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Donors to local religious entities have a legal path to successfully sue religious denominations for return of donations based on fraud.

In a potentially groundbreaking case, the Ninth Circuit Court of Appeals has ruled that a church member may proceed with a lawsuit to recover donations when a denomination fraudulently told its members that it was using tithes and offerings for charitable means, when in fact the funds were used for a commercial enterprise.

In Huntsman v. Corporation of the President of the Church of Jesus Christ of Latter-Day Saints, 76 F. 4th 962 (9th Cir., 2023), the Plaintiff was a member of the Defendant denomination and donated multiple millions of dollars to the Defendant for charitable means. In 2019, the Plaintiff learned of an IRS complaint made by a prior employee of a money management funds of the Defendant denomination that it was using tithes and offerings to pay for a shopping mall and a commercial insurance company. Prior to that time, the Defendant denomination put out several publications and press releases stating the no tithes and offerings would be used for the commercial real estate venture. The Plaintiff donor requested his donations back, and when they refused sued alleging fraud.

The denomination moved to dismiss the complaint based on the theory of ecclesiastical abstention, claiming that the truth or veracity of the religious doctrine or beliefs was not justiciable and could not be addressed by a civil court. The district court agreed and dismissed the case based on the doctrine of ecclesiastical abstention. The Court of Appeals, however, reversed finding that the fraud claims alleged in the complaint did not implicate religious beliefs about tithing itself. This conclusion was reached after reviewing a similar decision where the claims pled was based on RICO. Gaddy v. Corp. of President of Church of Jesus Christ of Latter-Day Saints, 551 F. Supp. 3d 1206, 1211, 1215 ( D. Utah 2021)

Finding that the fraud claim presented to the court is secular in nature, the Court of Appeals reversed the dismissal and remanded to the trial court for a jury to determine the veracity of the fraud claim.

The impact of this decision could be significant. And it raises the bar higher for churches who raise funds for one thing, only to use the money for another. The donor seeking money back from a denomination would need to clearly articulate the facts rising to fraud to survive a motion to dismiss and subsequent appeal.

Conversely, it would be interesting to see if a religious institution could successfully pursue a fraud claim against a donor who pledges or agrees to make a donation, then later fails to fulfill the pledge.

It would not be surprising to see the Supreme Court weight into this issue, to help clarify the cases in which a civil court has jurisdiction over a case involving religious entities. There is a very narrow line of case law which allows civil courts to review property dispute cases. Whether civil courts can look at fraud, RICO or other actions remain to be seen.

Please reach out to one of the professionals at Dalton & Tomich PLC to discuss your religious property dispute questions.

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