A church received $1,000,000 from its property insurer because of hurricane damage.  At about the time the money was received, the church was faced with a sexual harassment claim.  The church decided the money would be safer from the sexual harassment claimant if the money was held in the trust account of the church’s lawyer.  It is unknown how the church thought putting the money out of sight in their lawyer’s trust account would protect it.  As it turned out, the church feared the wrong person.

The lawyer for the church transferred the money from the lawyer’s trust account to another account which appeared to be owned by the lawyer.  The lawyer spent the money on himself.  The theft was discovered.  The lawyer fled but was captured in another state and extradited.  The lawyer was convicted and drew a prison sentence of fifteen years and disbarred.  Like all wrongdoers, it sometimes seems, the lawyer was gone, dead or insolvent, and in this case two of three.

However, a portion of the million dollars was used by the lawyer to make payroll in his law firm.  His non-partner associate was paid from the proceeds in his routine by-monthly paycheck.  The non-partner associate somehow discovered or was told about the theft, or part of it, after the fact and had no control over the trust account.  The non-partner associate did not immediately report it to the church but hoped another law firm engagement would domino and that money could be used to repay the church.

The court in First United Pentecostal Church v Parker, Slip. Op. (Tex. 2017) held that the these facts stated at least a claim for breach of fiduciary duty against the non-partner associate for failing to timely report the theft.  The remedy would be disgorgement of any part of the proceeds received by the non-partner associate.  At trial, the non-partner associate might have other defenses; it is likely the church will be accused of unclean hands in depositing the money in the lawyer’s trust account presumably to put it out of the reach of a possible victim of sexual harassment.

Also, while the church may have had sufficient property insurance, it seems likely the church believed it did not have coverage for a sexual harassment claim such that asset protection efforts, no matter how misplaced, to the church seemed justified.  In any event, if the scheme was to hide assets, which is not necessarily clear from the court opinion, hiding them in a law firm trust account is not typically going to work and most lawyers would not be a party to it.  It should also be noted that clients generally do not have the means to protect themselves from their own lawyer’s avarice.

 

The United States Bankruptcy Court for the Southern District of Mississippi, as well as a Mississippi county court were not fooled by the machinations of a rogue Pastor.  In, Cross Point Church v Andrews (In Re Andrews), Slip Op. 2016, the Pastor tried to withdraw the church from the denomination.  The denomination removed him from the pastorate of the church.  A part of the church board tried to support the Pastor by entering into an Employment Agreement with him after he had removed, but the Employment Agreement was not submitted to the congregation for a vote and the agreement did not specify the amount of compensation.  Arguing that he was acting innocently under the Employment Agreement, the Pastor and a church treasurer withdrew a year’s salary from the church bank account and deposited the proceeds in the Pastor’s personal checking account.  The Pastor lived on that money for a year while he founded a new church.  The Pastor and the rump of the board locked out the other members from the church and it took them six weeks to regain control and to assist in the installation of the new pastor assigned by the denomination.

 

 The church sued the Pastor in a state trial court and took a judgment for the amount of money withdrawn from the church bank account.  The Pastor sought bankruptcy protection but the church initiated an adversary proceeding.  The bankruptcy court found it did not have authority to revisit the removal of the Pastor under the Ecclesiastical Abstention Doctrine.

 

 Also, the Pastor admitted that as pastor, church officer, and board member, he owed a fiduciary duty to the church to safeguard its funds.  As a corporate officer, that duty was also imposed by statute.  The Pastor was a signatory, two were required but his was often affixed by stamp, to the church bank accounts.  The bankruptcy court found that taking the money was a breach of fiduciary duty.  The Employment Agreement was ignored by the court because the Pastor had been defrocked by the denomination and could not perform as Pastor under the agreement.  Also, the putative church board did not have authority to override the denomination.  For those reasons, the Pastor’s claim that he believed he could scarf up the cash was deemed not reasonable.  The debt to the church for the funds taken was excepted from the bankruptcy.

 

 The lessons in this matter about denominational authority under the controlling foundational documents are routine.  An outright finding that a Pastor exercising control over church assets and funds has a fiduciary duty, the highest duty in the law, to safeguard them should nearly always be considered the norm.  Few Pastors will be sufficiently remote from control of the assets and funds to avoid such a finding.