Author: churchlitigationupdate

DENOMINATIONAL CHURCH ARBITRATION

There are few reported examples of denominational church arbitration that allow study of the process or its purposes. Also, most denominational arbitration systems are still infantile in their development and operation. A few are beginning to mimic the highly developed American Arbitration Association or the Financial Industry Regulatory Authority (“FINRA,” formerly “NASD” and formerly “NYSE”) arbitral forums. Denominational church arbitration is reported so rarely, and probably conducted so rarely, that evaluation of process or results is problematic.

In Garcia v Church of Scientology, Order, (MD FL, Tampa Div., 2018) the United States District Court dismissed the case challenging an arbitral award against the Plaintiffs. The Plaintiffs submitted an arbitration claim to retrieve hundreds of thousands of dollars in donations in two programs of the church the plaintiffs claimed were fraudulently misrepresented. The Plaintiffs challenged the arbitral award on United States Arbitration Act grounds including “evident partiality” and misconduct of arbitrators. The plaintiffs claimed witnesses and documentary exhibits were not heard or reviewed by the arbitrators, the arbitral forum held ex parte meetings with the arbitrators, and the arbitral forum edited or redacted exhibits submitted to the arbitrators. They also claimed their counsel was not allowed to attend, however, the Court determined the record reflected Counsel would have been allowed to attend but would not have been allowed to participate. Considering the challenge in light of the limited review possible under the United States Arbitration Act and the Ecclesiastical Abstention Doctrine, the Court found no sustainable grounds for the challenge. The Court held the Plaintiffs agreed to arbitration, agreed to proceed in arbitration and were bound by church arbitral rules and procedures which included much about which they complained.

Arbitrators as a herd try to do the right thing usually regardless of the procedural niceties imposed by the arbitral forum. However, arbitrators are usually selected because they are in some way allied with the arbitral forum or its sponsors. That is true in commercial arbitration so it should not be a surprise that denominational church arbitrators would be closely aligned with the church denomination. That does not mean the arbitration cannot be fair because sympathy will only go so far. In most arbitrations, it does not play a determinative role because all adverse litigating parties are also aligned with the arbitral forum in some way. If the damages claim presented by the claimant, in commercial or church arbitration, requires a negative interpretation of facts otherwise innocent, such as fund-raising marketing representations as in the case reported herein, the case will be weak at best. Hard facts showing fraud designed and directed especially at a vulnerable plaintiff would be required. Also, if counsel is allowed to attend but not participate, or not allowed to attend, then the arbitration is probably not worth the effort or cost. Most claimants lack sufficient training in advocacy in a litigation setting to represent themselves much less the emotional objectivity needed to put forward successful arguments. Pro Se plaintiffs and claimants get lost in the weeds, do not know when to throw back the little ones, and do not know the decisional paradigm or standards of the arbitral forum well enough to know which parts of their case are important.

CHURCH SUBPOENAS

Just because a church or church organization is not a named party in a lawsuit does not mean that a church or church organization that has some role in the dispute, even a benign and neutral role, will not be served with a subpoena for documents or testimony. The extent to which the subpoena for documents will be allowed to intrude into internal church governance will in most instances be litigated. In these instances, the third party church or church organization like any other third party has certain legal protections from undue expense and intrusion. Unlike most third parties, however, church and church organizations are also protected by the First Amendment.

In Whole Woman’s Health v Smith, Slip Op. (5th Cir. 2018), the Texas Catholic Conference’s director voluntarily agreed to testify on behalf of the State of Texas in the dispute regarding whether Texas could impose on abortion clinics certain duties regarding disposal of fetal remains. The Texas Catholic Conference advocated that disposal of remains should be performed “with respect” and arranged free of charge common burial in Catholic cemeteries. The Texas Catholic Conference received a subpoena that reached internal communications ostensibly for use in cross examination of the conference’s director. Although the Texas Catholic Conference voluntarily produced four thousand pages of records arising from its communications with state officers, other catholic conferences, and Catholic cemeteries, it objected to producing its internal deliberations. The objection was heard by the court in June 2018 and the trial was set for July 2018. Indeed, the final order of the trial court was issued on Sunday, Father’s Day, and allowed 24 hours for an appeal or production of the documents. The trial court permitted a further 72 hour stay of its order to allow an appeal to the United States Court of Appeals for the 5th Circuit. However, the 5th Circuit stayed the case.

It is rare that federal judges are acrimonious in the slightest to anyone much less each other but the opinion nudged that line. The majority criticized the trial court for its unreasonably short deadlines. The dissent criticized the majority and the concurring opinions for questioning the motives of the trial judge. The 5th Circuit majority quashed the subpoena as to internal deliberations of the Texas Catholic Conference on First Amendment grounds. Other types of political action groups have received similar protection but church organizations have never needed such protection because courts avoided trying to glean non-religious from religious internal discussions on public policy issues due to Ecclesiastical Abstention Doctrine implications. The trial court reviewed the disputed documents in camera and held they were not “religious.” The 5th Circuit majority questioned whether the trial court was competent to make that determination because determining what was “religious” required church specific ecclesiastical training. The tree from which these acorns fell was the Texas Catholic Conference’s long standing public policy stance on abortion based on moral and religious grounds.

The decision highlights the risk of involvement in public policy issues. Also, church documents regarding internal policy or religious deliberations should not be submitted for in camera review when the church is not a party to the lawsuit but rather an immediate appeal taken.

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.