Author: churchlitigationupdate

PROCEDURAL LAW BARRIERS TO CHURCH LAWSUITS

There are no statistics available, and if they were asserted their reliability would be suspect, regarding whether lawsuits involving churches are terminated on procedural grounds as often, more often, or less often than lawsuits involving other private or commercial entities. For one thing, the determination as to the precise role each argument played in a disposition is sometimes determined subjectively by the reviewer of the opinion. That disclaimer aside, many lawsuits involving churches do not proceed to a decision on the merits or even to a point sufficiently definitive to be reported here. Also, many state trial courts are not fully integrated into the world wide web such that interlocutory or even final trial court decisions are rarely sufficiently visible to be reported here. That does not mean they are not important cases or decisions. If we cannot see them, however, we cannot report them. However, sometimes the trial court’s procedural rulings are appealed and become visible.

In Eaddy v Capers, Slip Op. (unpublished) (S. Car., App., 2018), the court of appeals affirmed a trial court’s summary judgment that the excommunication of the Plaintiff was outside the jurisdiction of the South Carolinian courts. The trial court held it did not have jurisdiction over church disciplinary matters under the Ecclesiastical Abstention Doctrine. The appellate court noted that Plaintiff’s new arguments on appeal had not been submitted to the trial court and ruled upon, or otherwise preserved for appellate review. The new arguments were that (1) the church leadership had not been properly elected so they did not have authority to conduct church disciplinary proceedings and (2) that the Ecclesiastical Abstention Doctrine as interpreted by South Carolina did not apply to a congregational church like the defendant. But, because the arguments were not preserved for review, they could not be considered.

Preservation of arguments for appellate review is fundamental but trial counsel sometimes believe they have when they have not. That is a cautionary thought for church lawyers, too. Before trial level proceedings close, it may be necessary to review motions and court rulings on them issued many months or even years previously rather than rely on sometimes fallible memory. Making sure court rulings from the bench have been suitably memorialized in writing in the court record can also be a challenge if some of the proceedings were oral argument.

SUING CHURCH EMBEZZLERS

During 35 years in private practice, one law school lesson was demonstrated true over and over. Wrongdoers are usually “gone, dead or insolvent.” In the case of church embezzlers, usually two out of the three. Charity and church embezzlers usually flourish when trust and faith supplant business common sense altogether. Embezzlers can make a church, charity or business look like a failure when in fact it was at least marginally successful if not completely successful.

In Agape Family Worship Center, Inc. v Gridiron, Order Granting in Part and Denying in Part Plaintiff’s Motion for Summary Judgment (USDC, CD Cal. 2018), Agape was (and probably still is) a large non-denominational church that allowed Gridiron to ascend from assistant to the position of Chief Financial Officer (“CFO”) in fact if not in name. Gridiron was permitted to hire a bookkeeper and Gridiron recommended that Agape stop hiring third party auditors. Trust and faith supplanted business common sense altogether. From 2008 to 2014 Gridiron diverted checks and cash in the amount of $4,815,963 to feed a gambling addiction. Most charities and churches are so embarrassed when confronted with such a situation, if they survive it financially, they remove the wrongdoer from employment or position of trust and quietly separate that person altogether. Some use the word “excommunication” and some do not. But, Agape did not do only that. Agape also did not simply call local law enforcement. In small towns (and in some big ones) local law enforcement is not equipped to handle financial crimes. Agape notified the Federal Bureau of Investigation and, so it seems, the FBI engaged the criminal division of the Internal Revenue Service. Gridiron was charged with wire fraud and filing fraudulent tax returns. (Whatever other criticisms the IRS may deserve, almost no one handles financial crime as thoroughly once their attention has been obtained.) Gridiron was sentenced to 57 months in prison and ordered to pay restitution of $4,815,963. Agape also had some insurance coverage for the loss which was a second way Agape’s response was better than most. Agape or its subrogated insurance carriers, it is not stated in the opinion which, sued Gridiron for the amount stolen as well as punitive damages, treble damages, attorney’s fees spent chasing Gridiron in his bankruptcy as damages and attorney fees for the case. The Court granted summary judgment to Agape for the actual damages of $4,815,963 but denied relief as to punitive damages, treble damages, and a third of a million dollars in attorney fees. While the intricacies of the denials is outside the scope of this report, it is interesting to note the Court concluded punitive damages was too much punishment when added to the prison time. It seems likely Gridiron was judgment proof but such a judgment might have had other purposes. One such purpose might have been to allay doubts about whether some or all of the money was recoverable, i.e., church leadership may have needed the judgment for internal political purposes, especially if church leadership needed to regain trust with the giving members or avoid their own lawsuits.

If a full blown annual audit is too expensive, then at least an annual review makes sense if entrusted to a hired, non-member, Certified Public Accountant. Alternatively, auditing one month of a year, randomly chosen, might be enough to dissuade a thief. Offerings should be counted and deposited by a rotating leadership of no less than two leaders not related by blood or marriage that also leave a written record for each collection counted. Check writing, credit cards and wire transfer authority should be structured for security and not just convenience. No single church leader, including the pastor, should have non-transparent uninspected financial control. Financial controls should be reviewed periodically by a Certified Public Accountant because what may be appropriate for a start up charity or church might have been outgrown. Once trust is lost, it is very hard to ever get again.

FEDERAL COURT CONFESSIONAL PRIVILEGE

The Priest-Penitent Privilege, or confessional privilege, has been a rule of law literally for thousands of years. Court decisions addressing it are rare and federal court decisions discussing it are of that tiny group the rarest. So, in the immortal words of Janine Melnitz, we can in this post say, “We got one!”

The case of Stevens v Brigham Young University-Idaho, Memorandum and Order (USDC Idaho, 2018) is an ongoing lawsuit about an alleged sexual predation upon a vulnerable student by a professor. The professor was deceased by the time the court proceedings reached the point at which the order discussed was issued and his estate settled with the plaintiff on undisclosed terms. The court’s opinion consumes fifty pages, mostly about attorney – client privilege and other discovery issues but starting on the thirteenth page was one of those rare discussions about the federal common law of priest – penitent privilege. The Court also allowed the parent denomination to intervene in the case to protect its claims of privilege because the church school defendant may not have been able to adequately assert the privileges. Another odd thing was that it was the defendant church school which was challenging Plaintiff’s assertion of the Priest-Penitent Privilege.

First, the court had to decide whether Idaho’s law on the privilege would apply or whether federal common law would apply because there is no federal statutory privilege for the confessional. The court held state law did not apply because the plaintiff’s theories of recovery raised federal question jurisdiction. Because state law was not the decisional framework for most of the claims in the case, state law privilege would not be applied as it might in a diversity jurisdiction case in which the federal court would be applying state law to the claims. Because of the lack of federal case law on the privilege, the federal court in this case relied on law from a circuit not its own. The court quoted the United States Court of Appeals in the Third Circuit’s opinion in In re Grand Jury Investigation, 918 F2d 374 (3rd Cir. 1990). From the Third Circuit came the “elements” of the privilege: “The privilege applies to protect communications made (1) to a clergyperson, (2) in his or her spiritual professional capacity (3) with a reasonable expectation of confidentiality.” The Third Circuit relied upon the 1973 Proposed Federal Rules of Evidence to define “clergyman,” “confidential,” and “who may claim the privilege.” However, those terms were not defined in any special way so for this post we will lighten the load by omitting them. However, the court did proceed to graft the Ninth Circuit’s (Idaho is in the 9th Circuit) “doctrine of implied waiver” onto the priest-penitent privilege. Implied waiver is a general doctrine that applies to all privileges and arises when the plaintiff’s claim necessarily puts the privileged information at issue in the case such that to deprive the other party of the information would result in an unfair trial. In bodily injury claims, for example, plaintiffs waive their right to medical record confidentiality although the extent of the waiver is often hotly contested.

In this case, because the Plaintiff was not trying to put forward a claim that implicated two instances of privileged confessional communication, the court enforced the privilege. Likewise, of course, the Plaintiff was foreclosed from putting forward the claim that would implicate the privileged confessional information. However, the Court applied the privilege on an instance by instance basis and ordered disclosure in the instance in which the Plaintiff “waived” the privilege by telling non-clergy third parties about the content details of the confessional conversation. In another instance the Court did not reach whether certain “lay ministers” qualified as clergy so that the privilege could be invoked because of waiver by disclosure to a third party.

CHURCH NAME DISPUTES

It is amazing how emotional a few church members can become over the name of the church. For most, the church name is simply an evangelistic marketing tool like the now ubiquitous ever changing electronic sign. But for some it becomes something as intrinsic as identity. Thus, changing the name of a church is usually done with slow care and consensus building in congregation governed churches. Also, name changes are as easily done as undone in most states. In most states, indeed, the church corporation name can remain the same and the new name can be adopted by merely filing a fictitious name certificate, or whatever the certificate is called in a particular state. Changing the name back merely requires filing a revocation of the certificate. Some churches will vote to adopt an alias name for a year and at the end of the year vote to keep the name or revert to the old name. That is a tried and true method to prevent what happened as described in the next paragraph.

In Gunn v First Baptist Church, Slip Op. (Tenn. App. 2018), the member did not want the name changed to “The Church at Sugar Creek.” The opinion of the court does not recite enough facts to know the basis or content of the objection by the member. Also, it is not clear whether the church corporation changed its name or merely adopted a new alias name using a procedure similar to the one described above. The member sued claiming the congregational vote to change the name was void because non-members or ineligible persons were allowed to vote. The opinion does not state whether the vote was close, recorded in any manner such as with paper ballots or a web-based tally, or whether it was a show of hands or otherwise secret. The court merely looked at the bylaws of the corporation, noted that membership was determined by ecclesiastical considerations, and affirmed the trial court’s dismissal of the case holding the ecclesiastical abstention doctrine limited the court’s jurisdiction over internal church management decision making.

The lesson from this is given in the first paragraph above. But, the other thing to note is that the brief filed on behalf of the member failed to cite a legal authority opposing the notion the ecclesiastical abstention doctrine prevented the court from reviewing a congregational vote. As has been reported on this website more than once, neutral principles of law are often applied to procedural irregularities in congregational votes using state laws governing corporations. While that is rare because it can easily go further than the First Amendment allows, and courts loathe supervising something like that, apparently that authority was not presented to this court.

DEALING WITH THE ROGUE PASTOR

Fortunately, rogue pastors are rare. In church splits, one side or the other may view a pastor as an enemy or even evil, but even in those situations the split is usually the cause of the perception. A truly rogue pastor is a dangerous insider that manipulates property or members for personal gain or gratification. Sometimes it is both.

In Bandstra v Covenant Reformed Church, Slip Op. (Iowa, 2018), the pastor was sentenced to five years in prison for sexual and financial exploitation of members being counseled for personal issues. The church leadership immediately “accepted the resignation” of the pastor when they learned of it. However, in the aftermath, the church leadership struggled with whether the victims could be in part to blame for violating their marriage vows. Moreover, faced with a rogue pastor completely beyond the competence of the average lay church leader, and most professionals, the leadership was sued for what may or may not have been missteps, and on remand a trial or settlement may finally decide it. Also, the church leadership was sued for failure to supervise the rogue pastor because his misconduct lasted for several years.

Church leadership should recognize that most pastors are simply not trained for the role filled by licensed professional counselors, psychologists and psychiatrists. A pastor trying to fill these roles should be strongly dissuaded if not outright prohibited. Also, if “spiritual counseling” exists at all, it should be performed only under appropriate conditions and at the very least not in the basement of the pastor’s home or behind locked doors (unless they are transparent). If the counseling is mishandled, that, too, could be result in a lawsuit. A pastor could sit in on a session with a professional counselor to assist with spiritual concerns. If the member and the counselor are unwilling to do so, the pastor should desist. Once church leadership learns that they are faced with a rogue pastor and terminates the employment, the church leadership must consider the job started and not finished. The church leadership should immediately engage counsel to advise regarding acceptable and unacceptable responses. If members have been victimized, engaging a professional counselor may be wise, too. Mistrust of the psychiatric sciences may leave the church leadership at the mercy of the priesthood of the law when a bit more searching could find an acceptable mental health professional.

DEFAMATION AND SLANDER CLAIMS BY CLERGY

This report will be the second this year in which defamation was a significant or primary claim.  In our post of February 8, 2018, entitled Internal Church Reorganization Defense, the defamation claim in a Texas case was dismissed because there was not a “scintilla of evidence” supporting it.  The defamation claim was lodged in an employment case arising from a position lost due to an internal church reorganization, pretextual or not, but was not strong enough to carry the case.

In Diocese of Palm Beach, Inc. v Gallagher, Slip Op. (FL App., 4th Dist. 2018), a clergyman sued for defamation but his damages claims were all wrongful termination damages such as front pay, back pay, lost wages, and lost wage earning capacity.  Typically, defamation damages are the dollar value of loss of reputation.  Reputation was more of  a nineteenth century damages concept although even today it can be a credible claim for damages in rare instances.  As a result, the trial court held the case was a wrongful termination claim masquerading as a defamation claim and dismissed it on Ecclesiastical Abstention Doctrine grounds.  The trial court may not have reached the Ministerial Exception Doctrine but probably would have if the case had continued.  The Florida Court of Appeals affirmed.  The facts of the case were interesting because the clergyman reported to secular authorities a child sexual abuse by another clergyman resulting in criminal prosecution and deportation of the offending clergyman.  But, meanwhile, parishioners complained about the ministerial performance of the Plaintiff.  The opinion leaves unanswered the question of whether the complainants were affiliated with the alleged abuser by ethnicity or national origin.  Relying on those complaints, the diocese did not promote the Plaintiff to pastor but transferred him to another church.  The Plaintiff gave an interview to the media which was reported as scathing to the diocese.  The diocese responded with its own public denunciation of the Plaintiff, including a claim the Plaintiff “needed professional help” and was unfit to serve as a clergyman.  The Plaintiff alleged the public statements of the diocese were defamatory.  The trial court held that to resolve the claims the trial court would have to explore Plaintiff’s fitness which would involve the court in a church disciplinary matter crossing into ecclesiastical matters.

The actions that made the dispute intractable for both sides were their public comments and maybe, too, that their public statements were harsh.  It is impossible to judge from this vantage point whether both or either speaker spoke irresponsibly, but both failed to count the legal cost of what was said.  The more pressing problem that was not addressed insofar as can be gleaned from this court’s opinion was the lack of an internal hearing by church officers.  Whistleblowers treated as pariah’s, even if there is no lawsuit, will remain a distraction for longer than would be the case if there was a full hearing and fact finding.  The church need not and should not conduct such an inquiry in public but rather should adopt confidentiality provisions to cloak the inquiry.  The purpose of the hearing is to make certain both whistleblower and church leadership have fully addressed all issues or frankly discussed disagreements.  Another possibility is to engage outside counsel to conduct the inquiry and to carefully interview the whistleblower and make confidential recommendations to church leadership.  Only by taking such substantive action is there hope either will trust the other.

CHURCH BANKRUPTCY

Fortunately, there are few church bankruptcies.  The bankruptcies that are of note are usually of larger hierarchical church organizations.  Local churches may be foreclosed but after that typically they simply dissipate or meet in rented space or homes.

In Re:  The Archdiocese of Saint Paul and Minneapolis, Slip Op. (8th Cir. 2018), four hundred clergy sexual abuse claimants represented by a creditors committee sought to consolidate all of the 200 affiliated non-profit corporations related to the archdiocese so that their assets could be added to the estate of the archdiocese.  These 200 affiliated non-profit corporations included local parish churches, schools, charities and foundations.  The 200 affiliated non-profit corporations were formed consistent with state law and as a result their boards were composed of the archbishop, vicar general, parish priest and two lay members appointed by the other three.  The affiliates were allegedly directly or heavily controlled by the archbishop, and occasionally abolished some of the affiliates.  However, the Unites States Court of Appeals for the 8th Circuit affirmed the trial courts that refused to grant consolidation.  The 8th Circuit noted that the bankruptcy code allowed substantive consolidation only as an extra-ordinary equitable remedy to be ordered in rare cases.  The occasional failure to adhere to corporate forms or the occasional discontinuation of an affiliate and absorption of its assets was not enough to warrant the remedy.  The remedy was generally expected to be used only when affiliates were part of a Ponzi scheme or were, in fact, mere alter egos of the debtor, neither of which were before the trial court.

Failure to follow corporate forms if sufficiently pervasive that it results in commingling of assets may lead to a conclusion an affiliate is a mere alter ego.  The sufficiency would seem to be reached if corporate forms are disregarded in a cavalier or criminal manner and not in a few isolated incidents.  That the archbishop served on every board and had the power to remove board members, in the case reported herein, resulted as much from state corporation law applicable to all non-profit corporations.  Thus, state corporation law should be consulted to make sure the composition of affiliate’s boards is either expressly authorized or expressly required.