An important question about First Amendment rights is at stake in a legal battle unfolding in the Ninth Circuit Court of Appeals. The Church of Jesus Christ of Latter-Day Saints is seeking to dismiss fraud claims brought by one of their former longtime members. He claims the Mormon Church misled him about the use of his $5 million in tithing contributions, allegedly funneling the funds into a commercial venture.
The case raises important Constitutional questions about a court’s ability to adjudicating religious disputes. Let’s dive into the details as we await the ruling in the case.
Huntsman, a Devout Mormon
The plaintiff, James Huntsman, was raised in a prominent family within the LDS Church. His father and grandfather served in high-ranking positions in church leadership. Huntsman faithfully attending weekly meetings, watching biannual general conference broadcasts, and participating in tithing and other church donations.
At the age of 19, Huntsman was ordained an Elder and accepted a two-year missionary assignment to Germany. Afterwards, he held numerous leadership and teaching assignments within the Church, including High Council Member and Elders Quorum President. For much of his adult life, Huntsman considered himself “to be one of the Church’s most devout members.”
While a member of the Church, Huntsman of course subscribed to its doctrine. An important part of that included the teaching that God commands members of the church to give tithes – ten percent of their annual income or profits.
Tithings Explained
Huntsman claimed that the Church had represented (in official communications such as statements and Sunday School manuals) that tithing was restricted to non-commercial, charitable purposes, and that it would be used to fund “missionary work, member indoctrination, temple work, and other educational and charitable activities.”
Ensign Peak Advisors was and still is the primary investment vehicle for the LDS Church. It was incorporated by the Church in 1997 to manage and invest the Church's reserve funds, which include tithing funds received from church members. Ensign Peak is responsible for investing these funds in various financial instruments such as stocks, bonds, and securities to generate earnings that can be used to support the Church's operations and projects.
For over twenty years of his life Huntsman tithed. From 2003 and 2011, he contributed $1,148,735 in cash. Between 2007 and 2015, he contributed stock shares: 28,332 shares of stock from his own company, Huntsman Corporation, and 1,857 shares of stock he owned from another company called Sigma Designs. After 2015, Huntsman stopped tithing because he “became disillusioned with the Church’s doctrines (including its support of polygamy and its open disdain for members of the LGBTQ community).”
City Creak Mall Project
The City Creek Mall project was a redevelopment initiative announced by the Church of Jesus Christ of Latter-Day Saints in 2003. The project involved the extensive and expensive renovation of a shopping mall located immediately south of Temple Square in downtown Salt Lake City, Utah, across from the Church's headquarters and central temple. The redevelopment aimed to revitalize the area surrounding the Salt Lake Temple and energize the local economy.
From 1995 until his death in 2008, Gordon Hinckley served as the President of the LDS. He oversaw significant growth in Church membership and the construction of numerous temples worldwide. Hinckley made several key statements regarding the funding of the City Creek Mall project, assuring Church members that tithing funds would not be used for the commercial development of the project. Instead, he had stated that the funds would come from commercial entities owned by the Church and the earnings of invested reserve funds.
But as it turns out, this was allegedly pretty misleading at best — fraudulent at worst.
Church Outed for Fraud?
Several years later, in 2019, Huntsman found out that the Church had misrepresented the use of tithing funds. This came after David Nielsen, a former Senior Portfolio Manager at Ensign Peak Advisors, filed an IRS whistleblower complaint. Nielsen's complaint alleged that the LDS Church used tithing funds for commercial endeavors, contrary to its public statements. Specifically, Nielsen claimed that the Church spent tithing funds on the development of the City Creek Mall and to bail out the Beneficial Life Insurance Company.
Nielsen stated that during his employment, Ensign Peak Advisors' senior leadership and other employees referred to all funds at Ensign Peak as "tithing" money, regardless of whether they were principal or earnings on principal. He described a presentation by Roger Clarke, President of Ensign Peak, in March 2013, which included examples of "withdrawals" from Ensign Peak for the City Creek Mall ($1.4 billion over five years) and Beneficial Life ($600 million in 2009).
Nielsen recounted that when he questioned Clarke about the consistency of the Church's public statements with the use of Ensign Peak funds, Clarke responded that the funds were transferred to other Church-affiliated entities to conceal their source. Clarke emphasized that it was important that people should not know Ensign Peak's role as the source of the funds.
This revelation led Huntsman to realize that the Church had lied to him about the use of his tithing donations. And he wasn’t going to sit there and take it. He soon filed lawsuit against the Church.
Huntsman Files Suit
In 2021, Huntsman filed a complaint in a California federal district court against the LDS Church, alleging fraud under California state law. He claimed that the Church misrepresented the use of tithing funds – specifically, the fact that they would not be used for commercial projects. He alleged that tithing funds were used to finance the City Creek Mall development and to bail out a troubled for-profit life insurance company owned by the Church.
The district court granted summary judgment in favor of the Church. Huntsman appealed the decision, leading to a partial reversal by the United States Court of Appeals for the Ninth Circuit.
The principle issue before the Ninth Circuit was whether the Church fraudulently misrepresented that no tithing funds would be used to finance the City Creek Mall project. The evidence presented at trial were the five statements made by Church officials or in Church publications stating that no tithing funds were used for the project, the declarations from Nielsen and Clarke, and financial records showing the transfer of funds from Ensign Peak Advisors.
Paul Rytting, who had for a long time been a director within the Finance and Records Department of the Church, provided a declaration as part of the Church's evidence. He stated that all of the $1.2 billion originally transferred from Ensign Peak Advisors to finance the City Creek Mall project came exclusively from earnings on the Church’s reserve funds invested by Ensign Peak. Rytting's declaration was used to support the Church's argument that the funds used for the City Creek Mall project were not tithing principal but rather earnings on invested reserve funds.
Ninth Circuit Reinstates Case
Although the district court dismissed Huntsman’s lawsuit, last year, the Ninth circuit reinstated it. Some of the reasons are procedural (“there was a genuine issue of material fact”), but perhaps the most important reasoning from the Ninth Circuit had to do with the First Amendment – specifically, the ecclesiastical abstention doctrine.
This principle, also known as the church autonomy doctrine, is derived from the First Amendment. It prohibits courts from interfering in internal church affairs or resolving disputes that involve theological or religious issues. It essentially says that courts should not get involved in religious matters or make decisions that might affect the internal governance or beliefs of a religious organization. This doctrine is based on the idea of separation of church and state, and it's meant to protect religious freedom and prevent government interference in religious affairs.
The Church argued that Huntsman's fraud claims were barred by the First Amendment via this doctrine. Specifically, the Church contended that Huntsman's objections were essentially about the use of any Church funds for the City Creek Mall project. The Church claimed that these objections implicated religious principles and therefore should not be adjudicated by secular courts.
But the Ninth Circuit Court rejected this line of reasoning, holding that the ecclesiastical abstention doctrine did not apply in this case. For starters, Huntsman's claims were secular and did not implicate religious beliefs about tithing itself. Instead, the claims were about whether the Church's statements regarding the use of tithing funds were true and whether Huntsman reasonably relied on those statements.
The court also emphasized that the questions at hand could be resolved using secular evidence and analysis. This included examining public statements and financial records to determine the truthfulness of the Church's representations about the funding of the City Creek Mall project. The court clarified that it was not required to interpret or rely on the Church's religious teachings or examine Huntsman's religious beliefs about the appropriate use of church money. The issues were purely about the factual accuracy of the Church's statements and Huntsman's reliance on them.
LDS's Last-Ditch Effort
As such, the appellate court ruled — in a split 2-to-1 decision — to let the lawsuit proceed at trial. That was last summer. Now, the Church filed a Hail Mary (no pun intended, they’re not Catholic). They’ve just asked the Ninth Circuit to review its own decision en banc. They’re saying that the three-judge panel got it wrong, and asking all of the judges to review that decision and throw the case out.
Although the Ninth Circuit granted the Church a review, at the hearing last Wednesday, they seemed skeptical about interfering in a case that they saw as inextricably tied to religious questions. We’ll have to wait to see how the court rules, and if it ends up answering some pretty big First Amendment questions in the process.
Related Resources:
- Freedom of Religion (FindLaw's U.S. Constitution)
- SCOTUS Sides With Freedom of Religion in Battle Between First and Fourteenth Amendments (FindLaw's Federal Courts)
- Fraudulent Misrepresentation (FindLaw's Learn About the Law)
