Nonprofit Law Prof Blog

Ellen P. Aprill Reviews "For Profit Philanthropy"

The incomparable Ellen P. Aprill has written an insightful review essay (which is unfortunately behind a paywall) about Dana Brakman Reiser’s and Steven A. Dean’s book, For-Profit Philanthropy: Elite Power and the Threat of Limited Liability Companies, Donor-Advised Funds, and Strategic Corporate Giving.  She characterizes the book as lamenting the “unraveling of a pact between elites and the public that fueled half a century of philanthropic achievement.”  That pact, which Reiser and Dean call “the Grand Bargain,” is found in the Tax Reform Act of 1969, which created the rules for so-called private foundations.  “This bargain, they believe, enacted rules grounded on principles of targeting, timing, and transparency to ensure that elite resources serve public rather than private ends. For them, new approaches that renounce this Grand Bargain destroy trust in elite giving.”  In other words, a lot of money doesn’t flow through private foundations as much anymore, and that’s bad for the charitable sector. 

Aprill recognizes what a massive contribution this book makes to the literature critically evaluating the outsized influence of hyper-wealthy charitable donors.  But she is critical of several aspects of the book’s analytical frame. Among other things, she argues that one should not compare charitable LLCs (the first focus of the book’s analysis) to wealthy donors giving to private foundations, but to wealthy donors giving directly to charities, which of course was never blocked by the Grand Bargain. Since 20^th Century philanthropists like John D. Rockefeller and Andrew Carnegie waited until relatively late in life to establish their philanthropic foundations, contemporary philanthropists criticized by Dean and Reiser “do one better than the Grand Bargain” by actively pursuing their philanthropic activities when they are still young.

Aprill does acknowledge that charitable LLCs do benefit from “entity-ness” while avoiding the burdens that would be imposed if they were treated as corporations that would have to qualify for some form of tax-exempt status to avoid corporate-level taxes. She argues that the value of this “entity-ness,” which enables wealthy elites to develop a prestigious philanthropic identity should not be underestimated. She proposes a rule that would automatically treat philanthropic LLCs as corporations, forcing them to seek tax-exempt status, probably under section 501(c)(4). While they would still avoid the rules that apply to private foundations, they would at least be subject to self-dealing rules, and have some transparency through the filing of Forms 990.

Notwithstanding Aprill’s excellent observations, I highly recommend the book (as does she). It is really really good.

Benjamin Leff

"Taxes for the Masses" Podcast About IRS and Charities

Hello all!  First time blogger here at NLPB. Because I’m me, I can’t just make a recommendation for something I like without criticizing it. There’s a tax podcast that I like called Taxes for the Masses. A recent episode provided a brief introduction to section 501(c)(3), and then criticized the IRS for not policing the charitable sector better. The hosts point out that you would be a fool at this point to rely on an IRS approval of 501(c)(3) status for pretty much anything. The 1023-EZ asks for laughably little information, and it appears that the IRS is not systematically checking even that minimal information against any third-party source. So far, so good.

Here's the criticism: I’m not at all persuaded that the IRS ought to do the kind of investigative work the hosts propose. It might be better for it to get out of the approval/denial game altogether (or keep doing it in this admittedly pathetic way) and let charities themselves figure out how to build confidence in the sector. The IRS could focus its resources on finding fraudulent or non-compliant charities and shutting them down … or collecting punitive excise taxes from them.  For example, the hosts complain that the IRS failed to catch the fact that a charity founder had previously pled guilty to fraud and money laundering (as reported by the NY Times last summer). They also complain that the IRS didn’t notice that a charity that had “of Michigan” in its name even though it had a mailing address in Staten Island. But I’m not sure how suspicious that is. I know law professors who are officers of several small charities that don’t have their own corporate offices. These very same law professors sometimes use their own home addresses as the mailing addresses of those small charities, even when the charities conduct their activities in other states. It might annoy their wife, but it’s just not that suspicious. That being said, the hosts are probably right that the IRS should have done a better job revoking or refusing to grant charitable status to multiple charities with “American Cancer Council” in their name once the actual American Cancer Council complained that these organizations were not affiliated with it. 

Benjamin Leff

Tax Notes Look at IRS Tea Party Episode 10 years Later

Tax Notes has a look back at the IRS Tea Party episode 10-years later. I note I am quoted a good bit in this piece.

From the story:

"Ten years after the IRS acknowledged it had inappropriately given extra scrutiny to applications for tax-exempt status submitted by conservative organizations, debate continues as to what happened and how things stand today, with observers on the political right and left suggesting that more guidance on exempt organizations and political activity could help prevent such controversies from happening again.

Although passions seem less intense than they were in 2013 and beyond after then-IRS Exempt Organizations Director Lois Lerner acknowledged the agency had mishandled the exemption applications of Tea Party groups and other right-of-center nonprofits seeking section 501(c)(4) status, strong opinions about the episode persist and sometimes are voiced during debates about the IRS.

In January 2023 Rep. Jason Smith, R-Mo., following his election as chair of the House Ways and Means Committee, said the IRS has “a history of targeting conservative Americans.”

In March, in an online post attacking an IRS visit to the home of a journalist who was testifying before Congress about the weaponization of the federal government, the Center for Individual Freedom said the visit was made by “the same IRS that deliberately targeted conservative and pro-Israel nonprofit organizations under disgraced former director Lois Lerner.”

Philip Hackney

Politico Story on Leonard Leo

There is a new story up on Leonard Leo in Politico today by Heidi Przybyla, who has had some significant scoops on Leo and the Federalist Society. It's worth a read for understanding some of the turmoil that seems to be going on in the background of the Federalist Society regarding its relationship with Leo.

This blog's Lloyd Mayer is quoted within.

This story seems to be the irony that Leo runs the Federalist Society as a 501(c)(3), which is prohibited from any political campaign intervention. Nevertheless, it appears that he uses those connections from the (c)(3) to further political interests in many ways. 

One notable scoop here is that though Trump did rely upon the list provided by Leo as a member of the Federalist Society, no one from Federalist Society other than Leo controlled the names provided.

From the story:

"Interviews with people familiar with the internal workings of the Federalist Society, including two board members, paint a picture of a symbiotic relationship in which Leo uses his connection to the vast network of scholars in the society to earn credibility with donors, who then contribute to dark money operations that engage in the kind of partisanship the society officially eschews.

Leo’s political activism and his use of donor money to enhance his own wealth have prompted increasing tensions between him and his fellow co-chair, Northwestern University Law Professor Steven Calabresi, and Meyer, who has been executive director or president for more than 30 years, according to three people familiar with the society. But they said Leo’s ties to the conservative donor base fans fears that a rift would leave the society struggling for funds, while members also worry that any breach in the facade of the conservative legal movement would only empower the liberals that all sides disdain.

Leo’s business empire and his leadership position at the society “easily gets blurred,” creating “a public relations problem,” said professor Lloyd Hitoshi Mayer, an expert on nonprofit organization advocacy at the University of Notre Dame."

Philip Hackney

Montana Senate Passes Bill to Tax Nonprofits That Sue the State Under Environmental Laws

The Daily Montanan reports that the Montana legislature is seriously considering Senate Bill 524, which would impose the Montana business tax of 6.75% on spending by nonprofits incurred to sue the state under specific natural resources and environmental laws by treating those expenditures as unrelated business taxable income. (Yes, an expenditure would be treated as income.) Since the news report, the Senate passed a third reading of the bill (31 to 19) and transmitted the bill to the House for consideration, where it has been referred to the Committee on Taxation with a hearing scheduled for April 13th.

The sponsor of the bill accuses the targeted nonprofits, which are apparently tax-exempt section 501(c)(3) organizations, as "disrupting our lifestyles and economy." He also said "[i]f the IRS would be doing its job like it should be doing, we have a number of nonprofits and 501(c)(3)s that are operating outside of their scope and mission." 

During a Senate committee hearing, almost a dozen opponents spoke in opposition to the bill, citing constitutional and policy concerns. The opponents included the executive director of the Montana Nonprofit Association (MNA), who is also the board chairwoman of the National Council of Nonprofits. Here is the brief summary of the bill on MNA's website:

SB524 – Revise UBIT to Include Legal Fees

This bill proposes to charge tax on any income certain nonprofits use to “challenge or support certain government actions” under the presumption that this would be unrelated to the mission of the organization and therefore subject to Unrelated Business Income Tax. The bill is somewhat narrow in scope (see p. 2 lines 2-5) but it’s important to read and understand the impact on litigation, lobbying, or simply meeting with a legislator or member of administration. The hearing date is not set. MNA will oppose.

Lloyd Mayer

March Madness Highlights Growing Importance of NIL Deals at University of Miami

The N.Y. Times reports that the NCAA basketball tournament highlighted the importance of NIL deals for recruiting and retaining men and women basketball team members at the University of Miami. At the center of Miami's push in this area is John Ruiz, an alumnus and chief executive of LifeWallet. According to the article, LifeWallet has sponsorship deals with Jordan Miller, Nijel Pack, and Isaiah Wong on the men's side and sisters Haley Cavinder and Hanna Cavinder on the women's side. The story for the most part does not include details of these private arrangements, but it notes that transfer Nijel Pack;s deal is a two-year one for $800,000 plus a car.

Lloyd Mayer

For-Profit Thrift Store Secures First Amendment Dismissal of Deceptive Marketing Claims Relating to Nonprofits

The Supreme Court of Washington unanimously agreed with TVI Inc., doing business as Value Village, that claims brought by the state's attorney general for alleged deceptive advertising and marketing had to be dismissed because they infringed on the organization's First Amendment right to solicit contributions on behalf of nonprofit organizations.

According to the opinion, TVI operates about 20 for-profit thrift stores in Washington. It contracts with nonprofit organizations that either independently collect donations that they give to TVI or allow TVI to collect donations on their behalf at TVI's locations. What is in it for both parties? As the court summarized:

By working with charity partners, TVI obtains inventory at a lower price than it would pay a for-profit supplier. The charity partners, in turn, receive a predictable source of unrestricted funding, as well as publicity from TVI's marketing.

The attorney general raised concerns about "deceptive net impressions" in violation of the state's Consumer Protection Act. By the time the case reached the state supreme court, only three such impressions were still at issue: "(1) 'that [TVI] is itself a nonprofit or charitable organization,' (2) 'that in-store purchases . . . provide a financial benefit to [TVI's] charity partners,' and (3) 'that donations accepted at [TVI's] retail stores in the Spokane, Washington, market benefitted The Rypien Foundation' from January 2014 to February 2015." 

Applying the U.S. Supreme Court's charitable solicitation cases and other First Amendment precedents, the Washington Supreme Court held that TVI's marketing had full First Amendment protection as it inextricably intertwined charitable solicitations and commercial speech. Given the state's claims imposed content-based restrictions, the court further held the claims must survive exacting scrutiny. The court concluded they did not because "[t]wo of the State's claims are not based on properly tailored allegations, and the third is not supported by exacting proof."

Coverage: Seattle Times.

Lloyd Mayer

Federal District Court Affirms Bankruptcy Court's Approval of Boy Scouts Settlement

The Boy Scouts of America (BSA)'s comprehensive reorganization plan and global settlement of sex abuse claims continues its slow march through the federal judicial system. Late last month, the U.S. District Court for the District of Delaware affirmed the U.S. Bankruptcy Court's previous approval of a reorganization plan that provides $2.46 billion to settle sex abuse claims against the BSA, over the objections of some insurance companies and abuse claimants. While the opinion is lengthy (156 pages), here is the District Court's bottom line:

Appellants argue on many fronts that the Plan did not meet requirements for confirmation, and I have carefully considered each of these arguments. Based on the record, Appellants have failed to put forth evidence that would demonstrate clear error in the Bankruptcy Court's careful findings of facts. Finding no error in the Bankruptcy Court's legal conclusions either, I will affirm the Confirmation Order.

Coverage: Reuters.

Lloyd Mayer

Crowdsourcers, Ginni Thomas group, Uses Fiscal Sponsorship Via CRC

Interesting story out of the Washington Post this week looking at the use of fiscal sponsorship by a Ginni Thomas related group called Crowdsourcers, formed ostensibly to counter the left, via the Conservative nonprofit Capital Research Center (CRC), a group focused on uncovering dark money groups on the left. 

From the story: "A little-known conservative activist group led by Virginia “Ginni” Thomas, the wife of Supreme Court Justice Clarence Thomas, collected nearly $600,000 in anonymous donations to wage a cultural battle against the left over three years, a Washington Post investigation found.

The previously unreported donations to the fledgling group Crowdsourcers for Culture and Liberty were channeled through a right-wing think tank in Washington that agreed to serve as a funding conduit from 2019 until the start of last year, according to documents and interviews. The arrangement, known as a “fiscal sponsorship,” effectively shielded from public view details about Crowdsourcers’ activities and spending, information it would have had to disclose publicly if it operated as a separate nonprofit organization, experts said.

 

The Post’s investigation sheds new light on the role money from donors who are not publicly identified has played in supporting Ginni Thomas’s political advocacy, long a source of controversy. The funding is the first example of anonymous donors backing her activism since she founded a conservative charity more than a decade ago. She stepped away from that charity amid concerns that it created potential conflicts for her husband on hot-button issues before the court."

 

Also:

 

"Philip Hackney, a former IRS attorney who is now an associate law professor at the University of Pittsburgh, said such arrangements are not uncommon or improper. He said they do allow the start-up group to avoid having to disclose information that independent nonprofits must reveal in annual tax filings, such as its officers or details about its spending.

“You would be able to keep names and salaries off of any documents,” he said.

Indeed, Thomas’s title in Crowdsourcers is not a matter of public record and could not be determined."

Philip Hackney

Politics & Nonprofits: Déjà Vu All Over Again

Anyone who tracks legal developments relating to the involvement of nonprofits in politics would be forgiven if they felt they were in a particularly drawn out version of the movie Groundhog Day. That is because it appears everything that is new is something we have seen before. Here are some recent examples:

• DISCLOSE Act Introduced (again): U.S. Senator Sheldon Whitehouse (D-RI) and Representative David Cicilline (D-RI), along with 162 colleagues, reintroduced the Democracy Is Strengthened by Casting Light On Spending in Elections (DISCLOSE) Act in the new Congress. As noted in the press release, "Senate Majority Leader Chuck Schumer first introduced the DISCLOSE Act in the wake of the disastrous Citizens United decision in 2010, and Whitehouse has led the introduction of the legislation in every subsequent Congress."

• Treasury/IRS Barred From Issuing 501(c)(4) Guidance (again): The Consolidated Appropriations Act, 2023 (Pub. L. No. 117-328) continues the now longstanding prohibition on the Treasury Department, including the Internal Revenue Service, using any funds to develop guidance "relating to the standard which is used to determine whether an organization is operated exclusively for the promotion of social welfare for purposes of section 501(c)(4)" (Division E, Title I, Section 123, under Administrative Provisions - Department of the Treasury). The Act also continues now longstanding prohibitions on the IRS using any funds "to target citizens of the United States for exercising any right guaranteed under the First Amendment" or "to target groups for regulatory scrutiny based on their ideological beliefs." (Division E, Title I, Sections 106 & 107, under Administrative Provisions - Internal Revenue Service).

• A Politician Benefitting from a Friendly 501(c)(4) (again): Politico reports that "A new nonprofit group is helping DeSantis go national." The new nonprofit, named And to the Republic, is reportedly a section 501(c)(4) organization that "is supporting Ron DeSantis’ national political activity."

• A Politician Accused of Misusing a Nonprofit (again): The Arizona Republic reports that a former Democratic primary candidate for Secretary of State Reginald Bolding is facing allegations of wrongdoing relating to a nonprofit he founded and helped lead ("Bolding, his nonprofit, referred to AG for investigation of connections, donations"). The referral from Arizona Secretary of State Katie Hobbs states there "is reasonable cause to believe [Bolding]  violated campaign finance law" based on a complaint filed by a Phoenix resident. The nonprofit is named Our Voice Our Vote, and according to IRS records it is a section 501(c)(4) organization.

Lloyd Mayer

Donor Questions & Fatigue For Contributions to Aid Ukraine

As the Russian invasion of Ukraine passes the one-year mark, donor questions and fatigue have started to become evident. On the questions side, the AP had a recent story titled For donors, wartime Ukraine aid creates blurry ethical line. It highlights the dilemma of some donors, and particularly U.S. nonprofits that face legal restrictions, who want to support Ukraine but do not want to support actual combat activities. This issue is of course complicated by the fact that some items can be used for either humanitarian or fighting purposes.

On the donor fatigue side, devex reported last month that Philanthropic donations to Ukraine have largely dried up. This story notes that over 70 percent of contributions for Ukraine relief were announced before July 2022, with fewer announcements since then, although there have been some notable exceptions. At the same time, the Chronicle of Philanthropy reports that Foundation Giving to Ukraine Peaked at Beginning of Invasion, but Has Stayed Steady Since (subscription required). It notes that Foundation Source found that more than $7 million has been given to support Ukraine by the 273 private foundations it analyzed.

Lloyd Mayer

New Nonprofit News Outlets: Chronicle of Philanthropy, The Intercept, Magnolia Tribune

The shift toward nonprofits in journalism continues, with three prominent announcements:

• Last month the Chronicle of Philanthropy announced that its plan to become an independent nonprofit organization this spring is moving forward, with over $6 million in commitments already received from major foundations.

• In January The Intercept announced it would restructure as a standalone nonprofit organization, spinning off from the First Look Institute. As part of the restructuring, the Institute has committed to provide a significant (but not quantified) multiyear gift.

• And in December, Mississippi Today reported that a prominent Mississippi conservative group leader is launching a new nonprofit news organization in 2023 called Magnolia Tribune (which now appears to be up and running). It has apparently absorbed the assets and work of a conversative blog, Y'all Politics.

In related news, a Texas legislator appears to have missed that nonprofit news outlets can be conservative as well as liberal. The San Antonio Express-News reports he has proposed a bill "that would ban colleges and universities in the state from supporting nonprofit news organizations." The story makes it clear his motivation is to cut off a revenue source for what he views as "mouthpieces for far-left liberal institutions." There is no indication to date that the bill has significant support in the Texas legislature.

Lloyd Mayer

Reporters in Action: In-Depth Investigation Into NFL Player Charities

Jason Wolf at the Arizona Republic led a six-month investigation that led to a five-part story about nonprofits founded by NFL players who have won the coveted Walter Payton NFL Man of the Year award. The stories are behind pay walls (at both the Arizona Republic and USA Today), but at least as of today you can read the follow-up Arizona Republic story Reddit had questions about our NFL charity investigation. Here are key answers. without a subscription. Here are some highlights:

• "The investigation found most athletes’ nonprofits largely serve as fundraising vehicles — they collect money to give to existing nonprofits like hospitals or food banks that perform programmatic activities. But some spend less than half of the donations they receive on charity, with the rest paying for overhead."

• "NFL players often start nonprofits without having the slightest idea what they’re doing, and without considering partnering with established organizations."

• "[N]either the NFL nor the NFLPA, which presents weekly and annual awards for community service, match their promotional efforts when it comes to educating players on the nonprofit sector."

Lloyd Mayer

Debating the Wisdom of Federal Tax Benefits for Charities

The past couple of months have seen several commentators questioning whether the federal tax benefits for charities should continue to exist, either in their current form or at all. Here are some examples:

• As reported by Peter J. Reilly in Forbes, in December EO Tax Journal editor Paul Streckfus floated the idea that calling for repeal of Code section 170 in its entirety could be used by a presidential candidate to help separate themselves in what may be a crowded field. Reilly further reports that Streckfus made it clear in response to a follow-up inquiry that he supports this proposal, given that the deduction in its current form primarily if not almost exclusively benefits the wealthy who tend to give to the organizations that the wealthy themselves are interested in, such as their alma maters and, if they are very wealthy, their own foundations.

• Shortly thereafter, Peter Coy wrote an Opinion for the N.Y. Times titled The Thorny Questions Raised by Charitable Giving (subscription may be required). He flagged important issues, including the relative roles of government and philanthropy, whether to give locally or globally, and the balancing of giving fish with trying to teach someone to fish. He also noted that philanthropic priorities tend to be set by people with money, citing the effective altruism approach championed by Sam Bankman-Fried as an example, and the fact that the charitable contribution deduction is no longer available to most people of moderate means.

• Then in the Chronicle of Philanthropy, Jeff Cain wrote an Opinion titled End the Charitable Tax Exemption and Remove the Conflict of Interest Baked Into Big Philanthropy. He highlights the bipartisan opposition to the Accelerating Charitable Efforts Act among private foundations, and argues that "philanthropists can use their tax-advantaged funds to advocate for greater tax-incentivized charitable laws through the tax-exempt nonprofits they support. And they do." He refers to this trend as "Big Philanthropy" and argues that the way to address it is "ending charitable tax exemptions and deductions of every kind."

• Finally, Business Insider published an article titled How the Rich Have Their Cake and Eat It Too by Using Trusts to Give to Charity, Collect Cash, and Save on Taxes at the Same Time (subscription required), critically highlighting the tax advantages provided for donors to charitable remainder trusts. 

An interesting recent example of how philanthropy favors the wealthy, including through tax benefits, is the Bloomberg News article Billionaire Donates $1.9 Billion to Art Museum Where He Lives (subscription required). The story notes the tax benefits that come with a donation along these lines, although often creating a legacy is more important to the donors.

Lloyd Mayer

AGs in Action: NASCO Report, Ohio "Charitable University", and Massachusetts Revised Guide for Board Members

With the well-known limits on IRS oversight of tax-exempt nonprofits, the burden of regulating charities has increasingly fallen to state attorneys general and other state officials. And the these officials have been active, both with respect to enforcement and education. This activity is demonstrated by several recent developments:

• The National Association of State Charity Officials issued last fall a Report on State Enforcement and Regulation. Covering the period from January 2021 to September 2022, it provides "[a] sample of cases in which NASCO members were involved in 2021 in these key areas: a. Deceptive Solicitation b. Nonprofit Governance c. Trust and Estates" and a summary of "[o]utreach efforts and published guidance issued in 2021 and 2022."

• As reported by WDTN, the launch by Ohio Attorney General Dave Yost earlier this year of "an effort to educate members of Ohio charity boards" under the heading Charitable University.

• The publication late last year by Massachusetts Attorney General Maura Healey of a revised Guide for Board Members of Charitable Organizations that "is provided by the Attorney General’s Office to help board members of charitable nonprofit organizations carry out their important responsibilities."

Lloyd Mayer

Charity Scandals Serious Enough for the Feds to Get Involved

News reports of thefts from charities and other improper diversions of charitable funds are unfortunately somewhat common, often reflecting the all too common combination of greed and lack of sufficient internal controls in many volunteer-run or under-staffed organizations. Usually these matters are handled by local authorities or state attorney general offices. But sometimes they rise to a level that the DOJ and FBI get involved. In the past month there have been a couple reported situations where this occurred:

The Kansas City Star reported that "Feds shut down Missouri Christian nonprofit that was supposed to cover medical bills".  According to the article, the FBI and DOJ are alleging that section 501(c)(3) Medical Cost Sharing Inc. was "an elaborate fraud scheme that spanned the better part of a decade" operated by two individuals to enrich themselves. Additional coverage: Forbes. ProPublica has a related story about issues with several medical cost sharing ministries, including Medical Cost Sharing, Inc.

And the St. Louis Post-Dispatch reported that "Feds probe St. Louis-area church, nonprofit that claimed millions in federal food aid". According to the article, the U.S. Attorney's Office for the Eastern District of Missouri has issued subpoenas relating to Influence Church and section 501(c)(3) New Heights Community Resource Center in the wake of earlier investigative reports by the paper. The investigation is focusing on federally funded child nutrition programs, under which millions of dollars were paid to the Church and Center.

Lloyd Mayer 

The Mormon Church v. the SEC

About a week and a half ago, the SEC announced that it had charged Ensign Peak Advisors and the Church of Jesus Christ of Latter-day Saints (the Mormon church) with violating Section 13(f) of the '34 Act and Rule 13f-1. Ensign Peak agreed to settle and pay a $4 million fine for failing to file Form 13F for about 22 years, while the Mormon church agreed to settle the allegation that Ensign Peak acted with its knowledge and direction and pay the SEC $1 million. On this blog we're usually more focused on tax (and, on occasion, state nonprofit) issues than we are securities regulation, but this is a big deal securities reg story involving nonprofits, so it's worth a little time to dig into and understand.

But before we dig into the story, it's worth laying some groundwork:

The Players:

The Mormon church is organized as a Utah corporation sole and, unsurprisingly, is exempt from tax under section 501(c)(3). (In fact, I'm putting the finishing touches on a book about the Mormon church and taxes, which will probably be published at the end of this year or sometime in 2024.) The church has a strong preference for centralization and hierarchy; in the U.S., the Utah corporation owns basically all of its property (unlike other denominations, which often incorporate different regions or congregations separately). The Mormon church is tremendously wealthy; just before the pandemic, a whistleblower alleged that it had $100 billion of invested assets (an amount that presumably didn't include, for instance, land it uses for church buildings).

Continue reading

New Suit Alleges San Diego Catholic Diocese Transferred Assets to Avoid Paying Sex Abuse Claims

In a news report on today's edition of Religion News Service, Alejandra Molina writes that a "law firm representing alleged sexual abuse victims in California is suing the Roman Catholic Diocese of San Diego, claiming the diocese fraudulently moved around real estate assets in an attempt to hide its wealth and avoid paying child sex abuse claims."

According to Molina, 

The suit, filed Tuesday (Feb. 21) by the Zalkin Law Firm in San Diego County Superior Court on behalf of more than 100 plaintiffs, alleges that the diocese transferred at least 291 real estate parcels, with a total tax-assessed value of more than $453 million, to parish corporations in order to defraud creditors at a time when the diocese was aware of “significant claims” by victims of childhood sex abuse.

The lawsuit alleges that these transfers “were done as part of a scheme created, masterminded, and designed” by the diocese and parishes so assets could not be “reachable” by creditors and those filing claims.

Molina continues:

The lawsuit claims that the diocese made these transfers beginning in September 2019, the same month the California Legislature passed Assembly Bill 218, which, with Gov. Gavin Newsom’s endorsement, lifted a statute of limitation on childhood sex abuse claims. The law opened a three-year window beginning in 2020 that allowed alleged victims of child sexual abuse to file lawsuits without age limitations. 

The suit comes days after Cardinal Robert McElroy, bishop of the Diocese of San Diego, announced that the diocese may declare bankruptcy as it faces “staggering” legal costs in dealing with hundreds of lawsuits alleging priests and others sexually abused children.

Meanwhile, Kevin Eckery, spokesman for the diocese, defended the transfers, saying they predate the Assembly bill. "Under canon law the assets of each parish have been separate and independent from the Diocese," Eckery said. "Over 10 years ago, long before Assembly Bill 218 was introduced, the Diocese began the process of formalizing in civil law the separate legal status of each parish and its assets. This included recording proper legal title for each parish to its own real estate."

Eckery added, “The Diocese has a profound obligation and moral duty to use its own assets to equitably compensate survivors.”

In an article published almost two weeks ago, The Associated Press reported Eckery as saying that the cost of settling the outstanding cases against the diocese which have not gone to trial would amount to $550 million. McElroy had also written a letter to be distributed to parishioners which revealed that most of the diocese’s assets had been used to settle previous allegations, ending in a $198 million payout in 2007.

In a news conference on Wednesday, Attorney Irwin Zalkin said the “diocese and its parishes have engaged in a conspiratorial enterprise to defraud child abuse victims and to deny them the justice they deserve.” He noted that if the diocese files for bankruptcy, it would have to identify and disclose its assets. He continued: “The question would be whether these properties that got transferred are assets of the diocese or not.”

He went on to state that the lawsuit seeks to reverse those transfers. He wants the properties to revert to diocesan ownership as “assets of the diocese as they are, and they should be.” Zalkin said his firm will pursue the matter through the civil court or through bankruptcy proceedings if the diocese files for bankruptcy. 

Zalkin denied that the filing of the lawsuit was timed to coincide with Ash Wednesday but noted instead that "it speaks volumes as to the moral conduct or lack of moral conduct of this diocese." According to Zalkin, the leaders of the diocese have "developed a PR spin on how they’re concerned about victims, and they want to do the right thing by victims, but at the end of the day, it’s all about the money and protecting their assets.” 

The lawsuit also claims that the diocese created an “Independent Compensation Fund,” in which survivors’ claims would be reviewed by an independent claim evaluator. If the claim qualified, a final settlement offer would be made. However, the lawsuit alleges that in reality, the fund “was designed to draw out individuals who would otherwise be eligible to bring a lawsuit pursuant to AB 218 and settle their claims for pennies on the dollar.”

“At the same time that the ‘Independent Compensation Fund’ was becoming operational and the Senate was passing AB 218 on to the Governor in mid-September of 2019, the Diocese was engaged in a massive effort to transfer title to hundreds of millions of dollars of real property for no consideration,” the lawsuit reads.

The lawsuit states that “this fraudulent scheme” was meant to defraud “plaintiffs and others with claims based on clergy sexual abuse.”

Prof. Vaughn E. James, Texas Tech University School of Law

 

Turkey, Syria, and Disaster Relief

By now, you've undoubtedly read about the earthquakes in Turkey that killed at least 5,100 people in Turkey and Syria and left an estimated 150,000 people without homes in Turkey alone. 

Governments, including several countries in the EU, the United States, Russia, and Israel, are stepping up with disaster relief. But for an earthquake that has affected an estimated 23 million people, there cannot be too much help.

And charitable organizations are stepping up, allowing individuals and corporate entities to step up. The Turkish and Syrian Red Crescents are looking for donations and volunteers. The International Blue Crescent Relief and Development Foundation says it needs tents, heaters, blankets, MREs, thermal clothes, and first aid kits. Plenty of other charitable organizations are also raising funds to provide relief for the victims of the earthquakes.

And this fundraising strikes me as absolutely critical. With a massive disaster like this, we need the government, the private, and the public sector to step up. A couple things to think about when deciding how and where to help:

Continue reading

Minnesota Appeals Court Upholds Removal of Otto Bremer Trust Trustee

In this space we have previously reported on first the Minnesota Attorney General seeking to replace the trustees of the Otto Bremer Trust, and then on the decision by a Minnesota trial court to remove one trustee but not two others. That decision led to an appeal by the removed trustee, and last week the Minnesota Court of Appeals upheld the removal.

Applying an abuse of discretion standard, the appellate court found that the district court had properly removed the trustee for a "serious breach of trust" arising from self-dealing in the form of misuse of the Trust's assets, violations of his duty of loyalty for allowing his personal interests to significantly and negatively impact his decisions and behavior as a trustee in the form of inappropriate and abusive behavior, and a violation of his duty of information by refusing to disclose his designated successor's identity to the Attorney General until forced to do so while testifying at trial. The appellate court further found that the district also properly removed the trustee because it was in the best interest of the Trust and its beneficiaries given these continual breaches of his duties that rendered the removed trustee unfit to administer the Trust.

Media Coverage: Minnesota Lawyer; Pioneer Press; Star Tribune.