August 2010

Religious Institutions Update: August 2010

Holland & Knight Update
Nathan A. Adams IV

Timely Topics

“The assumption is that you are doing certain things in society to be able to continue to receive the tax-preferred status. So what is it?” This was the question that Rep. Bill Thomas of California posed in relation to Congress’ inquiry into whether tax-exempt organizations such as universities, hospitals and religious institutions are somehow abusing their legal status. States and local taxing authorities are also investigating this and moving, on occasion, to strip organizations of their tax-exempt status. Since 2004, hospitals have received perhaps the greatest attention. Some states, including Texas, New York and California, have mandated minimum levels of charity care, discounted care and/or reporting of charitable care as a condition of retaining their tax-exempt status or participating in charity care reimbursement. Similar so-called community benefit legislation is gaining traction in many states. Several class-action lawsuits have also been filed, alleging that nonprofit hospitals are price-gouging uninsured patients. Attorneys general have also entered the fray, bringing actions under federal and state false claims and deceptive practices acts. Private universities with medical facilities and research programs face scrutiny. Even churches with unrelated business income from book stores, gift shops, rental properties and the like – especially those with high ministerial compensation – are under scrutiny. Congress modified Form 990 to provide a new tool for the IRS and others critical of the relationship between non-profit finances and community benefits. With public revenue down, it would be wise to anticipate that this trend will continue, and to consult with counsel about risk avoidance.

Key Cases

Non-Recognition of Religious Group Upheld

The Christian Legal Society sued the Hastings College of Law when the College would not officially recognize its chapter because its bylaws require members and officers to sign a “Statement of Faith” and to conduct their lives in accord with prescribed principles. Among those tenets is the belief that sexual activity should not occur outside of marriage between a man and a woman. In Christian Legal Soc’y Chapter of the Univ. of Cal., Hastings College of the Law v. Martinez, No. 08-1371, 2010 WL 2555187 (2010), the court held that the College’s policy, which the court viewed as an “all comers policy,” rather than a nondiscrimination policy, was constitutional. An “all comers policy” requires school-approved groups to allow any student to participate, and become a member or officer, regardless of whether he or she shares its beliefs. The court found that CLS’s express association and free speech arguments merged based on its argument that who speaks on its behalf colors what concept is conveyed. Rather than treat the claim as subject to strict review, the court found that its limited public forum precedent controlled. In its view, CLS was seeking a “state subsidy” and faced only “indirect pressure to modify its membership policies,” because the College did not compel any action; CLS could “exclude any person for any reason if it forgoes the benefits of official recognition.” The court emphasized that it must accord school administrators deference and considered the College’s policy reasonable, because it ensured leadership, educational and social opportunities for all students; enabled the school to avoid inquiring into the motivations of student groups for membership restrictions; encouraged tolerance; and accorded with state legal proscriptions on discrimination. The court also considered the policy viewpoint-neutral by virtue of enabling all comers to participate. Supporting its conclusion, the court said was the numerous alternative channels that remain open for CLS to communicate through email and otherwise. The court rejected as unlikely CLS’s concern that the holding would facilitate hostile takeovers of student groups.

Kentucky Appropriation for a Pharmacy School at a Baptist College Unconstitutional

In University of the Cumberlands v. Pennybacker, 308 S.W. 3d 668 (Ky. 2010), the Supreme Court of Kentucky held unconstitutional an appropriation of $10 million in public bond financing for the construction of a pharmacy school on the campus of the University of the Cumberlands, a Baptist college, with the principal on the bonds to be paid from coal severance taxes and the interest paid from the General Fund. The court held that the appropriation violated Kentucky’s “right of religious freedom,” which states that “no preference shall be given by law to any religious sect, society, or denomination,” as well as the following provision: “No portion of any fund or tax now existing, or that may hereafter be raised or levied for educational purposes, shall be appropriated to, or used by, or in aid of, any church, sectarian or denominational school.” The court denied this was a Blaine amendment and rejected the defendants’ argument that construing the constitution to require discrimination against them violated the federal First Amendment. The court also struck a $1 million allocation from the General Fund to a Pharmacy Scholarship Program for students to attend the school, finding that it was impermissible special legislation.

Seventh Circuit Interprets “Equal Terms” Provision of RLUIPA

A split among the circuits has developed over when a regulation will violate the “Equal Terms” provision of the Religious Land Use and Institutionalized Persons Act (RLUIPA). In River of Life Kingdom Ministries v. Village of Hazel Crest, Ill., 2010 WL 2630602 (7th Cir. July 2, 2010), the Seventh Circuit added a third standard to one proposed by the Third Circuit and Eleventh Circuit. The Eleventh Circuit adopted a literal reading of RLUIPA, finding that a zoning ordinance that permits assemblies such as private clubs to locate in a district must also permit a church to locate there. The Third Circuit ruled that a regulation will violate the Equal Terms provision only if it treats religious assemblies or institutions that are similarly situated as to the regulatory purpose. The Seventh Circuit modified the Third Circuit test slightly to provide that a regulation will violate the Equal Terms provision if it treats religious assemblies or institutions less well than secular assemblies or institutions that are similarly situated as to accepted zoning criteria. The court criticized the Eleventh Circuit’s test as too favorable for religious institutions on the theory that “not all commercial uses are created equal,” saying “[S]ome require pedestrian traffic; others create hazards for pedestrian traffic.” The court added that generating revenue and providing shipping were legitimate interests of municipalities in particular areas, which admitting religious institutions could thwart. On the other hand, the court said the Third Circuit test “invites self-serving testimony by zoning officials and hired expert witnesses” and “facilitates zoning classifications thinly disguised as neutral but actually systematically unfavorable to churches.” The court deemed its test the best alternative as ensuring that only truly similarly-situated secular uses become the basis for a religious institution’s claim while avoiding subjective and manipulable interpretations.

Two more land use cases involving RLUIPA were recently decided. In Shepherd Montessori Ctr. Milan v. Ann Arbor Charter Township, No. 137443, 2010 WL 2471899 (Mich. June 18, 2010), a daycare sued the Township under the state and federal Equal Protection Clause when it disapproved its application for a variance to expand its land use to accommodate a K-3 program. The court rejected the claim on the grounds that the religious institution failed to show that the Township treated a similarly-situated group disparately; rather, the court found that the plaintiff “is asserting religion in an effort to obtain preferential treatment.” In contrast, in Adhiparasakthi Charitable, Med., Educ. & Cultural Soc’y of N.A. v. Township of W. Pikeland, No. 09-cv-1626, 2010 WL 2635979 (E.D. Pa. Jun 25, 2010), the court held it was a jury question whether the Township applied a more extensive conditional-use approval process to it than to a school. The court considered the zoning ordinance itself neutral, but allowed for unequal enforcement. At the same time, it denied the plaintiff’s “equal terms” claim for lack of evidence of a similarly-situated secular entity (as opposed to religious one) that had been treated better. It also denied the plaintiff’s “total exclusion” clause claim for lack of evidence that the group was totally excluded from the jurisdiction. The plaintiff also asserted free speech and free exercise claims. The court rejected the argument that the construction of the building itself was expressive conduct protected by the Free Speech Clause, but found that the plaintiff’s desire to conduct worship on the premises and hold religious festivals there would constitute expressive speech. Likewise, the court left it for the jury to decide whether the township showed bias against Hindus in violation of the Free Exercise Clause through a harsher enforcement procedure. Last, the court agreed that the zoning ordinance was overly vague and accorded too much discretion to planning authorities, and, thus, was a prior restraint on speech.

“Large Group Feeding Ordinance” Upheld Against RFRA and Constitutional Challenge

The First Vagabonds Church of God, a congregation of homeless persons, and “Orlando Food Not Bombs,” a political activist organization, sued the City of Orlando to declare its “Large Group Feeding Ordinance” unconstitutional under the First Amendment, the Equal Protection Clause, and the Florida Religious Freedom Restoration Act (RFRA). The Ordinance required anyone conducting a “large group feeding” within the downtown park district to obtain a permit and limited the number of permits a person could obtain for a single park within the district to two per year. In First Vagabonds Church of God v. City of Orlando, Fla., No. 08-16788, 2010 WL 2652472 (11th Cir. July 6, 2010), the court held that the ordinance: (1) did not regulate truly communicative conduct for First Amendment purposes because the expressive nature of the conduct was not “overwhelmingly apparent”; (2) was a neutral law of general applicability, and did not violate the Free Exercise Clause because it was reasonable for the city to conclude that the ordinance would reduce the wear-and-tear on park resources by causing the feedings to be rotated among its parks; (3) was not unconstitutionally vague as inviting arbitrary enforcement on the park’s “adjacent sidewalks and rights-of-way”; and (4) did not substantially burden the church’s exercise of its practice of sharing food during religious services. The court found that, although it was possible that homeless persons would have difficulty learning of and traveling to new locations each week, this was a mere inconvenience rather than substantial burden on religious exercise. The court added that RFRA does not provide the church with a right to conduct its services at any park, but, at best, an alternative public place where religiously-motivated feeding could occur, such as it did at several parks not within the district covered by the ordinance.

Terminated Members Prohibited from Stating Claims Against Religious Institutions

Appellate courts in Washington and Georgia rejected claims that terminated members brought against religious institutions in Sreng v. Trairatanaram Temple, Inc., 2010 WL 2305865 (Ga.App. June 10, 2010), and Rentz v. Werner, 2010 WL 2252529 (Wash.App. Div. 1 June 7, 2010). In Sreng, the plaintiff alleged that the temple’s board of directors unlawfully revoked his membership and status as a temple “advisor,” and falsely imprisoned him when a police officer removed him from the premises. But the court considered it well established that “Georgia courts are prohibited … from ‘determining issues of expulsion of members, pastors, and the internal procedures of a religious entity.’” Similarly, in Rentz, the court held that the ecclesiastical abstention doctrine barred a trial court from asserting jurisdiction over former members’ allegations that the minister exceeded her powers by unilaterally expelling them from the church after they voiced dissent, questioned her authority, and asked to examine the church’s financial records and governing documents, or sought to run for church office without her approval. In Rentz, the court determined that the issues the plaintiff raised went to the “core” of ecclesiastical affairs. “They specifically concern the composition of the church’s membership and the role of the minister in managing the church’s ecclesiastical affairs. Whether the church is congregational or hierarchical is not determinative of the manner in which the claims herein brought implicate the First Amendment’s protection against state interference in religious belief and practice.” In sum, the court found that the plaintiff “essentially ask[ed it] to decide whether some individuals are heretics,” which the court found it was constitutionally barred from deciding. The court even found that it was barred from inquiring whether the church complied with internal rules in making decisions concerning ecclesiastical affairs.

Denial of Authority to Offer Creation Degree Affirmed

The Institute for Creation Research Graduate School applied to the Texas Higher Education Coordinating Board to offer a Master of Science degree with a major in science education from a “Biblical creationist viewpoint.” In Institute for Creation for Research Graduate Sch. v. Tex. Higher Educ. Coordinating Bd., 2010 WL 2522529 (W.D. Tex. June 18, 2010), the district court approved the Board’s denial of a certificate of authority to teach the degree program. The initial site review team filed a report recommending approval of the degree program, finding that it would be “generally comparable to an initial master’s degree in science education from one of the smaller, regional universities in the state.” But the Commissioner of Higher Education asked for a reevaluation of the program. A new team expressed concerns about the content of the program as “outside the realm of science” and, thus, lacking “potential to help students understand the nature of science and the history and nature of the natural world.” When the Board denied the certificate of authority, the Institute sued for violations of the free speech, free exercise, equal protection, and due process clauses, as well as the Texas Religious Freedom Restoration Act. The court held that the rules governing the Board’s decision were neutral and generally applicable, and that the state had a legitimate interest in requiring postsecondary institutions to seek certificate of authorities to offer degree programs to prevent public deception and fraudulent degrees. The court also found no evidence that religious animus motivated the revaluation of the degree and no evidence of a substantial burden on the Institute’s free exercise of religion.

Former Church Employee States Employment Claims Against Church and Pastor

In Erdman v. Chapel Hill Presbyterian Church, 2010 WL 2590590 (Wash. App. June 29, 2010), the court held the ecclesiastical abstention doctrine did not bar a former church employee’s suit against the church for negligent retention and supervision or hostile work environment, nor against the pastor for negligent infliction of emotional distress. The plaintiff was hired as the church’s Executive for Stewardship. She expressed concerns that tours led by the senior pastor of religious and historical sites possibly jeopardized the church’s tax-exempt status. The pastor was irritated and allegedly stormed into her office, slammed the door and verbally abused her. The plaintiff submitted a written complaint and took formal medical leave. The pastor agreed to turn the matter over to the church Session for resolution. Then, the plaintiff returned from leave and filed a grievance with the presbytery. The Session issued a report finding that the pastor did not harass the plaintiff and terminated her. The Presbytery also found that the plaintiff could not substantiate her allegations and declined to charge the pastor. The plaintiff sued. The court disagreed that her claim for negligent retention and supervision was barred by the ecclesiastical abstention doctrine, because, inter alia, (1) the church did not offer a religious justification for the alleged tortious act, and (2) the church specifically prohibited sexual harassment in its employee handbook. Likewise, the court held her Title VII claim was not barred because the church prohibited gender discrimination. However, the court rejected the plaintiff’s constitutional challenge to the Washington Law Against Discrimination, which exempts from coverage religious organizations, and thus her claim under the statute for harassment and retaliation. The court also rejected her claim for negligent infliction of emotional distress based exclusively on the stress that she allegedly experienced as a result of the church’s investigation into the matter, but not the same claim against the pastor.

Church Property Disputes Decided in Favor of the Episcopal Church

In Protestant Episcopal Church in the Diocese of Va. v. Truro Church, 2010 WL 2303389 (Va. June 10, 2010), the court held that the evidence did not establish that there was a division in the Episcopal Church for purposes of the application of a dated Virginia statute, providing that a divided congregation could vote and determine to which branch of the church or society the congregation would belong and, thus, to which title to and control of property would be held in trust. The case consolidated disputes involving 15 congregations that voted to separate from the Protestant Episcopal Church in the Diocese of Virginia after the bishop of the Diocese supported the confirmation of a homosexual priest, the adoption of a resolution permitting the blessing of same-sex unions and the rejection of a resolution concerning the “historic formularies of the Christian faith.” The congregations affiliated with the pre-existing Convocation of Anglicans in North America, which had been formed as a mission of the Church of Nigeria to provide oversight for expatriate Nigerian congregations in the United States. The court concluded that, “Code s. 57-9(A) requires a petitioning congregation to establish both that there has been a division within the church or religious society to which it is attached and that subsequent to that division the congregation seeks to affiliate with a branch derived from that same church or religious society. While the branch joined may operate as a separate policy from the branch to which the congregation formerly was attached, the statute requires that each branch proceed from the same polity, and not merely a shared tradition of faith. The record in these cases shows that the CANA Congregations satisfied the first of these requirements … but not the second….”

In Rector, Wardens and Vestrymen of Christ Church in Savannah v. Bishop of the Episcopal Diocese of Ga., Inc., 2010 WL 2683934 (Ga. App. July 8, 2010), the court also decided in favor of the Episcopal Church against a single historic local parish that sought to disaffiliate from the national church for similar reasons. The court concluded, “In this case, it is undisputed that the National Episcopal Church is hierarchical in nature, that Christ Church has been a member of the hierarchical organization since 1823 … that Christ Church, through its own 1918 charter, made itself subject to the hierarchy’s discipline and canons, and that Christ Church ratified its adherence to the National Episcopal Church discipline and canons in 1981 when it re-filed its 1918 charter. Such discipline and canons unquestionably provide that the National Episcopal Church ‘shall hold all church property,’ thereby implying a trust for the benefit of the National Episcopal Church.”

Religious Institutions in the News

Louisiana’s Governor signed a guns-in-churches bill.

Gallup reports that American church attendance inched up in 2010.

The ACLU is demanding that federal officials require religious hospitals to offer abortions.

Hospitals nationwide are remaking their chapels into meditation rooms. 

The location of a mosque near Ground Zero in New York is raising concerns.

The Young Men’s Christian Association (YMCA) is rebranding itself as “the Y.”

Churches are torn on whether to allow molesters in pews.

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