Author: churchlitigationupdate

LOCAL CHURCH SUPPRESSION BATTLES

Economics sometimes requires denominations to reorganize local churches. If a denomination has several local churches in a locale that separately are no longer economically viable, merging the congregations into a single viable congregation is a possible solution. Indeed, it is often a better solution than allowing each local church to become insolvent, bankrupt, or to remain crippled. Denominations that control the geographical reach of their local churches may “suppress” the no longer viable local church. The decision making process of determining merger partners, surviving church staff employees, locations, and property disposition, to name but a few, invariably seem to set off disputes.

In Pagac, et al v Diocese of Pittsburgh, Slip Op. (PA 2020)(unreported), the denomination sought to “suppress” and then merge several local churches into a single survivor. The process, like most such do, suffered from fits and false starts. Eventually, the process was completed. Several parishioners of one of the closed local churches challenged in court the decision to “suppress” their local church. They also alleged that because their local church was formerly designated as a survivor of the process, and then later withdrawn from survival, they were defrauded of donations. The trial court dismissed both claims. The appellate court affirmed the dismissal of the challenge to “suppression” holding the parishioners did not have “standing” to make the challenge. Because the local church was “suppressed,” the Court held, the parishioners membership in the suppressed church no longer existed to form the basis of any challenge. Also, because any such claim would require an inquiry into internal church governance, the Ecclesiastical Abstention Doctrine precluded the claim. However, the appellate court reversed the trial court’s dismissal of the fraud claim. The appellate court held that while the denomination might have defenses to such a claim fraudulent inducement was a recognized claim and it could proceed to determination of the claim.

Whether to “suppress” a local congregation and merge it into another local church in a hierarchical denomination would in almost all cases require an inquiry into church governance issues protected by the Ecclesiastical Abstention Doctrine. Fraud in the inducement is a difficult claim to prove. Further, even if such a claim survived a motion to dismiss as this one did, running the gauntlet of discovery and other motions likely will prove more difficult. For one thing, the parishioners will have to prove that their donations were intended to be restricted to the local church and that their restricted donative intent was known to the denomination. They would also have to show expressions of restrictive donative intent were accepted by the local church or the denomination. Rarely are restricted gifts accepted at the offering plate but have to be specially arranged. Also, merely showing their local church was formerly designated as a merger survivor will not be enough. They will have to prove the designation was represented as irrevocable. They will have to prove the designation was intentionally misrepresented.

SUBMISSION TO DENOMINATIONAL AUTHORITY

Usually, there is no doubt about whether a local church submitted to denominational authority because the governing documents, including the church bylaws or constitution, and property deeds reserve submission to the denominational authority. A court need not look beyond these documents. These documents are reviewable by a court applying Neutral Principles of Law. The Ecclesiastical Abstention Doctrine is rarely implicated.

In Korean New Life Methodist Church v Korean Methodist Church, 2020 COA 20 (Colo. App. 2020), the trial court held that church governing documents did not recite any submission to the denomination. The denomination urged that it was the intent of the church to submit to the denominational authority. The denomination produced the testimony of a founding board member and a record of financial payments over many years. The church characterized the nominal payments as donations and submitted the testimony of the founding pastor alleging there was no intent to submit. The trial court was affirmed.

Denominational authorities should not assume that churches are member congregations. The governing documents of the church either recite submission of the church to the denomination or do not. Churches that do not wish to submit should document that denominational interactions are not submissions to denominational authority. Financial gifts should likewise be carefully labeled as donations and not payment of dues or other indicia of membership.

BY-LAWS AMENDMENTS

As denominations and even churches grow in economic reach sometimes they will spawn non-profit corporations intended to be parachurch organizations. Typically, the mission of the parachurch organization is to achieve a charitable purpose that is part of the mission of the church or denomination. However, the church or denomination usually wishes to retain some control over the parachurch organization and its assets to assure that the church or denominational charitable goals are met. Also, control is sought such that when the mission has been fulfilled, or changes, the assets revert to the church or denomination. Sometimes the economic efficiency gained by creation of the parachurch organization is lost due to changes in society. What was once strictly charitable might be provided by for-profit entities that previously did not exist. The solution may be liquidation of the parachurch organization and redistribution of its assets to other parachurch organizations or reversion. The solution may require, however, that economic efficiency be improved by merger. In order to achieve a merger, a parachurch organization may need to be restructured so that it no longer is part of the church or denomination.

In Episcopal Church Diocese of California v Episcopal Senior Communities, Slip Op. (Cal. App. 2020), the parachurch organization to maintain economic viability needed to merge with another non-profit not affiliated with the parent denomination. The merger considered was not consummated for several years. One of the efforts manifested in a side agreement entered into that purported to allow the parachurch organization to make changes to its bylaws so as to effectuate a future merger. Unfortunately, the side agreement required the parachurch organization’s board of directors to be composed of a majority of members drawn from the denomination. But, the bylaws permitted amendment by “super majority” vote. Thus, the two governing documents would be in conflict if a super majority voted to amend to eliminate the requirement of a denominational majority on the board. The litigation resulted because that was exactly what happened. The denomination expended 147 pages of briefing and the appellate court ruled in 48 pages. The appellate court resolved the clash of the documents by affirming the decision to permit the bylaws amendment eliminating the required denominational majority on the board.

The power to amend bylaws by a parachurch organization must be carefully prescribed by the church or denomination. Such restrictions on the power to amend should not be lifted without considerable consideration of possible outcomes. In order to survive, and especially to avoid reversion of assets to the church or denomination in a liquidation, parachurch organizations may seek to amend their bylaws to eliminate reversionary clauses or governance clauses. The will to survive economically or to achieve the charitable purpose even if it can no longer be achieved using only church or denomination resources, or driven by the needs of parachurch organization officers to retain employment, may override loyalty to a church or denomination.

REMOVAL OF A CHURCH OFFICER

Churches can develop management conflicts that require to restore peace the removal of a church officer. If a church is incorporated, it may have several officers. In some states, a non-profit corporation must have trustees in addition to other officers, although trustees may also hold some other office, too. A church association may also adopt a constitution and bylaws that, like other corporate governance documents, create offices with specific duties. Most church governance documents, regardless of type or source, provide for removal of a church officer.

In Islamic Center of Passaic, Inc. v Salahuddin, the founding Imam died. His widow was the church financial director. She may have been under the mistaken impression that the founding Imam owned the church property, including its financial accounts, which she had faithfully managed and accounted for during many years, and that she inherited his ownership interest. However, the belief was mistaken. Further, two years after the founding Imam passed, the church adopted a constitution and the widow signed. A new Imam was engaged by the church and no conflict arose for a period of time. However, a successor Imam was engaged and a conflict arose between the widow and the new Imam. The widow refused to allow the new Imam to become a signatory on church accounts. After the accounts were frozen the widow opened a new account to which only she had access and continued to collect the lease payments due to the church from its tenant. There was no suggestion of defalcation. The widow twice changed the locks on the church to lock out the new Imam and prevented daily worship services. Police intervention was required. The church filed a lawsuit against the widow seeking a declaration that the church terminated the widow as financial director in compliance with the church governance documents among which was the constitution the widow signed. Applying neutral principles of law after a three day bench trial the trial court confirmed the termination. The appellate court affirmed.

Failure to have a written succession plan that included disposition of the widow’s interests set the stage for conflict resulting in an expensive resolution. Indeed, the opinion indicated the church may have spent money on a mediator, too. A three day bench trial and the attendant legal fees for preparation was no doubt a memorable expense. The church did, however, adopt a constitution after the founding Imam passed away. That governance document, and possibly others, permitted a court to resolve the dispute. Governance documents are usually amenable to Neutral Principles of Law interpretation and enforcement.