Author: churchlitigationupdate

CHURCH WARS OF ATTRITION

When a church divides into factions, the conflict can escalate. The conflict can spill into the street. The conflict can reach the courts. Sometimes the conflict will spawn multiple court proceedings. Usually the cost of litigation dampens the enthusiasm for secular court resolution. The narrow scope of court jurisdiction renders court resolution unsatisfying. Factions often want vindication rather than simply restored order or control. Vindication is often not available in court.

In Stewart v McCray, Slip Op. (Ind. App. 2019) the church split turned into a war of attrition. Neither side seemed able to gather the strength to vanquish the other but both were uncommonly resilient. At least two lawsuits resulted and in the second, the trial court tried to manage the process required by the bylaws of the congregational church to resolve church governance issues. In the second lawsuit, the trial court’s orders were blatantly disobeyed by one faction. The pastor that was also the leader of one faction was held in contempt and sentenced to pay attorney fees and jail time of thirty days. The sentence was stayed pending appeal. The appellate court reversed the trial court and held the second lawsuit should have been dismissed at inception for lack of jurisdiction. The lack of jurisdiction made void ab initio all of the orders of the trial court in the case, including the contempt. The second lawsuit, the appellate court held, should have been dismissed because the only issues presented in it were church governance issues consideration of which transected the Ecclesiastical Abstention Doctrine. The first lawsuit involved only issues of control of property and assets.

Hesitation and slowness to act will never be forgiven by the future burdened with the deepening rift. In church split litigation, there is only one goal that matters: control of the property and assets. Once control is achieved, there is only one final resolution available: declare the dissidents to be trespassers, seek their arrest if they return, and cut off their access to funds. If a pastor is involved in the group excluded from control, terminate the salary and other benefits immediately. If a congregational vote is required to terminate the pastor conduct it according to the bylaws. The congregational meeting that is called in which the vote is to be conducted should have a single agenda item and no discussion needs to be permitted. Church leadership that regains control after an attempted usurpation by a faction led by a pastor must be quickly excised or the split will never end. If the church cannot survive the cure, then foreclosure will allow a new church to be born. The foregoing does not apply to less confrontational temper flare-ups in a congregation that can be resolved with a congregational meeting to air grievances and reach compromises.

ECCLESIASTICAL JOB DESCRIPTIONS

Church governance documents, employee handbooks, and employment contracts (when used) are often cloned from commercial counterparts or internet search finds. Original draftsmanship is often by non-lawyers that include religious doctrines or language but does not necessarily achieve the desired interpretation. Forms obtained from sources knowledgeable in one jurisdiction may not be effective in another.

In Rehfield v Diocese of Joliet, Slip Op. (ILL App. 2019), the church school principal was relieved of duty but her contracts were paid out. Nevertheless, the Plaintiff sued alleging retaliatory discharge and violation of the Illinois Whistleblower Act. The case was dismissed because the trial court held the principal’s job description clearly made her position sufficiently ecclesiastical to invoke the Ecclesiastical Abstention Doctrine. The job description required “a commitment to nurturing the [denominational] Identity of the school.” The job description also included, in pertinent part:

“providing an atmosphere in the school which is identifiably [denominational];

“developing and participating in ongoing programs to insure religious and professional growth of the staff;

“establishing an instructional program which includes religious education to meet the needs of students; [and]

“assisting teachers in achieving the goals of [denominational] education through supervision and classroom visitation.”

Church schools, churches, and parachurch organizations should review their employment agreements, handbooks and corporate bylaws annually to assure that their job descriptions are consistent with mission of the organization as well as the operational needs that may be similar to secular entities. Legal counsel should usually be engaged to assist. Overstatement of religious identity is not necessary and may, indeed, harm credibility in a dispute. After all, a janitorial employee may not have religious duties. Nevertheless, religious identity should be clearly stated in the job description of every professional employee.

AUTOPSY OF A CHURCH EMBEZZLER

Most church embezzler’s go unreported in courts and media. The exceptions are when church embezzlers are charged publicly by law enforcement or sued by the victim. A recent report of a church embezzler charged by law enforcement for stealing a quarter million dollars over a decade reminded me of the invisibility of this topic. Called upon to investigate church embezzlers more than I ever wanted, that experience led me to the following observations.

Lawsuits against embezzlers are rarely successful or cost-effective. Also, lawsuits keep the wound open and usually reveal lapses in internal financial processes with which church leadership may wish to avoid public confrontation.

Church embezzlers can often be “profiled” in a sense.

1) Church embezzlers are often long-time members or employees that have ingratiated themselves into the trust of church leaders. Month after month and year after year they process financial information that after a time looks routine. Even well-made financial processes are over the years subject to entropy: as trust increases oversight diminishes. Eventually, there comes a time when the embezzler was trusted with small things that became large things.

2) Church embezzlers have either no financial oversight or audit oversight. This systems failure develops as trust increases. Also, financial oversight discipline is hard to maintain over time in volunteer organizations. Professional pastors rarely have the training or the discipline to remain focused on financial oversight discipline year after year and decade after decade.

3) Church embezzlers begin to look at compensation paid to church co-workers, the financial success or wealth of other church members, or their own financial problems and rationalize about the lack of financial justice. They become increasingly self-centered and this is accelerated if the church is imposing on the employed embezzler an involuntary vow of poverty or the embezzler believes it be so.

4) When the trust of the church embezzler reaches a threshold sufficient for the church embezzler to bypass, discontinue or override financial oversight, and this is combined with the rationalization of financial injustice, the church embezzler will often take a small step. A personal expense, usually a small one, will find itself among other church expenses and paid. Offering cash might not all be counted.

5) Bypassed financial oversight, bypassed by stealth or by disuse, does not react to the small defalcation. Another follows. In this manner the defalcations mount and get larger but the very slight trimming of the financial results of the church are not noticed by sleeping financial oversight systems.

6) The church embezzler’s personal justification based on perceived financial injustice, even if includes the firm conviction that all will be repaid in some future circumstance that never seems to arrive, flowers into self-confidence that the pilfering will not be detected. The pilfering slowly over time grows into larger and larger defalcations. That is the reason the amounts stolen often reach six figures.

7) At some point, financial oversight discipline accidently reasserts itself through an event the emboldened embezzler in arrogance thought would neve be noticed. Usually, the event is precipitated by double dipping by the embezzler. There are several examples. Payroll taxes may no longer match the amounts actually paid in payroll. Unpaid or slow paid routine church bills may accumulate or trigger a complaint by a vendor. In smaller churches the leadership may notice a decline in reported giving that does not match the routine giving of the main supporters. Church tax reports to members may not match the amounts deposited in church bank accounts.

Church financial oversight discipline in larger churches and para-church organizations should not be maintained by volunteers but should be designed and occasionally reviewed by a Certified Public Accountant that is not a church member. A review by the CPA annually might be enough surveillance but periodic audits might be needed. Gifts and offerings should be handled, counted and deposited using the “buddy system” where no less than “two or more are gathered.” The two gathered should not be a married couple. Giving records and bank records should be periodically reconciled. Bank account access should be strictly controlled and reviewed for accountability.

Six figure losses to embezzlers reported in the news media, especially after a public criminal charge, will depress giving and destroy the trust of members in pastors and church leaders. Members will remember building repairs deferred or not done, ministries not funded, and the sense of financial injustice may creep into a church. Financial oversight discipline is not optional. Pastors and church leaders in their arrogance may assume they have complete financial control while blind to their own ignorance of financial oversight in the digital banking age.

MANDATORY CHURCH DISPUTE ARBITRATION

The United States Arbitration Act, and the arbitration statutes of each state, may require arbitration between two parties that have voluntarily agreed to arbitrate. Generally, a written contract between the two parties suffices to prove the voluntary agreement to arbitrate. In rare cases, a party seeking to be a third party beneficiary under a contract may be required to arbitrate as if they voluntarily agreed to do so because to take the benefit of a contract usually means consent to all terms. However, voluntary agreement usually cannot be inferred.

In Harbor Christian Fellowship v Southern California District Council of the Assemblies of God, Slip Op. (CA App., 2019) (unpublished) the appellate court reversed the trial court’s order compelling arbitration and vacated the arbitration award in favor of the denomination. The dispute arose because the local church property was deeded by the District Council to itself by quitclaim deed as part of the financial salvage operation necessitated because the local church fell on hard times. The trial court held that the local churches’ participation as an “affiliate” of the District Council constituted acquiescence to the bylaws of the District Council. The District Council bylaws contained a mandatory arbitration provision. However, the appellate court rejected participation as an “affiliate” alone as proof of submission to the bylaws or voluntary agreement to arbitrate. The trial court did not examine the bylaws of the local church. The appellate court held the local church bylaws adopted in 1955 explicitly defined it as a “cooperative fellowship” in contradiction to the bylaws of the District Council. The appellate court noted the District Council did not put forward any other document proving the local church agreed to be bound by the bylaws of the District Council.

The problem with the decision reported is that the courts, both at the trial and appellate level, interfered in church governance contrary to the Ecclesiastical Abstention Doctrine. The trial court interfered by compelling the local church to arbitrate with the denomination. The denomination should have been required to enforce its own arbitration provision by the internal means available to it even if that was only harsh scolding. The appellate court did exactly the same thing in reverse by deciding that a “cooperative fellowship,” as that term is used by the denomination, meant something different than “affiliate” of the District Council in order to vacate the arbitration decision. Both courts should have decided only whether the quitclaim deed was valid or invalid on its face just like any other quitclaim deed in dispute. Either the denomination could prove its authorization using Neutral Principals of Law to file the quitclaim deed or it could not. The arbitration and its outcome were irrelevant.