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Experience over the last couple decades teaches that religious institutions face as much or perhaps more liability than secular organizations and, therefore, need to take risk management seriously. From operating their own schools and counseling services to taking care of the poor and dealing with unrelated business income taxes, religious institutions must manage their risks as well as for-profit concerns or else be prepared to close their doors in the event of serious litigation or public investigation. One lesser-known risk management technique that religious institutions should consider arises from Code §§508(c)(1) and 6033(a)(3)(A)(i) and Treas. Reg. §1.6033-2(g) through -2(h), all of which concern so-called "integrated auxiliaries" of religious institutions that qualify as "churches" or "conventions or associations of churches."

Integrated auxiliaries enjoy the unique tax advantages of these religious institutions themselves: (1) no requirement to file an application (IRS Form 1023) to obtain the church's income tax exempt status (legally obtained by default); and (2) no required annual return (IRS Form 990 or the applicable variation). But as a separately incorporated entity, the integrated auxiliary protects the exempt organization's assets without observing the filing requirements that other exempt organizations face. For example, a religious institution could form a nonprofit corporation or a wholly charitable trust to hold its valuable assets and another entity to hold its affiliated school or other exempt activity. Both could be structured as integrated auxiliaries, which for state law purposes would generally be treated as distinct from the religious institution itself if properly formed and maintained. A claim against the religious institution would not necessarily justify a claim against an integrated auxiliary, yet for federal income tax purposes, the integrated auxiliaries would simply be treated as the same religious institution.

If you have questions about enterprise risk management for religious institutions, please contact our Religious Institutions Team.

Religious Institutions Mere Presence in U.S. Inadequate Basis for Alien Tort Statute Claim

In Ellul v. Congregation of Christian Bros., No. 11-1682-cv, 2014 WL 6863587 (2d Cir. Dec. 8, 2014), the court affirmed the trial court's ruling that the mere presence of certain Catholic religious organizations in the United States was insufficient to establish conduct that "touched and concerned" the United States, as required for the trial court to hear claims under the Alien Tort Statute for slavery and involuntary servitude. After World War II, the religious organizations allegedly took the plaintiffs from their parents in Europe and told them they were dead, and then subjected them to a forced migration program in Australia as part of an effort to populate the country with "pure white stock." Because the conduct occurred more than 60 years ago, the court also affirmed that the statute of limitations had expired on the claim. The court assumed without deciding that the limitations period for the human trafficking claim is 10 years and found that more than 10 years ago the plaintiffs, by then adults, were aware of all of the elements of such a claim. The court declined to decide whether human trafficking, like piracy, does not take place exclusively within the jurisdiction of a foreign state and thus falls outside the presumption against extraterritoriality.

"Naturopathic Doctor" Loses Cross-Appeal Against State in Relation to Dietary Claims

In State v. Valerie Saxion, Inc., No. 02-13-00227-cv, 2014 WL 6839970 (Tex. App.-Ft. Worth Dec. 4, 2014), the state sued the defendant for violations of the Texas Food, Drug and Cosmetic Act (TFDCA) and the Deceptive Trade Practices Act (DTPA) for the defendant's statements on the Internet, in labeling and in promotional materials about the ability of her dietary supplements to diagnose, mitigate, treat, cure and prevent disease. The state also alleged that the defendant promoted herself as a "naturopathic doctor," which Texas does not recognize. The state sought an injunction against the defendant to stop her from making false representations, but the defendant counterclaimed for declaratory and injunctive relief, claiming that her statements were based on her "sincerely held religious beliefs." The appellate court agreed with the state that it was proper to dismiss the defendant's interlocutory cross-appeal under section 51.014(a)(6) (applying generally to media defendants facing defamation complaints) for want of jurisdiction over her free speech, free exercise and federal Religious Freedom Restoration Act (RFRA) claims – none of which implicated defamation law. With regard to the appellate court's review of the state's plea to the jurisdiction, it also agreed with the state that the defendant's free exercise claim is barred because the defendant failed to allege a valid ultra vires claim against a state official as it relates to the attorney general's discretion to enforce TFDCA and DTPA, and because the federal RFRA is inapplicable to governmental action by a state. Consequently, the appellate court reversed the trial court's denial of the state's plea to the jurisdiction, rendered judgment dismissing the defendant's free exercise and federal RFRA claims, and remanded the case to the trial court for further proceedings.

Theists' Challenge to Kansas Science Standards Dismissed

In Cope v. Kansas State Bd. of Educ., No. 13-4119-DDC-JPO, 2014 WL 6819462 (D. Kan. Dec. 2, 2014), the plaintiffs sought to enjoin the defendant from implementing new science standards for Kansas schools which, they argued, establish and endorse a non-theistic religious worldview in violation of the Establishment, Free Exercise and Speech Clauses of the First Amendment and Equal Protection Clause of the Fourteenth Amendment. The District Court granted the defendants' motion to dismiss the Kansas State Board of Education and the Kansas State Department of Education, both state agencies, based on Eleventh Amendment sovereign immunity. The court also granted their motion to dismiss the lawsuit because the plaintiffs lack standing to prosecute the action. Concerning the second point, the court ruled first that the plaintiffs lack a special injury as a result of the adoption of the standards. The court rejected plaintiffs' argument that their injury arising from a "message of endorsement" of a non-theistic religious world view allegedly contained within the standards is adequate. Specifically, the court found that the plaintiffs failed to allege "personal and unwelcome contact" with the standards because the Kansas State Board of Education has only the power to "supervise" local public schools and to establish "curriculum standards," and is prohibited from impinging upon a local school district's authority to determine its own curriculum. Furthermore, the court observed that the plaintiffs do not allege that any local school districts actually have implemented the standards. The court also rejected as evidence of special injury adequate for standing the plaintiffs' argument that adoption of the standards "sends a message that they, being theists, are outsiders within the community and that non-theists and materialists are insiders within the community." As its reason, the court ruled that the plaintiffs failed to allege that adoption of the standards "denounces, condemns, or disapproves their religion." Just as it could not find that the plaintiffs have standing under the Establishment Clause, the court ruled that they lack standing under the free speech, free exercise and equal protection clauses because they failed to allege an actual or imminent injury, and failed to establish causation relating their claimed injury to the board's decision, or redressability whereby the court had the authority to redress their claimed injury. Last, the court ruled that the plaintiffs lack taxpayer standing to state a claim for lack of a "logical link" between their status and the board's adoption of the standards and an insufficient "nexus" between their taxpayer status and "the precise nature of the constitutional infringement alleged."

Hoosier Fails to State Freedom of Conscience Claim Linked to Failing to Mow His Lawn

In Gul v. City of Bloomington, No. 53A04-1408-MI-378, 2014 WL 7243326 (Ind.App. Dec. 22, 2014), the plaintiff appealed a citation for failing to cut his grass in violation of a city ordinance. He explained the cause of his citation was "his sincerely held environmental belief that the overuse of chemicals, water, and lawnmowers to maintain a traditional lawn is harmful to the environment." The court rejected the plaintiff's argument that the ordinance leading to his citation violates several state and federal constitutional protections. First, the plaintiff argued that the ordinance violates the Indiana "freedom of conscience" clause, Article I, section 3 of the Indiana Constitution, but the court ruled that it is intended to apply to religious, rather than non-religious matters of conscience, and even if it includes non-religious matters of conscience, it protects only the right to hold one's own opinions, and does not protect the right to act on one's own opinions in contravention of the law. Second, the plaintiff argued that the ordinance violates the Indiana and federal freedom of expression clauses. The court assumed that by refraining from mowing his lawn, the plaintiff intended to convey a particular message, but found that the plaintiff failed to state a claim under either provision because he had stipulated that no one was aware of his reasons for his inaction and the city had a rational reason for the ordinance. The plaintiff also claimed that the ordinance violated state statutes and due process, but the court disagreed. Relating to the latter, the plaintiff argued that by failing to define "grass" the ordinance was unconstitutionally vague, but the court demurred on the grounds that the vast majority in the city apparently understood the ordinance well enough to avoid violating it.

Court Overturns Re-Zoning Decision Affecting Church

In Bardstown Junction Baptist Church, Inc. v. Shepherdsville City Council, No. 2013-CA-001168-MR, 2014 WL 6879919 (Ky.App. Dec. 5, 2014), the court of appeal reversed the trial court and agreed with Junction Baptist Church that the Shepherdsville City Council's decision to rezone bordering property warranted reversal because during the hearing before the planning commission, the planning commission had denied the church an opportunity to cross-examine witnesses and rebut evidence, and the city council had failed to support its ultimate decisions to rezone an area designated as "Low Density Suburban Residential/Agricultural" to "General Industrial" with adequate findings of fact and substantial evidence. In particular, Kentucky precedent required the planning commission to consider traffic and drainage issues (which it did not) before it could properly recommend approval of a zoning map amendment to the city council. Furthermore, the court located no evidence, as statutorily required, demonstrating "major changes of an economic, physical, or social nature within the area involved which were not anticipated in the adopted comprehensive plan and which have substantially altered the basic character of the area."

Religious Institutions in the News

Pope Francis played a key role in brokering renewed diplomatic relations between the United States and Cuba.

http://www.nytimes.com/2014/12/19/world/europe/pope-francis-vatican-diplomatic-mediator-cuba.html?_r=0;

http://www.christiantoday.com/article/cuba.how.pope.francis.diplomacy.helped.end.a.cold.war.conflict/44650.htm

Atheists suffer international persecution.

http://www.reuters.com/article/2012/12/10/us-religion-atheists-idUSBRE8B900520121210;

http://www.washingtonpost.com/national/religion/atheists-the-new-persecuted-minority-international-report-concludes-commentary/2014/12/17/e36e0d36-8621-11e4-abcf-5a3d7b3b20b8_story.html

Fired Catholic school teacher awarded $1.95 million.

http://dailysignal.com/2014/12/29/former-catholic-school-teacher-fired-violating-catholic-teaching-awarded-1-95-million-mostly-hurt-feelings/?utm_source=facebook&utm_medium=social