June 2010

Religious Institutions Update: June 2010

Holland & Knight Update
Nathan A. Adams IV

Timely Topics

What is the proper relationship between an organization and its legal counsel? This is a question management gurus have spilled ink over for many years when advising the management of secular companies. Now, as the legal culture becomes increasingly hazardous for them, some religious institutions are considering the same question. Others continue to enter into lawyer-client relationships by default, usually under exigent circumstances, such as the filing of a lawsuit. The tyranny of the moment usually leads to short-term and arms-length relationships with counsel who likely do not have a grasp of the religious institution’s full ministry – and, indeed, may not have a common appreciation for its objectives. This situation also arises when someone in leadership identifies a critical legal need and recommends a lawyer with an excellent reputation in the particular legal field, such as estate planning. Attorney-client relationships also develop when a board member is asked to serve as a ministry’s attorney. Such a lawyer is more likely to have a complete understanding of the ministry, but he or she may not ordinarily practice in key areas important to it, and may not be familiar with church-state law.

It is far better to evaluate carefully which kind of lawyer-client relationship would be best for your organization than to enter into one by default. Many religious institutions are best served by a long-term lawyer-client relationship, one in which the attorney is familiar with all of the ministry’s operations and objectives; otherwise, the institutions may be under-served in the areas of risk avoidance and transactional planning. These institutions may miss serious potential legal problems, as well as excellent opportunities that a lawyer with a broader understanding of and commitment to the organization could identify. They may also unwittingly accept legal limitations that a general counsel might reject or work around. The chances of this will be enhanced if counsel lacks church-state competence.

After you decide which type of relationship with counsel is the best for your organization, you must then decide how to procure those services. For example, you may choose to hire general counsel who are able to perform most or some of the legal services that your institution needs, while turning to outside counsel for specialized tasks. Alternatively, you may retain as general counsel a general-purpose law firm with broad subject area expertise and church-state experience. The optimal solution will depend upon your organization’s sophistication, ministry areas and needs. The key is to methodically approach the question, weighing the pros and cons of the alternatives, and then to audit the results periodically.

Key Cases

Faith-Based Substance Abuse Transitional Housing Program Subject to Blaine Amendment

The last sentence of Article I, Section 3 of the Florida Constitution states, “No revenue of the state or any political subdivision or agency thereof shall ever be taken from the public treasury directly or indirectly in aid of any church, sect, or religious denomination or in aid of any sectarian institution.” Applying this language, sometimes referred to as a Blaine Amendment, on a motion for rehearing en banc in Council for Secular Humanism, Inc. v. McNeil, Case No. 1D08-4713, 2010 WL 1658788 (Fla. 1st DCA April 27, 2010), the appellate court overturned the lower court’s finding that the Amendment did not apply to funding for a faith-based substance abuse transitional housing program. The plaintiffs challenged the program and statutes that require, inter alia, the Florida Department of Corrections, when selecting contract providers to administer substance abuse treatment programs, to consider qualified faith-based services groups on an equal basis with other private organizations. The court held that when determining whether programs violate the Blaine Amendment, “the inquiry necessarily will be case-by-case and will consider such matters as whether the government-funded program is used to promote the religion of the provider, is significantly sectarian in nature, involves religious indoctrination, requires participation in religious ritual, or encourages the preference of one religion over another.” Whereas the dissent argued that only subsidies should be actionable under the Blaine Amendment, the majority rejected the idea that “simply because a sectarian organization is paid to provide social services for the state, does not remove such social services program from examination under the no-aid provision.” The court denied the motion for rehearing en banc on this basis, but it certified the question as being of great public importance to the Florida Supreme Court. The plaintiffs’ standing and the role given chaplains under the correctional statutes also was addressed in the opinion.

Denial of Special Use Permit a Violation of RLUIPA

In Rocky Mountain Christian Church v. Bd. of County Comm’rs of Boulder County, Case No. 09-1188, 2010 WL 1948644 (10th Cir. May 17, 2010), a federal appeals court upheld a jury verdict against Boulder County, Colorado, finding that its denial of the church’s special use application for expanded church and school facilities violated the equal terms and unreasonable limitations clauses of the Religious Land Use and Institutionalized Persons Act (RLUIPA). The county’s land use staff found that the church’s application met the objective requirements of the Comprehensive Plan, but conflicted with its subjective goals. In particular, staff found the proposed expansion to be incompatible with the surrounding area and an over-intensive use of the land likely to cause undue traffic congestion and likely to be detrimental to the welfare of the residents of the county. Typically, a proposed use was not over-intensive if it was less than 50 percent of the site’s surface area, whereas the church proposed a use resulting in 35 percent coverage. The appeals court held that the church presented adequate evidence of a valid comparator, a secular school, that had been treated better than the church, in violation of RLUIPA. The court also found that the jury could reasonably conclude that the county’s implementation of the land use regulation was unreasonably restrictive in this case, although religious assemblies were not totally excluded. In addition, the court refused to find the district court’s grant of an injunction out of proportion to the harm caused the church, or manifestly unreasonable.

Jury to Decide Church Property Dispute

In Mo. Dist. Church of the Nazarene v. First Church of the Nazarene of Caruthersville, Case Nos. SD 29813 and SD 29817, 2010 WL 1905088 (Mo.App. S.D. May 12, 2010), the court held that summary judgment should not have been entered in favor of a congregation against the denomination in a church rift and resulting dispute over ownership of church property. In resolving religious property disputes, Missouri courts follow a “neutral principles approach” that allegedly relies primarily on state property and trust law rather than religious doctrine, as well as on church documents providing guidance or instruction on the ownership of church property, but scrutinized in secular terms allegedly without relying upon religious precepts or concepts. The denomination’s claim to the property is not based on record title but on the Manual of the Church of the Nazarene. The congregation argued that the Manual does not apply, because the congregation was not a district “member” and did not intend to be bound by the Manual; also, because even if the Manual did apply, the district did not follow the Manual’s relevant provisions in purporting to “disorganize” the congregation. The court held that these “hotly disputed” arguments “are appropriately directed to a fact-finder authorized to weigh evidence, draw favorable inferences, consider credibility, and believe all, part, or none of any party’s proof, but they are antithetical to summary judgment practice.”

Ministerial Exception Doctrine Bars Section 1981 Race Discrimination Claim Against Church

In McCants v. Ala.-W. Fla. Conf. of United Methodist Church, Inc., Case No. 09-13316, 2010 WL 1267160 (11th Cir. April 5, 2010), the court held that the ministerial exception doctrine bars a pastor’s claim against a religious institution for race discrimination under Section 1981. The pastor alleged that a conference of the United Methodist Church denied him the opportunity to be reappointed as pastor of two congregations solely on the basis of race, and that he was retaliated against after he complained. However, the circuit court found that the district court lacked subject matter jurisdiction over the dispute for reasons previously expressed by the court: “The relationship between an organized church and its ministers is its lifeblood. The minister is the chief instrument by which the church seeks to fulfill its purpose. Matters touching this relationship must necessarily be recognized as of prime ecclesiastical concern. Just as the initial function of selecting a minister is a matter of church administration and government, so are the functions which accompany such a selection. It is unavoidably true that these include the determination of a minister’s salary, his place of assignment, and the duty he is to perform in the furtherance of the religious mission of the church.” (citation omitted).

U.S. Supreme Court to Review School Voucher Case

The United States Supreme Court recently agreed to review Winn v. Az. Christian Sch. Tuition Org., 562 F. 3d 1002 (9th Cir. 2009), cert. granted, Case No. 09-987, 2010 WL 2025143 (U.S. May 24, 2010). In this case, reported on in Holland & Knight’s November 2009 Religious Institutions Update, taxpayers brought suit challenging the constitutionality of Arizona’s tuition tax credit as applied, which permits Arizona income taxpayers who voluntarily contribute money to a student tuition organization (STO) to receive a dollar-for-dollar tax credit up to $500 of their annual tax liability. The Ninth Circuit found that, although the program stated a secular purpose – to provide equal access to a wide range of schooling options for students of every income level – the nature of the program as applied could reveal its ostensible purpose to be a sham. This is because the choice given taxpayers of where to donate their funds allegedly channels a disproportionate share to sectarian STOs, which, in turn, allegedly limit their scholarships to use at religious schools. The court also held that the taxpayers stated a claim that the law had the effect of advancing religion because, inter alia, the program enabled taxpayers exercising the discretion of where to donate their funds to allegedly constrain parents’ choices about where to send their children. The court found that the reasonable observer could conclude that, in practice, the program endorsed religion.

U.S. Supreme Court Will Not Review Public Lease to Scouts Case

The United States Supreme Court decided not to review the decision of the Ninth U.S. Circuit Court of Appeals in Barnes-Wallace v. City of San Diego, 51 F. 3d 891 (9th Cir. 2008), cert. denied, __ S.Ct. __ , 2010 WL 1740539 (U.S. May 3, 2010). In the underlying case, agnostic and lesbian parents and their scouting children sued the City of San Diego and Boy Scouts of America, alleging that the city’s lease of public parkland to the Scouts for nominal rent plus maintenance and substantive capital improvements violated the religion clauses of the United States and California constitutions. The latter includes a Blaine Amendment stating, “Neither the legislature, nor any county, city and county, township, school district, or other municipal corporation, shall ever make an appropriation, or pay from any public fund whatever, or grant anything to or in aid of any religious sect, church, creed, or sectarian purpose ….” Cal. Const. Art. XVI, Sec. 5. The Ninth Circuit held that the plaintiffs in fact suffered injury as required for standing, not by virtue of applying to use the land leased by the Scouts, but because the Scouts’ use of the land allegedly deterred their use. The circuit court also certified to the California Supreme Court various questions regarding whether the leases violated the California Constitution. The district court held that, due to the lack of any competitive selection process, the lease violated these provisions and the Establishment Clause.

Churches Prevail Against Their Insurers in Georgia and Indiana

In World Harvest Church, Inc. v. GuideOne Mutual Ins. Co., No. S10Q0341, 2010 WL 1739943 (Ga. May 3, 2010), the Georgia Supreme Court refused to find an insurer’s oral statements to the insured an effective reservation of rights when one month prior to the close of discovery the insurance company, which had been representing the church for 10 months, advised the church in writing that it was denying coverage and would no longer defend the action. In the underlying case, a receiver sought the return of donations totaling $1.8 million from individuals allegedly involved in a Ponzi scheme. After the insurance company ceased its defense of the church, the court entered a $1.8 million summary judgment against the church, the amount of the donations. The court ruled that, “[W]here, as here, an insurer assumes and conducts an initial defense without effectively notifying the insured that it is doing so with a reservation of rights, the insurer is deemed estopped from asserting the defense of non-coverage regardless of whether the insured can show prejudice.”

In New Berean Missionary Baptist Church, Inc. v. State Farm Fire & Casualty Ins. Co., Cause No. 1:08-cv-1584-WTL-JMS (S.D. Ind. May 18, 2010), State Farm Fire & Casualty Insurance Company came to the conclusion that the fire that burned down the New Berean Missionary Baptist Church was intentionally set by its pastor due to both the church’s and the pastor’s financial condition, and thus denied payment under the policy. The court was unimpressed by the evidence supporting State Farm’s conclusions. It held that the company breached its fire insurance contract with the church and could be sued for bad faith when it denied payment of the church’s claim after the church refused various document requests, including the tax returns of the pastor and his wife and contributions of individual members to the church. The court found that the pastor and his wife were not the “insured” and, as a result, that their tax returns were personal. And the court said it should be up to a jury to decide whether the church’s refusal to produce the remainder of the documents amounted to a material breach of the policy that would affect State Farm’s obligations to the insured.

Religious Institutions in the News

Bills to protect religious freedom in the workplace are receiving renewed interest. Workplace religious freedom bill finds revived interest (federal bill); Workplace Religious Freedom Bill Finds Revived Interest (federal bill); Maryland State Legislature considers a Workplace Religious Freedom Act (HB 381) (Maryland bill); The Oregon Workplace Religious Freedom Act, Amended (Oregon amended bill).

Joblessness is affecting the clergy like the rest of the population. Joblessness Hits the Pulpit.

The new healthcare law has ignited debate about the extent to which it respects the consciences of healthcare providers, including hospitals, clinics and individuals. New health-care law raises concerns about respecting providers' consciences; Cardinal backs bill fixing health reform law on abortion, conscience

Federal courts have made conflicting rulings on whether holding a public high school graduation ceremony in a Christian church is unconstitutional. Conn. Federal Judge: Religion and Graduation Don’t Mix

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