9th Circuit En Banc Hears Fraud Claim Against LDS Church

On Tuesday, the U.S. Court of Appeals for the 9th Circuit sitting en banc heard oral arguments in Huntsman v. Corporation of the President of the Church of Jesus Christ of Latter-Day Saints. (Video of full oral arguments.) In the case, James Huntsman, a prominent former member of the LDS Church who had contributed over $2.6 million to it, charged the Church with fraudulently misrepresenting the manner in which funds from tithes would be used. Huntsman says that the Church used tithed funds to finance a shopping mall and bail out of for-profit life insurance company after representing that the funds would not be used for commercial projects. A 3-judge panel of the 9th Circuit rejected the Church's claim that the suit was barred by the ecclesiastical abstention doctrine. (See prior posting.) Deseret News reports in detail on the oral arguments.

10th Circuit Hears Oral Arguments in Fraud Suit Against LDS Church

Yesterday, the U.S. 10th Circuit Court of Appeals heard oral arguments (audio of full arguments) in Gaddy v. Corporation of the President of the Church of Jesus Christ of Latter-Day Saints. In the case, a Utah federal district court dismissed a Second Amended Complaint in a class action lawsuit brought by former members of the LDS Church. The suit alleged that the Church has fraudulently misrepresented its founding to its members while its leaders did not have a sincere religious belief in the narrative. It also alleged that the Church made fraudulent misrepresentations about the use of money received from members' tithing. (See prior posting.) Courthouse News Service reports at greater length on the oral arguments.

9th Circuit Grants En Banc Rehearing in Huntsman's Suit Against LDS Church

In an Order (full text) issued March 1, the U.S. 9th Circuit Court of Appeals voted to grant en banc review in Huntsman v. Corporation of the President of the Church of Jesus Christ of Latter-Day Saints.  In doing so, the Order vacates the decision of the 3-judge panel in the case in which James Huntsman, a prominent former member of the LDS Church who had contributed over $2.6 million to it, charged the Church with fraudulently misrepresenting the manner in which funds from tithes would be used. (See prior posting.) Arguments in the rehearing are set for June 24.  ABC News 4 reports on the court's action.

LDS Church Sued Over Use of Tithed Funds

A class-action lawsuit was filed last week in a Utah federal district court against the Latter-Day Saints Church alleging fraud, unjust enrichment and breach of fiduciary duty in the handling of tithed funds and other contributions by the Church. The complaint (full text) in Chappell v. Corporation of the President of the Church of Jesis Christ of Latter-Day Saints, (D UT, filed 10/31/2023) alleges in part:

1. For decades, COP has used false pretenses to obtain donations. Rather than use these funds entrusted to it for charitable work, COP secreted donations away in Ensign in order to avoid public scrutiny and accountability to the donors, and instead used them for purposes never contemplated by donors and contrary to representations by COP....

3. For instance, COP maintains various philanthropies, including “Humanitarian Relief,” which provides “immediate emergency assistance to victims” of disasters. On its website, COP solicits donations to the Humanitarian Relief fund by stating that “One hundred percent of every dollar donated is used to help those in need without regard to race, religion, or ethnic origin.”

4. Despite these representations to donors, Plaintiffs understand based on public reports from third parties that COP deliberately hid that some, if not all, of these donations (including both tithes and donations made to a COP philanthropy) are permanently invested in accounts it never uses for any charitable work, so that every year, an enormous portion of the donations are never spent for these —or any— purposes.

Salt Lake Tribune reports on the lawsuit.

9th Circuit: Fraud Claim Against LDS Church By Prominent Donor May Move Ahead

In Huntsman v. Corporation of the President of the Church of Jesus Christ of Latter-Day Saints, (9th Cir., Aug. 7, 2023), the U.S. 9th Circuit Court of Appeals, in a 2-1 decision, reversed a California federal district court's dismissal of a fraud claim brought against the LDS Church by James Huntsman, a prominent former member who had contributed over $2.6 million in tithes to the Church. The court described Huntsman's claim:

Huntsman alleged that the Church represented that tithing money was not used to finance commercial projects, but that, in fact, the Church used tithing money to finance a shopping mall development and to bail out a troubled for-profit life insurance company owned by the Church.

The court rejected the Church's claim that the suit was barred by the ecclesiastical abstention doctrine, saying in part:

In the case before us, we are not required to rely on or interpret the Church’s religious teachings to determine if it misrepresented how it was using tithing funds. Nor are we required to examine Huntsman’s religious beliefs about the appropriate use of church money. 

Instead, as presented to us, the questions are secular. The questions are whether the Church’s statements about how it would use tithing funds were true, and whether Huntsman reasonably relied on those statements when he made tithing contributions. A court or jury can answer these questions based on secular evidence and analysis.....

The majority then concluded that the district court had erred in granting summary judgment to the Church, saying in part:

The question before the district court, and before us, is whether a reasonable juror could conclude that the five statements by church officials and in church publications amounted to fraudulent misrepresentation by the Church.... Huntsman contends that a reasonable juror could conclude from the five statements that the Church fraudulently misrepresented that neither tithing principal nor earnings on tithing principal were being or would be used to finance the City Creek Mall project. We agree.

Judge Korman dissented in part, agreeing with the district court that no reasonable juror could find that the Church had misrepresented the source of funding for the mall project.

High School's Failure to Supervise Student Did Not Violate Parents' Free Exercise Rights

In Doe v. Alpine School District, (D UT, June 21, 2023), a Utah federal district court rejected claims by the parents of a high school student that the school's practice of giving students long periods of unsupervised time during the last week of the school year violated their religious free exercise rights.  According to the court:

The Does are members of the Church of Jesus Christ of Latter-day Saints and have raised their son under its doctrines and to follow its practices, one of which prohibits premarital sex. The Does had previously discovered that JD had begun having sex with his girlfriend and had placed restrictions on JD’s activity to prevent him from having premarital sex thereafter, such as requiring him to be accompanied by other persons when he was with his girlfriend.... The Does learned that JD had had sex with his girlfriend in the parking lot next to the school during school hours three times during the final week of school....

The Does’ claim under the Free Exercise Clause fails because they have not alleged that the Alpine School District coerced them to abandon a religious tenet or belief. First, the school district did not coerce JD into acting against his religious beliefs. He freely chose to have premarital sex with his girlfriend, even though this was against the teachings of his religion. 

Second, the Alpine School District did not coerce the Does to act contrary to their religious principles. The Does allege that they have a religious duty to encourage JD to abstain from premarital sex. The district did nothing to pressure or force the Does to refrain from passing on those teachings to her son. The Does instead argue that the district’s policies allowed JD a window of opportunity to have sex, thwarting their attempts to prevent him from doing so. In essence, the Does assert that the Alpine School District did not do enough to help them perform their religious obligations. But the Free Exercise Clause does not impose such a duty on government entities....

The court also rejected plaintiffs' 14th Amendment parental rights claim.

Deed Restriction Does Not Violate Establishment Clause

In Hilo Bay Marina, LLC v. State of Hawaii, (HI Cir. Ct., March 21, 2023), a Hawaii trial court dismissed a suit seeking to void a deed restriction.  In 1922, the land at issue was conveyed by the Territory of Hawaii to the Church of Jesus Christ of Latter Day Saints, with a deed restriction that the land could only be used for church purposes. Under the restriction, the land would revert to Hawaii if it was used for non-church purposes.  In 2000, the land was conveyed to the Hilo Bay Marina, presumably triggering the reversion. Fifteen years later it was conveyed by the Marina to Keaukaha Ministry.  Now the Marina and the Ministry sue to void the deed restriction, among other things contending that it violates the Establishment Clause of the U.S. and the Hawaii Constitutions.  The court rejected the claim citing the U.S. Supreme Court's decision in Kennedy v. Bremerton Schol District, and saying in part:

The Establishment Clause "must be interpreted 'by reference to historical practices and understandings.'"...

The practice of selling government lands with deed restrictions was an early form of use-zoning and is interpreted as a historical practice of zoning....

Even if Article I, §4 of the Hawai'i Constitution is not coextensive with the Establishment Clause of the First Amendment..., the deed restriction passes constitutional muster under Lemon v. Kurtzman....

The deed restriction allows for any religious organization to benefit from the property, so it does not endorse or approve one religion over another....

The surveillance and monitoring required to enforce the deed restriction do not present excessive entanglement because they are no different than that of what is required to enforce any other zoning regulation.

Fraudulent Misrepresentation Claims Against LDS Church Are Dismissed

 In Gaddy v. Corporation of the President of the Church of Jesus Christ of Latter-Day Saints, (D UT, March 28, 2023), a Utah federal district court, in a 56-page opinion, dismissed a Second Amended Complaint in a class action lawsuit brought by former members of the LDS Church. The suit alleges that the Church has fraudulently misrepresented its founding to its members while its leaders did not have a sincere religious belief in the narrative. It also alleges that the Church made fraudulent misrepresentations about the use of money received from members' tithing. The court said in part:

The court has twice considered and rejected Plaintiffs’ arguments that fraud-based claims directed towards the Church’s alleged misrepresentations and omissions concerning the First Vision, Church History, translations of the Books of Mormon and Abraham, and locations of events in the Book of Mormon are not subject to the church autonomy doctrine. The court also previously rejected Plaintiffs’ theory that they can avoid the church autonomy doctrine by arguing the sincerity of the Church’s beliefs or basing their claims on a theory of fraudulent omissions....

By pleading even more facts concerning Joseph Smith, Plaintiffs seek to have the court adjudicate the truth or falsity of the Church’s beliefs and teachings concerning its founder by challenging the accuracy of facts surrounding those beliefs. But again, “[i]f religious events themselves sit beyond judicial purview, religious beliefs concerning the details of those events must enjoy the same protection.”...

The court agrees with the Church that Plaintiffs’ fraud in the inducement claim fails, not for running into a First Amendment bar on the falsity or reliance elements, but for a more fundamental failure to plead the claim with the specificity required under Rule 9(b)....

The court agrees with the Church that Plaintiffs fail to state a claim for fraudulent nondisclosure on the tithing theory because Plaintiffs cannot show that a legal duty exists between the Church and its members requiring disclosure of material financial information....

The court is unaware of any case law supporting the proposition that “constructive fraud based on a breach of promises of future performance” is an independent, recognized cause of action in Utah....

Because the UCSA [Utah Charitable Solicitation Act] does not appear create a private cause of action, and because effectively Plaintiffs concede this point in their Opposition, the court dismisses Plaintiffs’ claim for violation of the UCSA....

The court agrees with the Church that Plaintiffs have failed to plead a cognizable civil RICO claim....

SEC Imposes $5M In Fines On Mormon Church and Its Adviser For Concealing Ownership of Billions In Securities

In In re Ensign Peak Advisor, Inc., (SEC, Feb. 21, 2023), the Securities and Exchange Commission instituted cease and desist proceedings against the Church of Jesus Christ of Latter Day Saints and the entity which manages the Church's assets for making misleading filings designed to conceal the fact that the Church had $32 billion of publicly traded securities in reserve funds in 2018 and $37.8 billion by 2020. The SEC accepted the Offers of Settlement put forward by the respondents.  SEC Release 2023-35 summarizes the SEC's findings and the sanctions imposed:

The Securities and Exchange Commission today announced charges against Ensign Peak Advisers Inc., a non-profit entity operated by The Church of Jesus Christ of Latter-day Saints to manage the Church’s investments, for failing to file forms that would have disclosed the Church’s equity investments, and for instead filing forms for shell companies that obscured the Church’s portfolio and misstated Ensign Peak’s control over the Church’s investment decisions. The SEC also announced charges against the Church for causing these violations. To settle the charges, Ensign Peak agreed to pay a $4 million penalty and the Church agreed to pay a $1 million penalty.

The SEC’s order finds that, from 1997 through 2019, Ensign Peak failed to file Forms 13F, the forms on which investment managers are required to disclose the value of certain securities they manage. According to the order, the Church was concerned that disclosure of its portfolio, which by 2018 grew to approximately $32 billion, would lead to negative consequences....

Market Watch reports on the SEC's action.

Religious Discrimination Claims Against Child Protective Services Meet Procedural Hurdles

In Gautreaux v. Masters, (WD TX, Aug. 29, 2022), a Texas federal magistrate judge recommended that the court dismiss some or all of the free exercise and due process claims brought by foster parents who were accused by the Texas Department of Family and Protective Services (DFPS) of child abuse. The opinion describes plaintiffs' allegations:

[DFPS] asked the couple to identify their religion during the application process, and they identified themselves as practicing members of the Church of Jesus Christ of Latterday Saints.... Gautreaux alleges that DFPS demonstrated "hostility toward the Gautreauxes' religion" at their initial interview, while their follow-up interview "exclusively concerned the Gautreauxes' religious practices and beliefs."...

... DFPS informed Gautreaux that the department had found there was "reason to believe" she had committed the alleged abuse, resulting in Gautreaux being placed on the DFPS central registry "as a child abuser." ... Gautreaux alleges that DFPS's decision was motivated by religious "animus" and that there was no evidence of abuse to support the finding....

Gautreaux alleges that she is unable to practice her religion as a result of her placement on the DFPS central registry. Specifically, Gautreaux alleges that she cannot participate in her "calling" - an assignment made by Church leaders - which is to "teach singing to children in her local church."

In a lengthy opinion, the Magistrate Judge recommended either that all the claims be dismissed under the Younger abstention doctrine, or alternatively that most of plaintiffs' free exercise claims be dismissed because of 11th Amendment sovereign immunity. Under the alternative recommendation, the court could move ahead on  claims challenging DFPS's policies of considering religious beliefs and practices as a concern in abuse investigations and its disregarding of inconsistent court rulings.

Department of Education Reaffirms BYU's Exemption From LGBTQ Anti-Discrimination Requirements

The U.S. Department of Education, Office of Civil Rights, issued a determination letter (full text) on Feb. 8, 2022, dismissing a complaint filed by LGBTQ students at Brigham Young University.  The University bans same-sex romantic relationships among its students.  The OCR letter affirms that the University is exempt from the non-discrimination provisions of Title IX:

to the extent that the application of those provisions would conflict with the religious tenets of the University's controlling religious organization that pertain to sexual orientation and gender identity.

The University issued a press release announcing the OCR determination. Salt Lake Tribune reports on the determination and reactions to it.

Huntsman's Fraud Claim Against Mormon Church Dismissed

In Huntsman v. Corporation of the President of the Church of Jesus Christ of Latter-Day Saints, (CD CA, Sept. 10, 2021), a California federal district court dismissed a fraud suit brought by James Huntsman against the LDS Church. Huntsman, a prominent LDS Church member, alleged that the Church falsely claimed that no tithing funds would be used in its development of commercial real estate in Salt Lake City. Huntsman claims this was false because the Church used earnings on invested tithing funds for the project. First the court held that the church autonomy doctrine does not require dismissal of the case because the dispute is purely secular. It does not involve an analysis of Church policy or doctrine. However, the court concluded that no reasonable juror could conclude that defendant made a misrepresentation. The President of the Church, while stating that no tithing funds would be used, added that earnings of invested reserve funds will be used. The court also rejected a fraud claim relating to a second project. A Notice of Appeal of the decision to the 9th Circuit has been filed.

Most Misrepresentation Claims Against LDS Church Dismissed; RICO Claim Survives

In Gaddy v. Corporation of the President of the Church of Jesus Christ of Latter-Day Saints, (D UT, July 28, 2021), a Utah federal district court dismissed most of the claims in an amended complaint by a former LDS Church member alleging that several basic teachings of the Church involve misrepresentations. The court previously dismissed plaintiff's original complaint. (See prior posting.) In passing on her amended complaint, the court said in part:

Gaddy's new factual allegations relating to the locations of events described in the Book of Mormon and the founding prophet Joseph Smith's marriages directly implicate the Church's core religious teachings.... [S]he seeks to attack the veracity of the Church's teachings about the Book of Mormon and its doctrines by challenging the accuracy of certain facts contained in the text. As this court previously explained, a plaintiff may not, for example, challenge in a court of law religious beliefs that Noah built an ark, loaded it with his family and representative animals of the world, and was thereby saved from world-engulfing floods. Neither may a plaintiff circumvent this restriction by merely attacking religious accounts concerning the locations where Noah built the ark or where the ark came to rest....

Gaddy is correct that courts are required to evaluate the sincerity of religious beliefs.... However, courts engage in this inquiry of those seeking religious accommodation or exception to a rule or law of general application ... for the purpose of ensuring the government accommodate only genuine religious beliefs that are sincerely held.

This rationale is inapplicable here because the church autonomy doctrine is not an accommodation.... Rather, it is a "fundamental right of churches to decide for themselves, free from state interference, matters of church government as well as those of faith and doctrine."

The court however did allow plaintiff to move ahead with her civil RICO claim based on alleged misrepresentations about the way in which tithed funds would be spent:

Here, Gaddy does not challenge the Church's tithing doctrine or teachings related to it.... Gaddy instead points to specific factual statements allegedly made by the Church ... concerning the Church's use of tithing funds and alleges those statements are false. The inquiry required to adjudicate this claim does not implicate religious principles of the Church or the truth of the Church's beliefs concerning the doctrine of tithing. This claim further does not require the court to determine whether the Church or its members were acting in accord with what they perceived to be the commandments of their faith. Gaddy has instead challenged secular representations....

Prominent Ex-Mormon Sues Church For Fraud In The Use Of Members' Tithes

Suit was filed this week in a California federal district court against the Mormon church by a prominent former member who had contributed millions of dollars to it alleging fraud in the solicitation of contributions from members. The complaint (full text) in Huntsman v. Corporation of the President of the Church of Jesus Christ of Latter Day Saints, (CD CA, filed 3/22/2021), alleges: 

For decades, in a fraudulent effort to elicit the donation of tithing funds from Mr. Huntsman and other devout Church members, the LDS Corporation repeatedly and publicly lied about the intended use of those funds, promising that they would be used for purely non-commercial purposes consistent with the Church’s stated priorities – namely, to fund missionary work, member indoctrination, temple work, and other educational and charitable activities. Behind the scenes, however, rather than using tithing funds for the promised purposes, the LDS Corporation secretly lined its own pockets by using the funds to develop a multi-billion dollar commercial real estate and insurance empire that had nothing to do with charity.

According to an RNS report on the lawsuit, plaintiff is a filmmaker, the son of a prominent philanthropist and the brother of a former governor of Utah.

The complaint says:

Mr. Huntsman ... will ... use the recovered funds to benefit organizations and communities whose members have been marginalized by the Church’s teachings and doctrines, including by donating to charities supporting LGBTQ, African-American, and women’s rights.

KUTV News has published a statement from the LDS Church responding to the allegations in which it denies using tithed funds for a commercial development.

Court Refuses To Decide Whether LDS Church Is Christian

 In Ball v. Ball, (AZ App., Dec. 10, 2020), an Arizona appellate court was called upon to interpret a Parenting Plan that parents had agreed upon three years earlier as part of the dissolution of their marriage. The Plan provided:

Each parent may take the minor children to a church or place of worship of his or her choice during the time that the minor children is/are in his or her care.

Both parents agree that the minor children may be instructed in the Christian faith.

A year after the divorce, the father joined the LDS Church and sometimes took the children to meetings there. The mother objected claiming that the father's church is not Christian. The court held that the reference to "Christian" in the second clause does not limit the father's right to take the children to any place of worship, Christian or not.

The court went on to hold that the ecclesiastical abstention doctrine would bar it from deciding whether the Church of Jesus Christ of Latter Day Saints is part of the Christian faith, saying in part:

That very question has long been a matter of theological debate in the United States. A secular court must avoid ruling on such issues to prevent the appearance that government favors one religious view over another.

Court Dismisses Claims That Mormon Doctrines Are Fraudulent

In Gaddy v. Corporation of the President of the Church of Jesus Christ of Latter-Day Saints, (D UT, March 31, 2020), a Utah federal district court dismissed on 1st Amendment grounds a suit alleging fraud by the LDS Church.  In the suit, a former LDS Church member alleged that several basic teachings of the Church involve misrepresentations.  The court said in part:

Each of these alleged misrepresentations directly implicates the Church’s core beliefs. Because a statement’s falsity is an essential element of fraud claims, adjudicating these claims would require the court to do exactly what the Supreme Court has forbidden—evaluate the truth or falsity of the Church’s religious beliefs. This court can no more determine whether Joseph Smith saw God and Jesus Christ or translated with God’s help gold plates or ancient Egyptian documents, than it can opine on whether Jesus Christ walked on water or Muhammed communed with the archangel Gabriel. The First Amendment prohibits these kinds of inquiries in courts of law.

Courthouse News Service reports on the decision.

Wife of Sex Offender Sues Church For Reporting Confessed Abuse

The Salem (OR) Statesman Journal reports on a suit filed recently in an Oregon state trial court by the wife of convicted sex offender Timothy Johnson. She claims that leaders of the Turner, Oregon Latter Day Saints congregation breached their duty to her husband in reporting his confessed sex abuse to authorities. According to the report, Johnson followed church doctrine by confessing and repenting his sins in front of clergy and the church court:

The clergy portrayed that such a confession and repentance was dictated by church doctrine, and church doctrine required strict confidence of such confessions, according to the lawsuit.....

But what leaders failed to advise Johnson of is that if he confessed to the abuse, they would report his actions to local law enforcement, according to the lawsuit. 

The lawsuit filed in Oregon singled out a man who served as a counselor to Johnson's bishop, claiming the church failed to properly supervise him and train him of his obligations as a member of the clergy.

The suit seeks damages of $9.5 million on behalf of Johnson's wife and four children.

WAPO: IRS Whistleblower Says Mormon Church Misled Regarding Charitable Accounts

The Washington Post reports today:

A former investment manager alleges in a whistleblower complaint to the Internal Revenue Service that the Church of Jesus Christ of Latter-day Saints has amassed about $100 billion in accounts intended for charitable purposes, according to a copy of the complaint obtained by The Washington Post.

The confidential document, received by the IRS on Nov. 21, accuses church leaders of misleading members — and possibly breaching federal tax rules — by stockpiling their surplus donations instead of using them for charitable works. It also accuses church leaders of using the tax-exempt donations to prop up a pair of businesses.

Suit Charges Mormon Church With Intentional Misrepresentation of Its History

A former member of the Mormon Church filed suit this week in a Utah federal district court accusing the "Mormon Corporate Empire" of fraud, breach of fiduciary duty, RICO violations and intentional infliction of emotional distress. The 75-page complaint (full text) in Gaddy v. Corporation of the President of the
Church of Jesus Christ of Latter-day Saints, (D UT, filed 8/5/2019), asks for certification as a class action and contends:

2. This is not a claim for propagating false religious beliefs as part of the Mormon Church. Rather, it is a claim that the material facts upon which Mormonism is based have been manipulated through intentional concealment, misrepresentation, distortion and or obfuscation by the COP to contrive an inducement to faith in Mormonism’s core beliefs.

3. For almost 200 years, the COP, through its agent leaders, has represented Mormonism to be the restoration of the gospel of Jesus Christ, claiming that the divine authority essential to that gospel (Melchizedek and Aaronic priesthoods) was taken from the Earth after Christ’s crucifixion. It was purportedly restored hundreds of years later to Joseph Smith, Jr....

4. When the true facts are substituted for the longstanding false orthodox narrative, the story that emerges has shocked devoted Mormons who have made life-altering decisions based upon a scheme of lies.

Courthouse News Service reports on the filing of the lawsuit.

No State Action In Denial of Club Leadership Position to Mormon High Schooler

In Ayers v. Fellowship of Christian Athletes, (ED CA, April 4, 2019), a California federal district court dismissed a religious discrimination suit filed under 42 USC Sec. 1983 against against the after-school non-curricular high school club, Fellowship of Christian Athletes ("FCA") and others involved with it.  FCA met on school grounds and was sponsored by a school teacher. Plaintiff Anne Ayers complains that she was denied a leadership position in FCA because of her Mormon faith.  The court held the fact the teacher and high school principal acquiesced in the denial is not enough to make the private parties involved "state actors."