Tag: church property

ECCLESIASTICAL ENTANGLEMENTS DEFENSES

A civil court will only apply Neutral Principles of Law to a dispute if the court holds that the court will not become entangled in ecclesiastical issues. If the court holds there could be entanglement, then a court will not proceed by invoking the Ecclesiastical Abstention Doctrine. Merely because a church claimed there would be entanglement will not make the defense viable. The court must agree.

In Russian Orthodox Convent v Sukharevskaya, 2018 NY Slip Op 08167 (NY App. 2018), the Defendant Nun claimed one of the convent priests was engaged in sexual misconduct. Her allegation did not find favorable review and the ruling bishops directed her to vacate the convent. The Defendant Nun refused to vacate and an ecclesiastical court disciplined her by making her ineligible to wear the apparel of a nun or receive communion for two years. However, this did not silence her and she renewed her complaint about the conduct of the priest. An ecclesiastical court permanently defrocked her and ordered her to vacate. She refused and the convent sued to evict her. In defense of the lawsuit, she claimed the ecclesiastical court was attempting to silence her. The trial court held the nun stated an equitable defense to the eviction and dismissed the eviction. The convent appealed the decision. The appellate court affirmed the trial court on Ecclesiastical Abstention Doctrine grounds holding that to determine whether the eviction was justified would require the court to determine if the defrocking of the nun was in retaliation for whistleblowing.

Generally, a court will find that ownership and possession of church property is subject to Neutral Principles of Law and decide the issue. But, in the rare event the ownership or possession of church property cannot be decided without deciding an ecclesiastical issue, the court will leave it where it finds it. The church and the adverse claimant could literally have to wait for the other to die or compromise, no matter how long that might take.

CHURCH PROPERTY AT TAX AUCTION

Many investors troll tax auctions conducted by city, county, state or federal taxing authorities. Because the properties are often distressed or abandoned, the amounts bid typically remain modest. But, the successful bidder gets only a “tax deed,” or whatever that might be called in each state’s practice. Tax deeds are generally enforceable but unlike warranty deeds which can be all but unsaleable and insured, tax deeds can be set aside in a few cases. Buying a church property at tax auction, therefore, may or may not be “final.”

In Spiritlove Ministries v Blessed Peace Church, Slip Op. (Mich. App. 2018), the church property was abandoned by a predecessor owner that was a denominational church. The denomination declared the church property abandoned pursuant to the denominational governance documents and the reversionary clause in the title. The denomination sold the property to the Plaintiff and delivered a quit claim deed. Almost simultaneously, the Defendant discovered the church property and bought it from the taxing authority acquiring a tax deed (or whatever it might be called in Michigan). The Defendant moved onto the property. The Plaintiff church discovered this and asserted its rights and reached an accord with the Defendant church that the Defendant would vacate the property by a date certain. The Defendant acquired a quitclaim deed from the predecessor owner church that had abandoned the property in the first place and reasserted ownership of the property. The Plaintiff sought and obtained from the trial court by summary judgment a quieted title. The court concluded that under the Ecclesiastical Exception Doctrine, the court could not review the denominational decision to declare the property abandoned or the sale of the property to the Plaintiff, making it the enforceable transaction.

Denominational governance documents and reversionary clauses in church property titles remain enforceable. In obtaining a church property by purchase, or in any other way including by gift, these documents must be inspected. Claims the documents are lost or unavailable should not be relied upon. Usually, the documents are in the public record or someone’s attic, because they always seem to turn up. While a tax auction can be a wonderful investment, certain caution must accompany the investment. If due diligence prior to the purchase cannot be completed it should be immediately after. Easy sounding solutions to title problems rarely are either, easy or solutions.

CHURCH PROPERTY RECOVERY

Denominational churches often are not only members of the denomination but through the organizational documents of the church, the denomination, and even a filed real estate title the congregation does not have the power to withdraw their property or assets from the denomination. The rationale for this is that denominational members are believed to trust the denomination to protect their offerings, which are turned into property and assets at the local level, even after the member has died or moved to another local church.

In Ohio District Council of the Assemblies of God v Speelman, 2018 Ohio 4388, Slip Op., (Ohio App. 12th, 2018), declining local church membership caused the remnant of the local congregation to seek a merger with another denominational group and to “disaffiliate” with the Plaintiff. The local church joined the Plaintiff denomination in 1972. The Pastor Defendant was paid $200 per week during his tenure from 2006 to 2011 but he could not arrest the decline in church attendance although his efforts were briefly summarized by the Court and seemed genuine. The trial court after a bench trial (a trial without a jury) ruled in favor of the Pastor Defendant holding the “disaffiliation” and merger with another denominational group was lawful. The appellate court reversed and ordered the trial court to consider organizational documents of the denomination and the local church. The local church title to property did not contain a reservation of the denomination’s ownership interest. On remand, the trial court entered judgement in favor of the Plaintiff denomination but on the damages theories only ordered the property and assets, an 18,000 square foot facility and equipment, returned and only $100 in monetary damages. The Plaintiff denomination appealed the damages award and the appellate court ordered the trial court to assess reasonable monetary damages for loss of use of the facility and affirmed the ordered return of property and assets. Punitive damages, though sought by the denomination, were not assessed because the Pastor Defendant admitted he had assumed the local church denominational affiliation was “voluntary” and terminable at will and did not read the local church organizational documents. Thus, the court found no “malice” with which to support an award of punitive damages.

Local church titles often do not contain reversionary clauses because lending institutions do not believe by foreclosure they can recover clear title against such clauses. Denominations do not require such clauses because local churches need mortgages. This case, as in most, a reversionary clause in the title does not matter. The organizational documents of the local church and denomination control in most cases. Even in cases where the local church documents are unavailable or otherwise murky, the denominational organizational documents will usually be sufficient to force reversion of the property and assets to the denomination. Monetary damages judgments may also be possible and the losing local church leadership should not count on mercy from the denomination bent on recouping litigation costs the denomination often feels were unnecessarily expended. Indeed, if the local church leadership acted with intent or maliciously, punitive damages might be awarded.

CHURCH MERGER LITIGATION

The economic pressures that bring out the purchase, sale and merger of business entities both small and enormous also do the same with churches. Churches are also impacted by the constant drain of members to the latest fads and movements, such as the mega-church complexes of this age. Churches also have life cycles; they are born, they grow, they age out and some die out. While ecumenical churches seem to preserve their outer shell against the ravages of time, nevertheless their congregations go through the same cycles and face the same economic pressures.

In Pure Presbyterian Church v Grace of God Presbyterian Church, Slip Op. (Va. 2018) the Supreme Court of Virginia, affirmed a trial court decision enforcing a merger agreement between two churches. By the time the dissenting group decided to challenge the merger, the merger was well along. Indeed, the opinion implied that the decision to challenge the merger coincided with the attempt of the dissenters to sell their property to a third party before the title transferred to the surviving entity in the merger. The dissenting group argued the Court lacked jurisdiction to hear the dispute under the Ecclesiastical Abstention Doctrine of the First Amendment. Another factor was that the jurisdictional challenge was not pressed until after the adverse jury verdict. While jurisdictional challenges can be made at any time, including on appeal, the psychology of late presentation of the challenge cannot be underestimated. An after thought never has the credibility of a challenge from inception. Be that as it may, the court held the First Amendment did not preclude application of neutral principles of contract law to the merger, even if that had an impact on church governance. The court could verify that the two congregations voted to adopt the merger contract even though that had an impact on church governance. Both could be accomplished to determine the owner of the church property. The dissenters tried to stop the merger enforcement litigation by a bankruptcy filing and automatic stay but, again, were probably too late and the bankruptcy plan was silent as to the merger.

While merging churches often are tempted to move slowly to allow everyone to adjust to the new normal, some members may never adjust. Leaving such minorities opportunities to interfere with or further slow the merger are invitations to expensive legal dramatics. Mergers should be closed on a day certain and all church property re-titled the same day. All bank accounts should be liquidated and closed in the extinguished entity. Indeed, new accounts may be wise in the surviving entity.

CHURCH NAME DISPUTES

It is amazing how emotional a few church members can become over the name of the church. For most, the church name is simply an evangelistic marketing tool like the now ubiquitous ever changing electronic sign. But for some it becomes something as intrinsic as identity. Thus, changing the name of a church is usually done with slow care and consensus building in congregation governed churches. Also, name changes are as easily done as undone in most states. In most states, indeed, the church corporation name can remain the same and the new name can be adopted by merely filing a fictitious name certificate, or whatever the certificate is called in a particular state. Changing the name back merely requires filing a revocation of the certificate. Some churches will vote to adopt an alias name for a year and at the end of the year vote to keep the name or revert to the old name. That is a tried and true method to prevent what happened as described in the next paragraph.

In Gunn v First Baptist Church, Slip Op. (Tenn. App. 2018), the member did not want the name changed to “The Church at Sugar Creek.” The opinion of the court does not recite enough facts to know the basis or content of the objection by the member. Also, it is not clear whether the church corporation changed its name or merely adopted a new alias name using a procedure similar to the one described above. The member sued claiming the congregational vote to change the name was void because non-members or ineligible persons were allowed to vote. The opinion does not state whether the vote was close, recorded in any manner such as with paper ballots or a web-based tally, or whether it was a show of hands or otherwise secret. The court merely looked at the bylaws of the corporation, noted that membership was determined by ecclesiastical considerations, and affirmed the trial court’s dismissal of the case holding the ecclesiastical abstention doctrine limited the court’s jurisdiction over internal church management decision making.

The lesson from this is given in the first paragraph above. But, the other thing to note is that the brief filed on behalf of the member failed to cite a legal authority opposing the notion the ecclesiastical abstention doctrine prevented the court from reviewing a congregational vote. As has been reported on this website more than once, neutral principles of law are often applied to procedural irregularities in congregational votes using state laws governing corporations. While that is rare because it can easily go further than the First Amendment allows, and courts loathe supervising something like that, apparently that authority was not presented to this court.

CHURCH BANKRUPTCY

Fortunately, there are few church bankruptcies.  The bankruptcies that are of note are usually of larger hierarchical church organizations.  Local churches may be foreclosed but after that typically they simply dissipate or meet in rented space or homes.

In Re:  The Archdiocese of Saint Paul and Minneapolis, Slip Op. (8th Cir. 2018), four hundred clergy sexual abuse claimants represented by a creditors committee sought to consolidate all of the 200 affiliated non-profit corporations related to the archdiocese so that their assets could be added to the estate of the archdiocese.  These 200 affiliated non-profit corporations included local parish churches, schools, charities and foundations.  The 200 affiliated non-profit corporations were formed consistent with state law and as a result their boards were composed of the archbishop, vicar general, parish priest and two lay members appointed by the other three.  The affiliates were allegedly directly or heavily controlled by the archbishop, and occasionally abolished some of the affiliates.  However, the Unites States Court of Appeals for the 8th Circuit affirmed the trial courts that refused to grant consolidation.  The 8th Circuit noted that the bankruptcy code allowed substantive consolidation only as an extra-ordinary equitable remedy to be ordered in rare cases.  The occasional failure to adhere to corporate forms or the occasional discontinuation of an affiliate and absorption of its assets was not enough to warrant the remedy.  The remedy was generally expected to be used only when affiliates were part of a Ponzi scheme or were, in fact, mere alter egos of the debtor, neither of which were before the trial court.

Failure to follow corporate forms if sufficiently pervasive that it results in commingling of assets may lead to a conclusion an affiliate is a mere alter ego.  The sufficiency would seem to be reached if corporate forms are disregarded in a cavalier or criminal manner and not in a few isolated incidents.  That the archbishop served on every board and had the power to remove board members, in the case reported herein, resulted as much from state corporation law applicable to all non-profit corporations.  Thus, state corporation law should be consulted to make sure the composition of affiliate’s boards is either expressly authorized or expressly required.

THE DEAD HAND OF THE PAST

Courts will typically refrain from resolving church leadership succession controversies.  A court might make certain the process dictated by the church governing documents is followed such that usurpation is not likely to succeed, especially when in dispute are positions in congregational churches.  In hierarchical church organizations, the courts seem less likely to resolve a dispute because church government is presumptively able to manage its own internal process for elections.

In our post on April 4, 2017, we reported the opinion in Puri v Khalsa, 844 F3d 1152 (9th Cir. 2017) in which the Oregon federal court dismissed the case on the pleadings and on appeal the United States Court of Appeals for the 9th Circuit reversed an Oregon federal district court decision.  On remand, in Puri v Khalsa, Opinion and Order, (D. Or. Portland Div. 2018), discovery proceedings were followed by motions for summary judgment.  Also, a state court four-week jury trial had been concluded on state law theories of recovery.  In the case on remand, the Oregon federal court had all the evidence the parties could muster in discovery and the prior trial, too.  The issue was whether the succession plan of the founding religious leader was enforceable or whether the boards of the denomination could revise or revoke the succession plan.  The founding religious leader died and left written instructions with the lawyer of the corporation regarding the identities of the persons the late religious leader was appointing to the controlling boards.  The Oregon federal court held that the boards could revise the succession plan.  Also, the Oregon federal court concluded the evidence proved that while they may not be conventional churches the defendants were religious organizations.  Also, the court held the board members, because of their authority to choose and remove religious leaders in the church, were governed by the Ministerial Exemption Doctrine.  Finally, finding the entities to be religious organizations brought their internal decision-making into the Ecclesiastical Abstention Doctrine.  Thus, the Oregon federal court dismissed the case.

Succession plans that involve binding beyond the grave are likely to fail.  A founder that wants to preserve a legacy should do so before retirement or death.  Governing documents that invest denominational boards with the authority to select clergy or other church leaders may likewise place the election of board members beyond the reach of a secular court.  Internal processes that select these board members should be carefully designed to avoid over reaching and usurpation because secular court rescue may not be available.  As the foregoing demonstrates, the founder’s legacy was costly to preserve or inherit, and may not, in fact, belong to the founder or the founder’s heirs.