July 18, 2011

Religious Institutions Update: July 2011

Holland & Knight Update
Nathan A. Adams IV

Timely Topics

In recent years conflicts of interest have commonly been in the news in relation to for-profit companies and government. Lesser known are conflicts of interest involving religious institutions such as those discussed below. What is a conflict of interest? A common definition is a situation in which regard for one duty tends to lead to disregard of another, such as when a director or employee’s personal or financial interest conflicts or appears to conflict with a corporate interest. For directors of religious institutions, a conflict of interest commonly leads to a breach of the director’s fiduciary duty to the religious institution to act in its best interest. Conflicts of interest may arise in the event a board member, key employee or close relative or business partner of either is affiliated with a vendor for a religious institution. They may also arise in the event of sales or transactions between religious institutions when directors or close relatives serve on both the buyer and seller’s boards. For officers and employees of religious institutions, conflicts of interest are often associated with illegal private inurement in violation of the tax code; for example, by virtue of payment of unreasonable compensation or transferring property for less than fair market value to insiders. Beginning in 2009, the IRS required Form 990 filers to adopt a conflict of interest policy. Even if your faith-based organization is not a mandatory Form 990 filer, adopting a conflict of interest policy is a good way to mitigate against legal liability. Consult with church-state counsel about enacting the policy right for your organization. Standard elements include a definition of a conflict of interest with specific examples applicable to your organization, the list of positions and relationships that may be implicated by conflicts of interest, processes for handling these situations and the method of enforcing the policy.

NLRB Claims Jurisdiction Over St. Xavier University

In St. Xavier Univ. v. St. Xavier Univ. Adjunct Faculty Org., IEA-NEA, Case 13-RC-22025 (NLRB May 26, 2011), the National Labor Relations Board (NLRB) ruled that adjuncts at St. Xavier University were entitled to vote on a union and that the University lacked enough of a religious character to be exempt from the National Labor Relations Act. The NLRB applied its “substantial religious character” test and decided that the exercise of jurisdiction was appropriate in this case for several reasons: (1) a faculty member’s religious values, or lack thereof, play no role in their hiring or retention at the University and are not a subject of their evaluations or suitability for promotion; (2) students are required to take two courses in religious studies, but are not required to take courses involving the study of the Catholic faith; (3) four of 24 board members must be Sisters of Mercy and a majority must be Catholic, but the majority need not be members of the Sisters of Mercy; and (4) although the Sisters of Mercy, the University’s only corporate member, extended a $5 million loan during a fiscal emergency to the University, more than 90 percent of its funding is derived from student tuition revenue and housing payments. The NLRB also noted that the object of the University contained no reference to religion, God, Catholicism, Sisters of Mercy or the Council for Mercy Higher Education; the University does not investigate the religious beliefs of its students; and adjunct faculty testified that the department chairperson does not consider observance of a different religion a problem. The NLRB was unimpressed that the University provides various public programs related to or inspired by its Catholic identity and Mercy heritage; holds three annual celebrations of its Catholic identity and Mercy heritage; and is guided by the Ex Corde Ecclesiae, the Apostolic Constitution of the Supreme Pontiff John Paul II on Catholic Universities.

Michigan Meditation Center Denied Property Tax Exemption

In Self Realization Meditation Healing Centre v. Charter Township of Bath, Docket No. 297475, 2011 WL 2462586 (Mich.App. June 21, 2011), the court affirmed lower tribunal rulings that the Self Realization Healing Centre does not qualify for ad valorem property tax exemption under either a charitable exemption or religious exemption. The Centre identified its purposes as follows: “[T]o provide support to the general public and to those who are suffering on any level, to assist those who seek inner knowledge and personal growth in the pursuit of peace, health and happiness through meditation, yoga and spiritual living. The corporation is organized exclusively for religious, charitable, scientific, literary and educational purposes.” The Centre offers retreats such as a “pure meditation” or “Christmas celebration retreat” or simple overnight accommodations. The Centre is part of a larger organization based in the United Kingdom. It “incorporates Eastern religious concepts and figures as well as Western ones” and “reveres and seeks ‘to uphold the wisdom of the Masters, such as Jesus, Babaji, Buddha and the Saints.’” Reviewing the Centre’s overall nature, the court found that it is not charitable because of its several other purposes and uses of the property as a bed and breakfast, a yoga and recreational center, a place to walk in the woods, and a center for learning meditation. The court held that the Centre did not qualify for the religious exemption, because its principles and teachings were as much philosophy as religion, and its activities were religious and non-religious, rather than predominately religious.

Emblem Statute Did Not Infringe Amish Religious Exercise

Members of the Old Order Swartzentruber Amish were convicted of violating KRS 189.820, which requires that a slow-moving vehicle emblem, a fluorescent yellow-orange triangle with a dark red reflective border, be displayed on their horse-drawn buggies. The Amish defended by arguing that KRS 189.820 is unconstitutional as interfering with their free exercise of religion inasmuch as they believe extravagant displays of “loud” colors should be avoided, as well as the use of “worldly symbols.” They consider splashy or garish colors suggestive of vanity, and believe the use of secular symbols encroaches upon their spiritual relationship with God. However, in Gingerich v. Commonwealth of Ky., Case Nos. 2008-CA-001493-MR and 2009-CA-001046-MR, 2011 WL 2162529 (Ky.App. June 3, 2011), the Court of Appeals of Kentucky held that “[a]ssuming arguendo ... strict scrutiny is the appropriate analysis in this case, KRS 189.820 would still pass constitutional muster,” as it serves the compelling reason of the government “to promote highway safety for everyone who uses the roads.” The court found that KRS 189.820 “does not infringe upon Appellants’ right to exercise their religion by restricting their religious worship rituals or enforcing compulsory conduct to which they are conscientiously opposed. Instead, the statute serves as a condition to utilizing a certain privilege: the use of state roads.” The court rejected the Appellants’ argument that a bicycle exemption from KRS 189.820 shows that the emblems are not necessary for roadway safety inasmuch as bicycles do not pose as much of a safety risk as do horse-drawn carriages. The court also disagreed that the appellants’ proposed black-and-white buggy marker would be equally effective as the emblem. Last, the court disagreed that the trial court erred by not imposing upon the Commonwealth a burden of production to rebut appellants’ claims of selective enforcement.

RLUIPA Cases Have Split Outcomes

Texas Zoning Ordinance Held Invalid Under “Equal Terms” Provision

In Elijah Group, Inc. v. City of Leon Valley, Tex., Case No. 10-50035, 2011 WL 2295215 (5th Cir. June 10, 2011), the United States Court of Appeals for the Fifth Circuit held that the City of Leon Valley, Texas violated the Equal Terms Clause of the Religious Land Use and Institutionalized Persons Act (RLUIPA) when it amended an ordinance to exclude churches from a retail corridor by excluding them from a Permitted Use Table while allowing nonreligious, nonretail buildings to occupy the zone upon receipt of a Special Use Permit. The church purchased land in the zone in question almost a year after the amended ordinance came into effect and obtained a certificate of occupancy from the City to allow day care services on it. When the church later began to hold religious services on the property, the City obtained a temporary restraining order against the activity as violative of the zoning ordinance. The church filed suit against the City in state court challenging the ordinance’s validity and constitutionality under various state and federal laws including RLUIPA. The City removed the case to federal court. The magistrate and district court granted summary judgment to the City. The church appealed. The court of appeals considered four tests developed by four different courts of appeal for applying the Equal Terms Clause of RLUIPA, and adopted none of them. Instead, the court ruled, “Try as we may, we cannot reconcile the ordinance’s facial treatment of a church differently than a private club in light of the way that B-2 zones are defined....” The court held the ordinance “invalid because it prohibits the Church from even applying for SUP when, e.g., a nonreligious private club may apply for a SUP despite the obvious conclusion that the Church and a private club must be treated the same, i.e., on “equal terms” by the ordinance....”

New York Zoning Ordinance Upheld Under “Substantial Burden” Provision

In Wesleyan Methodist Church of Canisteo v. Village of Canisteo, Case No. 10-CV-6346, 2011 WL 2149444 (W.D.N.Y. June 1, 2011), a church identified a parcel upon which to build a larger church located in an area zoned “light industrial,” where church buildings are not permitted. The church applied for re-zoning, a variance, and special use permit and was denied. Then, the church commenced an action contending that the city violated RLUIPA by imposing a substantial burden on its religious exercise. The court disagreed for lack of any allegation in the complaint that the subject parcel was the only suitable site in the entire village for its new church building. The court decided that under the substantial burden clause of RLUIPA, a substantial burden exists when government action “directly coerces the religious institution to change its behavior.” It found that “substantial burden” claims involving zoning codes are rarely established, because they concern generally applicable burdens, neutrally imposed. They occur when land use restrictions are imposed on religious institutions arbitrarily, capriciously or unlawfully as a reflection of bias or discrimination.

Connecticut Chabad States “Substantial Burden” and “Equal Terms” Claims

In Chabad Lubavitch of Litchfield, County, Inc. v. Borough of Litchfield, Connecticut, Case No. 3:09-CV-1419 (JCH), 2011 WL 2471276 (D. Conn. June 21, 2011), the court denied the defendants’ motion for judgment on the pleadings, contending that denial of the Chabad’s Certificate of Appropriateness was not a substantial burden on its religious exercise and that the Chabad was not treated differently from similarly-situated organizations. The court ruled that, although the Chabad had an opportunity to resubmit the proposal, the Chabad had plausibly claimed that it would have been futile and that the denial would have required it “to sacrifice a good portion of the spaces that it believes is necessary to the exercise of its religion.” The court also found that the Chabad had adequately pled that a number of buildings within the Historic District, permitted to construct additions larger in size than an original, historic building, were proper comparators for unequal treatment purposes. The court also refused to grant judgment on the pleadings on the Chabad’s free speech and freedom of association claims, because the Chabad “sufficiently alleged that, by denying the Chabad’s Certificate of Appropriateness, [Defendants] acted with the intent to interfere with the Chabad’s religious speech and expressive association” (emphasis original). Separately, the court denied the defendants’ motion for judgment on the pleadings arguing that the “substantial burden” and “equal terms” provisions of RLUIPA are unconstitutional, on the theory that Congress lacked the authority under the Commerce Clause to enact it and RLUIPA violates separation of powers and the Establishment Clause. The court did find, however, that an individual rabbi lacked standing to assert an RLUIPA claim no different in kind from the Chabad’s.

Church Official Conduct Drawn Into Question

In re: First Baptist Church of Spring Mill, Case No. 1917 C.D. 2010, 2011 WL 2302540 (Pa. Cmwlth. June 10, 2011), concerns a church that chose to dissolve itself due to decreased membership and financial difficulties and make a sizable payment from the sale of its assets to the pastor for his service over the prior 10 years. Thirteen church members approved revising the church constitution, as proposed by the pastor, so that “[i]n the event of the dissolution of the corporation, all of its debts shall be fully satisfied, including any compensation and benefits due its pastor,” and so that the pastor was added to the church’s board and not required to withdraw from a business session when he was the subject of discussion. The church also approved the pastor’s nomination of his son to a trustee position. Next, eight church members – including the pastor, his wife and two sons – approved the sale of the property and a motion to compensate the pastor for his past service based on the sale proceeds. The pastor, his wife, and his son signed an agreement to sell the church’s real estate for $750,000. Then, the six remaining church members (including the pastor, his wife and two sons) voted to dissolve the church and compensate the pastor out of net proceeds from the sale of the church totaling $691,506.46. They filed a petition with the court seeking approval to pay the pastor $635,000. The Commonwealth objected to the payment on the grounds that by voting to approve the compensation the pastor and other board members violated a fiduciary duty under the state nonprofit corporation act and engaged in self-dealing. The trial court approved payment to the pastor in the amount of $22,500 for storing church records. The pastor appealed this order, but the court quashed the appeal on the grounds that the order was interlocutory in character.

The court in Brotherhood Mut. Ins. Co. v. Lancaster Conf. of the Mennonite Church, Civil Action No. 08-5267, 2011 WL 2135666 (E.D. Pa. May 31, 2011), found that Brotherhood Mutual Insurance Company was not required to defend an action alleging intentional conduct by the Lancaster Conference of the Mennonite Church and Bishop Freeman Miller in purchasing property from a church council and its Treasurer for $1, in selling the property to another church, and conveying the sales proceeds to the Philadelphia Ministry Partnership, and further alleging that the defendants intentionally misrepresented that the proceeds of the sale of the church would be paid to the church council, conspired to commit wrongful acts and did so with the intent to defraud the church council. The court found that the complaint alleged intentional behavior on the defendants’ part, to wit: acting with the intent to further their own interests and deprive the church of the proceeds of the sale of its property. Because the conduct was not accidental, the court held there was no “occurrence” within the meaning of Directors and Officers Liability Coverage and Leadership Liability Coverage.

No Civil Rights Liability for Threatening Arrest of Church’s Bishop for Trespassing

The court in Spanish Church of God of Holyoke v. Scott, Case No. 09-30224-KPN, 2011 WL 2580292 (D.Mass. June 20, 2011), dismissed the Section 1983 civil rights claims of a church and its bishop against a police chief when police threatened to arrest the bishop if he returned to his church. During a heated church meeting, a parishioner called the police. The officers entered the church building and ordered the sound technician to turn off the microphone into which the bishop was speaking. A few days later, the bishop received a Notice of Trespass. When the bishop returned to the church, a Director of the Church complained to the police. Officers instructed the bishop that if he returned he would be arrested. The court rejected the church and bishop’s claim that the City of Holyoke and the Chief of Police violated their right to freedom of religion by enforcing the Notice of Trespass. The court observed that the plaintiffs failed to prove a policy or custom offensive to the Constitution subject to a challenge. The court summarized, “[T]here is simply no evidence that Chief Scott intended to enforce the Notice against Plaintiffs to discourage their exercise of First Amendment rights.... [T]he First Amendment does not preclude the enforcement of valid and neutral laws against members of the clergy.” The court dismissed as inapposite cases precluding courts from exercising jurisdiction over hierarchical church disputes.

Religious Institutions in the News

Plaintiffs voluntarily dismissed their federal lawsuit challenging the clergy housing allowance due to lack of standing (Freedom from Religion Foundation v. Geithner). See http://www.christianexaminer.com/Articles/Articles%20Jul11/Art_

Critics continue to press President Obama to change faith-based hiring rules. See http://www.usatoday.com/news/religion/2011-06-22-obama-religion-hiring_n.htm

Bullying can be a problem in religious schools. See http://www.christiancentury.org/article/2011-06/parochial-schools-not-immune-bullies

More than nine in 10 Americans believe in God, but belief is slipping among younger Americans. See http://www.gallup.com/poll/147887/Americans-Continue-Believe-God.aspx. Evangelical Protestant leaders in the global South expect gains, but not in the global North. http://www.pewforum.org/Christian/Evangelical-Protestant-Churches/Global-Survey-of-Evangelical-Protestant-Leaders.aspx

Related Insights