December 4, 2015

Religious Institutions Update: December 2015

Lex Est Sanctio Sancta
Holland & Knight Update
Nathan A. Adams IV

Timely Topics

Captive insurance companies can be a win-win for organizations with excellent claim records that would rather accrue their insurance premiums than pay them to a third-party insurer. Put simply, captive insurers are insurance companies formed by the insured with the specific objective of insuring risks emanating from the parent company or group of companies. The advantages can be substantial: For example, after "endowing" the captive insurer, the parent no longer has to make annual premium payments unless the captive has an unexpected payout period or takes on additional risks. Like ordinary insurers, captive insurers must convince regulators that their business is sound from an actuarial and financial perspective. Typically, captive insurance companies hire outside specialists to assist with this. They retain the underwriting profit and investment income, preserve control over how the company pays losses and settles claims, can develop their own forms and rates based on group experience, and, where necessary, may seek reinsurance to protect against remote risks. Captive insurers can tailor their products to the exact risks and strengths of your organization, whereas commercial insurers lump your risks into the risk profiles of other organizations that may prove quite different. By retaining control over settling claims, captives wrest control from third parties over these claims and are able to benefit directly from enhanced loss prevention programs. Not all types of insurance can be insured through captives, not all states authorize captives for every type of organization and not all risk profiles or organization sizes make sense for captives. Smaller organizations may want to join together in associations to benefit from them. Captives also require experienced and sophisticated management from at least outside vendors. But when the elements for captive insurance are satisfied, it is an excellent way to benefit from good risk-compliance programs and to steward resources. Holland & Knight is glad to assist if you would like more information about captive insurance companies.

Department of Justice May Not Enjoin School Voucher Program Based on Federal Desegregation Order

In Brumfield v. La. State Bd. of Educ., No. 14-31010, 2015 WL 6989319 (5th Cir. Nov. 10, 2015), the court ruled that the district court was without subject matter jurisdiction to modify a federal desegregation order to gain oversight and some level of control over Louisiana's Student Scholarships for Educational Excellence Act (Act). The federal order, put in place in 1975 because of Louisiana's historical practice of subsidizing racially discriminatory private schools, was converted into a consent decree in 1985, incorporating a process for private schools to be certified as non-discriminatory to be eligible for state assistance. Under the court's continuing jurisdiction over the consent decree, the U.S. Department of Justice (DOJ) sought to compel discovery of information about the voucher program, then to alter the order to enjoin Louisiana from awarding any vouchers to students who currently attend public school districts subject to ongoing desegregation orders. The only evidence in the record showed that the Act has no negative effect on school desegregation. Under the Act, students whose family income is below 250 percent of the federal poverty line and who are entering kindergarten or previously attended a school receiving a grade of "C" or lower, with preference of students in "D" and "F" schools, receive scholarships to attend public and private schools. DOJ convinced the district court to enter an order creating a process for continuing federal oversight of the voucher program. Intervenors who are parents of students who participate in the program moved to vacate the order by arguing, inter alia, that the judgment was void under Rule 60(b)(4) for lack of jurisdiction. They appealed the denial of their motion, as if it were tantamount to a refusal to dissolve an injunction. Describing the DOJ's motion as "disturbing" as a transparent attempt to "regulate the program without any legal judgment against the state," the appellate court reversed the district court on the ground that its order was outside the scope of its continuing jurisdiction for three reasons: (1) the voucher program's potential impact on desegregation orders for public schools in separate federal desegregation cases is distinct from eliminating public funding for discriminatory private schools; (2) the voucher program aid is for students rather than private schools; and (3) even if the voucher program aids private schools, it is not being given to discriminatory private schools. Judge Costa dissented on the grounds that the appeal was improper and "vigilance about retrenchment in the area of school desegregation" is reasonable.

Removing Evangelical Proselytizers for Objectionable Speech Violated Constitution

In Bible Believers v. Wayne Cnty., Mich., No. 13-1635, 2015 WL 6500505 (6th Cir. Oct. 28, 2015), an en banc court ruled that a municipality violated the Free Speech and Free Exercise rights of an evangelical group when the sheriff and deputies required them to leave the Arab International Festival, where they were proselytizing with T-shirts and banners proclaiming, for example, "Islam is a Religion of Blood and Murder." The court ruled that the police effectuated a "heckler's veto" and failed to intervene to control a group of adolescents who were throwing objects at the group. The court ruled, "If there is a bedrock principle underlying the First Amendment, it is that the government may not prohibit the expression of an idea simply because society finds the idea itself offensive or disagreeable." The parties agreed that the festival constituted a traditional public forum. They disagreed over whether the evangelical group was involved in incitement to violence or fighting words. The court rejected both arguments; it found the group's speech did not contain a single word encouraging violence or lawlessness and was not directed at any individual. Rather, the court found that it was the hecklers who posed the threat and ruled that an officer may not "sit idly on the sidelines – watching as the crowd imposes, through violence, a tyrannical majoritarian rule – only later to claim that the speaker's removal was necessary for his or her own protection." Because the defendants cut off the group's protected speech, placed undue burden on their exercise of religion and treated them disparately from other speakers at the festival on the basis of the views that they espoused, the court ruled that the defendants' violated their constitutional rights and are entitled to damages.

New Mexico Supreme Court Strikes Schoolbook Loan Program Benefiting Private Schools

In Moses v. Skandera, No. S-1-SC-34,974, 2015 WL 7074809 (N.M. Nov. 12, 2015), the New Mexico Supreme Court reversed the lower courts' ruling that New Mexico's Instructional Material Law (ILM) satisfies Article XII, Section 3 of the New Mexico Constitution. Pursuant to the ILM, the legislature appropriates funds, and private schools are allocated a percentage based on the number of students enrolled in their schools. The schools select and purchase nonreligious materials, then loan them to the students. The New Mexico Supreme Court found a violation of Article XII, Section 3, which states: "The schools, colleges, universities and other educational institutions provided for by this constitution shall forever remain under the exclusive control of the state, and no part of the proceeds arising from the sale or disposal of any lands granted to the state by congress, or any other funds appropriated, levied or collected for educational purposes, shall be used for the support of any sectarian, denominational or private school, college or university." The court referred to this language as an elaboration on the Blaine amendment required as a condition of admitting New Mexico to the union. The court found that the ILM at least indirectly benefits private schools by freeing them from the obligation of buying instructional materials and, thus, is unconstitutional.

Surveillance Program Singling out Muslims Under Constitutional Scrutiny

In Hassan v. City of N.Y., 804 F. 3d 277 (3d Cir. Oct. 13, 2015), the court found that plaintiffs state a claim for violation of the Equal Protection Clause, Free Exercise Clause and Establishment Clause against the New York City Police Department (NYPD) for implementing a wide-ranging surveillance program targeting Muslim individuals, businesses and institutions in the wake of the September 11, 2001, terrorist attacks. The program allegedly involves camera and video surveillance of mosques and worshippers; informants infiltrating mosques (so-called "mosque crawlers" and "rakers"), colleges and universities, and Muslim student groups; intelligence gathering; and reporting on "locations of concern." The plaintiffs argued that because of the program's stigmatizing and reputational consequences, it has adversely affected their worship and religious activities. The court agreed with the plaintiffs that the program is facially discriminatory because it intentionally singles out Muslims for different treatment, and rejected as an insufficient justification the city's claim that the motive was national security and public safety, not animus. Agreeing with two other courts of appeal, the court decided that classifications based on religious affiliation trigger heightened scrutiny under the Equal Protection Clause, but declined to decide whether this is intermediate or strict scrutiny.

Christian Science Nursing Facilities Denied Medicare Reimbursement

In Hill v. Burwell, No. 14-2135(JEB), 2015 WL 6736779 (D.D.C. Nov. 3, 2015), the court affirmed two decisions by the Administrator of the Centers for Medicare & Medicaid Services (CMS) that concluded four Christian Science nursing facilities were not entitled to reimbursement for the provision of specific types of nonmedical care to religious patients. The Medicare statute allows Medicare-certified religious nonmedical healthcare institutions, all of which during the period under review were Christian Scientist, to receive reimbursement for running "approved educational activities" that "contribute to the quality of patient care" rendered by that provider. 42 C.F.R. §413.85. Critical to the dispute, CMS defines approved educational activities as "formally organized or planned programs of study of the type that: (1) are operated by providers...; (2) enhance the quality of health care at the provider; and (3) meet the requirements of ... licensure or accreditation." The fiscal intermediary for Medicare denied reimbursement to the facilities because it concluded that the Commission for Accreditation of Christian Science Nursing Organizations/Facilities, Inc. was not providing adequate accreditation because it lacked specific standards. The court agreed.

Taxpayers Opposed to Tourism Incentives for Noah Project Not Allowed to Intervene

In Ark Encounter, LLC v. Stewart, No. 15-13-GFVT, 2015 WL 6680837 (E.D. Ky. Oct. 30, 2015), the court ruled four taxpayers lacked a substantial interest in the plaintiffs' lawsuit against the state due to their exclusion from a tourism incentive program created under the Kentucky Tourism Development Act. Plaintiffs seek to participate in the program to develop a multi-acre, paid-admission complex consisting of buildings, exhibits and amenities centered on Noah, the Ark and the Genesis flood account. Plaintiffs opposed the taxpayers' intervention on the grounds that the incentives at issue are entirely funded from sales taxes paid by persons who visit the project. By contrast, the taxpayers argue that the tax rebates would "effectively compel" them to subsidize a religious ministry against their will. The court ruled that their interest in the case is no different from that of Kentucky taxpayers at large and, thus, is inadequate.

Church Not Liable for Battery by Treasurer's Husband on Pedestrian

In Rodriguez v. Judge, 132 A.D.3d 966, 2015 N.Y. Slip Op. 07828 (N.Y. App. Div. - 2d Dep't Oct. 28, 2015), the court ruled that a church was not vicariously liable when the church treasurer's husband, while on the way to services with her, assaulted and battered a pedestrian using a gate pole procured from the church premises allegedly with her assistance. The court found that the treasurer was not acting in furtherance of church business at the time, the church owed no duty to and had no relationship with the pedestrian, and the husband's use of the pole to commit the battery was an unforeseeable, superseding and intervening cause of plaintiff's injuries.

Churches Lack Standing to Challenge Texas Election Code

In Joint Heirs Fellowship Church v. Akin, No. 14-20630, 2015 WL 6535336 (5th Cir. Oct. 29, 2015), the court per curiam affirmed the district court's determination that three churches involved in efforts to recall elected officials in Houston and San Antonio lack standing to challenge provisions of the Election Code governing corporate contributions to political committees, defining "political committee" and defining "contribution" and "expenditure." The court gave as the reason a limiting interpretation by the Texas Ethics Commission indicating that it will not enforce the statutes to prohibit the churches' proposed activities.

Former Parishioners Ruled Trespassers at Deconsecrated Parish

In Roman Catholic Archbishop of Boston v. Rogers, 88 Mass.App. Ct. 519, 39 N.E. 3d 736 (Mass. App. Oct. 14, 2015), the appellate court affirmed the trial court's order declaring former parishioners of a deconsecrated parish trespassers and permanently enjoining them from entering the church property. The parishioners maintained an around-the-clock, seven-days-per-week vigil since the decree of suppression entered in October 2004. In February 2015, the Archbishop notified the defendants that they must end their vigil and leave the church or face legal action. The appellate court agreed that the matter could be decided under "neutral principles of law" and that it was not obligated and could not entertain the defendants' claim that they are equitable owners of the church under canon law.

Religious Institutions in the News

The share of U.S. adults who say they believe in God declined from 92 percent to 89 percent between 2007 and 2015.

The U.S. Supreme Court agreed to review another challenge to the contraceptive mandate contained in the Affordable Care Act (ACA).

Peacemaker arbitration has come under criticism.

Australian Catholic bishops face court action and fines for sending home with parochial school children a booklet advocating traditional views on marriage.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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