LDS Church wins again as judge tosses out tithing lawsuit; the faith says donations are ‘wisely managed’

A sweeping lawsuit involving potentially billions of dollars in tithing donated by millions of members to The Church of Jesus Christ of Latter-day Saints has been tossed out of federal court.

In the second ruling of its kind this year, a U.S. District Court in Utah on Thursday dismissed a brewing class-action suit that had accused the global faith and its investment company of fraud involving religious donations and how members’ cash was invested and spent.

Sidestepping a host of controversial issues related to church autonomy and the First Amendment, federal Judge Robert Shelby ruled that the suit brought by nine current and former Latter-day Saints in six states should be dismissed because it was incompletely argued and filed too late.

In fact, Shelby wrote, judicial canon required him to focus on “nonconstitutional failures” in the would-be class-action suit — before touching on any of its hard-fought questions involving the law and how the church governs its financial affairs.

Late Thursday, church spokesperson Sam Penrod praised the decision, saying “the legal claims brought against the church were rightfully dismissed by the court.”

“Tithing donations made by members of The Church of Jesus Christ of Latter-day Saints are an expression of faith and allow the church to fulfill its divine mission,” he said in a statement. “These donations are carefully used and wisely managed, under the direction of senior church leaders.”

The role of an IRS whistleblower

Shelby’s 44-page decision dismissed the legal action against the church and its investment arm, Salt Lake City-based Ensign Peak Advisors, with prejudice, meaning it cannot be amended and refiled.

Plaintiffs had accused the church of piling up vast market returns in a “slush fund” at Ensign Peak over several decades, without spending a penny from the reserve account on charity. At the same time, they alleged, church leaders diverted billions of dollars to prop up an ailing insurance company, Beneficial Life, and help build and develop the City Creek Center mall in downtown Salt Lake City.

The plaintiffs had also urged Shelby to declare the church’s financial practices illegal and freeze tithing altogether, while accountants sorted through the faith’s finances or the court appointed a special monitor.

But Thursday’s ruling hinged “first and foremost,” Shelby wrote, on a statute of limitations provision that meant the plaintiffs from across the country had filed too late.

Plaintiffs suing to recover their tithing, accusing the worldwide faith of 17.5 million members of hoarding and misspending their donated funds, should have taken legal notice when an IRS whistleblower’s allegation about church finances and investments leaked out in late 2019, he wrote, saying the report was clearly “the genesis” of their legal bid.

Multiple news reports on the whistleblower’s allegations of a $100 billion-plus fund managed by Ensign Peak on the church’s behalf, set a three-year statute of limitations clock ticking, Shelby said, yet plaintiffs did not begin to file their lawsuits until October 2023 — three years and 10 months later.

Those stories on former Ensign Peak portfolio manager David Nielsen’s allegations about immense financial reserves and how they were being used reached far and wide, Shelby wrote, detailing how the story proliferated and spread among media outlets nationwide, including, eventually, the newsmagazine show “60 Minutes.”

“It ‘strains credulity’ that reasonably diligent individuals who had donated substantial sums of money to the church and were otherwise interested in church affairs” would not have learned of the whistleblower’s report, the judge said, “at or near the time of its release.”

James Huntsman lost, too

Thursday’s ruling follows a rejection in January by the 9th U.S. Circuit Court of Appeals of a similar fraud case over tithing, brought by wealthy Utahn James Huntsman and seeking to recover millions of his own donations.

In a unanimous ruling, the 9th Circuit found “no reasonable juror” could have concluded that the Utah-based faith misrepresented the source of funds it used to spend $1.4 billion on City Creek Center.

These plaintiffs from Utah, Texas, Tennessee, Illinois, Washington and California had sued the church and Ensign Peak seeking not only to recover their donations but also to create a class action involving potentially millions of members with similar interests.

Their lawsuits, labeled “copycat” cases by church lawyers, were combined into one by a federal panel last year and sent to Shelby’s courtroom.

‘Fatal’ flaws

Shelby’s ruling, which came after oral arguments in January, also pointed to failures in the would-be class-action case to adequately cite legal claims and requisite elements to prove fraud, saying the lawsuit was incompletely argued.

That included, the judge said, several aspects of its contentions that the church and Ensign Peak breached fiduciary duties, fraudulently misled the plaintiffs, concealed their actions or enriched themselves unjustly.

Shelby also took issue with the plaintiffs’ arguments that they relied on statements from church officials, including that no tithing was used for commercial ventures such as City Creek Center.

While their lawsuit cites general statements by the church about how donated funds were used, Shelby wrote, the plaintiffs “do not plead they actually heard or read — individually or collectively — any specific representation, nor that any individual representation induced them to donate.”

“Reading the complaint as a whole,” Shelby continued, “the court and defendants are left to guess whether anyone relied on anything and to what end.”

In an April 2003 General Conference address, then-church President Gordon B. Hinckley insisted that tithing funds “have not and will not be used” for the shopping center, stating that the money came from “commercial entities owned by the church” and the “earnings of invested reserve funds.”

Plaintiffs also were not specific about their individual claims and whether the donations in contention represented tithing or other types of donations, Shelby wrote, later adding that “the collective deficiencies are fatal.”

Yet another tithing fraud case, filed before Shelby in early 2019 by North Carolina plaintiff Laura Gaddy and others, remains on appeal before the 10th U.S. Circuit Court of Appeals in Denver.