James Huntsman’s tithing suit against the LDS Church could devastate nonprofit fundraising, charities warn

If the case succeeds, nonprofits warn, it could devastate fundraising for all sorts of causes.

(Chris Samuels | The Salt Lake Tribune) The Church Office Building towers over the faith's Administration Building in downtown Salt Lake City in February 2023. Nonprofit groups worry that James Huntsman's lawsuit could affect their fundraising efforts.

Four Utah-based nonprofits, including a charity that provides free dental care and another aimed at reducing child hunger, warn that James Huntsman’s federal lawsuit accusing The Church of Jesus Christ of Latter-day Saints of defrauding tithe payers could, if successful, have devastating consequences for nonreligious organizations like them when it comes to fundraising.

Together, in a joint amicus brief, AYUDA Humanitarian, Charity Vision, Five.12 Foundation and Thanksgiving Point argue that if the courts side with Huntsman, then nearly all nonprofits, from universities to hospitals, may be guilty of inadvertently misleading donors. Their reasoning: The church’s actions (such as investing donated funds) represent industry norms and best practices.

And the language Latter-day Saint officials, including a past church president, used to allegedly mislead tithe payers? The brief says those individuals were simply using common industry lingo.

Given this, the groups paint a dire scenario if Huntsman prevails — one in which copycat lawsuits, or even the fear of legal action, could force nonprofits of all stripes to cease fundraising, and, therefore, functioning.

“Any nonprofit,” they write, “...could be sued on the theory adopted by the [appellate] panel — that the use of ‘opaque’ or merely imprecise language that might result in misunderstanding may be construed as intentional fraud.”

A second amicus brief filed by a slate of private religious universities, including LDS Church-owned Brigham Young University-Idaho and BYU-Hawaii, echoed this concern, maintaining that the case “could destabilize higher-education fundraising by subjecting nonprofit institutions to unsupported fraud claims by dissatisfied donors.”

If Huntsman, a brother of former Utah Gov. Jon Huntsman Jr., wins, the schools warn, these lawsuits could occur “even without any objective misrepresentation by the institution” and “despite the institution following standard practices within the nonprofit industry.”

To prevent this existential threat, the charities’ brief concludes, nonprofit groups would almost certainly end up erring on the side of caution, disclosing as little information as possible in the process of seeking donations.

“The result,” it reads, “will be less transparency in fundraising, not more.”

About Huntsman’s case

(Chris Samuels | The Salt Lake Tribune) James Huntsman, shown in October 2023, maintains that Latter-day Saint leaders misled him on how his tithing donations would be used.

Huntsman, who left the faith in 2020, first brought his case in 2021, arguing that the Salt Lake City-based church “repeatedly and publicly lied” when it said member contributions went toward humanitarian causes and keeping the lights on in chapels. In reality, the church “secretly lined its own pockets,” the suit reads, “by using the funds to develop a multibillion-dollar commercial real estate and insurance empire that had nothing to do with charity.”

A judge tossed out the case later that year, only for an appeals court to resurrect it in August. The latter decision focused on a statement delivered by then-church President Gordon B. Hinckley to a worldwide Latter-day Saint audience in 2003 regarding how the faith was paying to develop the high-end City Creek Center in downtown Salt Lake City.

Speaking in April General Conference, Hinckley insisted that tithing dollars “have not and will not be used” for the shopping mall. Rather, he asserted, the funds “have come and will come from those commercial entities owned by the church” and the “earnings of invested reserve funds.”

What he didn’t say was that the initial “invested reserve funds” were tithing. Two 9th Circuit Court of Appeals judges determined that Hinckley not spelling out this detail could, in the eyes of a “reasonable juror,” be seen as an attempt to hide the fact that member donations played a part in financing the $1.4 billion development — albeit indirectly.

‘Standard’ terminology

(Trent Nelson | The Salt Lake Tribune) Funding for development of Salt Lake City's City Creek Center, shown in 2021, is at the center of a fraud lawsuit against The Church of Jesus Christ of Latter-day Saints.

The church, which has asked a three-judge panel or the full 9th Circuit to reverse that August ruling and throw out the lawsuit, rejects this argument as do the organizations behind the amicus briefs.

“The panel’s decision here rests on the assumption that the accurate use of standard nonprofit terminology can be viewed as fraudulent,” the charities’ brief argues, “because phrases like ‘reserves’ and ‘earnings of reserved funds’ may be misconstrued by donors.”

But, it reads, such terminology is “standard’ in the nonprofit industry. As a result, “any nonprofit officer would unlikely define those terms any more explicitly than here when describing the nonprofit’s investment and expenditure programs.”

The question then is: What other nonprofit institutions could this case impact if the courts slap the label “misleading” to what, according to the brief’s authors, constitutes common industry jargon.

Their conclusion: all of them.

“In misconstruing the nature” of the church’s statements “about its use of donated funds,” they write, “the panel decision invites litigation against every nonprofit who makes any fundraising promise containing terms that could be deemed imprecise, confusing, overly technical or insufficiently defined.”

Huntsman’s lawyers counter that the church “materially misrepresented the source of funding for City Creek.”

Investment vs. consumption

(Photo courtesy of Sam Brunson) Sam Brunson, tax law professor at Loyola University Chicago, sees problems in James Huntsman's lawsuit against The Church of Jesus Christ of Latter-day Saints.

Tax law professor and Latter-day Saint Sam Brunson sees an even more fundamental problem with the Huntsman case and a proposed class action suit filed Oct. 31 against the church — namely, the confusion between investing and spending donor money.

“This whole discourse,” Brunson said, “has been really naive over the fact that nonprofits are allowed to invest their money, probably should invest their money and, in fact, do invest their money. They are not separate from but driven by the world of finance.”

Investment, he said, is not the same as consumption, explaining that “if they’re investing in a mall or an insurance company, that’s different from spending [donors’] money.”

A second flaw Brunson sees in the suits brought against the church is the assertion that it is somehow legally bound to use donated money within a certain time frame.

He added: “If the church says we use 100% of the money for charity, it doesn’t say it does so in the year it was donated.”

‘It’s a balance’

Nancy McLaughlin is a professor of charities law at the University of Utah’s law school. Speaking more generally about the role of courts in holding nonprofits accountable to donors, she acknowledged the need to consider a range of factors.

“You obviously don’t want charities to be able to make misrepresentations to donors,” she said. That’s why laws like the Charitable Solicitations Act, which prohibits the use of untrue statements in connection with fundraising, exist in the first place.

“On the other hand,” she added, “there may be misunderstandings” that happen even when an organization is trying to be forthright.

She concluded: “It’s a balance.”

It’s one that Huntsman’s legal team says a jury should weigh.

Editor’s note • James Huntsman is a brother of Paul Huntsman, chair of the nonprofit Salt Lake Tribune’s board of directors. In addition, this story is available to Tribune subscribers only. Thank you for supporting local journalism.