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.
The Ministerial Exception Doctrine arose from the Ecclesiastical Abstention Doctrine of the First Amendment, in part, and from the statutory exception found in some federal employment laws that exempt religious organizations from the scope of such statutes. It has been refined most recently by the United States Supreme Court in Our Lady of Guadalupe School v. Morrissey-Berru, 591 US ___ (2020). The general import of the rule is that churches and parachurch organizations may select their own ministers without interference by regulators or courts. The question that then followed, as we have explored in many reports, is whether the employee was sufficiently “ministerial.”
In Simon v Saint Dominic Academy, Opinion, (D. NJ 2021), the federal trial court dismissed the case brought by Plaintiff, a “Chairperson of the Religious Department and Campus Minister.” Based on our prior reports that conclusion seemed obvious enough. What was less obvious was whether the Plaintiff’s claim, that the written employment contract was breached, could survive the Ministerial Exception. The federal trial court held that to enforce the written employment contract as to grounds for termination would be prohibited by the Ministerial Exception just as would federal statutory employment claims. While a compensation or similar covenant might have been enforceable under Neutral Principles of Law, the termination claim could not be.
While every case will turn on its own facts, financial contractual terms are most likely to be judged under Neutral Principles of Law and wrongful termination claims under the Ministerial Exception. Hopefully, for most church or parachurch employers, and their employees, this distinction is not too subtle to understand. Recognition of the existence of the distinction might forecast which claims to abandon or defend.
There is often no proof of knowledge by church employment supervisors that sexual misconduct occurred with a minor until long after the fact. One cause is that it is simply not reported to those supervisors at the time. Sometimes, inexplicably, that which is reported is some other tale that does not include any hint of a sexual event. However, sometimes it does become known to church employment supervisors.
In John Doe 122 v Marianist Province, Slip Op. (Mo. 2021), the Missouri Supreme Court reversed, in part, a summary judgment granted to the church. The claim sent back for further proceedings was a claim for intentional failure to supervise clergy. We previously reported on this case on January 29, 2020 regarding the Court of Appeals decision, which should now be considered superseded by this Supreme Court opinion. The Plaintiff’s proof of culpable knowledge by the church was presented by an apparently credible expert witness that personnel file entries contained euphemistic code words used at the time that, indeed, in code referenced inappropriate sexual behavior with minors. The trial court rejected such proof but the Missouri Supreme Court reversed and held it was for the trier of fact, probably a jury, to determine what weight to give the opinion.
While it is true that the standards of one era might differ from another, it is hard to imagine that clergy sexual misconduct could be so easily dismissed in any era by any church supervisory authority. However, it still seems to happen no matter how often legal counsellors decry it. Any church leader or clergy that becomes aware of sexual misconduct with a minor should consult legal counsel to determine if mandatory reporting is required. Such a consultation will likely not be free or quick unless the advice is to immediately report. Advice that indicates reporting is not required should be deliberate, careful, and thoroughly considered.
As we have reported, the battlefield regarding First Amendment religious rights is expanding beyond traditional church organizations to parachurch organizations. Classification of parachurch organizations is difficult in secular eyes because the mission of the parachurch organization may seem secular, i.e., homeless shelters, food pantries, student organizations, etc. Secular ears seem to hear most acutely in places where free speech was once thought to roam freely such as universities. As the opinion reported here quoted, “a religiously affiliated entity is one whose mission is marked by clear or obvious religious characteristics.” Generally,
In Intervarsity Christian Fellowship v Wayne State University, Order and Order Granting Plaintiff’s Motion for Partial Summary Judgment, etc., (ED Mich., SD, 2021), the federal district court in an 83 page opinion considered whether Wayne State violated the First Amendment by rejecting the registration of the Plaintiff as a campus organization. The reason given by Wayne State was that the Plaintiff violated the university “non-discrimination policy” by “requiring that its faith leaders profess to be faithful.” The Plaintiff carried out its mission by engaging student leaders. The student leaders were provided training and required to “undergo an apprenticeship” to become qualified to “provide religious teaching and spiritual guidance to other members.” The District Court held that the Plaintiff as a parachurch organization had the “deeply ingrained right of religious organizations to select their leaders and messengers.” The District Court also noted that the university ignored similar qualifications for leadership in secular, political and other religious organizations. The religious discrimination by Wayne State precluded the plaintiff’s free use of campus meeting rooms and other campus facilities.
The decision reported is interlocutory and partial. The court may make other decisions. The lesson for parachurch organizations interacting with secular forums is that freedom is not free and must be earned through some level of militancy. Wayne State stopped viewing a 75 year old parachurch organization as part of its diversity effort while including other secular, political and religious organizations even though all of them required their student leaders to be adherents to beliefs identified in the governance documents of the organization. Others will do likewise. If discussion does not lead to an accommodation or understanding, then litigation may be required.