Update-September 2021

Oregon judge denies motions to dismiss charges against Synod

A Multnomah County Circuit Court judge denied motions to dismiss charges against the Lutheran Church–Missouri Synod and several other defendants in an all-day court hearing on September 17, setting the stage for a contentious hearing this December, where lawyers for the Synod will argue that several categories of church documents and communications should be protected from discovery under the First Amendment.

Of all the defendants, Judge Eric Dahlin took a particularly dim view of the Synod’s motions, denying 10 of 12 motions to dismiss counts against the church’s senior organization. “There are pretty significant allegations about the Synod just controlling everything,” Judge Dahlin told Synod attorney Laura Caldera. “It is a sufficient fraud claim to go forward.” Concordia University Portland, the Concordia University System, and the Lutheran Church Extension Fund also left the hearing still facing counts of fraud or intentional interference with contractual relations between Concordia Portland and plaintiff Hotchalk, Inc.

Focus in the $302 million lawsuit now turns to what Hotchalk attorney Jim McDermott described as “a fairly major discovery dispute” with the Synod over several categories of documents relating to church operations and communications. In August, Synod lawyers filed a motion for protective order “limiting the scope of permissible discovery by prohibiting any inquiry into internal church communications regarding religious doctrine, internal church communications regarding church governance, and internal communications regarding the approval of a president of Concordia University–Portland.”

Concordia Portland closed last year, abruptly ending a lucrative partnership with Hotchalk, which some years generated over half of Concordia’s revenue and most of Hotchalk’s business. In April of 2020, Hotchalk sued the university, the Synod–which ran Concordia–the Extension Fund, and several other religiously co-affiliated defendants, alleging that it was defrauded out of future revenues by the defendants working together to shut down the school and transfer its assets to the Extension Fund and other Synod-controlled entities.

Judge Dahlin declined to rule on the First Amendment issues in the September hearing, which served as the basis for the Synod’s motions to dismiss. “I don’t think defense has this sufficiently teed up yet,” he said.  “For such an important issue, there’s not much ink spilled on it.”

In one exchange, Judge Dahlin asked Synod attorney Thomas Hutchinson point-blank if the free exercise of religion protects churches from breach of contract claims. “If there was a breach of contract, if there was fraud,” Hutchinson replied, “if there was a fraudulent transfer, that’s fair game–a church could be held liable for engaging in fraud or breach of contract or wrongful acts that are legally actionable that are not based on church doctrine or appointment of a minister.

“That’s the problem with [Hotchalk’s] claims,” he continued, “is they fall right within the protection of the free exercise of religion.”

Judge Dahlin was not moved by the Synod’s oral arguments. “Based on the briefing that’s in front of me now, there’s not a basis to grant the motions,” he said. “In the motion for protective order argument [in December], hopefully that’s going to be more flushed out.”

Judge Dahlin also granted Hotchalk’s request to file a second amended complaint based on claims that it had new information to make more detailed and definite allegations, but insisted that this was the last chance he would give Hotchalk to replead. “Given that this lawsuit was filed 17 months ago,” Judge Dahlin wrote to parties’ counsel after the hearing, “and given that it sounds as if substantial discovery has already occurred, Hotchalk should be in a position where its allegations can be detailed.”