CHURCH ASSOCIATIONS – THE 19TH CENTURY IS OVER

Most denominations, their subdivisions and local churches, generally prove their existence and right to own property by incorporating.  However, while this may be the best practice, it is not the only way.  Indeed, prior to the era of incorporation, most churches were associations of members and most denominations were associations of churches.  While most now have governing documents and corporate documents filed with a regulatory authority, for purposes of real estate ownership if nothing else, that was not always the case even during the latter stages of the Twentieth Century.  One of the reasons the organizational structure of the “association” fell into disuse was because of the need to obtain clear title to own real estate and bank accounts.

In Embassy University v Institute in Basic Life Principles, Inc., 2020 IL App (2d) 191140-U (2020), the trial court dismissed the case because the defendant alleged the Plaintiffs could not prove they were an association, and, indeed, could not prove up their own existence in order to be a party to a lawsuit.  The Plaintiffs were claiming they were part of an association of churches or parachurch organizations and that the defendant owed them a fiduciary duty in the disposition of denominational assets.  Further, to prove the point, the defendants noted that the Plaintiff university’s name was a “DBA” and not the name of the underlying entity.  The appellate court reversed so that through discovery, and if necessary trial, the Plaintiffs could prove they were an association with the defendant imposing on the defendant a fiduciary duty as to denominational assets.

The lesson of history has been that associations have a harder time proving their existence, their governance, who can speak for them, and who can own their property.  The Plaintiffs in the reported case might have an easier time than some because their founder, William Gothard, Ph.D, is still living, well known, even though he had to depart from leadership for a time, and can testify as to the formation of most of the entities.  The Plaintiffs should have incorporated.  It is still the cheapest and tried and true method of becoming an entity that can own property and accounts.

TERMINATION DEFAMATION CLAIMS

In the private secular sector, employers are typically very careful about revealing the reason for termination of an employee except upon service of a subpoena or regulatory order compelling production of the information.  But, there is no Ecclesiastical Abstention Doctrine or Ministerial Exception in the private secular sector so leaked defamatory statements, typically in email, texts, or other digital documents could form the basis for a defamation claim under the right facts.

In Maize v Friendship Community Church, Inc., Slip Op. (Tenn. App., 2020), the pastor was terminated and a group of communications leaked that indicated it was because of an allegedly improper relationship between the pastor and the sound booth operator.  The pastor tried to retain control of the church and the sanctuary building but was ultimately locked out.  Because a wrongful termination claim was not available, the pastor sued claiming that the leaked information regarding the grounds for termination was untrue and defamatory.  The trial court dismissed the case because the termination of a pastor by a church is outside the jurisdiction of the court due to the First Amendment imperatives.  The trial court held also that the allegedly leaked reasons for termination were likewise barred from judicial review by the Ecclesiastical Abstention Doctrine.  The appellate court affirmed.

Defamation claims are sufficiently problematic that only the wealthy can sustain them to any conclusion, but they are rarely won.  In the information drenched society defamatory information may have fifteen minutes of fame and then be forever lost.  Most defamatory information in the information age only migrates from one place to another if someone goes looking for it.  Nevertheless, churches and parachurch organizations should be circumspect regarding termination communications.  Defined precautions as to release of information may also provide a defense in some jurisdictions.  Of course, if the defamatory statement is true, there can be no claim, which may explain why there are so few successful defamation cases.

CHURCH SCHOOL HANDBOOK LITIGATION PRECLUSION CLAUSES

Unlike public schools, private schools in general and church schools specifically, can adopt student handbook clauses that limit the right of students to remain enrolled or re-enroll if their parents or guardians decide to engage in litigation with the school or church.  The reason private schools and church schools can include such a provision is that they are not state actors and no constitutional rights of the student or parent are implicated.  The rights of the private schools and students are contractual at best and the handbook can be part of the contract terms.

In Phillips v Archdiocese of Newark, Slip Op. Unpublished (NJ App., 2020), the parents wanted alleged bullying addressed, demanded one child be named 8th grade class valedictorian, and refused to allow a daughter to play on the boys’ basketball team when insufficient girls volunteered to play preventing team formation.  When their demands were not met, they sued the church and school.  Initially, the children were expelled because of violation of the school handbook litigation preclusion clause but the church and school allowed the students to return.  The trial judge entered an order requiring the school to allow the female student to play on the boys’ basketball team for the remainder of the school year when insufficient players emerged to form a female squad.  A month after the students were allowed back and the judge ordered the student to be allowed to be a player, the parents sought to name eighty members of the school and church as defendants.  The church and school refused to re-enroll the students for the next school year.  It should be noted the church school was a K – 8th grade school.  The trial court refused to order re-enrollment and awarded discovery sanctions against the parents of $16,516 for refusing to answer questions at depositions.

School handbook litigation preclusion clauses are enforceable in many states.  Some courts may attempt to preserve the status quo during the pendency of a case by holding them in abeyance temporarily.  Most will recognize that the litigation has sufficiently disrupted the status quo that preservation is not likely.  Like any regulatory handbook measure, history seems to teach that hesitancy in enforcement merely prolongs the dispute.  Thus, such a clause should be enforced, if it is to be used at all, without delay, second chances or second guessing.

BANKRUPTCY IS NOT ECCLESIASTICAL

In recent years, judgments against churches or denominational level organizations, generally in sexual abuse cases, caused churches and denominations, as well as their insurers, to consider previously unthinkable asset exposure.  When assets cannot be marshalled sufficiently to pay the judgments and preserve the church or denomination as a going concern, other avenues are considered.  One that has been used is bankruptcy.  Unfortunately, bankruptcy is not always a panacea.

In re Roman Catholic Church of the Archdiocese of Santa Fe, Opinion [and Recommendation] (Bkr. D. NM, 2020), the United States Magistrate recommended to the District Judge that the Unsecured Creditors’ Committee be authorized to submit avoidance claims that the Archdiocese, as Debtor in Possession, did not file.  The creditors’ committee alleged that fraudulent transfers were made to a real estate trust, to or among a financial assets trust, or to avoid the parish churches’ claimed interests in property titled in the name of the Archdiocese.  Several years before the bankruptcy petition, the Archdiocese restructured by transferring real estate held in its name to a real estate trust.  Also, much of the real estate was held for the parish churches and actually purchased by the parish churches in prior decades before the parish churches were established as entities such as non-profit corporations.  The federal magistrate noted that some or all of the transactions alleged to be fraudulent might have been made so long ago that the statute of limitations might prohibit further action.  The Archdiocese argued that many of the transfers, especially those involving parish churches, were the result of internal church governance.  The Archdiocese argued the Ecclesiastical Abstention Doctrine would preclude unwinding of those transfers.  The Magistrate recommended the argument be rejected by the District Judge of New Mexico because the bankruptcy code was a Neutral Principle of Law.  The Magistrate recommended that the underlying abuse claims be settled by the Archdiocese and the claimants rather than “millions” of dollars spent resolving fraudulent transfer claims.  The transfers alleged to be fraudulent according to the Magistrate represented $150,000,000 in assets.

The Archdiocese failed to reorganize in the 20th century and the efforts to do so in the 21st century may be judged too late or too suspicious.  The parish churches should have been incorporated, their property should have been titled in the name of the parish church, and warranty deed reservation clauses to the Archdiocese would have probably protected the Archdiocese from defections.  Other church and parachurch organizations should have been formed to fulfill the same function.  In other words, the body should have had many parts by the end of the 20th century.  The lesson should not be lost on other denominations not to repeat the mistake.  The other possible lesson is that bankruptcy protection may sometimes help the claimant more than the respondent, because it forces the respondent to put all of its assets on display.