Category: church splits

FIRST RULE OF CHURCH SPLITS: DO NOT PANIC THE BANK

When church splits spill into the street one of the things that can happen is that the bank that serviced the church checking and other accounts may not know who should be authorized to transact business in the accounts. The bank will likely freeze all accounts and seek protection from a court. If the bank is sufficiently antagonized, it will interplead. That means the accounts will be liquidated and the funds deposited in the registry of the court. The court will then decide who can transact business and for what purposes. Generally, any expense the church incurred in happier times, including payroll, may be paid with court permission. Dealing with interpled funds is time consuming, expensive and slow.

In United Community Bank v Wakefield Missionary Baptist Church, 2021 NCCOA 89 (NC App., 2021), an audit revealed “deficiencies in bookkeeping and payroll records.” The pastor sought to add a signatory to the church accounts. The pastor also allegedly learned the prior signatories opened but did not disclose a Certificate of Deposit containing $123,000. The prior signatories objected to the additional signatory promoted by the pastor. The bank decided to seek court protection from the dispute and interpled the funds. The prior signatories appealed arguing the court could not direct how the church spent its money or determine the membership status of the prior signatories or the newly proposed signatory. The trial court held it could employ Neutral Principles of Law to determine who could control the church accounts. The appellate court held the interpleader order of the trial court was interlocutory, and therefore not appealable, and that the trial court had jurisdiction to determine who had the right to control the church accounts.

Most factional church disputes cause the bank to lock down church accounts while one faction or another continues to manage church finances through control of the offerings deposited in accounts at another bank. But, if the first bank is pushed in the least an interpleader will follow. As the semi-sentient computer learned in the movie War Games (1983), the only winning move is not to play.

DENOMINATIONAL TIES THAT BIND

We have reported many times the attempts of local churches, some clever and some blundering, to slip the ties that once happily kept them snug in the denomination once those ties became odious. Almost uniformly, those efforts have failed. Hierarchical denominations receive greater deference regarding internal decisions about property and ministers.

In Dong San Church Corporation v Park, Slip Op. (Cal. App. 2020), the trial granted summary judgment to the denomination in a lawsuit for declaratory judgment and to quiet title. The Court of Appeals affirmed. The local church was a member of the denomination for more than two decades. The local church was led by an interim pastor that was not confirmed as pastor by the denomination because of legal issues unresolved in South Korea. To keep the interim pastor, the local church sought disaffiliation with the denomination. The interim pastor and some members of the local church disassociated themselves from the denomination. The courts held that the disaffiliation effort by the local church was not effective under the denominational governance documents. The disassociation of the interim pastor and some of the members did not change the affiliation of the local church. The denomination appointed a new pastor and the court quieted title in favor of the denomination.

The denomination probably should have not have permitted the interim pastor to serve as long as he did given the serious nature of the unresolved legal issues in South Korea. Appointment of a replacement pastor should have been the choice rather than the wait and see choice made by the denomination. Waffling on employment or appointment decisions very often leads to protracted litigation.

CHURCH SPLIT INSURANCE COVERAGE

If there is any policy marketed by any insurance carrier to cover risks in a church split, and what the terms and cost might be, we are unaware. However, what typically happens in a church split is that the faction in control of the church, that can retain the corporate entity, usually can retain the insurance policies. That does not automatically mean there is any coverage in a church split, but the insurance that there is will typically go with the corporation. On the other side, the faction that loses control of the corporation or incorporates a new entity to be the secular embodiment of the church typically has stepped completely outside the umbrella of insurance coverage for nearly all types of claims, related to the split or not. (The word “all” is too often overlooked by readers. “All” by definition is ad infinitum bearing of no exception.)

In Newton Covenant Church v Great American Insurance Company, Slip Op. (1st Cir. 2020), the United States Court of Appeals for the First Circuit affirmed the Massachusetts federal trial court that granted the insurance carrier’s motion to dismiss. The Plaintiff was formed by a departing faction. The Plaintiff and some of its leaders or officers were sued by the denomination to dislodge them from the local church property and recover the local church assets. The leaders or officers of the Plaintiff sought a defense under the duty to defend. The duty to defend is in every insurance policy likely to be bought by a church. Under the duty to defend, the defense of a lawsuit against an insured must be paid for by the insurance carrier. However, the insurance carrier denied the claim for a defense. The insurance carrier’s policy named the predecessor local church corporation as the insured and not the faction that departed. Also, the policy expressly excluded lawsuits among insureds. The trial court held the lawsuit by the denomination filed against the departing faction, which had been members of the denomination, was a lawsuit among insureds.

In a split, departing factions that no longer have control of the original church corporation, like any brand-new church, have no insurance until it is purchased. That will generally include everything from employee health benefit programs to auto policies. Any lawsuit with the denomination or faction left in control of the church corporation will generally require out of pocket attorney fees and court costs to defend.

CHURCH MEMBERSHIP UNDER SECULAR LAW

In many posts we have reported court opinions that resolved disputes by using only the denominational or local church governance documents. However, there may be some disputes that cannot be resolved using Neutral Principles of Law to enforce the governance documents. Membership verification may be one of those.

In Ceglar v Christ’s Harbor Church, Slip Op. (Tex. Civ. App. 2020) the trial court held verifying the 25 plaintiffs were actually church members required ecclesiastical determinations the Court was prohibited, and unwilling, to make. The appellate court affirmed and the case was dismissed. The newly hired pastor was accused of “inappropriate behavior and misconduct” by two female members. A faction of the membership demanded a congregational meeting to determine the pastor’s employment fate, but the church board never convened the meeting. Six months later the lawsuit followed. The membership secretary affirmed the plaintiffs were on the church membership rolls but a church board member testified the plaintiffs were for the most part expunged from the membership rolls after ninety days of non-attendance. The ninety-day rule was not in the governance documents but was put forth as an interpretation of the governance documents membership clause. To resolve whether listing on the membership roll or a ninety-day membership cancellation was dispositive, the Court held, would require an ecclesiastical determination by the Court.

Purging membership rolls every ninety days seems unworkable in a volunteer organization like a church and somewhat contrary to the inclusiveness most churches want to offer. Nevertheless, if that is the “rule,” the purge process should be carried out in a disciplined manner. Annual membership roll “clean up” is the preferred practice so that the qualified voters in congregational meetings can be identified and counted. The court was completely silent on whether the church board investigated or whether the allegations against the pastor were determined “not credible.”