On August 2, 2013, the White House's Office of Management and Budget issued a memorandum instructing federal agencies to take steps to carry out President Obama's executive order (E.O. 13559 (Nov. 17, 2010)) adopting several recommendations of a report issued by the President's Office of Faith-Based and Neighborhood Partnerships (OFBNP). The report, Recommendations of the Interagency Working Group on Faith Based and Other Neighborhood Partnerships, was issued in April 2012. The new memorandum requires agency heads to review and recommend amendments to existing rules that were adopted to implement President Bush's preceding related order (E.O. 13279 (Dec. 12, 2002)). It gives as an example of the changes to be implemented clarifying "the necessary separation between the programs funded by direct Federal financial assistance and privately funded, explicitly religious activities." OFBNP and OMB will reconvene the working group that made the recommendations to develop a plan for agency implementation of President Obama's Executive Order.

The guidance that federal agencies will now implement replaces the concept of "inherently religious" expression and conduct with "explicitly religious" expression and conduct. It also provides examples which, in essence, permit providers in government-funded programs to engage in religious expression in response to participants who spontaneously raise the subject, but it prohibits providers from leading participants toward religious expression. Awardees and sub-awardees of directly funded federal programs that engage in "explicitly religious activities" may perform them outside of their federally funded program if separate in time or location, the program is voluntary for program participants and is privately funded. These limitations do not apply to programs that are chosen by a beneficiary who pays for the cost through a government-funded voucher, certificate or other means of payment known as "indirect" funding. If a beneficiary or prospective beneficiary in a directly funded program objects to the religious character of the organization that provides the services, then the organization must refer the individual to an alternative provider within a reasonable time.

Providers of directly funded programs may not discriminate against current or prospective program beneficiaries on the basis of religion or religious belief, a refusal to hold a religious belief, or a refusal to attend or participate in a religious practice when awarding or administering federally funded programs. For questions about compliance with federally funded programs under the new guidance, you should consult church-state counsel. The OMB memorandum and OFBNP report are available here: http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-19.pdfhttp://www.whitehouse.gov/sites/default/files/uploads/
finalfaithbasedworkinggroupreport.pdf

Key Cases

Challenge to IRS Over Non-Enforcement of Electioneering Restrictions on Churches Will Proceed

In Freedom from Religion Foundation, Inc. v. Shulman, No. 12-C-0818, 2013 WL 4446555 (W.D. Wis. Aug. 19, 2013), the court ruled that the Freedom from Religion Foundation has standing to challenge the alleged policy of the Internal Revenue Service of not enforcing against churches and religious organizations the requirement of tax-exempt status that they not participate in or intervene in any political campaign on behalf of, or in opposition to, any candidate for public office. 26 U.S.C. §501(c)(3). The court ruled that the plaintiff has suffered an injury if the IRS is conferring a benefit on religious organizations that it denies to all other tax-exempt organizations, including the plaintiff. The government argued the plaintiff is not personally affected by the challenged policy and is instead seeking to vindicate a generalized interest in making sure that the government is administered in accordance with the Constitution. But the court ruled that as a tax-exempt organization itself, the plaintiff had the right to equal treatment and that it is immaterial that other persons, including other non-religious organizations, suffer the same injury. The court also ruled that the action is not barred by sovereign immunity.

Unsecured Creditors May Not Reach Trust Fund Without Violating First Amendment and RFRA

In In re Archdiocese of Milwaukee, No. 13-C-179, 2013 WL 3937021 (E.D. Wis. July 29, 2013), the court ruled that an unsecured creditors committee, in pursuing the claims of unsecured creditors against the Archdiocese of Milwaukee under the authority granted to it by the bankruptcy court, acted "under color of law" and was subject to the Religious Freedom Restoration Act ("RFRA"). The court ruled that the committee's effort to appropriate funds held in a trust established by the Archdiocese to care for its cemetery property and grounds would substantially burden the free exercise of religion by the archbishop, as head of the archdiocese and trustee of the cemetery trust, and that the committee could not satisfy strict scrutiny to justify the infringement in violation of RFRA and the Free Exercise Clause. As explained by Archbishop Listecki, "[T]he care and maintenance of Catholic cemeteries, cemetery property, and the remains of those interred is a fundamental exercise of Catholic faith." Consequently, he would be forced to choose between obedience to church doctrine and to civil judicial authority if required to appropriate the funds to the committee. The court ruled that the interests advanced by the bankruptcy code in general are not a compelling government interest and that, even if they were, enforcing the Code in this instance was not the least restrictive means of furthering that interest.

For-Profit, Closely Held Corporations Cannot State Free Exercise or RFRA Claims against the Contraceptive Coverage Mandate

In Conestoga Wood Specialties Corp. v. Sec. of United States Dep't of Health and Human Servs., No. 13-1144, 2013 WL 3845365 (3d Cir. July 26, 2013), a split court ruled that a for-profit, closely held corporation may not assert a claim under the Free Exercise Clause of the First Amendment or under the Religious Freedom Restoration Act (RFRA) against the government in relation to the contraceptive coverage mandate contained within the Patient Protection and Affordable Care Act (PPACA). Furthermore, the court ruled that the shareholders of the corporation did not have a claim that implementation of the mandate against the corporation violated their individual right to free exercise of religion.

A Mennonite family, the Hahns, own 100 percent of the voting shares of Conestoga Wood Specialties Corp., a 950-employee, for-profit manufacturer of wood cabinets. Due to their Mennonite faith, the Hahns object to two allegedly abortifacient drugs that must be provided by group health plans under the mandate. The plaintiffs offered two theories under which the court could conclude that Conestoga can exercise religion: (1) directly under the Supreme Court's recent decision in Citizens United v. Fed. Election Comm'n, 558 U.S. 310 (2010), and (2) indirectly, under the "passed through" theory, whereby a closely held corporation may assert the free exercise claims of its owners.

The court rejected the first argument on the grounds that, apart from churches, there is no long history of protecting corporations' rights to exercise religion. The court observed, "Even if we were to disregard the lack of historical recognition of the right, we simply cannot understand how a for-profit, secular corporation — apart from its owners — can exercise religion." The court did not consider it meaningful that the various clauses of the First Amendment are separated by semicolons. It rejected the second argument on the grounds that the "passed through" doctrine fails to acknowledge that, by incorporating their business, the Hahns created a distinct legal entity. Turning to RFRA, the court ruled that its conclusion that a for-profit, secular corporation cannot assert a claim under the Free Exercise Clause necessitates the conclusion that it also cannot engage in the exercise of religion within the meaning of RFRA.

Circuit Judge Kent A. Jordan dissented on various grounds including that: (1) the Constitution nowhere makes the for-profit versus non-profit distinction; (2) the distinction is an artifice of the tax code and not as bright-line as the court suggests; (3) religious exercise has historically been collective; and (4) the erroneous result of the court's ruling is to afford speech more protection than religious exercise. Judge Jordan observed, "[T]he government claims the right to force Conestoga and its owners to facilitate the purchase and use of contraceptive drugs and devices, including abortifacients, all the while telling them that they do not even have a basis to speak up in opposition. Remarkable."

In Mersino Mgmt. Co. v. Sebelius, No. 13-cv-11296, 2013 WL 3546702 (E.D. Mich. July 11, 2013), the court denied the plaintiff injunctive relief for essentially the reasons the Third Circuit ruled againstConestoga Wood. The plaintiff is a for-profit, closely held corporation which, together with its related companies, is involved with dewatering and groundwater control. The plaintiffs alleged that all of the related companies constitute a "single employer" for purposes of PPACA and thus have more than 50 full-time employees. Plaintiffs Karen and Rodney Mersino strive to run their companies in accordance with their Catholic religious beliefs, and are opposed to contraception and sterilization. Nevertheless, the court ruled that they are not the alter ego of their company; consequently, a law that burdens their company does not burden their individual religious exercise and they may not impute their religious beliefs to the company. It also ruled that it is unlikely that their company would have standing to assert a RFRA claim on behalf of its shareholders under the doctrine of associational standing. The court observed that the company's governance documents do not mention a particular religious faith or any religious purpose and opined that, in its judgment, religious belief and worship and the protection available for them are purely personal in nature. Even if the company could assert a claim, the court ruled that PPACA is a neutral and generally applicable law. If the shareholders had standing to challenge the contraceptive coverage mandate under RFRA, which the court ruled they do not, the court held they could not show a substantial burden because it is too attenuated.

Enactment of Single-Parcel Historic District Containing Church Not a Violation of RLUIPA

In Roman Catholic Bishop of Springfield v. City of Springfield, No. 11-1117, 2013 WL 3782025 (1st Cir. July 22, 2013), the court ruled that enactment of an ordinance designating a single parcel where the church was located as a historic district did not impose a substantial burden on religious exercise in violation of the Religious Land Use and Institutionalized Persons Act (RLUIPA) or the Massachusetts Free Exercise Clause.

The court ruled that the plaintiff's claims dependent upon the potential consequences of compliance with the ordinance for its ability to deconsecrate the church according to its religious principles are not ripe for adjudication. Rather than adopt a specific test of what is a "substantial burden" on a religious organization for purposes of RLUIPA, as some circuits have, the court identified "relevant factors" to include: (1) whether the regulation targets a religion, religious practice or members of a religious organization because of hostility to that religion itself; (2) whether local regulators have subjected the religious organization to a process that may appear neutral on its face but in practice is designed to reach a predetermined outcome contrary to the group's request; and (3) whether the land use restriction was imposed on the religious institution arbitrarily, capriciously or unlawfully.

Applying these factors, the court identified "some troubling circumstances surrounding the city's enactment of the ordinance" such as that: (1) it was proposed after the news was released that the church was to be closed, (2) it was supported by parishioners opposed to closure, and (3) the approval process was expedited in a manner coinciding with the timeline of the church's closing. Nevertheless, the court ruled that the enactment of the ordinance did not impose a substantial burden on religious exercise because it did not result in the denial of any pending request to deconsecrate the church. Also, there was no evidence the ordinance was rooted in animosity to religion. The court allowed that, should the ordinance in fact prevent this, "the significance of the ordinance's background can be evaluated anew in the context of any later challenge." It also denied the plaintiff's "equal terms" challenge under RLUIPA. The court said it was not enough for the plaintiff to compare itself to every secular institution in the city, none of which are included in a single-parcel historic district.

Religious Discrimination and Retaliation Claim Allowed to Proceed in Case Involving Supervisor's Religious Invitations

In Scott v. Montgomery Cnty. Sch. Bd., No. 7:08CV000645, 2013 WL 4012039 (W.D. Va. Aug. 5, 2013), the court denied defendant's motion for summary judgment to the extent it concerned alleged religious discrimination and retaliation against the plaintiff, but granted it to the extent it concerned the plaintiff's hostile work environment claim. The plaintiff was the library assistant at Blacksburg Middle School. Her immediate supervisor and the school librarian was Nina Donohue. Ms. Donahue characterized herself as an "orthodox Christian" who believes strongly in evangelism. At the point of the lawsuit, the plaintiff called herself "spiritual" but not a Christian, although previously she referred to Ms. Donahue as her "Christian sister." Their difficulties began in spring 2005, when, among other things, Ms. Donahue repeatedly invited the plaintiff to a religious conference. The plaintiff testified that when she declined, Ms. Donahue got more angry and began to critique her performance. In contrast, the defendant argued that all of this corresponded to the plaintiff's declining work performance.

To state a claim, the court ruled that the plaintiff must show that: (1) she was subjected to some adverse employment action; (2) her job performance was satisfactory at the time the employment action was taken; and (3) some additional evidence to support the inference that the employment actions were taken because of a discriminatory motive. Concerning the final element, the court ruled that a reasonable jury could find: (1) that Ms. Donohoe knew the overtures were not welcome and nonetheless persisted in making them; (2) that the continued rejection of these overtures led Ms. Donohoe to evaluate and criticize plaintiff's work more harshly; and (3) were it not for Ms. Donohoe's criticisms and harsh evaluations, the plaintiff's contract would have been renewed. But as to hostile work environment, the court held "an invitation to join a Bible study group and to attend a religious conference, especially to a person who has written the inviter a card calling her a 'Christian sister,' are simply not the type of physically threatening or humiliating conduct for which Title VII was meant to provide a remedy." The court also struck the plaintiff's request for punitive damages.

Trial Court Affirms Application of Neutral Principles of Law Approach to Dissolution and Sale of Property

In Chomsky v. Sewitch, 2013 WL 3791707 (N.J. Super.A.D. July 23, 2013) (per curiam), the court ruled that the trial court properly determined that the defendants complied with Congregation Shaarey Tefiloh's bylaws and abided by all applicable statutory requirements when they approved the dissolution of the congregation and sale of its property. The plaintiffs, members of the congregation, an Orthodox Jewish synagogue, challenged the defendants' exercise of this authority and sought to enjoin the action and compel transfer of the dispute to the congregation's designated beth din, a religious arbitral tribunal, for resolution under Jewish law. The plaintiffs filed a notice of lis pendens to prevent the sale of the property, leading the defendants to counterclaim for tortuous interference with contract. The court of appeal concluded the trial judge "properly employed the neutral principles approach to consider and determine only 'those disputes involve[ing] purely secular issues' that were capable of resolution 'without the judiciary becoming enmeshed in matters of faith or doctrine.'" It determined that the congregation's documents were clear and capable of being enforced without engaging in any searching inquiry into synagogue polity. In contrast, the court found that plaintiffs' request to compel arbitration, for lack of any express provision in the bylaws, would have required the trial court to determine whether Jewish law required resolution by a religious tribunal and thus would have resulted in impermissible intrusion into religious doctrine.

PPACA Employer Mandate Ruled Constitutional

In Liberty Univ., Inc. v. Lew, No. 10-2347, 2013 WL 3470532 (4th Cir. July 11, 2013), the court ruled that the employer mandate contained within PPACA is a valid exercise of Congress' Commerce Clause power to regulate existing economic activity. It also ruled that the mandate is not a tax within the meaning of the Anti-Injunction Act (AIA), but a tax for purposes of the Taxing and Spending Clause, and is not a violation of the Free Exercise Clause, RFRA or the Establishment Clause.

The plaintiffs included individuals required to pay penalties or for health insurance they did not want. The plaintiff individuals and university believe abortion is murder and oppose facilitating, subsidizing or supporting the practice. The government challenged the plaintiffs' standing, but the court confirmed it. Unlike the PPACA's individual mandate, the court ruled that the employer mandate necessarily regulates existing economic activity instead of its absence. The court observed, "[A]ll employers are, by their very nature, engaged in economic activity. All employers are in the market for labor." Specifically, the court found that the employer mandate regulates a term of employment (compensation) that substantially affects interstate commerce. Additionally, the court found that health insurance provided as part of employee compensation substantially affects interstate mobility and thereby interstate commerce. It compared offering a certain level of compensation through health insurance coverage to requiring employers to pay minimum wage.

Turning from the Commerce Clause to the government's power to lay and collect taxes, the court ruled that the employer mandate, although not a tax for purposes of the AIA, is a tax for purposes of Article I, section 8, clause I of the Constitution, rather than an unconstitutional penalty. It produces revenue for the government, includes no scienter requirement, does not punish unlawful behavior and is proportionate. With respect to the Free Exercise Clause and RFRA, the court ruled both the employer mandate and individual mandate neutral laws of general applicability that do not have as their object infringing upon religious exercise and do not set apart any particular religious group. Furthermore, the court ruled that they do not burden plaintiffs' free exercise of religion by forcing them to facilitate or support abortion because the Act provides the option of purchasing a plan that covers no abortion services at all.

Last, the court ruled that the two religious exemptions in the PPACA do not violate the Establishment Clause either. First, the "religious conscience exemption," which applies to an individual who is a member of a recognized religious sect or division thereof who is conscientiously opposed to acceptance of the benefits of any insurance, merely adopts an exemption of the Social Security Amendments of 1965. The exemption was previously ruled constitutional. Second, the "healthcare sharing ministry" exemption applies to a member of a tax-exempt organization that "has been in existence at all times since December 31, 1999," the "members of which share a common set of ethical or religious beliefs ... share medical expenses among members in accordance with those beliefs" and "retain membership even after they develop a medical condition." The plaintiffs referred to the cut-off date as arbitrary. The court ruled it constitutional in any event and declined to consider the plaintiffs' challenge, argued for the first time on appeal, to PPACA's contraceptive coverage mandate regulations.

Enforcement of Foreign Judgment against Church Does Not Trigger Constitutional Scrutiny

In Naoko Ohno v. Yuko Yasuma, No. 11-55081, 2013 WL 3306351 (9th Cir. July 2, 2013), the court ruled that a district court's recognition and enforcement of a Japanese damages award against a church under California's Uniform Foreign-Country Money Judgments Recognition Act does not transform the underlying judgment into domestic "state action" subject to constitutional scrutiny. The court found that enforcing a judgment is distinct from rendering the judgment or reassessing the church's liability in the first instance. It also found that recognition of the Japanese damages award is not tantamount to directly imposing liability. Even if it were, the court said, the tort law applied in this case is the law of Japan, not of California, so its content is not attributable to a domestic state actor. The church argued that the judgment is repugnant to the Religion Clauses of the California and federal Constitutions and should not be enforced. The court disagreed. The underlying lawsuit sounded in fraud and various torts that California courts have entertained against churches. The court rejected for lack of evidence the church's argument that the judgment necessarily involved an assessment by the Japanese court of the validity of the church's religious teachings. It warned that it could treat enforcement of an injunction issued in a foreign court different from a damages award and declined to decide the extraterritorial effect of the First Amendment.

School District May Not Contract with Religious Organization to Operate Public School

In Kucera v. Jefferson Cnty. Bd. of Sch. Comm'rs, No. 3:03-cv-593, 2013 WL 3458191 (E.D. Tenn. July 9, 2013), the court held that the school board's decision to contract with a religious institution to operate a public alternative school violated the Establishment Clause and enjoined the contract, notwithstanding that instruction was not religious and there was no evidence of proselytizing. There were religious symbols on campus, Bible verses in family feedback forms and fundraising correspondence, references to a "Christian environment" and "Christian education" on the school website, and assemblies in the campus church. The court awarded damages to the plaintiffs, who were former teachers at the public alternative school that was closed when the contract was undertaken to save money for the school district.

Ministerial Exception Doctrine Does Not Bar Negligence Claims Related to Alleged Sexual Misconduct

In Givens v. St. Adalbert Church, 2013 WL 4420776 (Conn.Super. July 25, 2013) and Doe v. Norwich Roman Catholic Diocesan Corp., No. HHDX07CV125036425S, 2013 WL 3871430 (Conn. Super. July 8, 2013), the court reaffirmed case law preceding Hosanna-Tabor Evangelical Lutheran Church & Sch. v. EEOC, 132 S.Ct. 694 (2012) and two state cases that the ministerial exception doctrine does not preclude it from adjudicating the plaintiff's causes of action for negligence, negligent hiring, retention and supervision, and breach of fiduciary duty against, inter alia, the Norwich Roman Catholic Diocesan Corporation (NRDC) related to alleged sexual abuse during 1978-79 by a minister. It did, however, strike two paragraphs of the plaintiff's complaint. Also, the court ruled that the employment practices of religious institutions are a form of "religious belief" not protected by strict scrutiny, as compared to the "exercise of religion" under Connecticut General Statutes §52-571b. The court emphasized that the conduct at issue "cannot under any circumstances be claimed to relate to religious beliefs or church doctrine." The paragraphs the court struck in the complaint alleged, in effect, the NRDC was at all material times subject to the canons and rules of the Roman Catholic Church and that the plaintiff was at the time of the events a practicing Catholic who sustained spiritual damage. The court declined to strike two counts brought under the Connecticut and Massachusetts mandatory reporter statutes on the procedural grounds that a motion to strike is not the proper vehicle for this, while agreeing with the defendants' substantive argument that they do not create a legally enforceable duty to the plaintiff.

In Doe v. Corp. of the Catholic Bishop of Yakima, No. CV-11-3073-EFS, 2013 WL 3936211 (E.D. Wash. July 30, 2013), the court denied the defendants' motion for summary judgment against the plaintiffs' negligence and negligent infliction of emotional distress claims arising out of alleged sexual abuse by a seminarian. The defendants argued that the claims violate the Free Exercise Clause by intruding into the church's ecclesiastical practice of selecting its own leaders. The court disagreed; it said there was no evidence that plaintiff's negligence claim requires involvement in questions of faith and church governance. The court added that Hosanna-Tabor does not apply in the context of the case. It also refused to require actual notice of an employee's prior misconduct as a predicate to finding that the church owes a duty of care; otherwise, it "would create a disincentive for a church to investigate prospective employees before placing them in positions of trust and authority." In any event, the court ruled that the defendant was on actual or constructive notice of the risk the seminarian posed. The plaintiff withdrew his outrage claim, rendering moot summary judgment as to that count.

Religious Institutions in the News

The Commission on Accountability and Policy for Religious Organizations finalized and submitted to Sen. Charles Grassley its recommendations on "Government Regulation of Political Speech by Religious and Other 501(c)(3) Organizations." http://religiouspolicycommission.org/CommissionReport.aspx

Researchers at Baylor University released a study on evangelical views of homosexuality titled "How the Messy Middle Finds a Voice: Evangelicals and Structured Ambivalence toward Gays and Lesbians." http://www.baylor.edu/mediacommunications/news.php?action=story&story=131931