August 1, 2021

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James Huntsman’s fraud suit is hardly the only one against the LDS Church. Can any of them win? – Salt Lake Tribune

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Before James Huntsman, there was Laura Gaddy. And Rodney Jay Vessels. And Lynnette Cook. And Julie Taggart. And many others.

They all have sued The Church of Jesus Christ of Latter-day Saints, at one time or another, accusing the 16.5 million-member global faith of fraud.

Huntsman is a member of a prominent family, of course, so his recent federal lawsuit gained worldwide publicity. But his is hardly the only suit of its kind.

The accusations brought by the wealthy Californian, a brother of former Utah Gov. Jon Huntsman Jr., merely add to a long list of occasions disaffected Latter-day Saints have filed court cases that intermingle cries of religious hypocrisy with fraud allegations over the faith’s finances.

“This is not a new phenomenon. It’s happened many times in the history of the church,” said Nathan Oman, a law professor and historian at Virginia’s College of William & Mary who tracks the pattern back to at least the early 1900s. And like previous cases of this kind, he and other legal scholars say, Huntsman’s latest action faces daunting hurdles.

“The Huntsman case is interesting,” the Latter-day Saint academic said, “in that his name is Huntsman.”

James Huntsman

The former Utahn’s legal action is among a handful of recent lawsuits tied directly to sensational documents leaked in late 2019 as part of a whistleblower’s complaint to the IRS alleging the church mismanaged a $100 billion reserve fund built on tithing.

Two other recent legal challenges, mounted by lesser-known plaintiffs, have also sought to use details in that tax complaint to similarly accuse the church of fraud, racketeering and financial impropriety, though they’ve taken different lines of legal argument.

And like Huntsman’s suit, their cases are infused with assertions of betrayal over public statements from church leaders and key Latter-day Saint teachings. But, in many instances, they also dig into other basic tenets about the faith, the Book of Mormon and the life of church founder Joseph Smith.

How those other lawsuits have fared may say a lot about Huntsman’s chances of prevailing, too.

‘Height of hypocrisy’

Laura Gaddy, who grew up as a devout Latter-day Saint in North Carolina, says she felt her surety in church principles begin to unravel in 2015, when leaders pulled Joseph Smith’s “seer stone” from a vault and showed it to the media.

For her, according to court documents, the event signaled that the faith’s founding prophet had not translated the Book of Mormon, the church’s signature scripture, directly from gold plates inscribed with reformed Egyptian characters, but instead had dictated the narrative “from a stone with his head in a hat.”

(Rick Bowmer | AP file photo) A picture of a smooth, brown, egg-sized rock is shown in the printer’s manuscript of the Book of Mormon after a news conference in August 2015. The Church of Jesus Christ of Latter-day Saints says this “seer stone” helped founder Joseph Smith translate the Book of Mormon.

Gaddy came to be deeply troubled by what she saw as similar dismaying misrepresentations, according to her lawsuit, over the church’s translated Book of Abraham and over Smith’s own character, leading to a crisis in her faith.

That crisis brought her to a Utah federal court in August 2019. Her initial lawsuit accused church leaders of “misrepresenting its foundational facts and continuing conduct of concealing access to those facts” as part of perpetuating an alleged fraud to ensure, among other things, that members’ tithing contributions would continue.

“It is the height of hypocrisy, and abuse, encompassing not only a pious, but an ongoing pervasive secular fraud,” Gaddy argued, saying those actions damaged her and thousands of other former Latter-day Saints like her “at an existential level.”

That suit alleges mail and wire fraud, breach of fiduciary duties, fraudulent concealment and civil racketeering under the federal Racketeer Influenced and Corrupt Organizations Act, also known as RICO.

Church attorneys have rejected those allegations at every turn.

In addition to asking the court to back her claims for emotional and financial damages, Gaddy’s suit also seeks legal recognition of thousands of “similarly situated” disaffected Latter-day Saints who might join the case in a class action against the church.

Several experts said legally defining that class, which the court has yet to consider, could be an arduous battle.

“All the class members have to have basically exactly the same facts,” Sam Brunson, a Latter-day Saint and professor of tax law at Loyola University in Chicago, said in an interview. “But it’s hard for everyone to say, ‘I was defrauded in exactly the same way because I heard and reacted to what the church said at the same time.’”

Truth claims are out, money claims are in

Church attorneys successfully quashed Gaddy’s initial action a year ago by invoking the U.S. Constitution’s religious protections under the First Amendment, saying that under nearly 150 years of American case law on church autonomy, “none of these questions belongs in a courtroom.”

“It is not the province of judges or juries to determine whether Moses parted the Red Sea, whether Noah predicted and survived the flood, whether Muhammad ascended to heaven, whether Buddha achieved a state of enlightenment, whether Jesus walked on water, or whether Joseph Smith saw God and Jesus Christ,” church attorneys wrote.

“Any trial seeking to adjudicate such religious issues,” they wrote in a motion to toss out Gaddy’s suit, “makes a mockery of both the court and religion.”

A federal judge in Utah did dismiss her case but with a crucial condition allowing the complaint to be modified and refiled.

In his ruling, Judge Robert Shelby found that although the First Amendment does indeed bar legal claims when they would require a court to consider the truth or falsity of religious doctrines, “churches can be liable for fraud claims like anyone else.”

(Leah Hogsten | Salt Lake Tribune file photo) U.S. District Judge Robert Shelby talks with residents in Monticello in 2017. The federal judge has ruled that churches can be sued for fraud, but noted the “First Amendment bars such claims when they would require a court to consider the truth or falsity of a church’s religious doctrines.”

Gaddy’s case is now the subject of an intense procedural fight in U.S. District Court in Utah over whether a revised version of the lawsuit eventually can be brought to trial.

Her Salt Lake City attorney, Kay Burningham, said the new complaint now centers on allegations of fraud framed in secular terms she hopes will avert the First Amendment’s bright line.

“This case will live or die based upon the First Amendment-religious liberty issue,” Burningham said, noting that Shelby’s decision on that aspect of the case was likely to be appealed to the 10th U.S. Circuit Court of Appeals, whatever his ruling.

The courts, one of Gaddy’s latest briefs argues, have “never held that an individual’s religious beliefs excuse him from compliance with an otherwise valid law prohibiting conduct that government is free to regulate.”

Allowing exceptions to every state law or regulation affecting religion, the brief warns, could open constitutionally required exemptions to laws “of almost every conceivable kind.”

Similar to Huntsman’s suit, Gaddy’s case also cites specific examples of church statements that appear to contradict reality. But while Huntsman’s pleadings pinpoint the church’s alleged business dealings versus how they were portrayed dating to 2003, Gaddy offers evidence reaching back nearly a century.

New filings in her suit include a host of exhibits drawn from the church’s historical record, including purported evidence of Joseph Smith practicing polygamy and being labeled “a disorderly person” in 1826 in connection with a form of deception related to treasure hunting.

“These are facts that have been hidden from members,” Burningham said. “These are not beliefs. These are facts.”

Gaddy’s suit is similar to Huntsman’s in another crucial regard. Her case now includes information raised in late 2019 by the IRS whistleblower — a former portfolio manager for the church’s investment arm — and cites his claims as proof of a disconnect between the faith’s stated humanitarian mission and its actual spending on commercial enterprises.

In a statement relayed via her lawyer, Gaddy called the whistleblower’s revelations “shocking” and “yet another confirmation that we are doing the right thing in pursuing this case against the church.”

Whistleblower inspired other lawsuits

In that detailed document — leaked in December 2019, just months before the world’s attention turned to COVID-19 — the former manager at Ensign Peak Advisors alleged the church had amassed $100 billion in accounts built on tithing and meant for philanthropy.

Instead, David Nielsen stated, the fund dodged taxes and made zero charitable expenditures while doling out up to $2 billion to back financially troubled church businesses, including City Creek Center, the high-end shopping mall in downtown Salt Lake City.

Church officials have adamantly denied those assertions, including the notion that tithing money was ever used to prop up the shopping mall, repeating assurances from past church President Gordon B. Hinckley, beginning in 2003, that “tithing was not used on the City Creek project.”

(Leah Hogsten | Salt Lake Tribune file photo) Shoppers browse at City Creek Center in March 2021. Lawsuits have alleged that The Church of Jesus Christ of Latter-day Saints used tithing funds to help build the Salt Lake City mall. The church has denied that.

Last week, in the wake of Huntsman’s lawsuit, the church reaffirmed its stance that the mall was built with money from “commercial entities owned by the church” and the “earnings of invested reserve funds.”

Still, questions continue to spur discussion in social media channels frequented by many Latter-day Saints around the world. And for three Utahns, including a Brigham Young University-trained lawyer, the financial revelations brought a dramatic rupture in their beliefs surrounding the Book of Mormon.

Based on the whistleblower’s leak, Orem residents Rodney Jay Vessels and Lynnette Cook joined Salt Lake City resident Julie Taggart in filing a fraud lawsuit against the church in February 2020, seeking damages under the federal RICO statute.

Their suit, too, accuses the church of a decades-long “scheme” to extract tithing from members “based on false claims, pretenses, misinformation, misdirection and lies.”

Vessels and Cook both said their faith in the church was initially cemented by the Book of Mormon and its pervading call for members to devote themselves to humanitarian causes. The whistleblower’s assertions, said Cook, who joined the church in New Jersey, “became a trigger that this was way beyond the doctrine they were touting.”

“We didn’t know until this whistleblower case how they misused and misappropriated our own tithing money, in such a way that we had to take action,” added Vessels, an author and former Minnesota native who was introduced to the church’s teachings by missionaries while he was a college student.

In an emailed statement, Taggart, who left the denomination in 2004, said she was “happy to join a lawsuit that would call the church to task for the fraud perpetrated against unsuspecting members, inculcated to never question or debate its leaders.”

Though their suit called for damages, Vessels said that was only to meet requirements for legal standing in their attempt to prove a wider legal point.

“We would not have taken a dime from the church,” he said. “For us, it was always about, ‘Why don’t you do what your Book of Mormon tells you to do? Why don’t you take care of the poor and the needy?’”

Church lawyers, in response, “categorically and unequivocally” denied claims that any of the faith’s practices are inconsistent with canonical scripture.

“Indeed,” they wrote in legal briefs, “the church maintains that all its efforts (including its financial practices) further the church’s mission — and the Book of Mormon’s purpose — of inviting others to come unto Jesus Christ.”

(Rick Bowmer | AP file photo) The Book of Mormon, the signature scripture of The Church of Jesus Christ of Latter-day Saints.

After five months of court skirmishes, Vessels, Cook and Taggart withdrew their federal lawsuit, and church attorneys said in court documents that there was no out-of-court settlement involved.

Vessels confirmed he and other plaintiffs pulled out as their legal challenge looked increasingly unlikely to succeed, feeling much of their point had been made.

“We were glad to withdraw the lawsuit,” Vessels said, “with the idea that someday the truth would come out.”

Sending a message, not seeking money

Several legal scholars said Huntsman’s lawsuit appears to have similar motives of drawing attention to similar concerns.

“It doesn’t read like a serious complaint from someone who expects to get money,” said Oman, the William & Mary law professor. “It reads like an op-ed. … That complaint was written as much for [the media] as it was for any court.”

Brunson, the Loyola tax expert, called it “a performative lawsuit.”

“Not a lawsuit meant to actually win, but a lawsuit meant to emphasize a point,” Brunson said in last week’s Salt Lake Tribune “Mormon Land” podcast, “the point seeming to be that he is unhappy with the way the church talks about its finances.”

(Photo courtesy of Sam Brunson)
Sam Brunson, tax law professor at Loyola University of Chicago.

Others have noted the complaint’s unconventional use of a quote right at the start by early church leader Brigham Young and pointed to the bolded and italicized statements throughout that highlight a tone of indignation.

The 50-year-old Huntsman, who heads a film distribution company called Blue Fox Entertainment, filed his lawsuit March 23 in U.S. District Court in California, seeking a return of at least $5 million in tithing.

The Utah-born son of the late business-magnate-turned-philanthropist Jon Huntsman Sr. alleges that church leaders “repeatedly and publicly lied” about how they were using his money as part of billions of dollars in member donations solicited each year to pay for missionary work, temple-building and other educational and charitable operations.

Instead of supporting those religious purposes, his suit states, the church “secretly lined its own pockets by using the funds to develop a multibillion-dollar commercial real estate and insurance empire that had nothing to do with charity.”

James Huntsman, who has resigned his church membership, has declined to comment on the civil litigation, as has his California attorney David Jonelis.

The church, in a written statement, called Huntsman’s allegations “baseless.” It noted that tithing funds are voluntary contributions by members “as an expression of their faith in God” and that the funds were “used for a broad array of religious purposes, including missionary work, education, humanitarian causes and the construction of meetinghouses, temples and other buildings important to the work of the church, as reflected in scripture and determined by church leaders.”

A church spokesperson declined to comment further for this story, and attorneys for the Salt Lake City-based faith have yet to file their legal response in the case.

(Courtesy file photo)
Nathan Oman, a professor at William & Mary’s law school.

Brunson said that tax law governing voluntary contributions such as tithing will make it difficult for Huntsman to recover his donations, which Huntsman estimates in his court filings as exceeding $5 million. Without some kind of restrictive legal covenant covering his giving, Huntsman seems to have little redress in clawing the money back.

Huntsman said in court documents that if the money were returned, he would donate it to groups “marginalized by the church’s teachings and doctrines, including … charities supporting LGBTQ, African American and women’s rights.”

His suit details five separate statements by church leaders, including from Hinckley, to the effect that tithing was never used on City Creek — then purports to prove those statements wrong with the whistleblower’s information.

It also notes changes in the fine print accompanying the church’s tithing forms. Before 2012, Huntsman points out, for example, those slips “plainly stated that ‘all donations’ to the church’s missionary fund were to be used ‘at the church’s sole discretion in its missionary program.’”

The language was altered to state that “though reasonable efforts will be made globally to use donations as designated, all donations become the church’s property and will be used at the church’s sole discretion to further the church’s overall mission.”

The suit calls that a move “to cover its tracks after the fact,” even though it contradicted other church teachings.

Besides pursuing past tithing, plus interest, Huntsman also is seeking punitive damages meant to punish church leaders, make an example of them “and to deter such conduct in the future.” He claims he “repeatedly approached” church officials and demanded his donations be returned but that they refused.

In an article for Public Square Magazine, attorney Kate Taylor Lauck called the Huntsman suit a “publicity stunt.”

Without mentioning specifics, Lauck, who reported working for the church as outside counsel with the Salt Lake City law firm Kirton McConkie, said, in her experience, “requests such as tithing refunds are handled respectfully, sincerely, dutifully, and seriously until the matter is fully resolved.”

Several legal analysts said the Huntsman case appears to have steered clear of asking a judge to decide any religious matters and focuses on proving fraud more in business terms. His initial filing also does not invoke RICO, instead citing another fraud statute in federal law.

The suit, in fact, states that Huntsman “has the utmost respect for the members of the church, and likewise respects their beliefs and customs,” and notes that he served in leadership roles as a faithful Latter-day Saint “almost his entire life.”

The case relies heavily on the veracity of the whistleblower’s assertions, which Brunson and others said could weaken the case. Whatever the moral or faith implications of those claims, tax experts have questioned the complaint’s legal standing.

After the Huntsman filing, a church spokesperson said Latter-day Saint leaders were not in talks with the IRS about the whistleblower case. Brunson said that could be a sign nothing has come from the complaint thus far — and, he predicts, nothing will.

Veteran tax accountant and Forbes contributor Peter J. Reilly noted shortly after the whistleblower’s allegations surfaced that their main legal thrust — that, as a private foundation, Ensign Peak Advisors violated tax requirements that it regularly spend a portion of its assets — is invalid.

“Ensign is not a private foundation,” wrote Reilly, adding that the fund “is an integrated auxiliary of a church.”

Latter-day Saint officials have called it a “rainy day” account to help pay for, among other things, church operations in poorer parts of the world — such as Africa, where the faith is growing dramatically. They have said the money is less about accumulating cash for the Second Coming, as was initially widely reported, and more about providing safeguards against more earthly events — like credit crunches, stock slides and recessions.

“It’s not illegal for churches or nonprofit entities to accumulate wealth, and they’re allowed to have a savings account,” added Oman, which leaves Huntsman’s challenge in a precarious spot.

“I’m very doubtful that the conduct of the church here rises to the level of fraud,” Oman added. “So I don’t think his lawsuit is going to go anywhere.”

Editor’s note James Huntsman is a brother of Paul Huntsman, chairman of the nonprofit Salt Lake Tribune’s board of directors.

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