Church sued again over how it uses tithing contributions from members

[smac97]

Here:

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CHEYENNE, Wyo. (AP) — A federal lawsuit filed Tuesday alleges The Church of Jesus Christ of Latter-day Saints investment arm misused hundreds of thousands of dollars donated by three men by investing the money instead of using it for charitable purposes as they claim was promised.

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This new lawsuit against the business and investment entities under the church in U.S. District Court in Salt Lake City is similar to one filed in federal court in California by James Huntsman, brother of former Utah Gov. Jon Huntsman, Jr., that recently scored a partial success on appeal and remains pending. That lawsuit seeks the return of $5 million he donated before he left the church.
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At issue in both lawsuits is whether the church's investments in stocks, bonds, real estate and agriculture reflect the wishes of its donors.

The church's corporate arm, the Corporation of the President of the Church of Jesus Christ of Latter-day Saints, solicits donations for humanitarian relief with promises that all donations are used to help those in need. But those promises are untrue, the latest lawsuit argues.

Instead, the church allegedly hid the fact that some if not all donations are permanently invested in accounts never used for charitable work. That includes tithes; regular donations amounting to 10% of a person’s income expected from members of the church. The money instead has gone to Ensign Peak Advisors, a nonprofit created in 1997 that has grown to over $100 billion in value, the lawsuit alleges.

The lawsuit is filed by Daniel Chappell, of Virginia, and Masen Christensen and John Oaks, both of Utah. They claim the three of them combined have donated about $350,000 to the church over the past decade. Their lawsuit seeks class-action certification, potentially involving millions of church members, and an independent entity to oversee collection and use of church donations.

Like the lawsuit filed by Huntsman, the lawsuit filed by the three men leans on allegations by whistleblower David Nielsen, a former Ensign Peak investment manager who this year submitted a 90-page memorandum to the U.S. Senate Finance Committee demanding oversight into the church’s finances.

A few thoughts:

1. Copy of Lawsuit: I have downloaded a copy of the Complaint, see here.  It is a proposed "class action" against the Church.  This suit, like Huntsman's, relies on the "whistleblower" claims against EPA, and the SEC investigation.  The suit names both the Church and Ensign Peak Advisors.  One of the plaintiffs, Masen Christensen, is described as "a resident of Utah" and, somewhat surprisingly, "an active member of the Church who made his most recent annual donation to COP on November 11, 2022 and plans to continue making annual donations for the foreseeable future with the understanding the equitable and injunctive relief sought in this litigation is realized."  The legal claims for relief presented are:

• First Cause of Action: "Breach of Fiduciary Duty"
• Second Cause of Action: "Fraud and Fraudulent Inducement"
• Third Cause of Action: "Fraudulent Concealment"
• Fourth Cause of Action: "Unjust Enrichment"

2. Church Statements Re: "Humanitarian Relief" and "Philanthropies":  The lawsuit includes screen caps of the Church's website for donations to its "Humanitarian Relief" fund, including that it states: "One hundred percent of every dollar is used to help those in need without regard to race, religion, or ethnic origin."  The complaint also references "The Church of Jesus Christ of Latter-day Saints – Philanthropies ('Philanthropies')," which is "'the department of COP of Jesus Christ of Latter-day Saints responsible for facilitating philanthropic donations (not tithing or fast offerings) to COP and its affiliated charities,'" and statements from the Church's website that "'100 percent of all donations {to Philanthropies} go to help those in need. No administrative costs are deducted by Philanthropies or our affiliated charities.'" 

They then allege that "{d}espite 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."

In other words, they are claiming that the Church is funneling some part of donations to its "Humanitarian Relief" and "Philanthropies" funds (which are the ones being characterized as "100%" efficient in terms of the money going to "help those in need") to Ensign Peak (where such monies are presumably invested, rather than being spent to "help those in need").  The plaintiffs present very little in terms of factual allegations on this point (see image below).  This does not bode well for a lawsuit based on fraud claims.

3. Variation on the "It's All Ultimately 'Tithing'" Argument: This looks like a variation on the "all the Church's money is infinitely fungible"-style arguments we have seen on this board.  I don't think this works.  I rather strongly suspect that the Church would, if necessary, be able to demonstrate that the "one hundred percent" characterization of donations to the Humanitarian Relief fund is accurate.  But obviously it's not going to be fully accurate as to other donations to the Church (such as "tithes"), but the Church has not made such a representation about those other types of donations.  

As noted above, the Complaint references, in addition to the "Humanitarian Relief" fund, "The Church of Jesus Christ of Latter-day Saints – Philanthropies ('Philanthropies')," which is "'the department of COP of Jesus Christ of Latter-day Saints responsible for facilitating philanthropic donations (not tithing or fast offerings) to COP and its affiliated charities,'" and that "'100 percent of all donations {to Philanthropies} go to help those in need. No administrative costs are deducted by Philanthropies or our affiliated charities.'"  Interestingly, the suit then claims:

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Philanthropies oversees the administration of donations to various charitable projects, including several Church-affiliated universities and Latter-day Saint Charities, a non-profit corporation also headquartered in Salt Lake City, Utah.  Donations solicited by COP, however, are not restricted to the entity for which they were solicited, but are disbursed across a baroque web of subsidiary organizations and holding companies, many of which serve no charitable purpose at all.

It goes on to point to the Church's "100%" claims in the "Humanitarian Aid" and "Philanthropies" portions of the Church's website.  The allegations on this point are hammered home repeatedly, but then the other shoe never seems to drop.  The Complaint includes allegations that some portion of the donations to the Church's "Humanitarian Aid" and "Philanthropies" efforts "are shifted throughout various church organizations," including Ensign Peak, where such donations are "never used to fund any Church organizations or efforts."

In support of this claim, plaintiffs cite Lars Nielsen's "Whistleblower report at Exh. H.2" (link here), which is a flowchart which Mr. Nielsen attributes to EPA in 2013:

I will be interested to see if this is a sufficient basis to survive the "pleading with particularity" requirement (explained below).  It doesn't seem like it, for a few reasons.

First, it's just a graphical image, and a pretty vague and "high altitude" one.

Second, it's from 2013, and makes no reference to "donations" to the Church's "Humanitarian Relief" fund.  So this graphic doesn't really work as evidence to support a fraud claim regarding donations to this fund.

Third, there is a reference to "LDS Philanthropies," which may or may not be the precise equivalent of the "Philanthropies" fund referenced in the Complaint.  If there are differences between the two, then I don't think the plaintiffs can take the Church's currently-on-the-website statements about donations to the "Philanthropies" fund and retroactively apply it to the entity described in 2013 as "LDS Philanthropies."

Fourth, even if "LDS Philanthropies" and "Philanthropies" are the exact same entity, the graphic does not seem to support the central premise of the Complaint, which is that donations flow this way: Donor --> COP (the corporate Church) --> Ensign Peak (and not "to help those in need").  Instead, the graphic seems to indicate that, in 2013, some "donations" wen to "LDS Philanthropies," which then sends some funds to "COP" and some to "Deseret Trust Company."  Overall, though, the graphic doesn't do much as evidence to contradict the Church's "100%" statements re: donations to its Humanitarian Relief and Philanthropies funds.  Arrows pointing to bubbles are hard to quantify.

Fifth, there must be some temporal symmetry between the statements which purport to be fraudulent (here, the Church's currently-on-the-website "100%" statements about certain donations (to the Church's "Humanitarian Relief" and "Philanthropies" funds) and the evidence which purports to expose the fraud (the 2013 graphic above).  What the Church is saying now, in 2023, about "100%" of donations to specific efforts can't just be presumptively falsified by pointing to a graphic EPA generated ten years ago.  Was the Church making these "100%" statements in 2013?  If not, then the graphic would not seem to be competent evidence of a misrepresentation.  And here, the plaintiffs have made no effort at all to contextualize the 2013 evidence as relevant to the Church's current (2023) statements.

Sixth, I don't think the Complaint alleges that the plaintiffs made donations to either the "Humanitarian Relief" fund or the "Philanthropies" fund.  If they didn't make such donations, they cannot claim to have been fraudulently induced by the Church.  If they made no donations to these funds, they did not "rely" on statements from the Church, nor were they damaged by any statements by the Church.

The Complaint then pivots to, it seems, all donations to the Church:

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Despite COP’s representations to the contrary, a substantial and significant amount of the funds it received are not used for humanitarian aid or any other philanthropic or mission-related purpose. Instead, they are distributed to COP, to Philanthropies, or to the Corporation of the Presiding Bishop. Once donated, donor funds are shifted throughout various church organizations, including between these three entities, to Ensign, and to Ensign’s comingled funds.

The foregoing allegations are, I think, the crux of the lawsuit. 

The complaint also claims that the Church and EPA (?) "were under a continuous fiduciary duty to disclose to Plaintiffs and Class members the true character and nature of the disposition of all donated funds collected, including the critical material facts that a significant portion of donated monies are not used for any religious or charitable purpose, but rather are diverted to noncharitable investments."  I question this assertion.

The complaint also claims that the Church "has publicly, continually, and repeatedly declared in no uncertain terms that tithing funds are 'always used' for charitable purposes."  I question this assertion.  A lot, actually.

4. What the Complaint Gets Right: In contrast to the previous "fraud"-based lawsuits we have discussed (Gaddy, Huntsman), the complaint in this lawsuit is, overall, drafted quite well.  That's not much of a compliment, though, as the complaints in the previous lawsuits were really bad, some of the worst I have seen in twenty years of legal practice.  Here, the Complaint is well organized.  It is documented fairly well.

5. What the Complaint Gets Wrong (Generally): Despite being drafted well, the Complaint is not very substantive, and somewhat misleading.  There's not a lot of "there" there.  It doesn't plow any new "factual" ground, and what facts are alleged are thin and anemic.  Although it has some novel legal theories not previously addressed in the Gaddy or Huntsman lawsuits, the legal theories (discussed below) are pretty wobbly (and misleading), which is not good when the suit is based on fraud claims and is filed in federal court. 

6. What the Complaint (Maybe) Gets Wrong (Breach of Fiduciary Duty): As noted above, the first cause of action is "Breach of Fiduciary Duty."  This claim is based on a state statute: Utah Code Ann. § 13-22-23:

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Every person soliciting, collecting, or expending contributions for charitable purposes, and every officer, director, trustee, or employee of any person concerned with the solicitation, collection, or expenditure of those contributions, shall be considered to be a fiduciary and acting in a fiduciary capacity.

A "fiduciary duty" is a pretty big deal.  See, e.g., here:

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What Is a Fiduciary Relationship?

A fiduciary relationship imparts a position of peculiar confidence placed by one individual in another. First Sec. Bank of Utah N.A. v. Banberry Dev. Corp., 786 P.2d 1326, 1333 (Utah 1990) (citation omitted). A fiduciary is a person with a duty to act primarily for the benefit of another and is in a position to have and exercise and does have and exercise influence over another. Id. In short, a fiduciary relationship implies a condition of superiority of one of the parties over the other. Id. Generally, in a fiduciary relationship, the property, interest or authority of the other is placed in the charge of the fiduciary. Id.

Now look at how the Complaint frames the issue ("COP" is the Church) (emphases added) :

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96. At all relevant times, COP was a fiduciary or acting in a fiduciary capacity in connection with its promotion, solicitation, expenditure, and handling of all charitable contributions by Class members. It accordingly owed the members of the Class all applicable fiduciary duties, including the duty to fully disclose to them all material facts and information in connection with its disposition of the donations.

97. At all relevant times, Ensign was a fiduciary or acting in a fiduciary capacity in connection with its promotion, solicitation, expenditure, and handling of all charitable contributions by Class members. Among other things, it acted as a fiduciary in its capacity as the entity that held such funds, would make expenditure of donated funds, and purportedly used such funds for charitable purposes. It accordingly owed the members of the Class all applicable fiduciary duties, including the duty to fully disclose to them all material facts and information in connection with its disposition of the donations.

This is, I think, a pretty novel legal theory.  According to the plaintiffs, if I donate $5 to the American Red Cross, that organization now owes me a "fiduciary duty" which includes "the duty to fully disclose to {me} all (!) material facts and information in connection with its disposition of the donations."  And if the Red Cross does not voluntarily provide me with "all material facts and information," I can file a lawsuit against it and use the coercive power of the courts to A) compel disclosure of that information to me, B) punish the Red Cross for not voluntarily providing it to me, or C) both A and B.

I have not researched this point of law, but it doesn't quite ring true.  Again, a fiduciary duty is a big deal.  The claim that one arises every time a donor donates any donation to a charitable organization, and that the latter thereafter has the legal duty to "fully disclose" (!) to the donor "all (!) material facts and information in connection with its disposition of the donations" is . . . pretty iffy.

I think there can be circumstances where a fiduciary duty might arise as to a donor's restricted gift.  See, e.g., here:

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Regardless of the form of the donation, the permissible uses of charitable gifts by a nonprofit depend on whether the donations are restricted gifts or unrestricted gifts. Restricted gifts to charities are funds that are set aside for a particular purpose by a donor. Charities are limited to using those funds only for that purpose. Per a donor’s wishes, restricted gifts could be for a specific purpose, such as designating funds for a special project, or for use within a certain period of time. Restrictions on gifts to charities can also be permanent or temporary, depending on the donor’s instructions.

However, this 2005 bar journal article seems to indicate that even donors of restricted gifts are not owed "fiduciary" duties:

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Finally, neither is the point here to argue that donors-even those of restricted gifts-should have standing to enforce a host of fiduciary duties, effectively making these donors into private attorneys general with all the supervisory and regulatory authority that inheres in that office. The topic at hand is the right of a donor to enforce a restriction imposed on the use of her own gift and to hold the charity accountable with respect to those fiduciary duties implicated by her restriction.

I have not read the whole article, but the author (an associate professor of law at University of Tennessee College of Law) is repudiating the idea of donors having "standing to enforce a host of fiduciary duties, effectively making these donors into private attorneys general with all the supervisory and regulatory authority that inheres in that office."  She is saying that donors to charitable organizations do not have such standing, and cannot act as de facto "private attorneys general" to investigate charitable organizations.  That is an apt characterization, because in this case that is what the plaintiffs are trying to do.  They are saying that the Church owes them (and, for that matter, every other of the many millions of people who have made donations to it) a very significant "fiduciary duty," one that requires the Church to, as the plaintiffs put it, "fully disclose to them all material facts and information in connection with its disposition of the donations."

If this theory holds for the Church, it holds for all organizations that receive charitable donations, and for all donors to such organizations.  The likelihood of that being the current state of the law is, in my view, pretty low (I am, of course, open to correction).  The plaintiffs do not cite to any legal authority to support their theory (except the Utah statute, addressed below), which I think is a significant omission.  If such a proposition (that charitable orgs owe expansive "fiduciary duties" to all of their donors) is an established point of law, the attorneys would likely have cited to an authority for that proposition (particularly in this case, where they are obligated to plead with "particularity").  So the omission of any such reference is, to me, an indicator that no such reference exists.

Consequently, my off-the-cuff assessment of the Complaint is that it is presenting a new and untested legal theory.  That is, that charitable organizations should owe expansive fiduciary duties to their donors.  If that is what they are doing, then I'm pretty sure they are going to lose.  I don't think a federal judge would find that it has authority to craft what looks like a new "common law" principle, particularly in an area that is already regulated by state and federal statutes.  I think a federal judge would decline to recognize that such a fiduciary duty exists, and would also decline to create one (leaving such matters to, I think, state and/or federal legislatures, which is likely where they belong).

Getting back to the statute cited by plaintiffs (Utah Code Ann. § 13-22-23), it clearly creates a fiduciary status owed by particular persons ("{e}very person soliciting, collecting, or expending contributions for charitable purposes, and every officer, director, trustee, or employee of any person concerned with the solicitation, collection, or expenditure of those contributions"), but the statute is silent as to whom that duty is owed.  I could not find any case law interpreting this statute.  Like, ever.  However, I suspect that further research would indicate that the statute creates a fiduciary relationship between A) the persons referenced in the statute (basically, people "soliciting, collecting, or expending" donations to a charitable organization), and B) the charitable organization (not, as plaintiffs are suggesting, the donors to the charitable organization).  If this is the case (I haven't researched it), then the plaintiffs' "breach of fiduciary duty" claim is dead as a doornail.

 7. What the Complaint Gets Wrong (Fraud Claims):

The Complaint's fraud-based claims are, I think, in even worse shape than the "fiduciary duty" one above.

First, the suit "sounds in fraud."  That is, its central legal theory is that the Church has committed fraud (as opposed to, say, a breach of contract claim, a violation of some state or federal law, etc.).  Rule 9(b) of the Federal Rules of Civil Procedure requires that "{i}n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake."  I have previously commented on fraud claims against the Church and how they often fail to satisfy the above "state with particularity" requirement.  See, e.g., here (regarding McKenna Denson's lawsuit) :

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“A complaint alleging fraud should be filed only after a wrong is reasonably believed to have occurred; it should serve to seek redress for a wrong, not to find one.”  Shah v. Intermountain Healthcare, Inc., 2013 UT App 261, ¶ 12, 314 P.3d 1079 (quoting Segal v. Gordon, 467 F.2d 602, 607–08 (2d Cir. 1972).

To satisfy the pleading requirement, the claimant must “set forth in specific terms the time, place, content, and manner of [the] defendant’s alleged material misrepresentations or otherwise fraudulent conduct.”  Cook v. Zions First Nat'l Bank, 645 F. Supp. 423, 425 (D. Utah 1986).  These are what the Utah Court of Appeals has described as “the who, what, when, where, and how: the first paragraph of any newspaper story.”  Coroles v. Sabey, 2003 UT App 339, ¶ 28  n.15, 79 P.3d 974 (citation and internal quotation marks omitted).

The three plaintiffs are residents of Virginia (one of them) and Utah (the other two).  How these two states treat allegations of fraud varies a bit in phrasing, but otherwise their treatments seem substantively identical or very close.  See, e.g., here (Virginia) :

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Actionable fraud requires more than just broken promises or a breach of contract. The law looks more harshly upon fraud. It is considered a tort, for which punitive damages are available. (Punitive damages are not recoverable in actions for breach of contract). Because a successful fraud claim will usually result in a higher damages award than an ordinary contract claim, lawyers often try to convert a contract claim into a fraud claim through artful drafting of their client’s complaint. Under Virginia law, a party alleging fraud must prove by clear and convincing evidence (1) a false representation, (2) of a present, material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reasonable reliance by the party misled, and (6) resulting damage to him. (See Thompson v. Bacon, 245 Va. 107, 111 (1993)). Let’s take a closer look at these elements.

1. False Representation. This is the essence of a fraud claim. The defendant must have misrepresented the truth. If somebody steals your wallet but does not communicate with you, you have not been “defrauded” and cannot maintain a fraud action against that person. (You would have other remedies you could pursue, but the correct legal theory would not be fraud because no misrepresentation was made).

2. Present, Material Fact. The defendant must have made a misrepresentation about a present fact. A fact is present only if it could have been definitively determined at the time the misrepresentation was made. It is not a promise that something will or will not happen in the future. For example, if a car salesman promises a car will resell in 10 years for at least half of its new value, it is not a fraudulent statement even if it proves untrue. This is because, at the time the statement was made, its falsity could not be known. If, however, that same salesman promises that the car has anti-lock brakes when it, in fact, does not, then the statement can form the basis for fraud.

The misrepresented fact must also be material in some respect. For example, when a fraudulent statement is made in connection with a commercial transaction, materiality means that the fact must go to the essence of the deal itself (the thing being bargained for), and it must be of such importance that the deal hinges upon its being true. Going back to the car sale, the lie about the anti-lock brakes is material because it concerns the car, the thing the parties are bargaining for, and, because anti-lock brakes are an important safety device, if the car did not have them it is likely that a sale would not be made. If, however, the car salesman had lied by stating that he, like the potential buyer, was a former Boy Scout, then the misrepresentation would not be deemed material because the deal concerned the sale of a car and the lie had nothing whatsoever to do with the car.

3, 4. Intent. A fraud case arises when a defendant intentionally lies about something and does so for a reason. While a separate tort of “negligent misrepresentation” exists, the tort of fraud does not supply a cause of action against someone who mistakenly misrepresents a fact. The bad actor must have intentionally misrepresented the truth, with the further intent of inducing you to rely on the statement to your detriment.

5. Reasonable Reliance. You cannot sue someone for fraud, even if that person lied to you, if you didn’t take any action in reliance on the statement. For example, if you don’t believe the false statement, then you haven’t really been defrauded. If you do believe the misrepresentation and rely on it, then your reliance must be reasonable. The law will only grant relief to those who act prudently and with ordinary care for their own well being. If common sense dictates that a quick phone call or Google search could verify the defendant’s statement, but you decide unwisely to simple accept the person’s statement as true without independent verification, a court may deny you any recovery. In the used-car scenario, your fraud claim against the salesman would likely be defeated if a prominently displayed sticker on the car read “NO ANTI-LOCK BRAKES” and you chose to ignore it.

6. Damages. Finally, the plaintiff must have suffered damages as a result of the false statement. The law strongly believes in the “no harm, no foul” concept.

The above criteria are the essential elements of a civil action for fraud. There is much more to it than is commonly understood.

And here (Utah) :

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In order to prevail under the fraud exception, "all the elements of fraud must be established." Secor v. Knight, 716 P.2d 790, 794 (Utah 1986). The elements of fraud in Utah are: "(1) a representation; (2) concerning a presently existing material fact; (3) which was false; (4) which the representor either (a) knew to be false, or (b) made recklessly, knowing that he [or she] had insufficient knowledge on which to base such representation; (5) for the purpose of inducing the other party to act upon it; (6) that the other party, acting reasonably and in ignorance of its falsity; (7) did in fact rely upon it; (8) and was thereby induced to act; (9) to his [or her] injury and damage." Maynard, 912 P.2d at 450 (emphasis added) (alterations in original) (quoting Dugan v. Jones, 615 P.2d 1239, 1246 (Utah 1980)). Thus, for Cardiomed to prevail under the fraud exception to the merger doctrine, it must necessarily provide clear and convincing evidence that any misrepresentations Tripp made about the building were made knowingly or recklessly.

Fraud claims are relatively unique in that the "pleading requirements" (how the legal claims are presented in the complaint) at the front end of the lawsuit are quite stringent, whereas most other legal claims can be vaguely asserted.  I have spent a lot of time and effort in my legal career in addressing fraud claims, usually defending against them.  Defeating such claims has been, for the most part, akin to shooting fish in a barrel, most often because the plaintiffs fail to satisfy the "particularity" requirements referenced above.

There is a good reason for this.  "Fraud" is a potent, yet quite vague, word.  And its popular definition is substantially different from its legal definition.  My understanding is that both federal and state courts have pretty much uniformly required stringent "pleading" requirements for fraud claims because the word just covers way too much ground.  "He done me wrong" grievances that rely on vague claims of dishonesty would, without these pleading requirements, clog up the dockets of courts up and down the country.  So the courts have limited the ability to bring or prosecute fraud claims by

• (A) developing fairly specific multi-factor definitions of the term (Utah's definition is divided into nine parts, Virginia's into six, but they cover the same concepts);
• (B) requiring a plaintiff to plead facts sufficient to make out a prima facie showing of every element of the definition (this is a lot more difficult thing to do than even many attorneys realize);
• (C) requiring that each element of the definition be pleaded with "particularity" (“the who, what, when, where, and how: the first paragraph of any newspaper story”) (again, this is often quite difficult to do); and
• (D) requiring that that each element of the definition be ultimately proven up by "clear and convincing" evidence (defined as " medium level burden of proof which must be met for certain convictions/judgments. This standard is a more rigorous to meet than preponderance of the evidence standard, but less rigorous standard to meet than proving evidence beyond a reasonable doubt," meaning "the evidence is highly and substantially more likely to be true than untrue. In other words, the fact finder must be convinced that the contention is highly probable").  

Items (A), (B) and (C) of the above list are required of the Plaintiff at the front of the lawsuit, in the text of the complaint.  In the present case, I don't think the complaint satisfies these requirements.  

Second, this lawsuit was filed in federal court.  In years past, the federal courts had a loosey-goosey pleading standard for complaints.  However, some years ago the U.S. Supreme Court adopted a new - and considerably more stringent - pleading standard based on two cases from 2007 and 2009.  Here is a summary from ChatGPT (emphasis added) :

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The Twombly-Iqbal pleading standard, often referred to as the Twombly-Iqbal standard or simply the Iqbal-Twombly standard, is a legal standard for determining the sufficiency of a complaint in federal court. It derives from two U.S. Supreme Court cases: Bell Atlantic Corp. v. Twombly (2007) and Ashcroft v. Iqbal (2009). These cases clarified and raised the standard for what is required in a federal civil complaint to survive a motion to dismiss for failure to state a claim.

Under the Twombly-Iqbal standard, a plaintiff's complaint must meet the following criteria to avoid dismissal at the motion-to-dismiss stage:

1. Plausibility: The complaint must allege enough facts to make the plaintiff's claims plausible, not merely conceivable. In other words, the plaintiff must provide enough information to suggest that the alleged misconduct likely occurred.
2. Factual Detail: The plaintiff must include enough specific factual details to raise a right to relief above the speculative level. Conclusory or vague allegations are insufficient.
3. Individual Liability: In cases involving multiple defendants, the complaint should provide enough factual content to distinguish the alleged misconduct of each defendant. Blanket or generalized allegations against all defendants may not be sufficient.

The purpose of this heightened standard is to ensure that lawsuits are based on well-founded claims rather than mere speculation or unsupported allegations. The Twombly-Iqbal standard represents a departure from the earlier, more lenient "notice pleading" standard, where a complaint was generally allowed to proceed unless it appeared "beyond doubt" that the plaintiff could prove no set of facts that would entitle them to relief.

The Twombly-Iqbal standard has had a significant impact on federal civil litigation in the United States, as it requires plaintiffs to provide a higher level of detail and plausibility in their initial complaints. It has led to increased scrutiny of the sufficiency of complaints at the motion-to-dismiss stage and has led to more dismissals of cases that fail to meet the standard.

 

 

 

 

I'm not sure how "significant" this impact has been, but discussions of it show just how common it is to see a federal complaint fail at the outset of the case.  See, e.g., here:

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Understanding the Modest Results of Iqbal and Twombly So Far

The broadest available statistics indicate that, overall, motions to dismiss are not dramatically more likely to be filed or succeed now than before Twombly and Iqbal. The Judicial Conference of the United States, through the Standing Committee on Rules of Practice and Procedure and the Advisory Committee on Civil Rules, has compiled detailed statistics showing the prevalence and success rate of motions to dismiss in all federal courts dating back to January 2007.1

During the four months before Twombly, litigants each month filed an average of 17,980 new cases and 6,180 motions to dismiss, and saw 2,360 motions to dismiss granted. Thus, motions to dismiss were filed in about 34 percent of all cases, and (roughly speaking) courts granted 38 percent of the motions filed.

In comparison, during the nine months after Iqbal, there was an average of 19,760 new cases filed, 7,340 motions to dismiss filed, and 2,760 motions to dismiss granted each month. Thus, motions to dismiss were filed in about 37 percent of all cases (up 3 percent), and courts granted 37 percent of the motions filed (down 1 percent). Ultimately, defendants won dismissals in about 13 percent of the cases filed during the four months preceding Twombly and about 14 percent of the cases filed during the nine months following Iqbal, and the slight upward trend for this number has been steady rather than showing a jump immediately after either decision.2

It thus seems unlikely that Twombly and Iqbal have in practice substantially heightened federal pleading standards across the board. On the other hand, the slight increase in the number of motions to dismiss filed, together with a constant rate of success, appears to result in the dismissal of modestly more cases.

As you can see, more than 1/3 of federal lawsuits are dismissed at the outset.  Here, the lawsuit is filed in federal court (and thus has a higher "baseline" for pleading), and is also based on fraud, and so is even more susceptible to dismissal because of the high pleading standard required of such claims.  I don't think the new lawsuit against the Church meets this pleading requirement, which means I think there's a pretty solid chance it will end up being one of those 1/3 of suits that are dismissed at the beginning of, rather than during or at the end of, litigation.

Third, the factual allegations in the Complaint are poor.  This complaint is considerably better drafted than Huntsman's (that one was, in my view, an embarrassment to its authors), but I don't think it will work because, in addition to the insufficiently "particular" pleading in the text of the document, the facts they allege are pretty weak.  They equivocate all over the place.  The plaintiffs want to take the "100%" statements by the Church about donations to its "Humanitarian Aid" and "Philanthropies" funds and attach them (the statements) to what the Church has said generally about all donations (such as tithes).  This switcheroo shouldn't work at all in a legal context, and really doesn't work in a legal context centering on allegations of fraud.  

8. Preliminary Assessment: I think the lawsuit is not going to succeed.

As an aside, I can't help but express some distaste for this lawsuit.  The Church has created at least two of the most cost-efficient charitable mechanisms in the history of charitable giving (the "Humanitarian Relief" and "Philanthropies" funds).  The Church absorbs and pays for the administrative and other costs associated with these efforts, which is the only practical way the Church can legitimately claim that "100 percent of all donations go to help those in need," and that "{n}o administrative costs are deducted by Philanthropies or our affiliated charities."

I think a decent person would be happy to see an organization making such efforts.  Here, though, the plaintiffs are using what looks like legal chicanery to mischaracterize the Church and ask the government to punish based on the above efforts.

Thanks,

-Smac

Edited November 1, 2023 by smac97

[helix]

40 minutes ago, smac97 said:

It accordingly owed the members of the Class all applicable fiduciary duties, including the duty to fully disclose to them all material facts and information in connection with its disposition of the donations.

Yes, that's the biiiiiiiig stretch.

Step 1) Target the charity you don't like by giving them money.
Step 2) Quietly wait for the charity to send you detailed reporting of that money, then feign shock when it doesn't arrive. Claim breach of judiciary duty.
Step 3) Sue. Contact the Associated Press (or the SL Tribune, NY Times, or Washington Post) who will happily run an anti-church story on your behalf for free.

Step 3 is familiar. Step 1 and 2 can be replaced by an almost unlimited number of crazy legal theories.

The only plus side is providing yet more case law for vexatious and frivolous lawsuits.

Edited November 1, 2023 by helix

[rpn]

I can't think of anyone who donates tithing, thinking it IS a charitable donation like donating to the Red Cross, instead of a biblical religious one.

And I noticed the complete lack of anything about religion, as though anyone  tithes for other than religious/faith reasons.

[ttribe]

I've read the Complaint and my initial reaction is that, especially as it relates to the  Second Cause of Action, I am skeptical of the fraud claim being able to succeed. As a forensic accountant who has been involved in both criminal and civil cases, I know firsthand the difficulty in showing intent as an element of fraud. At first blush, I just don't know that the act of hoarding cash gets over the hurdle of proving fraud. The simple defense is just "Hey, we haven't spent it yet, but we will when we determine it's the right time. In the meantime no one is getting rich of this hoard personally, so what's the problem?" I defer to Spencer on an understanding of the law, but the First Amendment issues seem to be pretty tough to overcome, too. In short, setting aside my exmo glasses, I'm not sure this gets too far.

BTW,  Plaintiff Masen Christensen is about to get a call from his Stake Executive Secretary to come in and discuss his involvement in this case with his Stake President - "Mr. Christensen is an active member of the Church who made his most recent annual donation to [the Church] on November 11, 2022 and plans to continue making annual donations for the foreseeable future..."

[smac97]

3 minutes ago, ttribe said:

I've read the Complaint and my initial reaction is that, especially as it relates to the  Second Cause of Action, I am skeptical of the fraud claim being able to succeed. As a forensic accountant who has been involved in both criminal and civil cases, I know firsthand the difficulty in showing intent as an element of fraud. At first blush, I just don't know that the act of hoarding cash gets over the hurdle of proving fraud. The simple defense is just "Hey, we haven't spent it yet, but we will when we determine it's the right time. In the meantime no one is getting rich of this hoard personally, so what's the problem?"

There are a variety of problems with the legal theory in this lawsuit.  

3 minutes ago, ttribe said:

I defer to Spencer on an understanding of the law, but the First Amendment issues seem to be pretty tough to overcome, too. In short, setting aside my exmo glasses, I'm not sure this gets too far.

I suspect the Church's will make an "Ecclesiastical Abstention" / "Free Exercise" argument, but I hope that they address the defects in pleading relating to fraud (and to the fiduciary duty claim).

3 minutes ago, ttribe said:

BTW,  Plaintiff Masen Christensen is about to get a call from his Stake Executive Secretary to come in and discuss his involvement in this case with his Stake President - "Mr. Christensen is an active member of the Church who made his most recent annual donation to [the Church] on November 11, 2022 and plans to continue making annual donations for the foreseeable future..."

Yes, that is likely.

Thank you,

-Smac

[JustAnAustralian]

CourtListener page https://www.courtlistener.com/docket/67934488/chappell-v-corporation-of-the-president-of-the-church-of-jesus-christ-of/

Still very much in the early stages. Will be interesting to see the reply in the near future.

 

1 hour ago, ttribe said:

"Mr. Christensen is an active member of the Church who made his most recent annual donation to [the Church] on November 11, 2022 and plans to continue making annual donations for the foreseeable future..."

 

"Annual donation" is an odd phrase to use for someone that is an "active member".

Edited November 2, 2023 by JustAnAustralian

[Calm]

7 minutes ago, JustAnAustralian said:

Annual donation" is an odd phrase to use for someone that is an "active member".

My dad was very active and paid tithing that way.  He actually paid it every other year technically. He would pay at the end of one year and the beginning of the next. Never got complaints that I know.  

Edited November 2, 2023 by Calm

[bsjkki]

Lawfare is the new norm.

[bsjkki]

2 minutes ago, Calm said:

My dad was very active and paid tithing that way.  He actually paid it every other year technically. He would pay at the end of one year and the beginning of the next. Never got complaints that I know.  

We pay twice a year.

[JLHPROF]

"by investing the money instead of using it for charitable purposes as they claim was promised".

Promised where?  Seriously, where does the Church promise that tithing is for anything other than building up the Church?

D&C 119 - the tithing one

2 For the building of mine house, and for the laying of the foundation of Zion and for the priesthood, and for the debts of the Presidency of my Church.   3 And this shall be the beginning of the tithing of my people

It's right there for anyone that reads the scriptures.

[JustAnAustralian]

2 hours ago, Calm said:

My dad was very active and paid tithing that way.  He actually paid it every other year technically. He would pay at the end of one year and the beginning of the next. Never got complaints that I know.  

I don't mean paying tithing annually. I do this too to an extent.

I mean calling it an annual donation, rather than saying he was a tithe payer. I know multiple people who pay their tithing less frequently than their pay comes in. I don't know any of them who call it their monthly donation, or biannual donation, or annual donation. 

Edited November 2, 2023 by JustAnAustralian

[smac97]

12 minutes ago, JLHPROF said:

"by investing the money instead of using it for charitable purposes as they claim was promised".

Promised where?  Seriously, where does the Church promise that tithing is for anything other than building up the Church?

D&C 119 - the tithing one

2 For the building of mine house, and for the laying of the foundation of Zion and for the priesthood, and for the debts of the Presidency of my Church.   3 And this shall be the beginning of the tithing of my people

It's right there for anyone that reads the scriptures.

It's kind of worse than that.  The complaint claims that the Church "has publicly, continually, and repeatedly declared in no uncertain terms that tithing funds are 'always used' for charitable purposes." 

"Publicly, continually, and repeatedly."

"Declared in no uncertain terms."

"Tithing funds are 'always used' for charitable purposes."

These are substantial overstatements/misstatements, and I think they may come back to bite the plaintiffs in the keister (if the case survives a motion to dismiss, which is iffy).

Thanks,

-Smac

Edited November 2, 2023 by smac97

[sunstoned]

Non-transparency and secrecy along with the SEC revelations are not a good look for a religious organization that requires donations from its members.   These types of lawsuits should not be a surprise.

[JustAnAustralian]

21 minutes ago, smac97 said:

These are substantial overstatements/misstatements, and I think they may come back to bite the plaintiffs in the keister (if the case survives a motion to dismiss, which is iffy).

Even if they did state that they would be used for charitable purposes, the IRS appears to have that covered.

Quote

https://www.irs.gov/charities-non-profits/charitable-organizations/exempt-purposes-internal-revenue-code-section-501c3

The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

The church could sell all of its investments and build a giant solid gold version of the Christus statue and argue it was fulfilling the advancement of religion requirement.

[smac97]

27 minutes ago, sunstoned said:

Non-transparency and secrecy along with the SEC revelations are not a good look for a religious organization that requires donations from its members. 

 Which is likely why these stupid lawsuits keep getting filed.  Not because they have merit, but because they cast the church in a poor light.

27 minutes ago, sunstoned said:

 These types of lawsuits should not be a surprise.

 I don't think anyone has suggested such a thing.  Denson.  Gaddy.  Huntsman.  Ho hum.

[The Nehor]

3 hours ago, bsjkki said:

Lawfare is the new norm.

Litigation rates in the US have largely been falling over recent years. There are groups though that want to condemn and vilify people using the legal system to seek redress and they are doing a good job of it.

The US has a high litigation per capita rate but a huge number of those are contract disputes (mostly debt collection). We are a debt-ridden society would probably be an accurate appraisal.

Edited November 2, 2023 by The Nehor

[The Nehor]

Read the complaint. Yeah, don’t see this going far.

[rpn]

15 hours ago, smac97 said:

15 hours ago, ttribe said:

BTW,  Plaintiff Masen Christensen is about to get a call from his Stake Executive Secretary to come in and discuss his involvement in this case with his Stake President - "Mr. Christensen is an active member of the Church who made his most recent annual donation to [the Church] on November 11, 2022 and plans to continue making annual donations for the foreseeable future..."

Yes, that is likely.

But if it happens it is a really short sited thing to do.   Unless the member is talking to the press, members should be able to file court cases without having their membership challenged.   The church has a practice of waiting until  court proceedings are over before beginning church discipline.   I'd recommend that the Bishop decline to give this member anything but love and sunshine at least until the case has been finished.

 

ETA:  Yes I know that church discipline is supposed to be a blessing.  But especially in cases like this, it will be felt as anything but that.   And it is hard for anyone to see what value it would  have in any redemptive way, either.

Edited November 2, 2023 by rpn

[cujo22]

Also seems like it attempts to ignore that there are multiple meanings of the word "charitable"

"has publicly, continually, and repeatedly declared in no uncertain terms that tithing funds are 'always used' for charitable purposes."

The lawsuit seems to be trying to claim that the church promises to use all the money to feed poor people, etc. but ignore that the church by definition is a "charitable purpose". The very operation of the church is for tax and legal purposes a "charitable purpose". Am I right about this? It seems to me that the church could spend zero money feeding the poor but still legitimately be spending all money for "charitable purposes". Money spend from the ward budget for our ward talent show is a spending on a "charitable purpose", isn't it, for legal and tax purposes?

Maybe the complaint is specifically about he humanitarian fund. Perhaps that would make a difference. But they don't refer to donations to that fund, rather to their tithing donations.  

[CV75]

20 hours ago, smac97 said:

Here:

A few thoughts:

1. Copy of Lawsuit: I have downloaded a copy of the Complaint, see here.  It is a proposed "class action" against the Church.  This suit, like Huntsman's, relies on the "whistleblower" claims against EPA, and the SEC investigation.  The suit names both the Church and Ensign Peak Advisors.  One of the plaintiffs, Masen Christensen, is described as "a resident of Utah" and, somewhat surprisingly, "an active member of the Church who made his most recent annual donation to COP on November 11, 2022 and plans to continue making annual donations for the foreseeable future with the understanding the equitable and injunctive relief sought in this litigation is realized."  The legal claims for relief presented are:

• First Cause of Action: "Breach of Fiduciary Duty"
• Second Cause of Action: "Fraud and Fraudulent Inducement"
• Third Cause of Action: "Fraudulent Concealment"
• Fourth Cause of Action: "Unjust Enrichment"

2. Church Statements Re: "Humanitarian Relief" and "Philanthropies":  The lawsuit includes screen caps of the Church's website for donations to its "Humanitarian Relief" fund, including that it states: "One hundred percent of every dollar is used to help those in need without regard to race, religion, or ethnic origin."  The complaint also references "The Church of Jesus Christ of Latter-day Saints – Philanthropies ('Philanthropies')," which is "'the department of COP of Jesus Christ of Latter-day Saints responsible for facilitating philanthropic donations (not tithing or fast offerings) to COP and its affiliated charities,'" and statements from the Church's website that "'100 percent of all donations {to Philanthropies} go to help those in need. No administrative costs are deducted by Philanthropies or our affiliated charities.'" 

They then allege that "{d}espite 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."

In other words, they are claiming that the Church is funneling some part of donations to its "Humanitarian Relief" and "Philanthropies" funds (which are the ones being characterized as "100%" efficient in terms of the money going to "help those in need") to Ensign Peak (where such monies are presumably invested, rather than being spent to "help those in need").  The plaintiffs present very little in terms of factual allegations on this point (see image below).  This does not bode well for a lawsuit based on fraud claims.

3. Variation on the "It's All Ultimately 'Tithing'" Argument: This looks like a variation on the "all the Church's money is infinitely fungible"-style arguments we have seen on this board.  I don't think this works.  I rather strongly suspect that the Church would, if necessary, be able to demonstrate that the "one hundred percent" characterization of donations to the Humanitarian Relief fund is accurate.  But obviously it's not going to be fully accurate as to other donations to the Church (such as "tithes"), but the Church has not made such a representation about those other types of donations.  

As noted above, the Complaint references, in addition to the "Humanitarian Relief" fund, "The Church of Jesus Christ of Latter-day Saints – Philanthropies ('Philanthropies')," which is "'the department of COP of Jesus Christ of Latter-day Saints responsible for facilitating philanthropic donations (not tithing or fast offerings) to COP and its affiliated charities,'" and that "'100 percent of all donations {to Philanthropies} go to help those in need. No administrative costs are deducted by Philanthropies or our affiliated charities.'"  Interestingly, the suit then claims:

It goes on to point to the Church's "100%" claims in the "Humanitarian Aid" and "Philanthropies" portions of the Church's website.  The allegations on this point are hammered home repeatedly, but then the other shoe never seems to drop.  The Complaint includes allegations that some portion of the donations to the Church's "Humanitarian Aid" and "Philanthropies" efforts "are shifted throughout various church organizations," including Ensign Peak, where such donations are "never used to fund any Church organizations or efforts."

In support of this claim, plaintiffs cite Lars Nielsen's "Whistleblower report at Exh. H.2" (link here), which is a flowchart which Mr. Nielsen attributes to EPA in 2013:

I will be interested to see if this is a sufficient basis to survive the "pleading with particularity" requirement (explained below).  It doesn't seem like it, for a few reasons.

First, it's just a graphical image, and a pretty vague and "high altitude" one.

Second, it's from 2013, and makes no reference to "donations" to the Church's "Humanitarian Relief" fund.  So this graphic doesn't really work as evidence to support a fraud claim regarding donations to this fund.

Third, there is a reference to "LDS Philanthropies," which may or may not be the precise equivalent of the "Philanthropies" fund referenced in the Complaint.  If there are differences between the two, then I don't think the plaintiffs can take the Church's currently-on-the-website statements about donations to the "Philanthropies" fund and retroactively apply it to the entity described in 2013 as "LDS Philanthropies."

Fourth, even if "LDS Philanthropies" and "Philanthropies" are the exact same entity, the graphic does not seem to support the central premise of the Complaint, which is that donations flow this way: Donor --> COP (the corporate Church) --> Ensign Peak (and not "to help those in need").  Instead, the graphic seems to indicate that, in 2013, some "donations" wen to "LDS Philanthropies," which then sends some funds to "COP" and some to "Deseret Trust Company."  Overall, though, the graphic doesn't do much as evidence to contradict the Church's "100%" statements re: donations to its Humanitarian Relief and Philanthropies funds.  Arrows pointing to bubbles are hard to quantify.

Fifth, there must be some temporal symmetry between the statements which purport to be fraudulent (here, the Church's currently-on-the-website "100%" statements about certain donations (to the Church's "Humanitarian Relief" and "Philanthropies" funds) and the evidence which purports to expose the fraud (the 2013 graphic above).  What the Church is saying now, in 2023, about "100%" of donations to specific efforts can't just be presumptively falsified by pointing to a graphic EPA generated ten years ago.  Was the Church making these "100%" statements in 2013?  If not, then the graphic would not seem to be competent evidence of a misrepresentation.  And here, the plaintiffs have made no effort at all to contextualize the 2013 evidence as relevant to the Church's current (2023) statements.

Sixth, I don't think the Complaint alleges that the plaintiffs made donations to either the "Humanitarian Relief" fund or the "Philanthropies" fund.  If they didn't make such donations, they cannot claim to have been fraudulently induced by the Church.  If they made no donations to these funds, they did not "rely" on statements from the Church, nor were they damaged by any statements by the Church.

The Complaint then pivots to, it seems, all donations to the Church:

The foregoing allegations are, I think, the crux of the lawsuit. 

The complaint also claims that the Church and EPA (?) "were under a continuous fiduciary duty to disclose to Plaintiffs and Class members the true character and nature of the disposition of all donated funds collected, including the critical material facts that a significant portion of donated monies are not used for any religious or charitable purpose, but rather are diverted to noncharitable investments."  I question this assertion.

The complaint also claims that the Church "has publicly, continually, and repeatedly declared in no uncertain terms that tithing funds are 'always used' for charitable purposes."  I question this assertion.  A lot, actually.

4. What the Complaint Gets Right: In contrast to the previous "fraud"-based lawsuits we have discussed (Gaddy, Huntsman), the complaint in this lawsuit is, overall, drafted quite well.  That's not much of a compliment, though, as the complaints in the previous lawsuits were really bad, some of the worst I have seen in twenty years of legal practice.  Here, the Complaint is well organized.  It is documented fairly well.

5. What the Complaint Gets Wrong (Generally): Despite being drafted well, the Complaint is not very substantive, and somewhat misleading.  There's not a lot of "there" there.  It doesn't plow any new "factual" ground, and what facts are alleged are thin and anemic.  Although it has some novel legal theories not previously addressed in the Gaddy or Huntsman lawsuits, the legal theories (discussed below) are pretty wobbly (and misleading), which is not good when the suit is based on fraud claims and is filed in federal court. 

6. What the Complaint (Maybe) Gets Wrong (Breach of Fiduciary Duty): As noted above, the first cause of action is "Breach of Fiduciary Duty."  This claim is based on a state statute: Utah Code Ann. § 13-22-23:

A "fiduciary duty" is a pretty big deal.  See, e.g., here:

Now look at how the Complaint frames the issue ("COP" is the Church) (emphases added) :

This is, I think, a pretty novel legal theory.  According to the plaintiffs, if I donate $5 to the American Red Cross, that organization now owes me a "fiduciary duty" which includes "the duty to fully disclose to {me} all (!) material facts and information in connection with its disposition of the donations."  And if the Red Cross does not voluntarily provide me with "all material facts and information," I can file a lawsuit against it and use the coercive power of the courts to A) compel disclosure of that information to me, B) punish the Red Cross for not voluntarily providing it to me, or C) both A and B.

I have not researched this point of law, but it doesn't quite ring true.  Again, a fiduciary duty is a big deal.  The claim that one arises every time a donor donates any donation to a charitable organization, and that the latter thereafter has the legal duty to "fully disclose" (!) to the donor "all (!) material facts and information in connection with its disposition of the donations" is . . . pretty iffy.

I think there can be circumstances where a fiduciary duty might arise as to a donor's restricted gift.  See, e.g., here:

However, this 2005 bar journal article seems to indicate that even donors of restricted gifts are not owed "fiduciary" duties:

I have not read the whole article, but the author (an associate professor of law at University of Tennessee College of Law) is repudiating the idea of donors having "standing to enforce a host of fiduciary duties, effectively making these donors into private attorneys general with all the supervisory and regulatory authority that inheres in that office."  She is saying that donors to charitable organizations do not have such standing, and cannot act as de facto "private attorneys general" to investigate charitable organizations.  That is an apt characterization, because in this case that is what the plaintiffs are trying to do.  They are saying that the Church owes them (and, for that matter, every other of the many millions of people who have made donations to it) a very significant "fiduciary duty," one that requires the Church to, as the plaintiffs put it, "fully disclose to them all material facts and information in connection with its disposition of the donations."

If this theory holds for the Church, it holds for all organizations that receive charitable donations, and for all donors to such organizations.  The likelihood of that being the current state of the law is, in my view, pretty low (I am, of course, open to correction).  The plaintiffs do not cite to any legal authority to support their theory (except the Utah statute, addressed below), which I think is a significant omission.  If such a proposition (that charitable orgs owe expansive "fiduciary duties" to all of their donors) is an established point of law, the attorneys would likely have cited to an authority for that proposition (particularly in this case, where they are obligated to plead with "particularity").  So the omission of any such reference is, to me, an indicator that no such reference exists.

Consequently, my off-the-cuff assessment of the Complaint is that it is presenting a new and untested legal theory.  That is, that charitable organizations should owe expansive fiduciary duties to their donors.  If that is what they are doing, then I'm pretty sure they are going to lose.  I don't think a federal judge would find that it has authority to craft what looks like a new "common law" principle, particularly in an area that is already regulated by state and federal statutes.  I think a federal judge would decline to recognize that such a fiduciary duty exists, and would also decline to create one (leaving such matters to, I think, state and/or federal legislatures, which is likely where they belong).

Getting back to the statute cited by plaintiffs (Utah Code Ann. § 13-22-23), it clearly creates a fiduciary status owed by particular persons ("{e}very person soliciting, collecting, or expending contributions for charitable purposes, and every officer, director, trustee, or employee of any person concerned with the solicitation, collection, or expenditure of those contributions"), but the statute is silent as to whom that duty is owed.  I could not find any case law interpreting this statute.  Like, ever.  However, I suspect that further research would indicate that the statute creates a fiduciary relationship between A) the persons referenced in the statute (basically, people "soliciting, collecting, or expending" donations to a charitable organization), and B) the charitable organization (not, as plaintiffs are suggesting, the donors to the charitable organization).  If this is the case (I haven't researched it), then the plaintiffs' "breach of fiduciary duty" claim is dead as a doornail.

 7. What the Complaint Gets Wrong (Fraud Claims):

The Complaint's fraud-based claims are, I think, in even worse shape than the "fiduciary duty" one above.

First, the suit "sounds in fraud."  That is, its central legal theory is that the Church has committed fraud (as opposed to, say, a breach of contract claim, a violation of some state or federal law, etc.).  Rule 9(b) of the Federal Rules of Civil Procedure requires that "{i}n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake."  I have previously commented on fraud claims against the Church and how they often fail to satisfy the above "state with particularity" requirement.  See, e.g., here (regarding McKenna Denson's lawsuit) :

The three plaintiffs are residents of Virginia (one of them) and Utah (the other two).  How these two states treat allegations of fraud varies a bit in phrasing, but otherwise their treatments seem substantively identical or very close.  See, e.g., here (Virginia) :

And here (Utah) :

Fraud claims are relatively unique in that the "pleading requirements" (how the legal claims are presented in the complaint) at the front end of the lawsuit are quite stringent, whereas most other legal claims can be vaguely asserted.  I have spent a lot of time and effort in my legal career in addressing fraud claims, usually defending against them.  Defeating such claims has been, for the most part, akin to shooting fish in a barrel, most often because the plaintiffs fail to satisfy the "particularity" requirements referenced above.

There is a good reason for this.  "Fraud" is a potent, yet quite vague, word.  And its popular definition is substantially different from its legal definition.  My understanding is that both federal and state courts have pretty much uniformly required stringent "pleading" requirements for fraud claims because the word just covers way too much ground.  "He done me wrong" grievances that rely on vague claims of dishonesty would, without these pleading requirements, clog up the dockets of courts up and down the country.  So the courts have limited the ability to bring or prosecute fraud claims by

• (A) developing fairly specific multi-factor definitions of the term (Utah's definition is divided into nine parts, Virginia's into six, but they cover the same concepts);
• (B) requiring a plaintiff to plead facts sufficient to make out a prima facie showing of every element of the definition (this is a lot more difficult thing to do than even many attorneys realize);
• (C) requiring that each element of the definition be pleaded with "particularity" (“the who, what, when, where, and how: the first paragraph of any newspaper story”) (again, this is often quite difficult to do); and
• (D) requiring that that each element of the definition be ultimately proven up by "clear and convincing" evidence (defined as " medium level burden of proof which must be met for certain convictions/judgments. This standard is a more rigorous to meet than preponderance of the evidence standard, but less rigorous standard to meet than proving evidence beyond a reasonable doubt," meaning "the evidence is highly and substantially more likely to be true than untrue. In other words, the fact finder must be convinced that the contention is highly probable").  

Items (A), (B) and (C) of the above list are required of the Plaintiff at the front of the lawsuit, in the text of the complaint.  In the present case, I don't think the complaint satisfies these requirements.  

Second, this lawsuit was filed in federal court.  In years past, the federal courts had a loosey-goosey pleading standard for complaints.  However, some years ago the U.S. Supreme Court adopted a new - and considerably more stringent - pleading standard based on two cases from 2007 and 2009.  Here is a summary from ChatGPT (emphasis added) :

I'm not sure how "significant" this impact has been, but discussions of it show just how common it is to see a federal complaint fail at the outset of the case.  See, e.g., here:

As you can see, more than 1/3 of federal lawsuits are dismissed at the outset.  Here, the lawsuit is filed in federal court (and thus has a higher "baseline" for pleading), and is also based on fraud, and so is even more susceptible to dismissal because of the high pleading standard required of such claims.  I don't think the new lawsuit against the Church meets this pleading requirement, which means I think there's a pretty solid chance it will end up being one of those 1/3 of suits that are dismissed at the beginning of, rather than during or at the end of, litigation.

Third, the factual allegations in the Complaint are poor.  This complaint is considerably better drafted than Huntsman's (that one was, in my view, an embarrassment to its authors), but I don't think it will work because, in addition to the insufficiently "particular" pleading in the text of the document, the facts they allege are pretty weak.  They equivocate all over the place.  The plaintiffs want to take the "100%" statements by the Church about donations to its "Humanitarian Aid" and "Philanthropies" funds and attach them (the statements) to what the Church has said generally about all donations (such as tithes).  This switcheroo shouldn't work at all in a legal context, and really doesn't work in a legal context centering on allegations of fraud.  

8. Preliminary Assessment: I think the lawsuit is not going to succeed.

As an aside, I can't help but express some distaste for this lawsuit.  The Church has created at least two of the most cost-efficient charitable mechanisms in the history of charitable giving (the "Humanitarian Relief" and "Philanthropies" funds).  The Church absorbs and pays for the administrative and other costs associated with these efforts, which is the only practical way the Church can legitimately claim that "100 percent of all donations go to help those in need," and that "{n}o administrative costs are deducted by Philanthropies or our affiliated charities."

I think a decent person would be happy to see an organization making such efforts.  Here, though, the plaintiffs are using what looks like legal chicanery to mischaracterize the Church and ask the government to punish based on the above efforts.

Thanks,

-Smac

I guess their (Plaintiff's) left hand didn't know what their right hand was doing at the time.

[Tacenda]

29 minutes ago, cujo22 said:

Also seems like it attempts to ignore that there are multiple meanings of the word "charitable"

"has publicly, continually, and repeatedly declared in no uncertain terms that tithing funds are 'always used' for charitable purposes."

The lawsuit seems to be trying to claim that the church promises to use all the money to feed poor people, etc. but ignore that the church by definition is a "charitable purpose". The very operation of the church is for tax and legal purposes a "charitable purpose". Am I right about this? It seems to me that the church could spend zero money feeding the poor but still legitimately be spending all money for "charitable purposes". Money spend from the ward budget for our ward talent show is a spending on a "charitable purpose", isn't it, for legal and tax purposes?

Maybe the complaint is specifically about he humanitarian fund. Perhaps that would make a difference. But they don't refer to donations to that fund, rather to their tithing donations.  

I think you're on to something. I wish I'd known early in my marriage that my tithing really wasn't going to any charity, but to the building of temples, churches and running the church. I might have dug in my heels a bit more when my husband said we don't need to donate to charities because we pay tithing. Plus, this makes me wonder and I'm still confused, if the reason the LDS are the most charitable religion, or think I read somewhere that it is, is because when they take these polls they believe their donations are charitable because that's how it looks when they claim it on taxes. 

[Nofear]

When I donate $10 dollars in my tithing slip to the humanitarian box I honestly expect that $10 to be spent on humanitarian costs. But, I also expect the funds to be 100% fungible and I really don't care where the $10 "comes from". If there is a temporal delay because of investment and what not that doesn't bother me either. The Church receives $X in donations to the humanitarian fund. It spends more than $X to humanitarian causes every year. Consequently, every expectation on my part is met and exceeded.

[ttribe]

15 hours ago, JustAnAustralian said:

"Annual donation" is an odd phrase to use for someone that is an "active member".

When I was a ward financial clerk and when I was a ward clerk, I saw a number of members who paid annually. Usually, they were people who owned their own businesses and for whom their actual annual income was not fully known until the end of the year. When I was still an active member, this really wasn't that uncommon.

[helix]

2 hours ago, rpn said:

Unless the member is talking to the press, members should be able to file court cases without having their membership challenged.

It's not a coincidence the AP had an article ready to publish within hours of the lawsuit's filing.

The strategy "I want free advertising to gripe about the church" almost always has the following path. 1) Prep a lawsuit, 2) Contact national media and give them the story, 3) Ask the reporter the best date for publishing,4) File the lawsuit. They followed this path again.

The member is directly opposed to the church and wants to make a national scene about it. That has historically been incompatible with being a church member.

Edited November 2, 2023 by helix

[helix]

44 minutes ago, Tacenda said:

I wish I'd known early in my marriage that my tithing really wasn't going to any charity, but to the building of temples, churches and running the church.

Temples, churches, and running the church is also charity, by definition.