NON-PROPERTY CHURCH SPLITS

When a church fight spills into the street, and by the time the matter reaches court, usually all that is left is the dispute over control of the church assets and especially its land. Buildings and land have most of the secular value. However, if a church split reaches court before the spiritual issues are stripped away, a court is unlikely to intervene.

In the Texas Court of Appeals, 7th District, the case of In Re Jorge Torres and Templo Bautista, Slip Op. (Tex. Civ. App. 7th, 2019) is unusual because none of the allegations concerned the church property. The trial court originally granted a Plea to the Jurisdiction on Ecclesiastical Abstention Doctrine grounds, dismissing the case, but later reconsidered the decision to dismiss. That might have led to discovery through document demands and depositions. It might have ended by summary judgment. Or, it might have led to an actual trial before the bench or a jury. However, the case was taken by one party to the appellate level seeking a writ of mandamus to order the trial court to reinstate its original decision dismissing the case. The appellate court granted the writ ordering the trial court to dismiss the case. The appellate court noted that although the litigants alluded to the church property, all their claims were regarding alleged impropriety in selecting a pastor and excluding dissenting members. Such issues are almost uniformly beyond resolution by a court because of the entanglement with ecclesiastical issues that is nearly always unavoidable.

As we have often seen in these reports, a church fighting over who should lead it might still be a living church but a church salvaging its assets is very far gone. Litigation is in most cases only symptomatic of a church salvage operation, regardless of which side might be in the “right.” Factional church litigation is usually driven by emotions or motives that an outsider cannot truly appreciate, much like most family law cases. However, if a cooler head can prevail, before such litigation is paid for with offering dollars, a clinical review of the likely outcomes and their respective cost effectiveness should be conducted.

DENOMINATIONAL FORECLOSURE

The hierarchical denominations exercise varying degrees of control over the existence, management and property of local congregations. Some can take total control if the numerical membership of a local church declines to a point below which the local church is no longer viable or its property is on the verge of abandonment. Congregational denominations may exercise similar varying degrees of control. Both tend to remain uninvolved locally until summoned or collapse of the local church appears imminent.

In Eltingville Lutheran Church v Rimbo, 2019 NY Slip Op. 05957 (NY App. 2019), the denomination asserted control over the local church when numerical membership of the local church appeared to the denomination to make the local church no longer viable. The local church operated a church and a school on its property. The local church sued the denomination. The local church claimed the takeover violated the denominational governance documents. The local church also sought an injunction of the takeover alleging property issues could be disposed of applying Neutral Principles of Law. The trial court dismissed the entire case finding the entire dispute to be an internal church dispute to which no Neutral Principles of Law were applicable. The appellate court affirmed.

The learning from this is a repetition of the universal axiom that if the dispute looks internal to the church and may be resolved through application of the church or denominational governance documents there is no room for Neutral Principles of Law. The effort to characterize property control issues separately from other aspects of the dispute will only succeed where the property control issue cannot be resolved through church governance documents. As has been seen, muddled church governance documents and sloppy record keeping, such as board minutes, may require Neutral Principles of Law to fill the vacuum.

THE NOT RELIGIOUS ENOUGH TEST OF THE 9TH CIRCUIT – 2ND VERSE

In December 2018, as reported herein, the United States Court of Appeals for the 9th Circuit decided Biel v St. James School, 911 F3d 603 (9th Cir. 2018), by holding that the school teacher could sue the Catholic school making federal employment law claims. The 9th Circuit held that being required to teach Catholic religion thirty minutes a day was “no religious requirement for her position.” Likewise, the requirement, and the apparently mandatory training that went with it, that Catholic religious doctrine be incorporated in other lessons was “no religious requirement for her position.”

An appeal was taken to the 9th Circuit En Banc. This is a not often used procedure by which the three judge panel opinion could be accepted for review by all the sitting judges of the court of appeals for the 9th Circuit. In Biel v St. James School, Slip Op. (9th Cir. 2019), the majority of the 9th Circuit judges did not vote to review the three judge panel decision reported in 2018. However, nine of the 9th Circuit appellate judges dissented from the denial of en banc review. The 9th Circuit is authorized to employ 29 appellate judges appointed by the President and confirmed by the Senate. The dissent criticized the original panel decision in a written opinion, which is unusual. The dissent took the factual position, summarized above, the school teacher was religious enough to trigger First Amendment protections for the Catholic school and disqualify the school teacher from suing pursuant to federal employment statutes. The dissent noted the 9th Circuit was by its opinion at odds with the decision of the other United States Courts of Appeal. Also, the dissent alleged the legal test the 9th Circuit developed conflicted directly with the leading decision of the United States Supreme Court in Hosanna-Tabor Evangelical Lutheran Church & School v E.E.O.C., 565 US 171 (2012).

Will the nine appellate judges of the 9th Circuit that dissented be a loud enough voice to reach the ears of the United States Supreme Court should an application be made for certiorari by St. James Catholic School? For para-church organizations, including church schools, in the western United States, this could be of serious import. If the 9th Circuit decision stands, employment insurance costs, for example, will rise considerably. Indeed, rates may go up across the nation to funnel resources to litigation costs and settlements arising out West that are insured. Organizations that reduced or even eliminated employment litigation insurance coverage, which would be a bad judgment call in any event, may again find themselves at risk.

IS MONEY ECCLESIASTICAL?

Churches may exist in the spiritual world and secular world but their money and property tend to exist in the secular world more so than in the spiritual. Therefore, a court will avoid spiritual issues pursuant to the Ecclesiastical Abstention Doctrine of the First Amendment but may conclude it has jurisdiction over money and property.

In Beyene, et al v Tekle, et al, Slip Op. (Wash. App. 2019), the decision of the trial court abstaining on Ecclesiastical Abstention Doctrine grounds was revered because the appellate court believed there were questions of fact regarding jurisdictional issues. The current chairman of the church testified it was hierarchical and led by its denominational authority while a priest of many years testified it was congregational and led by its priests and deacons. Apparently, the governing documents were not clear. The priest, a former church treasurer, and a founding member testified the financial allegations raised by the Plaintiff against former board members of financial misconduct were not ecclesiastical but were secular and corporate. The trial court on remand was ordered to weigh the jurisdictional facts and determine if the claims presented were, indeed, secular or ecclesiastical.

In all probability the purpose for which money is collected and spent will be ecclesiastical unless it can be proven the money was embezzled or spent for transparently improper purposes. Spending on personal expenses that are not documented reimbursements will remain more or less easily identified as improper but spending on “improper” purposes will not always be. What was improper a decade ago may not be improper next week or next century.

DAUGHTER CHURCH DNA TESTS

Although usually the governing documents of a local church or a denomination, or both, instantly resolve the question of whether a local church is, indeed, a member of a denomination and under its ecclesiastical jurisdiction, sometimes it is not clear. Many denominations have humble origins among immigrant communities, the uneducated, and the poor.

In Sacred Heart Knanaya Catholic Community Center Board v St. Thomas Syromalabar Diocese of Chicago, Slip Op., 2019 IL App 2d 180792, the appellate court affirmed summary judgment dismissing the case on Ecclesiastical Abstention Doctrine grounds. The Plaintiff claimed it was not a church at all and not under the jurisdiction of the denomination, in any event. The Plaintiff sued the denomination because the denomination would not authorize a third-party church to celebrate mass at the community center for a special program. The reason for refusal was not reported in the opinion. The denomination provided minimal proof the community center was under its religious jurisdiction. However, it was enough. The community center may have been able to disprove it was part of the denomination, but inadequate legal representation may have waived the right to do so.

Two lessons emerge. The Plaintiff should have engaged counsel experienced in civil litigation. Just because someone is a “lawyer” and has a license to practice does not mean the attorney is a civil case lawyer. (I have avoided the label “trial lawyer” because most civil cases no longer reach trials.) Just because a lawyer is part of the church membership does not make that lawyer qualified to handle a civil case. The other thing the community center board should have done, rather suing for tortious interference with contract and money damages, was to seek a declaratory judgment regarding its lack of affiliation with the denomination. That would likely have required application of neutral principles.

WHEN IS A CHURCH NOT A CHURCH?

Many church and parachurch organizations have both observable religious and secular operations, missions and facilities. Many such have also found that secular income can fill in gaps that volunteer donations, such as tithing, offerings, and gifts, sometimes cannot. Viable churches that can raise enough money to pay a small staff and keep a facility are usually doing all their members will support. Thus, secular income may become a lifeline, which is why many churches also own daycare centers and other businesses. Of course, there are some churches and parachurch organizations that seem more about their secular business interests than their religious.

In the Matter of the Application of the Holy Spirit Association for the Unification of World Christianity, Petitioner, 2019 NY Slip Op 31678 (U), the non-profit religious organization, which seemed from the opinion to be at the same time a church and a parachurch organization, owned a corporation that owned a hotel in Manhattan. Permission was sought for a $20 million mortgage, $18.5 million to be used to buyout union employment contracts with the hotel and the transaction costs. The purpose of the buyout was to improve the profitability of the hotel. The New York Attorney General objected to the application because the AG did not believe the mortgage was in furtherance of a religious purpose. The Petitioner set about proving it was a church owner of secular businesses by proving it was a church holding worship services, employing a pastor, and conducting a seminary in some of its space. Also, some space was leased to other non-profit organizations. It also claimed $5.7 million in annual donations from congregants. The Court granted the petition for approval holding that the Court had to accept the representations of the church petitioner as long as it did not appear on its face to be a sham or proven by the AG to be a sham. The AG did not attempt to do so.

While the legal proceeding described above would never occur in most states, these issues most often emerge when the issue of tax exemption arises. Churches and parachurch organizations with dual identities should not assume their religious identity is obvious and be prepared to document it. Corporate records like board minutes that memorialize votes on religious mission efforts as well as secular business management are probably dispositive. Such church organizations can also organize and own trusts that then in turn own their secular business interests for the benefit of the church.

CHURCH SPLIT FRAUD ALLEGATIONS

In order to plead fraud in most jurisdictions, the fraud must be set forth in the pleadings with particularity. Generally, conclusory allegations will not get through the pleading stage. Sloppy court systems may allow discovery to be conducted on conclusory allegations but that now seems to be the exception rather than the rule. If money was improperly taken, then the amounts, dates, persons and means should be set forth specifically. Rumors will not typically get it done. Many churches, especially small and larger independent ones, will tend toward loose financial practices even in the absence of culpable impropriety that does not amount to fraud. A broken promise is by itself not a fraud. “Scheming” is both legal and illegal so by itself amounts to nothing in legal terms.

In Ambellu v Ethiopian Orthodox Church, Memorandum Opinion (D DC, 2019), the federal trial court dismissed the lawsuit because the allegation requirements of the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”) were not met. As a practical matter, RICO cases are very difficult to pursue because the allegation and proof standards are not easily met. RICO was designed to address organized crime, not church splits and not the occasional defalcation. Likely, the Plaintiffs in this case were trying to engage federal court jurisdiction by using a federal statute like RICO because of some perceived advantage not thought to be available in the DC Superior Court. Federal judges are not typically willing to tolerate loose pleading practices that might escape the notice of less well funded and understaffed state court systems. The Plaintiffs, indeed, alleged the Defendants publicly proclaimed their intention to take over the church in community radio broadcasts. Actions out in the open are usually harder to qualify as fraud because fraud usually only succeeds because some or all of the actions are “done in a corner.” Even a fraudulent act or series of acts in a local church will not likely threaten no future criminal conduct or enterprise as required to make a RICO claim. The allegation that church board elections were not conducted might be addressed pursuant to the non-profit corporations statute. But, as a state level legal issue, the federal court cannot be forced to consider it if there is no basis for federal court jurisdiction. That the Plaintiffs were seeking money damages via RICO but not reinstatement of the former church board was specifically noted by the Court. The Court also noted that the right to be a member and to worship at a church is an ecclesiastical issue. The Court also noted that mere financial questions, how the church spent its money, are also ecclesiastical.

If a church split must spill out into the street and into a court, the most likely allegation that will survive, absent actual fraud that can be proven from the start or breach of contract, is that the ownership and control of the property of the church has been brought into question by a violation of the bylaws or the non-profit corporation statute. Both can usually be addressed by application of neutral principles and not run afoul of the Ecclesiastical Abstention Doctrine. Indeed, church board members probably have a fiduciary duty to the church corporation that can be enforced. To guard against such problems, a clear set of bylaws should be adopted and preserved.