Category: church property

STANDING TO SUE A CHURCH

It should not automatically be assumed in church splits that the minority faction retained any rights to sue.  A minority group of members may have, before suing, erased their interest by taking some action.  Strangers to the church may never have had any interest.

In Dubois Street Church v Church of the Living God, Slip Op. (Mich. App. 2021), the Plaintiff was a new church entity created by former members of the Defendant church.  Indeed, while forming the new church, the former members announced it on social media and invited everyone.  The trial court held the Plaintiff was not the real party in interest.  In other words, the Plaintiff lacked standing to assert any claim because the Plaintiff had no connection to the Defendant church.  The appellate court affirmed the trial court.

A minority faction in a church split might still have an interest upon which to sue the church.  But, once they proceed to form a new church and accept a new membership, and publicly announce it, that interest they had as members might be no more.  Such determinations will likely turn on the record that can be submitted to a court.  In the current era, that record will most likely be social media posts.  In the past it might have been printed flyers or other advertisements.  The lesson might be that the faction retaining control of the church should not assume the minority faction retained any membership upon which to base a lawsuit.  In any event, the new church entity would have no such interest even if its members, as former members, might still have an interest.

CHURCH SPLITS: MONEY GRABS

We reported a case out of Florida in January 2020 in which the founding pastor died leading to a succession civil war.  See, Church Succession Title Bouts.  In Eglise Baptiste v Seminole Tribe, Omnibus Order, 19-cv-62591 (SD FL, 2020), aff’d, 824 F. Appx 680 (11th Cir. 2020), the battle for control of the church was marked by a congregational meeting that turned into a brawl that required police intervention to restore order.  Apparently, a congregational vote survived the brawl and the wife of the late pastor led the winning faction elected by the congregation to succeed.  The following week the worship service led by the losing faction was interrupted by the widow and her faction.  They retook the church building from the “losing” faction accompanied by “six armed officers from the Seminole [Tribal] Police Department.”  The widow’s faction’s opponents were removed from the church property, the locks changed, and the gates to the property locked.  The “losing” faction sued the Seminole Tribe but could not defeat the tribe’s sovereign immunity.  The widow and her faction were also dismissed from the lawsuit because the Plaintiff’s claims represented “non-justiciable questions of church governance” excluded from review by the Ecclesiastical Abstention Doctrine.

The next chapter follows.

In Eglise Baptiste v Bank of America, NA, Slip Op. (FL. App. 4th 2021), the “losing” faction sued alleging the bank accounts of the church were wrongfully transferred to the “winning” successor faction led by the deceased founding pastor’s widow.  The trial court dismissed the case holding that to determine the issue of which faction was the “winner” and which was the “loser,” and whether the widow of the pastor had authority or was a rightful leadership successor, would require intrusion of the Court prohibited by the Ecclesiastical Abstention Doctrine into internal church management affairs.  The appellate court affirmed the dismissal.

The lesson is the same for both cases and both of our reports.  Most courts will not play referee in a title bout between factions in a church split.  If there is a documented congregational vote in congregational churches or a hierarchical action in denominational churches, and if the vote or action is arguably consistent with organizational governing documents, such as bylaws, even should a court need to address property ownership or control, usually those are the facts that will control the decision.  A written succession plan adopted by the governing authority of the church or the denomination, or both may, if drafted with sufficient clarity and due regard for other laws, such as rules against perpetuities, which may or may not apply to churches, be a determinative piece of evidence.

FRAUDULENT CHURCH DEEDS

It has historically been difficult for small churches to obtain mortgage financing.  It has been far too easy in the recent era for denominations and very large churches to obtain enormous mortgages.  In either case, fraudulent transfers by deed have been used to convert illiquid church assets to cash.

In In Re AME Western Episcopal District, Slip. Op. ____ B.R. ____ (ED Cal., 2021), the federal bankruptcy court heard a motion to dismiss from a creditor as to the mortgage it had funded to the tune of $3.64 million on a local denominational church property which had long paid off its original mortgage.  The local church members first learned of the new mortgage when it was declared in default.  The local church never received any of the proceeds of the mortgage.  The local churches had been instructed to deed their properties to a corporate entity that was not an officially recognized part of the denomination.  The properties deeded represented substantially all of the accumulated assets of the local churches.  The deeds the local churches signed did not contain the “in trust” restriction required by denominational governing documents.  Two officers as required by state statute did not sign the deeds.  The deed did not contain an attestation that the church membership approved the transfer of substantially all of its assets.  As a result, the creditor’s motion to dismiss was overruled because the Court held it was on notice by the irregularities in the deed that there was a prior interest, that of the local church, that was not properly conveyed.  Further, the local church still worshipped at the church property, unaware of the mortgage, and the notice of the inappropriate deed would have led to a duly diligent review by the lender prior to the loan of the interest of the congregation that worshipped there.  A creditor, or lender, on notice that the current owner may not own or some or all of the interest represented in the deed, could face a claim of rescission or other claims.

Not every state will have the requirements that apply to transfers of property that constitutes substantially all of the assets of a non-profit corporation such as a church like that reported herein.  However, even in states with lesser requirements, the governing documents of the denomination and the local church can set the same requirements.  A creditor or lender may have a difficult time claiming ignorance of the authority of the signatory on a deed or contract.  Most legitimate creditors or lenders at a minimum will require a resolution of the governing board of the local church attested by the corporate secretary under oath to engage in any major transaction or mortgage.

PARSONAGE WARS – YES, THEY STILL HAPPEN

Generally, the “parsonage” is an obsolete tool of compensation because most ministers with families came to understand in the 20th century that home ownership was the largest and best investment working people could make.  Parsonages were useful to some churches with high ministerial turnover and as an in-kind compensation tool.  Nevertheless, some churches still use parsonages for a variety of good reasons.

In West Michigan Annual Conference of the United Methodist Church v City of Grand Rapids, Slip Op. (Mich. App. 2021), the city was so desperate for revenue it decided to deny parsonage status, and therefor exemption from ad valorem taxes, to the parsonage inhabited by the District Superintendent over 91 churches.  The assessed value was under $100,000.  The city argued the District Superintendent was an ordained minister but did not supervise a particular church making the parsonage ineligible.  The Court of Appeals affirmed the appeals board of the city in holding that the statute did not require that the minister be “over a particular church” and contained no such qualifying language.

Churches faced with a rogue local government attempting to impose taxation without justification or legal basis should not challenge the taxation without counsel.  A lawyer with a little experience with the local government in question can save a church a lot of money and consternation.  It is very rare that such questions arise and are litigated to this extent.  But, sometimes, even stupid lawsuits take on a life of their own and are impervious to common sense.