Deliverance Christian Church

OCR transcription for search; preserved printed pages are authoritative

The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below.

[S/ RUSS KENDIG

Russ Kendig
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

IN RE: ) CHAPTER 11

)
DELIVERANCE CHRISTIAN ) CASE NO. 11-62306
CHURCH, )

) JUDGE RUSS KENDIG

Debtor. )

)

) MEMORANDUM OF OPINION

) (NOT INTENDED FOR

) PUBLICATION)

FirstMerit Bank, N.A. (“FirstMerit”), a secured lender, filed a motion to compel
discovery on November 22, 2011. Debtor opposed the motion, arguing that the information
sought is privileged or confidential in nature. The court held a hearing on November 29,
2011. John Kostelnik represented FirstMerit and David Mucklow appeared on behalf of

Debtor.

Jurisdiction is premised in 28 U.S.C. § 1334 and the general order of reference
entered in this district on July 16, 1984. In accordance with 28 U.S.C. § 1409, venue in this

district and division is proper.

This opinion is not intended for publication or citation. The availability of this
opinion, in electronic or printed form, is not the result of a direct submission by the court.

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ANALYSIS

Debtor is a church. Its major source of income is comprised of tithes and
donations from its congregants. FirstMerit seeks discovery of this financial information
in order to ascertain the financial wherewithal of the Debtor. Currently, FirstMerit has
extended Debtor interim use of cash collateral, subject to expire on or about January 12,
2012. FirstMerit also has a motion to convert or dismiss the case pending, and the
financials are imperative to its ability to determine whether Debtor has the ability to

reorganize.

Debtor does not dispute FirstMerit’s entitlement to financial information but does
contest the form in which it should be provided. It argues that the personal information
of its contributors is confidential. It has offered to provide sanitized information where
contributors are identified only by number. It strongly opposes release of any personal
information, including names, addresses, social security numbers, and bank routing

numbers.

FirstMerit is willing to operate under a protective order but Debtor has not been
amenable. Debtor steadfastly holds to the principal that the information is privileged or

protected from release.

The applicable rule for this dispute is Federal Rule of Bankruptcy Procedure 7037,
which incorporates Federal Rule of Civil Procedure 37 into bankruptcy practice. In
accordance with Local Bankruptcy Rule 7026 and Rule 37(a)(1), the court finds that the
parties did attempt to resolve this dispute before bringing it before the court.

I, Membership List

Although FirstMerit’s motion to compel directly references only one request for
production of documents, seeking contribution information, Debtor contends that
FirstMerit also seeks its membership roll, which Debtor also refuses to provide. Since
this issue was raised at the hearing, the court will briefly address it.

At the core, discovery must focus on relevant information. The court fails to see
how a membership list is relevant to FirstMerit’s purposes. There may be members
included on the list who have not stepped foot in the door in a decade, while there may be
faithful attendees who are not members. While the court would not challenge that
numbers relating to the congregants may be material, including the number of members
on the roll, the number of people attending services, the number of those people who are
financially supporting the church, the court cannot conclude that the actual membership

list is relevant.

Further, membership lists are generally subject to heightened protection by courts

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because of the potential chilling effect on the First Amendment right to freedom of
association. See, e.g., Christ Covenant Church v. Town of Southwest Ranches, 2008 WL
2686860 (S.D. Fla. 2008) (citing NAACP v. Ala., 357 U.S. 449 (1958) (other citations

omitted)).

For these three reasons, the court will not compel Debtor to release the
membership list to FirstMerit. In the event FirstMerit desires to pursue the membership

list, it will need to do so upon further motion.

Ul. Trade Secret Privilege

Debtor contends that tithing and giving records are privileged as a trade secret
under Ohio Revised Code § 1333.61(D). The statue defines a trade secret as

information, including the whole or any portion

or phase of any scientific or technical information,
design, process, procedure, formula, pattern, compi-
lation, program, device, method, technique, or im-
provement, or any business information or plans,
financial information, or listing of names, addresses,
or telephone numbers, that satisfies both of the

following:

(1) It derives independent economic value, actual or
potential, from not being generally known to, and
not being readily ascertainable by proper means by,
other persons who can obtain economic value from
its disclosure or use.

(2) It is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.

O.R.C. § 1333.62(D)(1). Ohio employs a six factor analysis in determining whether
information constitutes a trade secret. See State ex rel. Plain Dealer v. Ohio Dep’t of Ins.,
80 Ohio St.3d 513, 524-25 (1997) (citations omitted). The inquiry constitutes a question
of fact. Arnos v. Medcorp, Inc., 2010 WL 1730139, *2 (Ohio App. 6" Dist. 2010) (slip
copy) (citing Fred Siegel Co., L.P.A. v. Arter & Hadden, 85 Ohio St.3d 171 (1999)).

Debtor does not develop the trade secret argument, offering no explanation for
how the donor information meets the definition. Instead, it merely recites the definition
and summarily claims the financial information qualifies as a trade secret. The party
asserting the privilege bears the burden of proof as to the existence of the privilege. See
Arnos v. Medcorp, 2010 WL 1730139 (citations omitted); see also State ex rel. Besser v.

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Ohio State Univ., 89 Ohio St.3d 396 (2000). “Conclusory statements as to trade secret
factors without supporting factual evidence are insufficient to meet the burden of
establishing trade secret status.” Arnos, 2010 WL 1730139, *3 (citing Besser, 89 Ohio
St.3d 396, 404) (other citation omitted)). Debtor failed to meet its burden of proof.

Additionally, one of the keys to asserting the existence of a trade secret is
protection of the information to maintain its secrecy. See, e.g, Plain Dealer, 80 Ohio
St.3d 513, 525 (citing Water Met., Inc. v. Stayanchi, 15 Ohio St.3d 83, 86 (1984)); see
also Recovery Express, Inc. v. Warren Cnty. Fraternal Order of Police, Inc, 2007 WL
2746549 (S.D. Ohio 2007) (examining whether donor cards were trade secrets).
FirstMerit maintains that in January of this year, Debtor provided similar information to
the bank. FirstMerit reviewed and returned the documents without photocopying. Debtor
does not dispute this. Consequently, the court has doubts as to Debtor’s ability to now
claim the information is a privileged trade secret. On the record presented, Debtor failed

to prove the existence of a trade secret.

I. 110U.S.C. § 107(b) protection

Section 107(b) provides an exception to the general rule that bankruptcy papers
are “public records and open to examination by an entity at a reasonable time[] without
charge.” 11 U.S.C. § 107(b)(1). The exception permits a party to seek protection from
this openness for sensitive information, including a “trade secret or confidential research,
development, or commercial information.” 11 U.S.C. § 107(b)(2). The rule does not
establish a privilege, but creates a framework for extending protection to certain sensitive

information filed with the court.

For several reasons, Debtor’s reliance on § 107(b) is misplaced. First, discovery
is generally not filed with the court and is not open to public scrutiny. At best, Debtor’s
argument for protection under § 107(b) is premature. Second, it is undisputed that
FirstMerit has agreed to enter into a protective order with Debtor related to the financial
information. The issue between the parties is the scope of the protection. Finally,
Debtor’s arguments under this section relate specifically to the membership list, not the
financial information. As outlined in section one above, the court will not compel release

of the membership list.
IV. Constitutional protection or privilege

To clarify, Debtor does not dispute that FirstMerit is entitled to financial
information related to its tithes and donations. This is Debtor’s main income stream. The
question is what Debtor must provide: financial information with personal identifiers,
including names, addresses, social security numbers, and bank routing numbers, or a
sanitized version where the confidentiality of the donor is maintained. It is the court’s
understanding that under the sanitized version, each donor would be assigned a unique

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donor number, so the amounts per donor will be available, but no personal information
about the donor.

The scope of discovery is broad, allowing parties to “obtain discovery regarding

any nonprivileged matter that is relevant to any party’s claim or defense... .”
Fed.R.Civ.P. 26(b)(1). More than one bankruptcy court has noted:

The term “privilege” in Fed.R.Civ.P. 26(b) corresponds
to the concept of privilege as developed in the law of
evidence. U.S. v. Reynolds, 345 U.S. 1 (1953), 4 J.
Moore, Moore’s Federal Practice, | 26.60[1] (2d ed.
1984). The burden of establishing the existence of a
privilege rests with the party asserting it. In re Horo-
witz, 482 F.2d 72 (2d Cir. 1973), cert. denied, 414
U.S. 867 (1973) .... “[P]rivilege, in contrast to rele-
vancy is to be construed narrowly.” 4 J. Moore,
Moore’s Federal Practice, { 26.60[1] at 26-188 (2d
ed. 1984); see In re Sealed Case, 676 F.2d 793 (D.C.

Cir. 1982).

In re Contemporary Mission, Inc., 44 B.R. 940, 943 (Bankr. D. Conn. 1984); see also In
re The Bible Speaks, 69 B.R. 643 (Bankr. D. Mass. 1987).

Contemporary Mission involved a discovery request from a church. An
involuntary petition was filed against the church, which argued it was a religious
organization, not a “moneyed, business or commercial corporation” under § 303(a), and
therefore could not be a debtor. The petitioning creditors sought information about the
Contemporary Missions membership, service times, and advertising, apparently to
determine if it was operating as a religious institution. Contemporary Mission asserted a
privilege under the free exercise of religion clause of the First Amendment, which the
court rejected, finding no “cognizable privilege.” Contemporary Mission, 44 B.R. at 944.

The Contemporary Mission decision was based on a Supreme Court opinion that
delineated between “constitutional limitations on the extent to which a civil court may
inquire into and determine matters of ecclesiastical cognizance and polity in adjudicating
intrachurch disputes . . . [from] considerations . . . [of] purely secular disputes between
third parties and a particular defendant, albeit a religious organization, in which fraud,
breach of contract, and statutory violations are alleged.” Id. at 943 (citing Gen. Counsel
on Fin. and Admin. of the United Methodist Church v. Superior Court of California, 439
U.S. 1355, 1372-73 (1978)). The latter did not offend the freedom of religion because the
court was not in a position to promote one religious viewpoint or determine a religious

controversy.

In this regard, Contemporary Mission is analogous to the instant controversy,

5

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involving a dispute amount non-governmental, private entities. This is not a situation
where this Court will become entangled in a doctrinal argument or the promotion of a

religious tenet.

Similarly, The Bible Speaks reaches a parallel conclusion. 69 B.R. 643. In that
case, a former parishioner, who had given more than $6 million dollars to the church,
filed a civil suit with claims including fraud and undue influence. The church objected to
her discovery request, arguing that her requests for specific information on the church’s
beliefs and the advice given to her was privileged. After noting that the religious beliefs
were regularly disseminated in sermons, and that the case did not involve “the real danger
to First Amendment religious freedom—excessive government entanglement in religious
affairs or in the evaluation of religious beliefs,” the court held that “there is no First
Amendment privilege based upon religious freedom in the context of discovery in private
civil litigation.” Id. at 648 (citations omitted). The church had failed to carry its burden

in establishing the privilege.

These cases do not stand for a blanket proposition that a privilege does not exist.
The Bible Speaks case references cases that do find a privilege. See, e.g., Adolph Coors
Co. v. Wallace, 570 F.Supp 202 (N.D. Cal. 1983); Black Panther Party v. Smith, 661 F.2d
1243 (D.C. Cir. 1981), vacated mem. sub. nom., 458 U.S. 1118 (1981); Grinnell v.
Hackett, 22 Fed.R.Serv.2d (Callaghan) 482 (D.R.I. 1976). Rather, the court reads
Contemporary Mission and The Bible Speaks to say that discovery is intended to be
broad, privileges are narrow, and when there is minimal danger to infringing on a First
Amendment right, the burden of establishing a privilege is high.

Not all courts have utilized an identical approach. See, e.g., Christ Covenant
Church v. Town of Southwest Ranches, 2008 WL 2686860 (S.D. Fla. 2008). In Christ
Covenant, the church sought a building permit and the town opposed the request. The
church said that failing to grant the right to expand its facilities imposed on its First
Amendment rights, including freedom of association and religion. The town sought
discovery, including membership lists, “for the purpose of testing the veracity of the
Church’s factual assertions regarding attendance at current programming and
unavailability of facilities for life events.” Id. at * 5. The court set forth the framework
for invoking the privilege related to the freedom of association. To start, the party
asserting the burden must present a “prima facie showing of infringement by the
challenged discovery.” Id. at *6. Once this burden is satisfied, the party seeking
discovery has to demonstrate a compelling need for the discovery, “such that disclosure
of the requested information warrants the infringement of the disclosing party’s First
Amendment rights.” Id. at * 7 (citations omitted). A balancing test is employed for this

segment of the review.

The court finds that Christ Covenant recognizes the better approach considering
the significance of the First Amendment rights involved. Additionally, the balancing test
operates to synthesize this approach with that employed in Contemporary Mission and

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The Bible Speaks. The party from whom discovery is sought must first present a prima
facie case of entitlement to a First Amendment privilege. Once the initial burden is
satisfied, the party seeking discovery must demonstrate a compelling need for the
information. A number of factors can be employed in the balancing test to determine if a

compelling need exists.

This approach also parallels those cases involving governmental actors. For
example, in Baldwin v. Comm’? of Internal Revenue, a minister initiated a tax
redetermination proceeding. 648 F.2d 483 (8" Cir. 1981). The IRS requested
membership and contributor lists from the minister’s church. The request was denied:

In Citizens State Bank, we recognized that the significant
right of freedom of association grounded in the First Amend-
ment may limit IRS access to, among other things, an organi-
zation’s membership and contributor lists. U.S. v. Citizens
State Bank, 612 F.2d 1091, 1093-95 (8" Cir. 1980). Once the
taxpayer makes a prima facie showing that the information
requested arguably infringes on the organization’s First
Amendment rights, the burden shifts to the government to
make an appropriate showing of need for the material. Id. at
1094. We reiterated that disclosure of a group’s membership
lists can be compelled only by a showing that there is a
rational connection between such disclosure and a legitimate
governmental end, and that the governmental interest in the
disclosure is both cogent and compelling. Id. (quoting Pollard
v. Roberts, 283 F.Supp. 248, 256-57 (E.D. Ark.), aff'd 393
USS. 14 (1986).

Id. at 487.!

Debtor has met its initial burden, establishing a prima facie case of a potential
infringement on First Amendment rights, including association and religion. In its
response, it notes the chilling effect release of the personal information of donors could
have on future giving and membership. As Debtor points out, many courts also recognize
the privacy right that goes hand in hand with the freedom of association. NAACP v. Ala.,
357 U.S. 449 (1958). The burden now shifts to FirstMerit to establish a compelling need

for the information.

As previously stated, the financial information is not at issue. It is highly relevant.
What is at issue is the personal information attached to that information, including the
names and addresses of the specific donors. FirstMerit was asked several times during

' This line of cases is illuminating but not dispositive given that it involves state action.

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the hearing for a basis for its request for the personal information and provided no sound
response to the court’s inquiry. Consequently, the court cannot find a compelling need
for the personal information. The court is not thoroughly convinced that the donors’
names meets the relevancy requirement. This is not the same as knowing the name and
address of an account receivable for a commercial enterprise. In that case, the bank may
need the information for collection purposes. In this case, there is no claim of a right to
payment from parishioners that can be coerced in the future. Debtor has offered a
reasonable solution which results in balancing FirstMerit’s need for the information with
protection of information potentially encompassing First Amendment liberties. Giving
each donor a unique number in lieu of a name and address allows for any analysis of the

data that could be performed.

Fear of the consequences of the disclosure of one’s religious
affiliation may be palpable and real at a certain point in his-
tory. There is, therefore, in my view, implicit in the First
Amendment’s guarantee of religious freedom, the right to
choose whether or not to disclose one’s religious affiliation
lest forced disclosure inhibit the free exercise of one’s faith.
I have to believe that, when a person provides her name and
address to a church that has asked her to become a member,
she reasonably expects that her name and address will be
disclosed to other church members, used by the church to in-
vite her to church functions, and used to solicit her contribu-
tions to the church’s financial welfare. There is nothing I
know of in the American experience that suggests to me that
by giving one’s name and address to a church one thereby
agrees to the publication of one’s religious affiliation to the

whole world.

Johnson v. Washington Times Corp., 208 F.R.D. 16, 17 (D.D.C. 2002).

It is important to note that the focus is on the rights of the donor, not the rights of
the church. It is the donors’ rights of affiliation and free exercise that are implicated.
Similarly, Americans normally view it as unconstitutional to deny a criminal defendant a
jury that has been selected without discrimination. Yet the obverse has been held as well.
There is the constitutional right of the juror to participate on a jury without regard to his

or her race. Batson v. Ky., 476 U.S. 79 (1986).

This is not to say that FirstMerit cannot ever have the greater detail that is
requested. They have the right to receive such information based upon particularized
facts setting forth a compelling need. The court can imagine a factual scenario in which
such a request could be justified, but no case has been made thus far.

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An appropriate order will be entered reflecting the decision of the Court.

# # #

SERVICE LIST

David A Mucklow
919 E Turkeyfoot Lake Rd #B
Akron, OH 44312

John F. Kostelnik
Frantz Ward LLP
2500 Key Center

127 Public Square
Cleveland, OH 44114

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