Freedom from Religion Found., Inc. v. Lew

• Citation: 983 F.Supp.2d 1051
• Decision Date: 22 November 2013
• Docket Number: No. 11–cv–626–bbc.,11–cv–626–bbc.
• Parties: FREEDOM FROM RELIGION FOUNDATION, INC., Annie Laurie Gaylor and Dan Barker, Plaintiffs, v. Jacob LEW and Daniel Werfel, Defendants.
• Court: U.S. District Court — Western District of Wisconsin

983 F.Supp.2d 1051

FREEDOM FROM RELIGION FOUNDATION, INC., Annie Laurie Gaylor and Dan Barker, Plaintiffs,

v.Jacob LEW and Daniel Werfel, Defendants.¹

No. 11–cv–626–bbc.

United States District Court, W.D. Wisconsin.

Nov. 22, 2013.

Held Unconstitutional

26 U.S.C.A. § 107

Richard L. Bolton, Boardman & Clark LLP, Madison, WI, for Plaintiffs.

Richard Adam Schwartz, Erin Healy Gallagher, Washington, DC, Leslie K. Herje, U.S. Attorney's Office, Madison, WI, for Defendants.

OPINION AND ORDER

BARBARA B. CRABB, District Judge.

Plaintiff Freedom from Religion Foundation, Inc. and its two co-presidents, plaintiffs Annie Laurie Gaylor and Dan Barker, brought this lawsuit under the Administrative Procedure Act, 5 U.S.C. § 702, contending that certain federal income tax exemptions received by “ministers of the gospel” under 26 U.S.C. § 107 violate the establishment clause of the First Amendment and the equal protection component of the Fifth Amendment. Defendants Timothy Geithner and Douglas Schulman (now succeeded by Jacob Lew and Daniel Werfel) have filed a motion for summary judgment, dkt. # 40, which is ready for review.

In their complaint, plaintiffs challenged both § 107(1) and § 107(2), but in response to defendants' motion for summary judgment, plaintiffs narrowed their claim to § 107(2), which excludes from gross income a minister's “rental allowance paid to him as part of his compensation.” (Section 107(1) excludes “the rental value of a home furnished to [the minister] as part of his compensation.”) Because plaintiffs have not opposed defendants' argument that plaintiffs lack standing to challenge § 107(1), I will grant defendants' motion as to that aspect of plaintiffs' claim.

With respect to plaintiffs' challenge to § 107(2), I adhere to my conclusion in the order denying defendants' motion to dismiss, dkt. # 30, that plaintiffs have standing to sue because it is clear from the face of the statute that plaintiffs are excluded from an exemption granted to others. With respect to the merits, I conclude that § 107(2) violates the establishment clause under the holding in Texas Monthly, Inc. v. Bullock, 489 U.S. 1, 109 S.Ct. 890, 103 L.Ed.2d 1 (1989), because the exemption provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise. This conclusion makes it unnecessary to consider plaintiffs' equal protection argument.

Although plaintiffs did not file their own motion for summary judgment, “[d]istrict courts have the authority to enter summary judgment sua sponte as long as the losing party was on notice that it had to come forward with all its evidence.” Ellis v. DHL Exp. Inc. (USA), 633 F.3d 522, 529 (7th Cir.2011). In this case, the parties have fully briefed the relevant issues, which are primarily legal rather than factual. Further, plaintiffs asked the court to enter judgment in their favor in their brief in opposition to defendants' motion for summary judgment. Dkt. # 52 at 66. Although defendants objected to this request in their reply brief, dkt. # 53 at 3, it was on the same grounds that defendants believe that they are entitled to summary judgment. Defendants do not suggest that they would have raised any other arguments or presented any additional facts if plaintiffs had filed their own motion. Under these circumstances, I conclude that it is appropriate to deny defendants' motion for summary judgment and grant summary judgment in plaintiffs' favor with respect to § 107(2).

In concluding that § 107(2) violates the Constitution, I acknowledge the benefit that the exemption provides to many ministers (and the churches that employ them) and the loss that may be felt if the exemption is withdrawn. Clergy Housing Allowance Clarification Act of 2002, 148 Cong. Rec. H1299–01 (Apr. 16, 2002) (statement of Congressman Jim Ramstad) (in 2002, estimating that § 107 would relieve ministers of $2.3 billion in taxes over next five years). However, the significance of the benefit simply underscores the problem with the law, which is that it violates the well-established principle under the First Amendment that “[a]bsent the most unusual circumstances, one's religion ought not affect one's legal rights or duties or benefits.” Board of Education of Kiryas Joel Village School Disrict v. Grumet, 512 U.S. 687, 715, 114 S.Ct. 2481, 129 L.Ed.2d 546 (1994) (O'Connor, J., concurring in part and concurring in the judgment). Some might view a rule against preferential treatment as exhibiting hostility toward religion, but equality should never be mistaken for hostility.

It is important to remember that the establishment clause protects the religious and nonreligious alike. Linnemeir v. Board of Trustees of Purdue University, 260 F.3d 757, 765 (7th Cir.2001) (“The Supreme Court has consistently described the Establishment Clause as forbidding not only state action motivated by a desire to advance religion, but also action intended to ‘disapprove,’ ‘inhibit,’ or evince ‘hostility’ toward religion.”). If a statute imposed a tax solely against ministers (or granted an exemption to everyone except ministers) without a secular reason for doing so, that law would violate the Constitution just as § 107(2) does. Stated another way, if the government were free to grant discriminatory tax exemptions in favor of religion, then it would be free to impose discriminatory taxes against religion as well. Under the First Amendment, everyone is free to worship or not worship, believe or not believe, without government interference or discrimination, regardless what the prevailing view on religion is at any particular time, thus “preserving religious liberty to the fullest extent possible in a pluralistic society.” McCreary County, Kentucky v. American Civil Liberties Union of Kentucky, 545 U.S. 844, 882, 125 S.Ct. 2722, 162 L.Ed.2d 729 (2005) (O'Connor, J., concurring).

OPINION

A. Standing

As they did in their motion to dismiss, defendants argue that plaintiffs do not have standing to challenge § 107(2). To obtain standing, plaintiffs must show that they suffered an injury in fact that is fairly traceable to defendants' conduct and capable of being redressed by a favorable decision from the court. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992).

Plaintiffs Gaylor's and Barker's alleged injury is the unequal treatment they receive under § 107(2):

In the case of a minister of the gospel, gross income does not include—

* * *

(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.

In particular, plaintiffs argue that “ministers of the gospel” receive a tax exemption under § 107(2) that Gaylor and Barker do not, even though a portion of the salary Gaylor and Barker receive from Freedom from Religion Foundation is designated as a housing allowance. Plts.' PFOF ¶ 2, dkt. # 50; Dfts.' Resp. to Plts.' PFOF ¶ 2, dkt. # 55. In addition, plaintiffs argue that an order enjoining § 107(2) would redress their injury because it would eliminate the unequal treatment. The parties agree that Gaylor and Barker are both members of the foundation and that the purpose of the foundation is related to the claims in this case, so if the individual plaintiffs have standing, then the foundation does as well. Sierra Club v. Franklin County Power of Illinois, LLC, 546 F.3d 918, 924 (7th Cir.2008).

Defendants do not deny that a person who is denied a tax exemption that others receive has suffered an injury in fact. Texas Monthly, Inc. v. Bullock, 489 U.S. 1, 7–8, 109 S.Ct. 890, 103 L.Ed.2d 1 (1989) (general interest magazine had standing to challenge state tax exemption received by religious publications); Arkansas Writers' Project, Inc. v. Ragland, 481 U.S. 221, 224–25, 107 S.Ct. 1722, 95 L.Ed.2d 209 (1987) (same). See also Arizona Christian School Tuition Organization v. Winn, ––– U.S. ––––, 131 S.Ct. 1436, 1439, 179 L.Ed.2d 523 (2011) (“[P]laintiffs may demonstrate standing on the ground that they have incurred a cost or been denied a benefit on account of their religion. Those costs and benefits can result from alleged discrimination in the tax code, such as when the availability of a tax exemption is conditioned on religious affiliation.”). In addition, defendants do not deny that a discriminatory tax exemption may be redressed by eliminating the exemption for everyone. Heckler v. Mathews, 465 U.S. 728, 740, 104 S.Ct. 1387, 79 L.Ed.2d 646 (1984) (“We have often recognized that the victims of a discriminatory government program may be remedied by an end to preferential treatment for others.”). However, defendants argue that the lawsuit is premature because plaintiffs have never tried to claim the exemption. Until the Internal Revenue Service denies a claim, defendants say, plaintiffs have not suffered an injury.

As an initial matter, it is not clear whether plaintiffs would have standing to challenge § 107(2) in the context of a proceeding to claim the exemption. In several cases, courts have rejected establishment clause challenges to tax exemptions brought by parties who filed claims for the exemption that were denied. In each of those cases, the court held that the party could not receive the exemption if the court declared it to be unconstitutional, so a favorable decision could not redress their injury. Templeton v. Commissioner of Internal Revenue, 719 F.2d 1408, 1412 (7th Cir.1983); Ward v. Commissioner of Internal Revnue, 608 F.2d 599, 601 (5th Cir.1979); Kirk v. Commissioner of Internal Revenue, 425 F.2d 492, 495 (D.C.Cir.1970). Thus, if accepted, defendants' view could insulate § 107 from challenge by anyone.

In any event, I considered and rejected defendants' argument in the context of...