                       RECOMMENDED FOR FULL-TEXT PUBLICATION
                            Pursuant to Sixth Circuit Rule 206
                                   File Name: 09a0316p.06

               UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT
                                  _________________


                                                    X
                                                     -
 ALICIA M. PEDREIRA; KAREN VANCE; PAUL
                                                     -
 SIMMONS; JOHANNA W.H. VAN WIJK-BOS;
 and ELWOOD STURTEVANT,                              -
                           Plaintiffs-Appellants, -
                                                        No. 08-5538

                                                     ,
                                                      >
                                                     -
                                                     -
            v.
                                                     -
                                                     -
 KENTUCKY BAPTIST HOMES FOR CHILDREN,
 INC.; ISHMUN F. BURKS, Secretary of the             -
                                                     -
                                                     -
 Commonwealth of Kentucky Justice and

 Secretary of the Commonwealth of Kentucky -
 Public Safety Cabinet; and JANIE MILLER,
                                                     -
 Cabinet for Health and Family Services,             -
                          Defendants-Appellees. -
                                                   N
                      Appeal from the United States District Court
                   for the Western District of Kentucky at Louisville.
                 No. 00-00210—Charles R. Simpson III, District Judge.
                                  Argued: March 11, 2009
                           Decided and Filed: August 31, 2009
                                                                                     *
        Before: CLAY and GIBBONS, Circuit Judges; GREER, District Judge.

                                   _________________

                                        COUNSEL
ARGUED:        Alexander Joseph Luchenitser, AMERICANS UNITED FOR
SEPARATION OF CHURCH AND STATE, Washington, D.C., for Appellants.
Jonathan David Goldberg, GOLDBERG SIMPSON, LLC, Louisville, Kentucky, John
O. Sheller, STOLL KEENON OGDEN PLLC, Louisville, Kentucky, for Appellees.
ON BRIEF: Alexander Joseph Luchenitser, Ayesha N. Khan, AMERICANS UNITED
FOR SEPARATION OF CHURCH AND STATE, Washington, D.C., David B.
Bergman, Elizabeth Leise, Alicia A.W. Truman, Joshua P. Wilson, ARNOLD &
PORTER LLP, Washington, D.C., Kenneth Y. Choe, James D. Esseks, AMERICAN
CIVIL LIBERTIES UNION FOUNDATION, New York, New York, David A.


        *
        The Honorable J. Ronnie Greer, United States District Judge for the Eastern District of
Tennessee, sitting by designation.


                                              1
No. 08-5538              Pedreira, et al. v. Kentucky Baptist Homes                               Page 2
                         for Children, et al.


Friedman, William E. Sharp, AMERICAN CIVIL LIBERTIES UNION OF
KENTUCKY, Louisville, Kentucky, Daniel Mach, AMERICAN CIVIL LIBERTIES
UNION PROGRAM ON FREEDOM OF RELIGION & BELIEF, Washington, D.C.,
for Appellants. Jonathan David Goldberg, GOLDBERG SIMPSON, LLC, Louisville,
Kentucky, John O. Sheller, Jeffrey A. Calabrese, STOLL KEENON OGDEN PLLC,
Louisville, Kentucky, Patrick T. Gillen, Ann Arbor, Michigan, Timothy J. Tracey,
CENTER FOR LAW & RELIGIOUS FREEDOM, Springfield, Virginia, LaDonna Lynn
Koebel, Josua C. Billings, COMMONWEALTH OF KENTUCKY, Frankfort, Kentucky,
for Appellees. Steven W. Fitschen, THE NATIONAL LEGAL FOUNDATION,
Virginia Beach, Virginia, Edward L. White III, THE AMERICAN CENTER FOR LAW
& JUSTICE, Ann Arbor, Michigan, for Amici Curiae.
                                         _________________

                                               OPINION
                                         _________________

         JULIA SMITH GIBBONS, Circuit Judge. Plaintiffs-appellants Alicia M.
Pedreira, Karen Vance, and several Kentucky taxpayers1 appeal the district court’s
dismissal of their claims against defendants-appellees Kentucky Baptist Homes for
Children, Inc. (“KBHC”); Ishmun F. Burks, Secretary of the Commonwealth of
Kentucky Justice and Public Safety Cabinet; and Janie Miller, Secretary of the
Commonwealth of Kentucky Cabinet for Health and Family Services.2 Pedreira and
Vance brought suit against KBHC for its policy of firing and not hiring gay and lesbian
employees, alleging discrimination under Title VII of the Civil Rights Act of 1964
(“Title VII”) and the Kentucky Civil Rights Act, and the plaintiffs brought suit against
all defendants for violations of the Establishment Clause of the First Amendment. The
United States District Court for the Western District of Kentucky granted KBHC’s
motion to dismiss the employment discrimination claims and, in a subsequent order,



         1
             On appeal, the taxpayers are Paul Simons, Johanna W.H. Van Wijk-Bos, and Elwood Sturtevant.
         2
          The plaintiffs originally sued Robert Stephens in his official capacity as the Secretary for the
Commonwealth of Kentucky Justice Department and Viola P. Miller in her official capacity as the
Secretary for the Commonwealth of Kentucky Cabinet for Families and Children. The Cabinet for
Families and Children has since been merged with the Cabinet for Health Services to create the Cabinet
for Health and Family Services, and the Justice Department has become the Justice and Public Safety
Cabinet. Pursuant to Federal Rule of Appellate Procedure 43(c)(2), Ishmun F. Burks and Janie Miller are
automatically substituted for former Secretaries Stephens and Miller.
No. 08-5538         Pedreira, et al. v. Kentucky Baptist Homes                         Page 3
                    for Children, et al.


dismissed the plaintiffs’ First Amendment claims against all defendants because it
concluded that the plaintiffs did not have standing.

        For the reasons that follow, we affirm the dismissal of the plaintiffs’ employment
discrimination claims, but we reverse the dismissal of the plaintiffs’ First Amendment
claims and remand them for further proceedings.

                                              I.

        KBHC is funded by Kentucky for its participation in the “Alternatives for
Children Program,” which provides placement resources for children who have been, or
are at risk of being, abused or neglected. In 1998, plaintiff Alicia Pedreira was
terminated from her job as a Family Specialist at Spring Meadows Children’s Home, a
facility owned and operated by KBHC, when members of KBHC’s management
discovered a photograph at the Kentucky State Fair of Pedreira and her female partner
at an AIDS fundraiser. Pedreira’s termination notice indicated that she was fired
“because her admitted homosexual lifestyle is contrary to Kentucky Baptist Homes for
Children core values.” After her termination, KBHC announced as official policy that
“[i]t is important that we stay true to our Christian values. Homosexuality is a lifestyle
that would prohibit employment.”

        Karen Vance is a social worker from the Louisville area. She would have applied
for positions at KBHC, but because she is a lesbian, she felt that it was futile to apply
due to KBHC’s formal and well-publicized policy prohibiting gays and lesbians from
employment. In 2000, Pedreira and Vance brought suit against KBHC alleging
violations of Title VII and the Kentucky Civil Rights Act in terminating and refusing to
hire gay and lesbian employees.

        This employment discrimination suit was consolidated with an action brought by
Pedreira and Vance, joined by six Kentucky taxpayers,3 against all defendants alleging


        3
          The original taxpayer plaintiffs were Paul Simmons, Johanna W.H. Van Wijk-Bos, Elwood
Sturtevant, Bob Cunningham, Jane Doe, and James Doe.
No. 08-5538        Pedreira, et al. v. Kentucky Baptist Homes                       Page 4
                   for Children, et al.


violations of the Establishment Clause.       The plaintiffs claimed that KBHC is a
pervasively sectarian institution that uses state and federal funds for the religious
indoctrination of children. According to the plaintiffs, KBHC has received more than
$100 million in state government funds since 2000. KBHC acknowledges that it has
received an average of $12.5 million per year from Kentucky over the last decade,
bringing the amount to approximately $125 million. Drawing on legislative documents
and budget reports, the plaintiffs contend that Kentucky, in particular the Secretaries of
the Justice and Public Safety Department and the Cabinet for Health and Family
Services, are aware that state money is funding religious indoctrination.

       The plaintiffs presented the following evidence of KBHC’s sectarian mission.
In its annual report, KBHC’s president announced: “We know that no child’s treatment
plan is complete without opportunities for spiritual growth. The angels rejoiced last year
as 244 of our children made decisions about their relationships with Jesus Christ.” He
further committed resources to KBHC’s religious goals: “[W]e are committed to hiring
youth ministers in each of our regions of service to direct religious activities and offer
spiritual guidance to our children and families.” In its news release, KBHC’s president
said that KBHC’s “mission is to provide care and hope for hurting families through
Christ-centered ministries. I want this mission to permeate our agency like the very
blood throughout our bodies. I want to provide Christian support to every child, staff
member, and foster parent.” KBHC displays religious iconography throughout its
facilities, leads group prayer before meals and during staff meetings, and requires its
employees to incorporate its religious tenets in their behavior. Kentucky contracted with
a private company to conduct reviews of KBHC’s facilities. These reviews contain 296
interview responses from youth describing KBHC’s religious practices as coercive.

       The defendants filed a series of dispositive motions. The district court granted
KBHC’s motion to dismiss Pedreira’s and Vance’s claims of employment
discrimination, finding that sexual orientation is not a protected class under either Title
VII or the Kentucky Civil Rights Act and that Pedreira and Vance had failed to show
that they had been discriminated against because of their refusal to comply with KBHC’s
No. 08-5538        Pedreira, et al. v. Kentucky Baptist Homes                       Page 5
                   for Children, et al.


religion. Pedreira v. Ky. Baptist Homes for Children, Inc., 186 F. Supp. 2d 757, 762
(W.D. Ky. 2001) (“Pedreira I”). The district court denied the defendants’ motion for
summary judgment on the First Amendment allegations, finding that the plaintiffs had
adequately asserted that funding to KBHC has the impermissible effect of advancing
religion and therefore violates the Establishment Clause. Id. at 764. The district court
denied the plaintiffs’ motion for reconsideration. The plaintiffs filed interlocutory
appeals for the dismissal of the employment discrimination claims, but the appeals were
dismissed for lack of appellate jurisdiction. Pedreira v. Ky. Baptist Homes for Children,
Inc., No. 3:00CV-210-S, 2007 WL 316992, at *1 (W.D. Ky. Jan. 29, 2007) (“Pedreira
II”).

        In 2003, the defendants moved for judgment on the pleadings pursuant to Federal
Rule of Civil Procedure 12(c), challenging the plaintiffs’ standing to bring allegations
of violations of the Establishment Clause. The district court found that the plaintiffs had
sufficiently alleged taxpayer standing and denied the defendants’ motion. Pedreira v.
Ky. Baptist Homes for Children, Inc., No. 3:00CV-210-S, slip op. at 3 (W.D. Ky. Apr.
16, 2003) (“Pedreira III”). The district court also permitted the plaintiffs to file an
amended complaint. Id.

        In 2006, after mediation was attempted and failed, the plaintiffs sought to file a
second amended complaint, asserting that KBHC is a state actor and suggesting a new
theory of recovery. Pedreira II, 2007 WL 316992, at *2. The district court denied the
motion, finding that allowing the plaintiffs’ amendment would cause prejudice to the
defendants and an imposition on the court’s resources. Id.

        The parties then filed a new round of motions. The defendants submitted, inter
alia, two subsequent motions to dismiss for lack of subject matter jurisdiction; the
plaintiffs submitted, inter alia, another motion for leave to file a second amended
complaint and a motion for a hearing on the motions. Pedreira v. Ky. Baptist Homes for
Children, 553 F. Supp. 2d 853, 854 (W.D. Ky. 2008) (“Pedreira IV”). The district court
found that the Supreme Court’s recent opinion in Hein v. Freedom From Religion
No. 08-5538         Pedreira, et al. v. Kentucky Baptist Homes                        Page 6
                    for Children, et al.


Foundation, Inc., 551 U.S. 587 (2007), narrowed taxpayer standing and granted the
defendants’ motion to dismiss for lack of standing that was previously denied. Pedreira
IV, 553 F. Supp. 2d at 856.

        The plaintiffs appealed to this court. The National Legal Foundation and the
American Center for Law & Justice submitted amicus briefs in support of the
defendants.

                                             II.

A.      Employment Discrimination

        We review a district court’s grant of a motion to dismiss de novo. See Mezibov
v. Allen, 411 F.3d 712, 716 (6th Cir. 2005). We must construe the complaint in the light
most favorable to the plaintiffs and accept all allegations as true. See Harbin-Bey v.
Rutter, 420 F.3d 571, 575 (6th Cir. 2005). However, “[f]actual allegations must be
enough to raise a right to relief above the speculative level” and to “state a claim to relief
that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007).
In considering a motion to dismiss, we generally look only to the plaintiffs’ complaint.
See Winget v. JP Morgan Chase Bank, N.A., 537 F.3d 565, 576 (6th Cir. 2008).

        Pedreira brought suit against KBHC pursuant to the Kentucky Civil Rights Act
(“KCRA”). Vance joined in the KCRA suit against KBHC and additionally alleged
violations of Title VII. Vance claims that there are positions open at KBHC for which
she is qualified, but she has not applied due to KBHC’s policy against hiring gay and
lesbian employees. However, Vance has not applied for the job and thus has not shown
that her failure to be hired is due to her sexual orientation. Unlike Pedreira, Vance’s
injury is purely speculative as she has not carried her burden of showing “actions taken
by the employer from which one can infer, if such actions remained unexplained, that
it is more likely than not that such actions were ‘based on a discriminatory criterion
illegal under [Title VII or the KCRA].’” Furnco Constr. Corp. v. Waters, 438 U.S. 567,
576 (1978) (quoting Int’l Bhd. of Teamsters v. United States, 431 U.S. 324, 358 (1977)).
No. 08-5538          Pedreira, et al. v. Kentucky Baptist Homes                      Page 7
                     for Children, et al.


She has not established standing to bring a Title VII or KCRA claim against KBHC, and
we therefore analyze the employment discrimination claims with respect to Pedreira
only. Because Pedreira brought a claim under the KCRA only, we dismiss all Title VII
allegations against KBHC.

          Because the purpose of the KCRA was “[t]o provide for execution within the
state of the policies embodied in [Title VII],” Ky. Rev. Stat. § 344.020(1)(a), we apply
Title VII precedent to assess Pedreira’s claim under the KCRA. See Hamilton v. Gen.
Elec. Co., 556 F.3d 428, 434 (6th Cir. 2009); Smith v. Leggett Wire Co., 220 F.3d 752,
758 (6th Cir. 2000). The parties do not dispute that the KCRA does not prohibit
discriminatory acts based on an employee’s sexual orientation. See Ky. Rev. Stat.
§ 344.040; see also 42 U.S.C. § 2000e-2(a)(1); Vickers v. Fairfield Med. Ctr., 453 F.3d
757, 762 (6th Cir. 2006). The issue on appeal is whether the plaintiffs’ claim is covered
by the KCRA’s prohibition against employment discrimination on account of religion.
See Ky. Rev. Stat. § 344.040; see 42 U.S.C. § 2000e-2(a). Courts have interpreted the
prohibition to preclude employers from discriminating against an employee because of
the employee’s religion as well as because the employee fails to comply with the
employer’s religion. See, e.g., Hall v. Baptist Mem’l Health Care Corp., 215 F.3d 618,
624 (6th Cir. 2000) (explaining that Title VII’s scope “include[s] the decision to
terminate an employee whose conduct or religious beliefs are inconsistent with those of
its employer”); Blalock v. Metals Trades, Inc., 775 F.2d 703, 708-09 (6th Cir. 1985).
Seizing on this latter interpretation, Pedreira argues that living openly as a lesbian
constitutes not complying with her employer’s religion. Pedreira claims that she was
terminated because she does not hold KBHC’s religious belief that homosexuality is
sinful.

          Both parties extensively briefed the issue of whether Pedreira established a prima
facie case of discrimination. The defendants urge us to apply the traditional McDonnell
Douglas framework to Pedreira’s claim, while Pedreira argues that we should treat this
case as similar to reverse race and sex discrimination cases and view the “protected
class” inquiry as inapposite. See Noyes v. Kelly Servs., 488 F.3d 1163, 1168 (9th Cir.
No. 08-5538         Pedreira, et al. v. Kentucky Baptist Homes                         Page 8
                    for Children, et al.


2007) (finding the “protected class” element inapplicable for reverse religious
discrimination claims); Shapolia v. Los Alamos Nat’l Lab., 992 F.2d 1033, 1038 (10th
Cir. 1993) (“Where discrimination is not targeted against a particular religion, but
against those who do not share a particular religious belief, the use of the protected class
factor is inappropriate.”). On a motion to dismiss, however, these arguments are
premature. “The prima facie case under McDonnell Douglas . . . is an evidentiary
standard, not a pleading requirement.” Swierkiewicz v. Sorema N.A., 534 U.S. 506, 510
(2002). Thus, “the ordinary rules for assessing the sufficiency of a complaint apply.”
Id. at 511; see Lindsay v. Yates, 498 F.3d 434, 439 (6th Cir. 2007) (noting
Swierkiewicz’s holding that “an employment-discrimination plaintiff satisfies her
pleading burden by drafting a short and plain statement of the claim consistent with
Federal Rule of Civil Procedure 8(a).” (internal quotation marks omitted)). We therefore
look to see whether Pedreira has sufficiently pled “a claim to relief that is plausible on
its face.” Twombly, 550 U.S. at 570.

        It is undisputed that KBHC fired Pedreira on account of her sexuality. However,
Pedreira has not explained how this constitutes discrimination based on religion.
Pedreira has not alleged any particulars about her religion that would even allow an
inference that she was discriminated against on account of her religion, or more
particularly, her religious differences with KBHC. “To show that the termination was
based on her religion, [the plaintiff] must show that it was the religious aspect of her
[conduct] that motivated her employer’s actions.” Hall, 215 F.3d at 627. Furthermore,
Pedreira does not allege that her sexual orientation is premised on her religious beliefs
or lack thereof, nor does she state whether she accepts or rejects Baptist beliefs. While
there may be factual situations in which an employer equates an employee’s sexuality
with her religious beliefs or lack thereof, in this case, Pedreira has “failed to state a claim
upon which relief could be granted.” Amadasu v. Christ Hosp., 514 F.3d 504, 506-07
(6th Cir. 2008); see Vickers, 453 F.3d at 763 (dismissing a complaint of discrimination
on the basis of sexual orientation for failure to state a claim under Title VII).
No. 08-5538         Pedreira, et al. v. Kentucky Baptist Homes                        Page 9
                    for Children, et al.


        We therefore affirm the dismissal of Vance’s and Pedreira’s claims for violations
of the KCRA.

B.      Establishment Clause

                                             1.

        The threshold issue for the plaintiffs’ First Amendment claims is whether they
have standing, defined as whether they have “allege[d] personal injury fairly traceable
to the defendant’s allegedly unlawful conduct and likely to be redressed by the requested
relief.” Hein, 551 U.S. at 598 (quoting Allen v. Wright, 468 U.S. 737, 751 (1984)). The
plaintiffs have alleged standing as both federal and state taxpayers, both of which were
denied by the district court. We review de novo a district court’s determination of
standing. See Schultz v. United States, 529 F.3d 343, 349 (6th Cir. 2008). In reviewing
a determination of standing, we consider the complaint and the materials submitted in
connection with the issue of standing. See Warth v. Seldin, 422 U.S. 490, 501 (1975).

        The plaintiffs also appeal the district court’s denial of their motion for leave to
submit a second amended complaint and urge us to consider the information in their
second amended complaint in determining standing. To the extent that the plaintiffs’
second amended complaint contains new legal arguments and additional theories for
recovery, the district court did not err in denying the plaintiffs’ motion. Although
district courts “should freely give leave [to a party to amend its pleadings] when justice
so requires,” Fed. R. Civ. P. 15(a)(2), district courts can exercise their discretion to deny
a motion for leave to amend based on “undue delay, bad faith or dilatory motive . . . [or]
futility of amendment.” Prater v. Ohio Educ. Ass’n, 505 F.3d 437, 445 (6th Cir. 2007)
(quoting Foman v. Davis, 371 U.S. 178, 182 (1962) (alterations in original)). Noting
that the case had been pending in district court for almost seven years when the plaintiffs
sought to file a second amended complaint, the district court found undue delay and
denied their motion. We find that the district court did not abuse its discretion in
denying the plaintiffs’ motion to the extent that it contained novel substantive
arguments. See Miller v. Admin. Office of Courts, 448 F.3d 887, 898 (6th Cir. 2006).
No. 08-5538        Pedreira, et al. v. Kentucky Baptist Homes                      Page 10
                   for Children, et al.


       The district court also denied the plaintiffs’ amendments clarifying their standing
arguments. In determining standing, the district court properly considered the proposed
amendments to the complaint “in order to ensure that [it] consider[ed] and addresse[d]
fulsomely the standing arguments.” Pedreira IV, 553 F. Supp. 2d at 854-55. Finding
that the proposed amendments still would not suffice to demonstrate standing, the district
court denied the plaintiffs’ motion for leave to amend their complaint. When a motion
for leave is denied because the amended complaint would not withstand a motion to
dismiss, we review the judgment of the district court de novo because the decision was
based on a legal conclusion. See Total Benefits Planning Agency, Inc. v. Anthem Blue
Cross & Blue Shield, 552 F.3d 430, 437 (6th Cir. 2008). In determining whether the
district court correctly found that the plaintiffs’ amendments were insufficient to
establish standing, we will consider the plaintiffs’ amendments in the second amended
complaint and the related exhibits as they relate to standing only.

(a.) Federal Taxpayer Standing

       Generally, individuals lack standing when their only interest in the matter is as
a taxpayer. Frothingham v. Mellon, 262 U.S. 447, 485-86 (1923). After forty-five years
of “an impenetrable barrier” to taxpayer standing, the Supreme Court announced a
narrow exception for the plaintiffs who could show that their alleged injury satisfies the
following two-part test:

       First, the taxpayer must establish a logical link between that [taxpayer]
       status and the type of legislative enactment attacked. Thus, a taxpayer
       will be a proper party to allege the unconstitutionality only of exercises
       of congressional power under the taxing and spending clause of Art. I,
       [§] 8, of the Constitution. It will not be sufficient to allege an incidental
       expenditure of tax funds in the administration of an essentially regulatory
       statute. . . . Secondly, the taxpayer must establish a nexus between that
       status and the precise nature of the constitutional infringement alleged.
       Under this requirement, the taxpayer must show that the challenged
       enactment exceeds specific constitutional limitations imposed upon the
       exercise of the congressional taxing and spending power and not simply
       that the enactment is generally beyond the powers delegated to Congress
       by Art. I, [§] 8.
No. 08-5538         Pedreira, et al. v. Kentucky Baptist Homes                     Page 11
                    for Children, et al.


Flast v. Cohen, 392 U.S. 83, 102-03 (1968). The Supreme Court reaffirmed that
individuals could not use their status as federal taxpayers to bring general grievances to
court but held that taxpayers “will have standing consistent with Article III to invoke
federal judicial power when [they] allege[] that congressional action under the taxing
and spending clause is in derogation of those constitutional provisions which operate to
restrict the exercise of the taxing and spending power.” Id. at 105-06. In Hein, the
Supreme Court confirmed that the nexus had to be between the taxpayer and a legislative
action, clarifying that the exception articulated in Flast does not apply “to a purely
discretionary Executive Branch expenditure.” 551 U.S. at 615. Nevertheless, taxpayers
still have standing to challenge legislative disbursements over which agencies have
executive discretion. See Bowen v. Kendrick, 487 U.S. 618-19 (1988).

        The plaintiffs claim in their complaint that they have standing as federal
taxpayers. In their amended complaint, they refer to the Kentucky statutes authorizing
the funding of services such as KBHC. However, nowhere in the record before the
district court did the plaintiffs explain what the nexus is between their suit and a federal
legislative action. The district court found that the plaintiffs’ allegations were more akin
to those in Hein, which raised a general Establishment Clause challenge to federal
agencies’ use of federal money to promote the President’s faith-based initiatives. 551
U.S. at 595-96. Relying on Hein’s analysis, the district court similarly dismissed the
plaintiffs’ claims because they “fail[] to allege any particular appropriation, and thus
obviously also fail[] to allege any legislative action.” Pedreira IV, 553 F. Supp. 2d at
861. The plaintiffs sought leave to file a second amended complaint that added
references to state and federal funding provisions in support of standing. The district
court denied their motion but found that even if it had considered the new complaint,
their “additional allegations do not save the claim.” Id.

        On appeal, the plaintiffs refer to the same state and federal provisions to support
standing as they presented to the district court in their proffered second amended
complaint. Looking at the record that was before the district court, we find that the
plaintiffs have not alleged a sufficient nexus to show federal taxpayer standing. Even
No. 08-5538         Pedreira, et al. v. Kentucky Baptist Homes                     Page 12
                    for Children, et al.


considering the proposed second amended complaint, as the district court did, the
question before us is whether the plaintiffs’ invocation of Social Security Act’s Title IV-
E and Supplemental Security Income programs, codified at 42 U.S.C. §§ 670-679b and
42 U.S.C. §§ 1381-1383f, respectively, as congressional authorization of funds to KBHC
satisfies Flast. Various statutes governing these programs authorize federal funding for
states to provide foster care and maintenance for children. See 42 U.S.C. §§ 670-679b.
Under a complex statutory scheme, states are entitled to payments for childcare,
including for child placement services such as those provided by KBHC. See 42 U.S.C.
§ 674(a)(3). Drawing on the fact that federal funds from these programs are regularly
funneled to service providers in Kentucky, the plaintiffs argue that these programs are
specific legislative actions for purposes of satisfying the first prong of the Flast test.

        Even though the plaintiffs refer to specific federal programs and specific portions
of these programs, they have failed to explain how these programs are related to the
alleged constitutional violation. These statutes are general funding provisions for
childcare; they do not contemplate religious indoctrination. The plaintiffs respond that
the statutes do not forbid unconstitutional uses of these funds. A failure to prohibit
unconstitutionality, however, does not equate to an unconstitutional congressional
funding mandate. While the plaintiffs do challenge congressional legislation, as required
by Flast, 392 U.S. at 102, the plaintiffs’ claims are simply too attenuated to form a
sufficient nexus between the legislation and the alleged violations. Compare with
Bowen, 487 U.S. at 620 (finding that the plaintiffs had alleged a sufficient nexus between
the specific legislative action of the Adolescent Family Life Act and alleged violations
of the religious clauses of the First Amendment).

(b.) State Taxpayer Standing

        As with federal taxpayer standing, the plaintiffs must demonstrate “a good-faith
pocketbook” injury to demonstrate state taxpayer standing. See Doremus v. Bd. of Educ.
of Borough of Hawthorne, 342 U.S. 429, 434 (1952); Taub v. Kentucky, 842 F.2d 912,
No. 08-5538            Pedreira, et al. v. Kentucky Baptist Homes                                Page 13
                       for Children, et al.


918 (6th Cir. 1988). The defendants argue that the plaintiffs must also show a nexus.
Each requirement will be addressed in turn.

         i. Injury

         The plaintiffs point to the alleged $100 million received by KBHC from
Kentucky as the requisite “pocketbook” injury. Doremus, 342 U.S. at 434. The
Kentucky legislature established a regulatory structure to authorize the placement of
children with private facilities. See, e.g., Ky. Rev. Stat. § 200.115, § 605.090(1)(d).
According to the plaintiffs, Kentucky was well aware that it was funding KBHC and that
its funds were used to finance religious activity. Defendants former Secretary of the
Justice Cabinet and former Secretary of the Cabinet for Families and Children attempted
to terminate the contractual relationship between KBHC and Kentucky because they
were worried about the state “endorsing – or at least through our funding – giving some
sort of state sanction to a religious practice.” Pointing to material submitted by KBHC,
the plaintiffs show that the Kentucky legislature itself was aware that it was funding
KBHC when it issued a legislative citation thanking KBHC for its work with children.
Ky. H.R. Jour., 2006 Reg. Sess. No. 57, Mar. 24, 2006, Legislative Citation No.
142. Furthermore, the Kentucky legislature also appropriated sums of money
specifically to KBHC. 2005 Ky. Laws Ch. 173 (HB 267) (H)(10)(5), available at
http://www.lrc.ky.gov/record/05RS/HB267.htm. Unlike in the federal taxpayer analysis,
the plaintiffs have alleged a “concrete and particularized” injury. DaimlerChrysler
Corp. v. Cuno, 547 U.S. 332, 344 (2006) (quoting Lujan v. Defenders of Wildlife, 504
U.S. 555, 560 (1992)). These legislative acts show a direct injury to the plaintiffs, as
their tax money is funding KBHC and constitutes “lost revenue.” Johnson v. Econ. Dev.
Corp. of County of Oakland, 241 F.3d 501, 507 (6th Cir. 2001).4

         4
           The district court initially found that the plaintiffs had established standing by demonstrating
that KBHC received federal and state funds and alleging that KBHC was a pervasively sectarian
institution. Pedreira III, slip op. at 3. The district court reconsidered its decision in light of Hein and
found that the plaintiffs did not have standing. However, Hein did not change the standards for standing.
As the Supreme Court announced:
         Over the years, Flast has been defended by some and criticized by others. But the
         present case does not require us to reconsider that precedent. The Court of Appeals did
No. 08-5538            Pedreira, et al. v. Kentucky Baptist Homes                                  Page 14
                       for Children, et al.


         ii. Nexus

         The defendants cite a Seventh Circuit decision to show that at least one court has
required a demonstration of nexus for state taxpayer standing. Hinrichs v. Speaker of
House of Representatives of Ind. Gen. Assembly, 506 F.3d 584, 598 (7th Cir. 2007). In
response, the plaintiffs rely on Supreme Court and Sixth Circuit cases to argue that they
do not have to satisfy the Flast nexus test to establish state taxpayer standing. See
Johnson, 241 F.3d at 507 (rejecting defendants’ argument that state taxpayers must show
a nexus to satisfy the standing requirement). They contend that alleging a direct injury
is sufficient. See Doremus, 342 U.S. at 434.

         As previously noted by this court, “[v]ery few cases have dealt with state
taxpayer standing as it relates to the Establishment Clause.” Johnson, 241 F.3d at 507.
Furthermore, this court has not addressed state taxpayer standing at all since the
Supreme Court’s decisions in DaimlerChrysler or Hein. In DaimlerChrysler, the
Supreme Court confirmed that the logic and reasoning of the standing analysis for
federal taxpayers extends to state taxpayers. 547 U.S. at 345. Nevertheless, the
Supreme Court did not apply the Flast nexus requirement in DaimlerChrysler. See id.
Instead, the Supreme Court applied the injury requirement, which has always been
applicable to both federal and state taxpayers, and found that the plaintiffs did not
sufficiently plead an injury: “We then reiterate[d] what we had said in rejecting a federal
taxpayer challenge to a federal statute ‘as equally true when a state Act is assailed: The
[taxpayer] must be able to show . . . that he has sustained . . . some direct injury . . . and



         not apply Flast; it extended Flast. It is a necessary concomitant of the doctrine of stare
         decisis that a precedent is not always expanded to the limit of its logic. That was the
         approach that then-Justice Rehnquist took in his opinion for the Court in Valley Forge,
         and it is the approach we take here. We do not extend Flast, but we also do not overrule
         it. We leave Flast as we found it.
Hein, 551 U.S. at 614-15. As this court recently stated in rejecting a similar attempt to use Hein to limit
taxpayer standing, Hein “did not erect a new barrier to taxpayer suits; it marked the boundaries of an
existing exception to the rule against federal and state taxpayer standing.” Am. Athiests, Inc. v. City of
Detroit Downtown Dev. Auth., 567 F.3d 278, 285-86 (6th Cir. 2009). Because Hein explicitly refused to
alter the standards for taxpayer standing, there is no reason for the district court to have interpreted Hein
to change the requirements for standing. As the district court initially found, the plaintiffs have
demonstrated sufficient injury to plead taxpayer standing.
No. 08-5538        Pedreira, et al. v. Kentucky Baptist Homes                     Page 15
                   for Children, et al.


not merely that he suffers in some indefinite way in common with people generally.”
Id. (internal quotation marks and citations omitted) (alterations in original).

       Noting that no Supreme Court or Sixth Circuit case has applied the nexus test to
analyze state taxpayer standing, even while discussing the similarities of the two
analyses, we decline to find that Hein overrules our precedent that specifically instructs
that nexus is unnecessary in state taxpayer cases. See Johnson, 241 F.3d at 507.

       Even if there were a nexus requirement, the plaintiffs have sufficiently
demonstrated a link between the challenged legislative actions and the alleged
constitutional violations, namely that Kentucky’s statutory funding for neglected
children in private childcare facilities knowingly and impermissibly funds a religious
organization. As discussed above, the plaintiffs have pointed to Kentucky statutory
authority, legislative citations acknowledging KBHC’s participation, and specific
legislative appropriations to KBHC. Through these specifications, the plaintiffs have
demonstrated a nexus between Kentucky and its allegedly impermissible funding of a
pervasively sectarian institution. See Ams. United for Separation of Church & State v.
Sch. Dist. of City of Grand Rapids, 718 F.2d 1389, 1416 (6th Cir. 1983) (“Had plaintiffs
challenged the constitutionality of these [state] legislative enactments, they may possibly
have invoked taxpayer standing . . . .”). This case thus falls squarely within the line of
cases where the Supreme Court and our sister circuits have upheld taxpayer standing
when grants, contracts, or other tax-funded aid are provided to private religious
organizations pursuant to explicit legislative authorization. See, e.g., Bowen, 487 U.S.
at 619-20; Flast, 392 U.S. at 103-04; Freedom from Religion Found., Inc. v. Bugher, 249
F.3d 606, 609-10 (7th Cir. 2001); DeStefano v. Emergency Hous. Group, Inc., 247 F.3d
397, 403-05 (2d Cir. 2001); Lamont v. Woods, 948 F.2d 825, 829-31 (2d Cir. 1991);
Pulido v. Bennett, 860 F.2d 296, 297-98 (8th Cir. 1988). Finding that the plaintiffs have
sufficiently demonstrated standing as state taxpayers, we reverse the judgment of the
No. 08-5538             Pedreira, et al. v. Kentucky Baptist Homes                                  Page 16
                        for Children, et al.


district court.5 To the extent that the second amended complaint and supporting
documents clarified the plaintiffs’ standing arguments, we reverse the district court’s
denial of the plaintiffs’ motion for leave to amend with respect to the amendments
regarding standing only.

                                                     2.

         The plaintiffs also claim that the district court erred in prohibiting them from
presenting evidence related to Pedreira’s termination in support of their First
Amendment claim. The district court dismissed Pedreira’s and Vance’s employment
discrimination claims and also dismissed the portion of the plaintiffs’ First Amendment
claims that was grounded on Pedreira’s termination. To the extent that the plaintiffs
seek to restate Pedreira’s employment discrimination claim as a constitutional one, we
affirm the judgment of the district court. The termination of Pedreira based on her
sexual orientation is not a violation of the Establishment Clause because, as noted above,
she has not established discrimination based on religion.

         However, the fact that Pedreira has not presented an employment discrimination
claim based on her termination does not mean that KBHC’s hiring practices are not
relevant for the First Amendment inquiry. In fact, courts routinely look to employment
policies to shed light on the sectarian nature of an institution for purposes of the
Establishment Clause. See, e.g., Roemer v. Bd. of Public Works of Md., 426 U.S. 736,
757 (1976); Comm. for Pub. Educ. & Religious Liberty v. Nyquist, 413 U.S. 756, 767-68
(1973); Hunt v. McNair, 413 U.S. 734, 743-44 (1973); Johnson, 241 F.3d at 504-05; see
also Columbia Union Coll. v. Clarke, 159 F.3d 151, 163 (4th Cir. 1998) (adopting a
four-factor test based on Supreme Court precedent for the determination of whether a
school is pervasively sectarian for First Amendment purposes that includes “how much


         5
           The American Center for Law and Justice argues in its amicus brief that interests of federalism
and separation of powers counsel against finding standing. These concerns are taken into consideration
by the strict requirement for taxpayer standing. As the amicus brief itself notes, “[r]equiring a distinct and
palpable injury for state taxpayers comports with notions of federalism that are central to our system of
government.” Colo. Taxpayers Union, Inc. v. Romer, 963 F.2d 1394, 1402 (10th Cir. 1992). The plaintiffs
have met this high burden and thus established state taxpayer standing.
No. 08-5538            Pedreira, et al. v. Kentucky Baptist Homes                                 Page 17
                       for Children, et al.


do the religious preferences shape the . . . hiring and student admission processes” as a
factor). KBHC concedes that its policy of firing and not hiring gays and lesbians is
religiously inspired. Although a religiously inspired employee conduct rule is not
sufficient to constitute discrimination on the basis of religion, it is relevant to an inquiry
under the Establishment Clause. We thus reverse the district court’s dismissal of this
portion of the plaintiffs’ First Amendment claim to the extent that it prohibits plaintiffs
from presenting evidence of KBHC’s hiring practices.6

                                                   III.

         For the foregoing reasons, we affirm the dismissal of the plaintiffs’ employment
discrimination claims and reverse and remand for further proceedings the plaintiffs’ First
Amendment claims.




         6
          The defendants have not appealed the denial of their motion for summary judgment. Now that
the dismissal of the plaintiffs’ claims is reversed, the plaintiffs may proceed with their claims on remand.
