A California court ruled that individuals who were not church members lacked the legal authority to inspect church records.
Two people claiming to be members of a church and its board of deacons (the “plaintiffs”) sued the church, claiming that, from 1990 through January 2021, the church made material misrepresentations and false assurances that their donations to the church would be used to support the church’s charitable and religious purposes.
The misrepresentations allegedly were made on the church’s website and on donation envelopes used during church services.
The church admitted that it solicited donations through donation envelopes and through an online portal, but it noted that the donation envelopes and online portal state that “the Pastor reserves the right to direct all funds to the area of ministry most needed.”
The plaintiffs sought access to church records to look for evidence of wrongdoing.
The court denied the plaintiffs’ request.
California law, the court noted, specifies that the accounting books, records, and minutes of proceedings of the members and the board “shall be open to inspection upon the written demand on the corporation of any member” except as otherwise provided in the articles or bylaws. A “member may also inspect and copy the record of all the members’ names, addresses, and voting rights upon written demand except as otherwise provided in the articles or bylaws.”
Who is a member?
A “member” means “any person who, pursuant to a specific provision of a corporation’s articles or bylaws, has the right to vote for a director, or disposition of all or substantially all of the corporation’s assets.” “Member” also means any person “designated in the articles or bylaws as a member and, pursuant to a specific provision of a corporation’s articles or bylaws, has the right to vote on changes to the articles or bylaws.”
The court noted that a corporation may refer to persons associated with it as “members” although not members within the meaning of state nonprofit corporation law. And, in the absence of any provision in a corporation’s articles or bylaws providing for members, “a corporation shall have no members.”
The court concluded that nothing in the church’s governing documents mentioned members, and so the church had none as a matter of law.
The court concluded that since the church had no members under California law, no one had a legal right to inspect corporate documents, even in cases where wrongdoing is suspected.
What this case means for churches and church members
First, the church in this case placed a notice on all donation envelopes and the online donation portal informing donors that “the Pastor reserves the right to direct all funds to the area of ministry most needed.”
Many churches place a notice on donors’ giving statements, giving envelopes, church bulletins and newsletters, and other documentary evidence of charitable contributions informing donors that all donor designations are mere recommendations subject to the final authority of the church board. This notice helps the church retain control over the use of donated funds.
Second, most state nonprofit corporation laws give members the legal right to inspect specified corporate records for a proper purpose. However, this right of inspection only applies to members of the corporation.
The church in this case did not have members, and therefore no one had the legal authority to inspect church records, even to look for evidence of financial impropriety. The court cautioned that persons who were called “members” due to long association with the church were not legal members, even though most longtime attenders thought themselves to be so.
The inability of non-members to inspect church records is one of several consequences of the non-member form of church governance.
Church leaders should carefully consider the legal and tax consequences of the non-membership form of governance before adopting it.
Buck v. Peace Apostolic Church, 2023 Cal. Super. LEXIS 94316 (Cal. App. 2023).
