CHURCH DEBT DODGING

While bold steps taken in faith sometimes result in amazing outcomes, typically bold financial steps taken without consideration of the Law of Gravity are not usually exempted from the predictable results.  Church debt is a tool that should be carefully used.  There have been many studies during the last century about the safe ratio of debt to giving, or debt to member income, but rarely are they consulted when church leadership decides to take a leap of faith.

In the Abundant Life Worship Center Bankruptcy, Opinion on Motion to Confirm No Stay is in Effect, (BKR SD Geo., 2020), the church sough to stop foreclosure three times in the prior two years.  The three efforts included one state court injunction proceeding and two federal bankruptcy cases.  The notes were on 40 acres and a newly constructed worship center that totaled $1,650,167.  The church membership was 25-30, although growth after the pandemic was anticipated.  Offerings, the only source of income, dropped from $260,549 in 2018 to $99,484 for the first ten months of 2020.  The church also had non-mortgage debt.  The church argued that the mortgages were not approved by the membership even though the church was a congregational church.  The church argued that the earlier bankruptcy filing also was not authorized by the church membership.  The instant case was the third attempt.  The bankruptcy court held that congregational approval might be important in some circumstances, such as a schism, but not so to support a claim the mortgages were ultra vires.  The lender foreclosed but held the deed pending a ruling that there was no stay in effect.  The court held there was no stay in effect.

These reports are not intended to provide an in-depth treatment of the bankruptcy code, which clearly had some impact on the resolution reported.  The lesson, however, to be learned is that while a congregational church might be able to prevent ultra vires actions by unauthorized church leadership in a schism, it will not likely work as well in commercial transactions.  The church in the reported case over a substantial period of time increased its mortgage load, constructed a building, and otherwise observed the commercial activity.  These things were not done in a corner.  Congregational approval, or acquiescence, could be assumed.

THE CHURCH SUBPOENA

There probably is nothing more confusing to a church than demands for documents or information from courts or government.  Confusion arises because smart people that are not lawyers, relying on some anecdotal past personal experience, believe the church will have the same experience they had.  This is usually wrong.

In Templeton v Bishop of Charleston, Order Denying Motion to Quash, United States District Court, Western District of Washington, No. C20-1578, the trial court denied the motion to quash a subpoena.  The subpoena was served on a priest to testify by deposition in discovery in a molestation tort case.  The priest was not a party to the lawsuit but a mere witness.  The priest requested that the subpoena be quashed alleging that the Ecclesiastical Abstention Doctrine precluded inquiries into church administration.  The priest further argued that a state statute made privileged his communication with his bishop.  The priest lastly argued that the priest had a confidentiality agreement between himself and the bishop which precluded his testimony.  The Court dismissed the Ecclesiastical Abstention Doctrine claim as too broad.  It might apply to a particular question but it would not apply to others the Court held.  The priest also argued he was a “canon lawyer” and a “judge of the ecclesiastical court” and entitled to privilege.  The court denied the claim because the priest was not an attorney at law.  Further, even if there was such a privilege, it might apply to a particular question and not apply to others.  The state statute rendered “confidential communication” necessary for the priest to do his job privileged.  But, the court held such an agreement might immunize a particular question but not others.  The allegation of the confidentiality agreement between the priest and the bishop was generally swept aside because the court doubted such an agreement could override a court order to testify.

Churches that receive a court subpoena, or any other order from a court or government to produce documents, information or testimony, should immediately engage counsel to respond or object on their behalf.  The church insurance carrier should immediately also be notified in writing.  While the insurer may not undertake the representation by retaining outside counsel to represent the church, that is not always true.  It may depend on whether the information sought might related to a future or anticipated lawsuit.  Lastly, the word “immediately” should not be ignored.

RISKS OF PASTORIAL WARNINGS

If a pastor reasonably believes that a parishioner is sexually predatory toward other vulnerable parishioners, the pastor may have a moral duty to take preventative and protective action.  The first consideration must be given to whether a mandatory child abuse statute has been triggered by the factual basis for the pastor’s belief.  If so, only a call to law enforcement is required by law.  However, if the pastor feels other parishioners should be warned, they may be advised cautiously.  If non-members should be warned, there may be certain risks to the method selected.  Litigation risk is one of those.

In Christakis v Deitsch, Slip Op. (Ariz. App. 2020), the plaintiff alleged the pastor wrote a letter to the Plaintiff, the church’s lawyer, and the local police chief in which the pastor described the Plaintiff as “demonstrating an explosive temper on a repeated basis” and other disquieting acts.  The trial court and appellate court held the letter was not actionable because it was not “published,” because it was not sent to the community but only to two others besides Plaintiff.  Use of the letter as an exhibit in a following court proceeding, thus filing it in the public court record, did not make the letter actionable because of the litigation immunity attendant upon court records.  The Plaintiff also alleged that the pastor cast him in a false light by telling “around the community” that “a pedophile in the community was grooming children in order to molest them.”  The appellate court reversed the trial court’s dismissal of the case to allow proceedings regarding the alleged statements of the pastor.

Because a motion to dismiss was overruled means the case was remanded for discovery and other pleadings.  Whether the Plaintiff’s case would survive to trial remained to be litigated.  However, the allegation was not that the pastor kept the alleged “false light” statements inside the church but rather that the pastor was conveying them outside the church to the community.  Generally, statements regarding disciplinary matters among church members are not actionable.  The best practice would generally be to restrict the number of persons that know the details of a disciplinary matter to those that must know.  Pastors that feel the need to warn non-church members should only do so with the assistance of counsel.  Truth may be a defense, but it may require an expensive vindication.

TERMINATION POWERS

Most churches incorporate and then appoint a board of directors (or a similar board using names deemed biblical, e.g., “deacons,” “elders,”) responsible for conducting church business.  Some church governing documents, which may or may not be called a “constitution” or “bylaws,” do not expressly assign to the congregation’s official membership any other power than an annual vote to elect directors to vacancies created by term expiration.  The authority to hire or terminate a pastor is often not expressly stated as that of the board or the congregation.

In Vaughn v Faith Bible Church, Slip Op. (MY App, 2020), the church board terminated the pastor.  The pastor sued claiming that church board had to defer hiring and termination decisions to congregational meetings.  The trial court entered judgment against the pastor and the appellate court affirmed.  The governing documents were silent as to who had authority in the church to hire or terminate a pastor.  The state statute governing corporations did not provide an exhaustive list of powers delegated to the corporate boards, and did not expressly mention hiring or firing as a power.  The courts held that the statutory list of powers placed in the corporate board was not exhaustive so the corporate board would have the power to hire or fire absent a specific delegation in the governing documents.

Because congregational meetings and votes are unwieldy, only small churches tend to rely on congregational meetings or votes to determine most issues, including employment issues.  In small churches, every family committed to the church is usually represented on the board in any event.  In larger churches, the church board is usually the body responsible for day-to-day operations, including hiring and firing.  Church governing documents should spell out which body has the authority to hire or fire a pastor. Other employees should be under the employment authority of the governing board, or the board and pastor, or controversy will plague the lowest staff position turnover.  However, if the documents are silent, a church board created by the governing documents will likely have the authority by default.