixed outcomes. See Church Fights for Assets, Members and Legitimacy.

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