Bishop Long’s Sex Assault Lawsuit: will he lose?

Last week, Bishop Eddie Long of New Birth Baptist Church in Atlanta Georgia was accused of sexually assaulting four 17-year old males that attended the church.  What to do if your church’s leader is accused in civil court of committing sexual assault?  Because the priest, bishop, reverend or pastor is the leader of your organization, the organization has an interest in the outcome of this case. First step, don’t panic.  Because someone has filed a lawsuit against you, does not mean the allegations are true or that the plaintiff will prevail in court. Second step, hire an attorney to analyze and review the complaint.  Your attorney’s job will be to address the claim, one by one, and discuss the claim’s likelihood of success.  I will use Bishop Long’s complaint as an example of this analysis.  You can read the lawsuit here.

 Vicarious Liability

Vicarious liability in Pennsylvania means the employer shares liability for the negligent acts of his employee which cause injuries to a third party, provided that such acts were committed during the course of and within the scope of the employment.  This claim is not likely to prevail because clearly  sexual assault is outside the scope of the Bishop’s duties as it pertains to the organization’s published mission statement.

 Negligent Hiring

Negligent hiring in Pennsylvania means an employer is responsible for harm resulting from employing an improper person in work involving a risk of harm to others, or improperly supervising the employee, or permitting or failing to prevent his employees from tortuous conduct upon the premises under the employer’s control.  To win, the plaintiff must prove that the organization has evidence or proof that the bishop was or is likely to become a sexual predator when he was hired. What kind of evidence would suffice? A criminal record, or a report from his former employer, or complaints from your members.  In addition, the sexual assault must have occurred on the church’s property. Without this kind of evidence, the claim is likely to fail. 

 Negligence Per Se

Negligence Per Se in Pennsylvania means that the defendant violated a specific statute and this violation injured the plaintiff.  In the Bishop Long case, the plaintiff cites to a confidential relationship statue.  But that statute merely defines a confidential relationship; it does not create a duty to act.  The statue limits itself to a fiduciary relationship created by contract or by law.  In Pennsylvania, there is no law that prohibits a preacher from having sex with his parishioner (in comparison, consider the law prohibiting an attorney from having sex with his client).  Thus this claim will probably fail because it is not specific enough.

 Intentional Infliction of Emotional Distress

 Intentional Infliction of Emotional Distress means the defendant’s conduct was so outrageous and extreme, that the plaintiff suffered emotional distress.  In Pennsylvania, the law requires the plaintiff to suffer a severe medical injury as a result of the defendant’s actions. The complaint does not specifically list the plaintiff’s medical injuries, so this claim will probably fail because it is not specific enough.

 Breach of Fiduciary Duty

 A fiduciary duty is an obligation to act in the best interest of another party. Pennsylvania recognizes that a fiduciary duty can exists between a priest and his parishioners.  However, this duty does not develop when the plaintiff is merely a member of the church. The relationship must rise to one of special dealings giving one side an unequal influence and the other side weakness and dependence. The court will examine the nature of the relationship between the plaintiff and defendant to determine if a fiduciary duty existed.  The relationship must not be too general in nature.  It must rise to a higher level of association, like counselor-patient, clergy-penitent.   The federal courts have refused to find a cause of action based merely on the relationship between parishioner and clergy.  The basis of this refusal is the First Amendment.  But some federal courts have permitted a breach of fiduciary duty claim where the plaintiff received counseling or participated in church-sponsored activities.  When the plaintiff is a child, the disparity between the plaintiff and the priest is more obvious.  However, when the plaintiff is an adult, the age disparity does not automatically lend to a finding of fiduciary duty. 

The First Amendment claim is also a powerful shield.  Many state courts, including Pennsylvania, have ruled that a breach of fiduciary duty claim based on the priest’s failure to adhere to the church’s canon is precluded by the First Amendment.  To prove its theory, plaintiff would necessarily involve excessive governmental entanglement with religion.  The court or jury would have to inquire into the propriety of the church’s decisions, matters of discipline, internal organization, ecclesiastical rule and custom.  Such an inquiry would violate the First Amendment.  The law does not recognize clergy malpractice for the same reason.  So, this breach of fiduciary duty claim against Bishop Long probably will not prevail, unless plaintiff received counseling and participated in church-sponsored activities.

Sharmil McKee  |  Business Attorney  |  blog@mckeeoffice.com

Podcast: How to start a nonprofit

This is a free podcast from the Pennsylvania Bar Institute.   This course will provide basic information about:

  • Incorporating a new non-profit Pennsylvania corporation,
  • The basic requirements for qualifying for 501(c)(3) status and how to apply for it,
  • How to determine whether you are required to register to solicit charitable contributions in Pennsylvania and how to do so,
  • How to identify an appropriate board of directors and their basic responsibilities and
  • How to avoid some common traps by adopting appropriate policies and practices (eg. conflict policy, audit committee, etc.).

Recorded during a live webcast in December 2008; 45-minute seminar.

Click here to listen to the Podcast about How to Start a Nonprofit

Sharmil McKee | Business Lawyer | blog@mckeeoffice.com

Why do we need a conflict of interest policy?

The IRS explains, in simple terms, the purpose of a conflict of interest policy:

Charitable organizations are frequently subject to intense public scrutiny, especially where they appear to have inappropriately benefited their officers, directors, or trustees. The IRS also has an oversight role with respect to charitable organizations. An important part of this oversight is providing organizations with strategies that will help avoid the appearance or actuality of private benefit to individuals who are in a position of substantial authority. The recommended conflict of interest policy is a strategy we encourage organizations to adopt as a means to establish procedures that will offer protection against charges of impropriety involving officers, directors, or trustees.

A conflict of interest occurs where individuals’ obligation to further the organization’s charitable purposes is at odds with their own financial interests. For example, a conflict of interest would occur where an officer, director, or trustee votes on a contract between the organization and a business that is owned by the officer, director or trustee. Conflicts of interest frequently arise when setting compensation or benefits for officers, directors, or trustees. A conflict of interest policy is intended to help ensure that when actual or potential conflicts of interest arise, the organization has a process in place under which the affected individual will advise the governing body about all the relevant facts concerning the situation. A conflict of interest policy is also intended to establish procedures under which individuals who have a conflict of interest will be excused from voting on such matters.

Apart from any appearance of impropriety, organizations will lose their tax-exempt status unless they operate in a manner consistent with their charitable purposes. Serving private interests more than insubstantially is inconsistent with accomplishing charitable purposes. For example, paying an individual who is in a position of substantial authority excessive compensation serves a private interest. Providing facilities, goods, or services to an individual who is in a position of substantial authority also serves a private interest unless the benefits are part of a reasonable compensation arrangement or they are available to the public on equal terms and conditions.

Scholarship Fundraiser

On Saturday, September 19, 2009, The J. Herbert Williams Foundation will be holding its annual Scholarship Luncheon Fundraiser.

The event will start at noon and will be held at The Desmond Hotel and Conference Center in Malvern, Pennsylvania.  Call 610-296-9800 for more information about the hotel.

Tickets are $50.00 which include your choice of prime rib or salmon.  This is an excellent opportunity to network with community leaders and prominent professionals.  The Foundation has been providing scholarships to underprivileged and meritorious students since 1994.  Since its inception the Foundation has helped students attend many prestigious institutions, including Spelman College, Xavier University, Temple University, and Albright College.

For more information about the Foundation, please visit their website or call 610-649-4907.  If you cannot personally attend, please consider making a donation.  Your donation will be tax deductible because the organization is a registered 501(c)(3).

How a member can force a nonprofit to involuntarily dissolve?

How a member can force a nonprofit to involuntarily dissolve?

Yes. The Court of Commonwealth issued a ruling in April that should serve as a warning to nonprofit boards in Pennsylvania.   

Did you know that Pennsylvania law allows a member of a nonprofit to petition the court to involuntarily dissolve the nonprofit corporation?  A court will dissolve a nonprofit when the the corporation abandoned its mission, misapplied its assets, when the director act fraudulently, or when the members are deadlocked about the management of the non-profit’s affairs.

In Loveless v. Poconos Forest, Mr. Loveless tried to dissolve his nonprofit, Poconos Forest.  The court, eventually ruled in the nonprofits favor, however, it seems the nonprofits only saving grace was the broad language written in the non-profit’s bylaws about its purpose and that its directors did not commit fraud.  The main purpose of the nonprofit was to host sporting events, however, the nonprofit had not hosted a sporting event in 19 years. 

Fortunately for the nonprofit, the bylaws broadly states its purpose is to provide vacation facilities for its members.  And while the court found that the directors engaged in self-dealing, the court concluded that the activity did not rise to fraud; the directors conduct fell more along the lines of ignorance, rather than fraud.

The court under these facts refused to dissolve the nonprofit, but the court ruled that the nonprofit must, in the future, conduct all business in strict accordance with its governing documents and all applicable laws.  (Loveless v. Poconos Forest Sportsman Club, No. 2196 C.D. 2008, April 2009).

What can you, as a director of a nonprofit, learn from this case?

1.  Take minutes of all your meetings.

2.  Be sure that each meeting has the required quorum.  If your by-laws do not specify the number, then the Pennsylvania Nonprofit law requires that at least majority of all voting members must be present.  

3.  Follow your bylaws closely when making changes to the by-laws.  If your by-laws do not specify the procedures for amending the by-laws, then the Pennsylvania Nonprofit law first require that the amendment be proposed to the board by a resolution.  The proposal must be presented by petition of at least 10% of all voting members.  The amendment must list the existing text of the article with brackets around the language that is to be added.  Once the resolution to petition to amend the by-laws is adopted, then all voting members must be given at least a 10-day written notice about the meeting to consider the proposed amendment.  The meeting notice must include the proposed amendment.  The proposed amendment may then be adopted by a majority vote of the present quorum. 

Then, finally the Articles of Amendment must be executed by the nonprofit corporation and filed with the Department of State.  The amendment does not become effective until it is filed with the Department of State.

Consult an attorney for more specific information about your nonprofit.  Good luck.

Sharmil McKee
Business Attorney
McKee Law Office
Philadelphia, Pa
215-242-5260

Can nonprofits have members like shareholders?

I received this question by email yesterday.  ‘I am incorporating my nonprofit.  The form asks if my nonprofit has members.  What does this mean?’

 

This is my answer:

The question asks whether your nonprofit organization has voting members. For example, some churches have members; those members meet once or twice a year to vote on organizational issues. Such a church would check both boxes, assuming that the minimum number of members voted ‘yes’ to incorporate. To answer that question, ask yourself who decides whether to shut-down the organization. Do you need a majority vote of the members, or will the founder, alone, make the decision.

 

Hopefully, if you are filling out this incorporation form, you have by-laws that indicate whether you have voting members or not. The law does not require a nonprofit organization have voting members, only a President, a Secretary, and a Treasurer. In Pennsylvania, the same person can hold all three positions. There are several good books on how to start a nonprofit in Pennsylvania. You may also qualify for free legal advice. In you are in Philadelphia, contact PhillyVIP at www.phillyvip.org; it has a small business and nonprofit section. Also, feel free to contact me if you have more questions.

Can family members serve together on the same board of directors of a church?

Can family members serve together on the same board of directors of a church?

I received the following questions by email:

Can family members serve together on the same board of directors of a church?


This is my answer:


Absolutely, in fact, it is probably practical given that most families share the same values, including religious faith and community-involvement.  I am going to assume that the underlying question you are asking is whether ‘allowing family members to serve on the church’s board, exposes the church to additional liabilities’.  The short answer to that question is ‘yes’.  

A church member could always sue the church claiming a board member breached his/her fiduciary duty* to the organization.   Family members tend to place family interests before other obligations.  On the other hand, your church can easily avoid this claim, by implementing a “Conflict of Interest Policy”.  


What is a Conflict of Interest and why does it matter?  A conflict of interest presents itself when your interests are directly opposite to the church’s interest.  For example, let’s imagine you and your sister serve on the church’s board.  Your sister owns a cleaning service.  The church needs to hire a cleaning service and your sister is bidding for the job.   However, your sister’s prices are twice as much as the average cleaning service.  But your sister claims her service is also twice as good as the average cleaning service.  In this example, your sister’s interests are directly opposite to the church’s interest.  Your sister wants the highest price for her business, but the church wants t pay the least for the service.  If the church votes to award the job to your sister, then it could “look like” she took advantage of her board position to get the job.  In addition, it could “look like” you voted to award the job to your sister because you are family-members, not that it is the best for the church. 

Conflicts of interests create ground for lawsuits from the organization’s members. On the other hand, a conflict of interest policy would dictate the steps an organization would follow when a board member presented a conflict of interest—such as when a sister wants the church to hire her cleaning service.   By following these steps precisely (and documenting the steps) the board could award the job to your sister AND avoid claims of breach of fiduciary duty.


*Breach of fiduciary duty is when a person breaks her promise to make the best possible decision to benefit an organization or person.

 

 

 

Sharmil McKee
Business Lawyer
 
McKee Law Office
245 W. Allens Lane
Philadelphia, Pa 19119
215-242-5260 (office)
1-877-273-0749 (toll-free)
Skype Us! (mckee.law.offices)
http://www.mckeeoffice.com

 

LLC or Nonprofit?

I received the following question by email:


I have a business idea.  I am trying to figure out whether I should set up as an LLC or a non-profit.  I want to setup a wildlife preserve while producing organic food near my home.  I am concerned about public liability, tax considerations, and a safety net for myself and my family.

 

This was my response:

 Fortunately, for you most non-profits are incorporated as corporations.  I am assuming that you would want to receive tax exemptions from the IRS; if so, then your non-profit will need to be incorporated.  A corporation achieves all the goals you listed, as does the LLC (mostly).  The major difference between an LLC and a nonprofit corporation is that as an “owner” of a non-profit, you are technically holding the funds for the public.  Like a trustee holds money for a child.  All the donations and in-kinds gifts that you receive belong to the public only.  So, you are not as free to use the funds as you would if your business was an LLC.  Thus, you will be open to more scrutiny; in fact, even your tax returns (if you have to file them) will be open to the public. 

 On the other hand, there are many grant and funding opportunities for farming and environmental work.  This is a great benefit if setting up your business is expensive.

 The choice is yours.  I encourage you to talk to your business lawyer about it. 

What should you ask your attorney?  I suggest:

1-      Find a small business attorney.  Unless your business grosses $2 million or you have over 20 employees, your business’ legal needs are very unique.  You need an attorney that is familiar with those issues and opportunities.

2-      Identify your key concerns. (liability, taxes, manageable paperwork)  Your key concerns will drive your entity-choice decision.

3-      Discuss your start-up capital and cash-flow plans for the business.  If you plan to run a loss, then you may use this to lower your tax bill.

4-      Discuss your business philosophy.  Are you a risk-taker or risk-adverse?  You need an attorney whose philosophy matches yours.

5-      Discuss billing arrangements.  You need predictable, manageable bills.  Try to find an attorney who offers fixed fee billing instead of hourly billing; or, find an attorney who will give you a budget prior to beginning your work.

6-      Indentify your communication needs.  Be realistic with yourself.  Will you need to talk to your attorney every 24 hours or do you only want to “talk” with your attorney by email.  Whatever communication level you require, find an attorney who can provide that level.

 Your idea sounds exciting.  I wish you luck.