Tag: church arbitration

THE FINAL JUDGMENT, AGAIN

Increasingly, it seems, in civil litigation, following a similar trajectory in criminal law, there is no closure. Church litigation is increasingly no exception.

In September 2017 and then in December 2017, federal court and state court opinions in Patterson v Shelton, were reported herein. See the post, And Then Again, Maybe Not. In 1991, the founder and pastor of the church died. The power struggle that ensued was the stuff of legends, dueling and feuding, that is. It resulted in published appellate opinions in 2013 and 2017: 175 A3d 442 (Pa. Cmwlth. 2017); 78 A3d 1092 (PA. 2013). The first conflict involved the struggle to determine who was in charge. The second wave involved the conclusions of a forensic accounting investigator that hundreds of thousands of dollars were misappropriated by the church leadership that succeeded the founder. The third wave involved an arbitration decision in 2006 in which the arbitrator was persuaded by the forensic auditor and appointed a receiver to recover the assets of the church. The appellate court overturned the arbitration award concluding the arbitrator went beyond the scope of contractual authority in fashioning relief. See, 942 A2d 967 (Pa. Cmwlth. 2008). The fourth wave of litigation was the claim that Patterson was not a church leader but merely a member and did not have standing under the not for profit corporations statute to bring the claims. The appellate court overruled the trial court and held as a church member and beneficiary of the not for profit corporation, the church, Patterson had sufficient standing to bring claims. The fifth wave was marked by a bench trial regarding the claims conducted in 2014. The trial court concluded it did not have jurisdiction under the Ecclesiastical Abstention Doctrine of the First Amendment and dismissed the case. That had the effect of leaving the arbitration award as the last determination because the trial court, in effect, held that every decision made thereafter lacked jurisdiction. In the sixth and latest wave of Patterson v Shelton, the trial court was asked to strike its orders enforcing the arbitration award as the final judgment. The trial court declined. The appellate court affirmed.

One reason this litigation became so protracted was that the courts made two errors. The courts did not inquire into their own jurisdiction and its limits early in proceedings. The other was to allow judicial hostility to arbitration to again raise its long discredited visage. Arbitrations are no more or less effectual as dispute resolution mechanisms than jury trials. While judges may have greater experience than arbitration panels in dispute resolution, which in some cases would make a bench trial a better forum, the routine case does not benefit from such experience enough to invalidate the arbitral forum. Only arbitral forums that are either so expensive or so without procedural safeguards that their decision making is suspect are inferior in the typical routine case. However, if the parties contractually selected the forum, it should be assumed both sides knew the costs and the risks. If an arbitrator’s awarded relief seems to exceed the contractual grant of authority, the better practice is to either judicially revise the relief given or to remand to the arbitrator for the revision. Simply vacating the award leads to a quagmire.

DENOMINATIONAL CHURCH ARBITRATION

There are few reported examples of denominational church arbitration that allow study of the process or its purposes. Also, most denominational arbitration systems are still infantile in their development and operation. A few are beginning to mimic the highly developed American Arbitration Association or the Financial Industry Regulatory Authority (“FINRA,” formerly “NASD” and formerly “NYSE”) arbitral forums. Denominational church arbitration is reported so rarely, and probably conducted so rarely, that evaluation of process or results is problematic.

In Garcia v Church of Scientology, Order, (MD FL, Tampa Div., 2018) the United States District Court dismissed the case challenging an arbitral award against the Plaintiffs. The Plaintiffs submitted an arbitration claim to retrieve hundreds of thousands of dollars in donations in two programs of the church the plaintiffs claimed were fraudulently misrepresented. The Plaintiffs challenged the arbitral award on United States Arbitration Act grounds including “evident partiality” and misconduct of arbitrators. The plaintiffs claimed witnesses and documentary exhibits were not heard or reviewed by the arbitrators, the arbitral forum held ex parte meetings with the arbitrators, and the arbitral forum edited or redacted exhibits submitted to the arbitrators. They also claimed their counsel was not allowed to attend, however, the Court determined the record reflected Counsel would have been allowed to attend but would not have been allowed to participate. Considering the challenge in light of the limited review possible under the United States Arbitration Act and the Ecclesiastical Abstention Doctrine, the Court found no sustainable grounds for the challenge. The Court held the Plaintiffs agreed to arbitration, agreed to proceed in arbitration and were bound by church arbitral rules and procedures which included much about which they complained.

Arbitrators as a herd try to do the right thing usually regardless of the procedural niceties imposed by the arbitral forum. However, arbitrators are usually selected because they are in some way allied with the arbitral forum or its sponsors. That is true in commercial arbitration so it should not be a surprise that denominational church arbitrators would be closely aligned with the church denomination. That does not mean the arbitration cannot be fair because sympathy will only go so far. In most arbitrations, it does not play a determinative role because all adverse litigating parties are also aligned with the arbitral forum in some way. If the damages claim presented by the claimant, in commercial or church arbitration, requires a negative interpretation of facts otherwise innocent, such as fund-raising marketing representations as in the case reported herein, the case will be weak at best. Hard facts showing fraud designed and directed especially at a vulnerable plaintiff would be required. Also, if counsel is allowed to attend but not participate, or not allowed to attend, then the arbitration is probably not worth the effort or cost. Most claimants lack sufficient training in advocacy in a litigation setting to represent themselves much less the emotional objectivity needed to put forward successful arguments. Pro Se plaintiffs and claimants get lost in the weeds, do not know when to throw back the little ones, and do not know the decisional paradigm or standards of the arbitral forum well enough to know which parts of their case are important.

AND THEN AGAIN, MAYBE NOT

In a post-dated September 7, 2017, we reviewed a Pennsylvania federal court decision holding the federal court could not enforce an arbitration award reversed by a state appellate court because of a lack of diversity and subject matter jurisdiction.  Patterson v Shelton, 2017 WL 3446885 (ED Penn 2017).  The church split that led to the arbitration award in 2006 and finally to the federal court in 2017 started in 1991.

The story, and the litigation, are not concluded.  In Patterson v Shelton, Slip Op. (PA App, 2017), and apparently in several other proceedings, the Plaintiff challenged the jurisdiction of the courts to reverse the arbitration award.  Finally, the Commonwealth Court of Pennsylvania, an intermediate appellate court, somehow realized the state courts did not have jurisdiction to reverse the arbitration award.  The arbitration contract specifically recited the arbitration would be binding and non-appealable.  Thus, every trial court and appellate ruling after the arbitration award was wiped out and the arbitration award stood as the final decision.  The arbitration award could be reduced to judgment in court and enforced in court.  The opinion does not clearly explain how the prior appellate decision to reverse the arbitration award turned out to be wrong, but recognition of the lack of jurisdiction to reverse the arbitration award was probably the right call.  See, United States Arbitration Act, 9 USC §1, et seq.  Also, Pennsylvania adopted the Uniform Arbitration Act which would require the same result.

Arbitration is a tool like any other in that its best use is in those situations in which a business dispute must be resolved.  In such a dispute it can be very cost effective and very effective.  But, arbitration is typically far more expensive than a court proceeding if the arbitral forum or the arbitrators do not control the proceedings as well as require only modest compensation for their time.  Also, given the high emotions in a church split, like those that fueled more than two decades of litigation in the decision reported above, arbitrators may or may not have sufficient judicial power to govern the proceedings.  Cost-effective arbitration depends on the cooperation of the parties in the discovery process and in emotionally charged cases, like church splits, that cooperation may be in short supply.

THE ECCLESIASTICAL ARBITRATION FORUM

It is rare to get any look inside ecclesiastical arbitration forums because, like nearly all arbitration forums, they are private and not public.  Some church forums have clearly defined rules of procedure and others are a bit more spontaneous.  The arbitrators may or may not have any training in the rules of the forum or arbitration in general.  About the only safeguard for the rights of the parties in most church arbitration forums is that arbitrators almost invariably try to do the right thing.

In Garcia v Church of Scientology, Order, (USDC, MD Fla., Tampa Div. 2017), the Plaintiff sought certain safeguards.  The Plaintiff wanted a disclosure by the arbitrators that there were no ex parte contacts with the church about the case.  The Court held that the Plaintiffs provided no authority indicating the Court had jurisdiction to order such a disclosure.  The Plaintiff wanted the hearing transcribed by a court reporter and a ruling from the Court that certain rules of evidence would not apply.  The Court also held no authority was submitted indicating the Court had the power to order such attributes.  The Plaintiff also argued the church waived the arbitration agreement between the parties but the Court swept it aside in one sentence because the Court held there was no evidence of waiver submitted.  The Court also concluded that the Free Exercise Clause blocked the Court from “resolving internal disputes” regarding religious doctrine.

The Order was very brief and not a full opinion thus commentary is necessarily limited.  Nevertheless, the arbitration clause was in an agreement the Plaintiff signed when they joined the church according to the Court and may also have been mandated by the controlling denominational documents.  The United States Arbitration Act, 9 USC §1, et. seq., apparently could be invoked to enforce the church membership contract containing the arbitration agreement.  While reporting that seeming holding, one has to wonder if the Ecclesiastical Abstention Doctrine would allow a court to enforce an arbitration clause.  But, an arbitration clause is a creature of contract and neutral principles would probably accommodate enforcement, even if the arbitration was intended to rule upon a religious dispute.  While the Court did not describe the procedural rules of the arbitral forum, it remains to be ruled upon whether substantive and procedural due process challenges could be made if the dispute was economic rather than ecclesiastical.