Title to local church property like any other property in most states is controlled by the language of a deed filed in governmental property records. But, as the years pass, church life cycles may include names changes as well as substantive changes in affiliations. Sometimes these changes should be reflected in an amended deed. Because institutional memory in a primarily volunteer organization like a church is not well preserved and change in circumstances and conditions is usually gradual disparity in ownership and governance documents can result.
In First Presbyterian Church of Magnolia v Presbytery of the Pines, 2020 Ark. App. 253, the trial court held that the quiet title action commenced by the local church against the denomination was not justiciable. The appellate court reversed and held the quiet title action, and any other properly raised claim, was justiciable if Neutral Principles of Law controlled the outcome. In a quiet title action, Neutral Principles of Law could make the case justiciable. The local church was formed and acquired its property in the mid-Twentieth Century when there were two denominational bodies. The local church was a member of the denominational body that did not have a property reversion clause in its Book of Order until thirty years after the formation of the local church. As a result, the property deed of the local church did not contain a reference to the reversionary clause. Later, the two denominational bodies merged leaving a single denominational organization. The surviving entity did have a reversionary clause in the surviving Book of Order. On remand, the trial court will be faced with a reversionary clause adopted after the fact and twice removed from the original property deed that did not contemplate either reversionary clause.
Some states may place a property deed on a part with denominational governance documents. Denominations may desire that local church property deeds reflect denominational interests. However, that may make mortgages problematic. Local churches must evaluate their denominational affiliation carefully and determine whether the state of residence of the local church would consider denominational governance documents controlling over local church property deeds.
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.
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.
If a church slides into bankruptcy and decides to sell assets to extricate itself, are the members of the church entitled to be heard? Or, are the church members like common stock shareholders and simply along for the ride?
The federal bankruptcy court hearing In re: Sindesmos Hellinikes-Kinotitos of Chicago, Debtor, Memorandum Decision (ND ILL, ED, Bankr., 2019) faced a motion by church members to void an approved sale of real property made by church leadership to satisfy secured creditors. In order to have standing to challenge the authority of church leadership to approve the sale of property, the church members had to show (1) the church intended to vest in church members “a property right sufficient to require service” required by the bankruptcy code and (2) “sufficient to create a pecuniary interest in the outcome of the sale.” To determine if the church intended to create property rights in church members could have required the Court to “probe into the allocation of power within the church.” The Court declined to make that dive but rather relied on state law that determined the “trustees” of a church had the authority to dispose of church assets. The Court noted that the church members may have had the right to challenge the leadership’s decision to sell by invoking “Dispute Resolution Procedures” set forth in the denominational governance documents but did not do so. Because of the absence of a property right conferred by the church on its church members, the church as debtor had no duty to provide notice. In any event, the bankruptcy in question was high profile and reported in the national news because it involved the financial failure of a venerable church, which the Court noted, too.
It seems rather likely that if church members could not prevent the financial failure of their church in the first instance, they would have no unsatisfied property right to assert to stop foreclosures and asset sales. Moreover, church members attempts to engage meaningfully in the bankruptcy proceedings will likely be too late if they did not engage meaningfully before, especially if the opportunity to intervene was well documented. In most foreclosures it would be. In any event, church members will have to demonstrate a property interest greater than that of a common stock shareholder in order to have a seat at the bankruptcy table.