In Beckman v. Regina Caeli, Inc., 2024 U.S. Dist. LEXIS 230200 (N.D. Ga. 9/23/2024), the United States District Court for the Northern District of Georgia (Atlanta Division) had to decide whether to dismiss various claims brought by a a married Catholic couple, one of which alleged that the couple were defamed by false tax filings. That claim has survived a motion to dismiss, but because it is specific to the facts of the case, as alleged, involving a public tax-exempt organization and the publication of tax filings, plus the possible application of conditional privileges, no categorical conclusions can be drawn. That being said, the case is quite instructive of how disgruntled workers can find themselves needing to bring forth multiple claims when otherwise considering a possible Section 7434 claim for fraudulent information returns as to the amount reported to the IRS.
As reported, the Plaintiffs, Richard and Kari Beckman, founded the Regina Caeli Academy (“RCA”) in April 2003, providing a classical Catholic education option for families, with in-class instruction 2 days per week and homeschooling for the remainder of the week. First established as one center in Atlanta, RCA expanded to include 23 RCA educational centers across the United States and two affiliated centers in the United Kingdom. From inception through November 2021, Kari Beckman served as the Executive Director of RCA, while Rich Beckman served as RCA’s President and Chairman of the Board of Directors. According to the lawsuit pleadings, in early 2021, the Beckmans moved their family from Atlanta to Texas to lead development of a new planned Catholic community to be built on 575 acres of land that RCA had purchased. The couple remained in their executive positions with RCA, but spent many hours volunteering to prepare and develop the property. While in Texas and with RCA board approval, the family stayed in an existing residential lodge on the VS property without paying rent, but with the couple paying all of the utilities. The Board approved purchase of a four-wheel drive vehicle for marketing the property, and the Beckmans ultimately purchase their own lot in the community, with RCA allegedly offering to sell it to them at a 50% discount. Unfortunately, as alleged, in October 2021, the couple began to have issue, with the RCA Chief Financial Officer and close friend stepping in to counsel with the couple. One of the couple’s took medical leave, and it is alleged that the RCA officers insisted that Kari Beckman be terminated, or they would quit if she wasn’t fired for violating the RCA Code of Conduct. Eventually, Kari Beckman was “ousted” from RCA, which the couple believed was like a hostile takeover and a conspiracy. The couple allege that RCA defamed Kari Beckman, improperly banned her from RCA centers where their children attended, refused to provide the couple with remuneration for use of their intellectual property, maliciously filed false tax documents to denigrate and harass them, and in particular, that RCA had issued false tax forms charging them with excess benefits related to their purchase of the community lot in Texas, use of the lodge and 4-wheel vehicle and unsubstantiated credit card charges.
10 counts were brought by the Beckmans against RCA, the Chief Financial Officer and the Archdiocese of Atlanta. Count I was an action for declaratory judgment, requesting that the court (1) declare that Rich Beckman received no excess benefit in 2021 and order RCA to withdraw the Form 1099-MISC it had issued to him, issue corrected tax forms and amend its 2021 Form 990 to remove the excess benefit from the public record; (2) declare that Kari Beckman received no additional compensation in 2021 and order RCA to withdraw an amended W-2, issue corrected tax forms and amend its 2021 Form 990 to remove the additional compensation from the public record; and (3) declare that Rich was an employee of RCA rather than an independent contractor. In Count 2, fraud claims were asserted against RCA and its chief financial officer, including claims that accused RCA of making false representations in tax documents they issued to the Beckmans, in violation of 26 USC Section 7434. Count 3 was three negligent misrepresentation claims against RCA and its chief financial officer that mirror the fraud claims. Court 4 is interesting because it set forth two defamation claims against RCA, the first alleging that RCA committed defamation by publishing erroneous tax forms, and alleging that RCA also issued false talking points to RCA staff and student families detailing an agreed upon succession plan. Count 5 was a copyright infringement claim, with Count 6 asserting a conversion of intellectual property claim based on allegedly wrongful use of Kari Beckman’s copyrighted logo and mission statement. Count 7 was a professional negligence claim against the CFO and vicariously against the Archdiocese of Atlanta as his employer, alleging he breached his duty to act as spiritual counselor of reasonable and ordinary prudence by failing to provide safe and confidential counseling services and otherwise engaging in improper conduct. Count 8 was a breach of contract claim against RCA related to educational services when they prohibited the Beckmans from entering the RCA centers where their children were attending schools and/or attending commencement ceremonies. Count 9 was a FLSA claim against RCA asserting that RCA misclassified Rich as an independent contractor, failing to pay him wages for all hours worked, and subjecting him to improper income tax reporting. Count 10 was a breach of contract claim against RCA related to nonpayment of wages to Rich. Defendants moved to dismiss all 10, and in particular, argued that the Federal court lacked subject matter jurisdiction over the Beckmans’ claims based on the ecclesiastical abstention doctrine which is rooted in the First Amendment’s mandate that Congress shall make no law respecting an establishment of religion or prohibiting the free exercise thereof, and thus, that civil actions involving ecclesiastical disputes are such that courts do not have jurisdiction over the same.
The Curt found that the claims against the Chief Financial Officer for his alleged betrayal of confidentiality to Kari Beckman (Count 2- Fraud, Count 3-Negligent Misrepresentation, and Count 7-Professional Negligence), all concerning his alleged deficient performance in his role as Kari’s priest, these were deemed to fall under the doctrine, matters of religion, and as the court put it, it lacked subject matter jurisdiction to “referee” religious counseling between a priest (also the CFO) and his parishioner. The court dismissed these claims, and for these reasons, the professional negligence claim against the Archdiocese of Atlanta (Count 7). The court also found that the two claims concerning Kari Beckman’s termination from RCA (Counts 2 & 3) fell under the doctrine and dismissed these as well, but that the remaining claims did not, suggesting that the court could apply neutral principles of law to resolve the claims related to RCA issuing allegedly false tax documents and breach of contract for nonpayment of wages. These were Plaintiffs’ application for declaratory judgment (Count 1), and claims for fraud (Count 2), negligent misrepresentation (Count 3), defamation (Count 4) , violation of the FLSA (Count 9) and breach of contract for nonpayment (Count 10).
Noting that religious organizations may qualify for tax-exempt status, they are required to follow state-imposed rules for the preparation of tax documents and payment of wages. at *29-30. And courts have subject matter jurisdiction to determine whether even religious organizations have complied with tax rules or satisfied contracts to pay wages. The issue with the declaratory judgment action (Count 1) was that it was brought under the Texas Uniform Declaratory Judgments Act and instead, should have been brought under the Federal statute.
Section 7434 provides a private cause of action for civil damages for fraudulent filing of tax information returns, and to establish a claim, a plaintiff must prove that the defendant (1) issued an information return; (2) the information return was fraudulent; and the defendant (3) willfully issued a fraudulent information return. at *33-34 (citing to Leon v. Tapas & Tintos, Inc., 51 F. Supp. 3d 1290, 1297-98 (S.D. Fla. 2014)). The plaintiffs alleged that Rich was misclassified as an independent contractor and thus, improperly issued him a Form 1099 instead of a W-2, and also, that the returns issued to both of them falsely represented the amount of income and benefits they received, with the Form 1099 falsely stating that Rich received an excess benefit in the form of $37,500 from the joint purchase of the lot for less than its FMV, and $24,731.03 in unsubstantiated corporate credit card charges and owed $13,635.03–the amount above what RCA determined would have been his reasonable compensation. The same as to amounts claimed that Kari Beckman had to report, on a W-2. The reporting of “excess benefits” were improper they claimed. While RCA was correct that some courts have determined that misclassifying a worker as an independent contractor cannot form the basis of a Section 7434 claim, because the plaintiffs allege both that RCA filed the wrong type of form and that they misrepresented the amount of compensation, thus making out a proper Section 7434 claim. The Beckmans further alleged that willfully filed fraudulent information returns with the intent of minimizing its own tax liability and “denigrating and harassing the Beckmans.” *37.
The most interesting aspect of this case for disgruntled workers deals with the 2 claims for defamation against RCA, the first of which when the Beckmans argue that RCA defamed them by issuing erroneous tax forms, which are publicly filed because RCA is a tax-exempt organization. RCA contends that the statements made to the IRS in federal tax documents are privileged. The Beckmans claim that any privilege claim is a fact-based evidentiary inquiry. The court noted that privileges are either absolute or conditional. While the allegedly defamatory statements RCA made to the IRS cannot be characterized as being made in official court documents or within acts of legal process to qualify as an absolute privilege, thus meaning that privilege would have to be conditional under applicable state law. Because the Beckmans alleged that in filing false tax documents, RCA acted maliciously, without privilege, and with an intent to cause them injury, and thus that RCA had forfeited conditional privilege.
