Appeals court questions timeliness of fraud class action over Mormon church tithes

(CN) — Members of a class action asked a three-judge panel on the 10th Circuit Court of Appeals on Tuesday to reconsider the statute of limitations in a fraud case that accuses the Church of Jesus Christ of Latter-day Saints, commonly known as the Mormon church, of misrepresenting its use of church tithes.

The case stems from a dispute between mostly former members of the Mormon church who accuse the church leadership of creating a slush fund from charitable donations that the plaintiffs say were obscured through different accounts by its investment firm, Ensign Peak Advisors. The plaintiffs accuse the Mormon church of using tens of billions of dollars for noncharitable expenses, particularly in the development of City Creek Center, a shopping mall in Salt Lake City.

The plaintiffs claim the church made false statements that their tithes would not be used for these kinds of investments.

A federal judge dismissed the case in April last year for filing the class action past the three-year statute of limitations for fraud based on the widespread news reporting and public discussion of the Mormon church’s use of tithes. But the plaintiffs appealed that ruling, arguing they were unaware of these discussions.

Much of the argument on Tuesday centered on whether the plaintiffs should have known about the use of the funds and filed their claims sooner.

“Under the decision of the District Court, the timer on the statute of limitations was running, and my clients had no idea,” attorney Scott George, of Seeger Weiss, told the three-judge panel.

But the panel was skeptical of this claim.

“It’s not about whether they had an idea; it’s whether they could have or should have known,” U.S. Circuit Judge Nancy Moritz, a Barack Obama appointee, said in response. “When there’s significant media coverage nationwide, locally, that’s been sufficient, and that’s what there was here.”

The origin of the fraud claims goes back to a 2019 whistleblower who leaked extensive knowledge of the Mormon church’s financial practices around tithing. The whistleblower report precipitated an investigation by the U.S. Securities and Exchange Commission, as well as widespread media coverage from Utah and national news outlets between 2019 and 2023.

The SEC fined the church and Ensign Peak Advisors in 2023 for illegally hiding its funds. The church and Ensign agreed to pay a total of $5 million in fines.

In his order dismissing the case last year, U.S. District Judge Robert Shelby, also an Obama appointee, ruled the plaintiffs should have filed the class action no later than February of 2023. The plaintiffs filed the case in October of that year.

They were only made aware of the topic after a May 2023 “60 Minutes” report was published, they say in their complaint.

George argued his clients did not have a legal duty to follow the news because, unlike in other cases, his clients were ordinary donors.

But the panel pushed back on this. The news about the whistleblower and SEC investigation was huge in the Mormon community, Moritz said.

“Tithing is a big issue for them,” she said. “People heard these reports, and they talked about them. I guess I’m not hearing you respond to that particular significant aspect to that case.”

George argued that his clients are primarily former members of the church and are no longer active in the community and mostly reside outside of Utah.

“This is the rare case where there is a market test as to whether people who were interested in filing a timely lawsuit could do it, based on the whistleblower report and the coverage of it,” said Paul Clement, of Clement & Murphy, representing the Mormon church.

The panel also questioned Clement about whether or not a reasonable person would have known about the discussion of church tithes used in the development of the shopping center.

“Does it matter how sophisticated the plaintiff was or how well read they were or what publications they subscribed to?” Moritz asked. “You can’t really conclusively determine when they would have had this constructive knowledge, or do you need to look at their individual situation to know when they would have had constructive knowledge?”

Clement argued that the plaintiffs’ claim that they relied on knowledge within the Mormon community that tithes would not fund the shopping mall, while remaining unaware of the widely publicized SEC investigation until May 2023, did not hold water.

“That strikes me as implausible, to be candid,” he said.

It’s not clear in the plaintiffs’ complaint when they were first told the tithes would not be used for the project, which George admitted was a deficiency.

Clement also told the panel that the class action was only filed after the Ninth Circuit ruled in favor of a donor in a similar case in 2023.

In that case, James Huntsman, a prominent former member, also sued the church for fraud after it used tithes to help the Salt Lake City shopping mall. Huntsman sought the $5 million he donated to the church while he was still a member. However, an en banc panel ruled in favor of the church, finding that no juror could conclude it misrepresented the source of the funds used for that project.

Moritz was joined by U.S. Circuit Judges Harris Hartz, a George W. Bush appointee, and Gregory Phillips, another Obama appointee.