Author: churchlitigationupdate

SEPARATE BUT NOT EQUAL

In a denomination (or a rose by any other name…conference, fellowship, or whatever word is used), the governing documents will determine the relationship between the denomination and the local church. Typically, in most states, the practice generally is that both the denomination and the local church are separate non-profit corporations. In some states, the local church may be an unincorporated association, which is also a type of legal entity. However, the governing documents of the denomination, and maybe, too, the local church regardless of its form, may make the local church a type of “trustee” holding its property for the benefit of the denomination. In such organizations, if the local church dissolves or departs from the denomination, the title to property reverts to the denomination. In other words, the denomination and the local church may be separate entities but not necessarily equal.

In Church Mutual Insurance Company v Guideone Specialty Mutual Insurance Company, Slip Op. (Cal. App. 2021), the local church ceased to exist and the property reverted to the denomination pursuant to the denominational governing documents. During the short interval while the property was, in effect, owned by both before the reverted title could be filed of record, the building was destroyed by fire. The denomination’s insurer paid the loss but sought contribution, subrogation or indemnification by the insurer of the local church. The trial denied the claim. The appellate court affirmed the trial court. The appellate court held that the denomination and the local church, as an unincorporated association, had an “agency relationship.” But, that did not automatically make the two entities the same entity for insurance purposes, even if the denominational governing documents were cast in terms of “unity” of both. In other words, too, the Church Mutual policy did not name the local church as an insured and the Guideone policy on the local church property did not name the denomination as an insured. Thus, the denomination was not covered by both policies (and neither was the local church covered by both policies).

Just as the best practice is for the title of property to reflect a denomination’s reversionary interest, so too is it the best practice for the denomination to be named as an additional insured on the property insurance policy purchased by the local church. Both practices are hard to install and police over time. Denominations should work with their insurers to offer a “package” that contains such endorsements to their local churches. Insurance purchases are typically an after thought both at the denominational and local church levels. Thus, at both levels economies of scale through combined bargaining power are lost and higher premiums are habitually paid.

LEAVING THE DEFAMATION FORTRESS

Repeatedly in these reports we have seen that defamation claims are so difficult and expensive to pursue that they are only a marginal church litigation threat. Indeed, in these reports we have characterized defamation law as a fortress that few if any claims will ever breach. Nevertheless, for reasons political and economic, defamation claims are sometimes filed, announced to the public and then forgotten, often without being served on the opponent.

In de Laire v Voris, Order (D. NH. 2021), the United States District Court for New Hampshire was the scene of a defamation claim brought by a bishop against an internet news media company known as the Church Militant (churchmilitant.com). The bishop apparently imposed “sanctions” on a parachurch organization during a doctrinal dispute. The Church Militant not only reported on the sanctions dispute, but reported the bishop was the subject of complaints about the bishop’s canonical competence and other matters. In response to the bishop’s defamation claims, the Church Militant issued a subpoena to the diocese, a non-party to the case, for documents. The non-party diocese objected to the requests in the subpoena. The trial court ultimately refused to enforce the subpoena because negotiations between the diocese and the Church Militant left the requests unclear to the Court. Nevertheless, the federal trial court noted that that defamation claims in general, and therefore a related subpoena, do not automatically require inquiry into ecclesiastical matters. Therefore, the objection of the diocese invoking the Ecclesiastical Abstention Doctrine of the First Amendment was inapplicable and in order to reassert it the Court instructed the parties to specify its applicability to the particular documents sought.

It is hard to understand why any church leader would think that a defamation lawsuit was worthwhile when weighed against unintended consequences like court discovery. Indeed, in the reported case, the Court assumed in its Order that the diocese and the Church Militant through counsel would negotiate further on the discovery requests made by subpoena. While “revelations” in discovery seem unlikely, the cost of responding is not an expense to which most churches are accustomed. Litigation also seems to be way a uniquely good way to perpetuate adverse news media coverage of an issue that might otherwise be ignored by the public in short order.

THE DEFAMATION FORTRESS

Clergy accused of molestation or child sexual abuse may be subject to criminal prosecution, civil lawsuits, and church disciplinary actions. In the latter category, the church, all of them, had to face the grim reality that failure to publicly reveal a finding of credibility in such an investigation will no longer be tolerated by church members, especially those otherwise loyal to the offering basket. The church found that the instinctive response of a church to rehabilitate, forgive, and to reinstate was no longer viable for clergy. The church came to this realization late because the church did not soon enough see the need to treat clergy with seemingly less compassion than laity.

In Foley v McElroy, Slip. Op. (Cal. App. 2021) the state appellate court affirmed dismissal of the Plaintiff’s defamation claim by the trial court. The Plaintiff sued because the church listed Plaintiff as “”credibly accused” of child molestation.” The church disclosed Plaintiff based on two allegations even after a church canonical trial as to one of the allegations “found him “not guilty.”” The appellate court noted by analogy that “[a] basic tenet of American criminal justice is that a not guilty verdict is not a determination of factual innocence.” To make a defamation claim, the Court held the Plaintiff would have to prove actual innocence and not merely that in a prior adjudication the “prosecution” did not make their case. In any event, only one prior allegation was adjudicated and not the other. Therefore, the Plaintiff failed to state a claim for defamation under California law.

While the criminal justice system has the nearly impossible task of determining the truth and punishing the guilty, the church should not undertake such efforts for clergy. The church that engages in such tasks will find itself not only ill-equipped but accused of aiding and abetting. The accusation will not come in the criminal justice system, except in rare cases, but rather in the court of public opinion. The church will find itself even less well equipped to defend itself in the court of public opinion. Indeed, the church will seem to have lost its way and to have abandoned its true mission. Meanwhile, clergy defamation claims are rarely tenable and less often successful because the claims cannot bypass the fortress defenses.

PROTECTING PAST GENERATIONS OF BELIEVERS

Generally, the local church in a hierarchical denomination owns its own property but holds it in trust for the denomination. This is often also true in denominations that are not hierarchical but in their governing documents require the local church to own its property but hold it in trust for the denomination. The rationale for such trust provisions is that generations of members of the local church, that also thought they were members of the denomination, gave offerings based on that premise. The attempt by a future generation of local church members or leaders to divorce from the denomination does not, so the rationale goes, keep faith with the generations that came before.

In Presbyterian Church of the Palisades v Hwang, Slip Op. (NJ App. 2021), the local church lost membership and financial stability to the point it was about to lose its property to foreclosure. The local church managed to salvage the situation by selling the property to a third-party non-church entity. The funds paid by the third-party non-church entity were placed in escrow. The litigation proceeded over who was entitled to the purchase funds placed in escrow. The local church corporation claimed to be the owner but so did the denomination. The mortgage default by the local church triggered the trust clause in the denominational governing document. As a result, the local church was no longer owner of the property. The denomination assumed the role as owner under the trust provision. The “owner” would be entitled to the escrowed purchase funds. The trial court determined under the trust provision the denomination was the “owner.” The appellate court affirmed the trial court and ordered the escrowed funds released to the denomination.

If the denomination is hierarchical, most courts will under the “deference doctrine” defer to the decisions of the denomination regarding disposition of local church property. The denominational governing documents generally compel the result. If the denomination is not hierarchical, the “neutral principles of law doctrine” will generally compel the enforcement of the denominational governing documents. If the denominational governing documents require that the local church owns its property in trust for the denomination, Neutral Principles of Law will generally dictate that the denomination is the owner. There are few exceptions, the most recognized being when the deed filed of record expressly excluded the ownership of the denomination and the denomination approved the deed.