Tag: church property

UNINCORPORATED ASSOCIATIONS AND CHURCH CORPORATIONS

In the beginning, all churches were unincorporated associations.  The demands of modern accounting and property ownership, including liability risk management, pressed the unincorporated association to incorporate.  However, in order to successfully incorporate, the unincorporated association has to follow steps outlined in the law of the state of residence.  Even done amicably, such a transition can be challenging to volunteer led churches and pastors that do not also happen to be lawyers.  In the middle of a church split, the transaction cannot be completed in most states.

An example of this is Church of the First Born of Tennessee, Inc. v Slagle, Slip Op. (Tenn. App. 2017).  Church of the First Born outlived two generations of founders and desperately needed a new organizational structure that would ensure smooth leadership transitions going forward.  This was especially true after the church grew into a multi-campus church and established a church school sited on what probably was millions of dollars of real estate.

Before such an amicable restructuring took place, a church split arose.  The Court was unsure whether the split arose due to the financial pressures of supporting the church school or whether it was a doctrinal issue that arose because after the founders passed away, new leadership did not command the unanimity that the founders earned but surrendered upon their passing.  While the dispute roared around those issues, indeed, those issues were not terribly critical to the resolution.

The Plaintiff was a newly minted church corporation that tried to step into ownership of some of the church assets on behalf of one side of the split.  But, because asset ownership transfers are impossible unless all of the members of the unincorporated association have notice and vote to approve the transaction, the mere incorporation by one group in the split did not have the effect of transferring assets.  The Plaintiff was, therefore, without standing to bring any claim at all and the case was dismissed.

Church leaders have a duty to recognize their own mortality and plan for leadership succession in a fair process.  While many church leaders bristle at the idea of church bylaws or other written policies adopted as the governing rule of the church by a vote of the members, every church that does not have them and does not periodically review and update them increases the risk that a rift in the membership will shatter the peace of the church or in fact doom the church.  A church that can own millions of dollars of property should be able to hire a competent lawyer to lead the church to adopt bylaws or written rules.  Incorporation is a low cost and relatively well understood first step and makes asset management much easier.

COMPELLING GOVERNMENT INTEREST IS ALWAYS COMPELLING – ESPECIALLY WHEN IT IS ABOUT TRAFFIC

There is nothing more annoying than when a statute passed to remediate a wrong is simply defined out of existence by judicial fiat.  The Religious Land Use and Institutionalized Persons Act (“RLUIPA”), 42 U.S.C. § 2000cc et seq is such a statute.  The statute sets forth:

No government shall impose or implement a land use regulation in a manner that imposes a substantial burden on the religious exercise of a person, including a religious assembly or institution, unless the government demonstrates that the imposition of the burden . . . (A) is in furtherance of a compelling governmental interest; and (B) is the least restrictive means of furthering that compelling governmental interest.

One would think the word “compelling,” the word “and” and the word “least” are simple and clear.  But, not so in the United States Court of Appeals for the 6th Circuit.  In the 6th Circuit, in Livingston Christian Schools v Genoa Charter Township, Slip. Op. (6th Cir. 2017), it took 22 pages to sweep these three words out of the way.

In order to deny a church and a religious school a “special use permit” for the school, the governmental interests that were compelling were:  traffic, that the church, not the school because it was a separate entity leasing space from the church, had a “history of failing to comply with its previous special-use permits” by being “disruptive,” and “inconsistency with the single family residential zoning of the surrounding area.”  Compelling these reasons were not by any rational view.

The 6th Circuit has a history of religious organization hostility and proudly recited it in the opinion.  For example, the 6th Circuit held in 2007 that denying a building permit so a church could build a multi-purpose building including a gymnasium was a “mere inconvenience” and not a “substantial burden.”

In the Livingston Christian Schools opinion, the 6th Circuit held that the school had another piece of property available to it that was only 12.1 miles from the subject property.  In other words, parents would have to drive in the morning and in the afternoon 25 miles to cover the round trip during the high traffic times of the day in a suburban traffic setting.  (In Oklahoma City, where I am located, we only have rush thirty minutes but my friends on both coasts are envious.)  I rather suspect that if the traffic was as compelling a governmental interest as the 6th Circuit held it to be, then that mileage would have strangled the school in short order.  The court noted the school had 139 students before its move to the church property, might have had 190 afterwards, but with the uncertainty of location looming because of the permit denial, might have an uncertain future.  That was not, however, “substantial.”

The 6th Circuit was critical of the school for not providing financial records or enrollment records to prove the necessity of its move to the church property it wanted to lease.  Given the enrollment noted above, it is surprising the school had sufficient resources to litigate at all, much less appeal.

BOARDS AND TITLES

Church boards are called by a plethora of names and titles.  Some of the names and titles are derived from scripture, some from state statutes, and some from old traditions no longer followed.  Generally, churches do not call their board a “board of directors,” partly because of the history of church corporation statutes in some states, and sometimes to avoid business or commercial trappings.  Regardless of the name or title, church boards derive their authority from foundational documents.  Usually local church corporate bylaws at the least define the power and authority of the board(s) but denominational foundational documents can also limit a local church board’s reach or require prerequisites to the exercise of authority.

Usually, a single board member can do little or nothing.  In the past, a small church by statute might have only a single trustee (or whatever name or title is given) authorized to transact the church business.  But, in the more modern era corporate church bylaws usually require three trustees or more to transact business.

In Burns v Kingdom Impact Global Ministries, Inc., Slip Op. (NC App. 2017), one faction tried to withdraw the church from the denomination and then ousted the faction that tried to stay with the denomination.  The faction leading the withdrawal charge tried to merge a new corporation with the existing church corporation and “merge it out of existence.”  A trustee of the “merged” corporation was called upon to transfer real estate titles from the original church corporation to the “merged” surviving church corporation.  Some, and maybe all, of the board members of the original church corporation, and members of the ousted faction, sued the “merged” surviving corporation and alleged the sole trustee that signed the “merger” documents and the transfers of property titles did not have sufficient authority to do so.  The trial court and the appellate court agreed.

The corporate “merger” may have been an attempt to strip the denominational exclusivity language from the bylaws and to achieve withdrawal from the denomination.  The effort failed because the records of the congregational votes taken to authorize these actions seemed dubious to the court.  Also, the trustees that had authority to transact the church’s business did not authorize the transactions and the sole trustee that acted did not have sufficient authority to act alone.  One of the properties sought to be transferred contained a restrictive title covenant that the “merged” corporation could not meet because it was never affiliated with the denomination.  In any event, this was nearly an ignominious end for a seventy year old church.

One other lesson seems to be that churches should probably update their property titles and bylaws periodically, probably every decade, and employ competent counsel to assist.  Another would be that concentration of authority may be needed in a new church work but should be wielded by a church board acting as a collegium as soon as the church is mature enough to own real property.

BYLAWS AMENDMENTS AS ESCAPE HATCHES

The local church existed for 163 years and had been voluntarily affiliated with five different denominational groups.  Thus, this was not the situation often seen in which the local church was actually founded by the denomination.   The local church decided to disaffiliate due to theological issues from the fifth but the denominational document imposed a property trust on the local church.  The disaffiliation process led to a final break and the denomination sought foreclosure on the local church property pursuant to the property trust.  However, a couple of years before commencement of the disaffiliation process, the local church amended its corporate bylaws and removed the property trust.  Thus, in the foreclosure action, the local church submitted a defense based on the bylaws that contained no property trust clause.  It worked.

In Presbytery of the Twin Cities Area v Eden Prairie Presbyterian Church, Inc., Slip Op. (unpublished) (Minn. App. 2017), the summary judgment for the local church was affirmed.  The court noted that the denominational document only recently had been amended to claim that property “is a tool for the accomplishment of the mission” and based on that language the denomination claimed the property dispute was ecclesiastical and had to be resolved by the denomination.  However, while the denominational document prohibited revocation of the property trust clause by the local church, it did not preclude bylaws amendments by the local church.  Therefore, because the trust language was erased from the local church bylaws by an amendment that was not prohibited, it was valid.

The court held there was no proof that the hierarchical “ruling” of the denomination in support of the property trust was inviolate because it did not appear to be a matter of “polity or faith.”  There was no proof it was a matter of “polity or faith” because the local church was not prohibited by the denominational document from amending its bylaws.  Thus, without an ecclesiastical issue the neutral principles doctrine looked at the applicable church bylaws, found no remaining property trust after the amendment of the bylaws, and entered judgment for the local church.

The court also rejected “this notion” that property was a “temporal tool for the accomplishment of the mission of Jesus Christ in the temporal world” that would always be an ecclesiastical issue.  Even if it was true, the local church had been paying for its property for a century before it joined the fifth denomination and the denomination could not claim it was acting as trustee for the contributions of denominational members except in the last third of the local church’s existence.

For local churches considering severing denominational ties, the lesson is that the foundational documents of the local church may still be lawfully amended in some instances. A denominational property trust might be neutralized.  For denominations, the lesson is to limit unapproved local church bylaws amendments.  Another technique is to make sure the title documents reflect the property trust.  However, a notation on title documents might impair credit worthiness for future refinancing or under an existing mortgage may not be possible.

FINDING A BURNING BUSH — CHURCH DOCUMENT AUTHENTICATION

When a church split spills out into the street and ends up in court in a jurisdiction that will apply neutral principles to decide the case, each side should be prepared to provide authenticated documentation of their right to own the church property or rule the church.

Church property title can often be established by documents publicly filed or denominational documents owned by many different people.  But, when church property ownership turns on identification of the church leadership, especially on the local church level, church document authentication can become a challenging issue because many local churches are not good record keepers and not all foundational documents are filed in the public record.  Getting a volunteer church officer or a part-time secretary to timely find and authenticate a document can be a challenge.  Finding a corporate seal or encouraging those volunteers to appear before a notary can be a challenge, too.  Local churches often do not have and cannot find corporate minutes for the current year, much less years past.  Finding a burning bush is sometimes less stressful.

In a bankruptcy adversary proceeding, First Korean Christian Church v DW Kim, Memorandum Decision (Bankr. ND CA, 2017), in order to rebut a claim he had been defrocked by the denomination, the former pastor submitted an unsigned and unauthenticated document.  The unauthenticated document purportedly indicated a reversal of the decision of the disciplinary authority of the denomination to strip the pastor of his credentials.  The former pastor also claimed the court did not have jurisdiction to decide the question of his denominational credentialing or whether he could serve as pastor of the local congregation.  The Court rejected the unauthenticated document and based on the authenticated documents granted judgment to the local church and the denomination.

In many cases, if a contested document is not authenticated, it can be rejected as proof by a court without anything further.  Also, a document that is not authenticated will typically not provide the basis for a challenge to an authenticated document.

In a church or denomination, sometimes the proof has to be marshalled as to whether the authenticating or endorsing witness actually has the authority to authenticate or endorse a document because to an outsider the authority may not be readily apparent or identifiable.  This is especially true of denominations that have governing boards that meet infrequently if such a board is the only authority that can authenticate or delegate the authority to do so.  In other words, sometimes a witness must be found that can testify truthfully that the authenticating or endorsing witness actually has authority to do so.  Sometimes, as noted above, it is the burning bush one must find.

SIGN WARS – AESTHETICS RULES

Like the proverbial finger stuck in a dike, some towns still try to limit the growth of electronic variable display signs, generally to keep them out of neighborhoods rather than commercial areas.  Churches migrating from manual signs often find these ordinances stand in the way of modern signage for churches because churches are often in residential areas and are often the last to update to new electronic signs.  Thus, while churches might be the first in the residential area to have any sign they are usually last to install an electronic sign and therefore not grandfathered by the time the ordinances were amended to address the age of the electronic sign.  The electronic variable display signs are usually programmable from the church computer system or someone’s cellular data phone, which is the attraction.  The manually changeable signs require ladders and a high wire act, usually in high wind.

In Signs for Jesus v Town of Pembroke, Memorandum and Order (D. NH, 2017), the New Hampshire federal court was asked by Signs for Jesus, a non-profit para-church organization assisting the church with an electronic variable display sign and the Plaintiff, to set aside the ordinance of Pembroke that disallowed such a sign in the part of the town in which the church was located.  It is unclear from the opinion why Signs for Jesus was litigating in federal court rather than in the state trial court.  It seemed that Signs for Jesus wanted to test some of the federal legal rights for churches.  If that was the case, then this seemed like a case lacking facts essential for such a “test case.”

The church was in a section of the town in which the electronic variable display signs were barred.  The only two exceptions in the area of the church were signs owned by a gas station and a public school; the gas station sign predated the passage of the ordinance and was thereby grandfathered and the public school as a state political subdivision could not be regulated by the city government.  The ordinance merely banned the signs in residential areas and did not apply uniquely to churches or to sign content.  The stated purpose of the ordinance was to preserve aesthetics, a “semi-rural” ambiance.

Signs for Jesus’ federal court complaint challenged the constitutionality of the ordinance, alleged First Amendment free speech rights were violated, alleged a Fourteenth Amendment Equal Protection claim, alleged a Religious Land Use and Institutionalized Persons Act (“RLUIPA”) claim, and alleged a Due Process claim.  The constitutional claims were disposed of because the ordinance was “content neutral” and did not single out churches.  The RLUIPA claim was denied because the church did not prove the ordinance was a “substantial burden” to religious exercise by the church and did not prove treatment on less than equal terms, both of which are proof required under the statute.  The opinion was detailed although this summary is not.

RLUIPA might have been of some help if the record had been developed differently.  Although Signs for Jesus sought a variance (or the church did), it was the denial of the variance by a concomitant use of discretion that might have been the better basis for a claim, but that was not the focus of the claim, at least in the federal court’s recitation of the facts.  Also, the lesson from this case might be that political solutions with elected officials might be better pursued than litigation in ordinance issues.  Local elected officials are often reluctant to refuse relief to a church.  Also, the church could have considered placing a sign in the commercial district of a town as small as Pembroke.  Humorously, sometimes planning such a sign where no one else wants it but where it is legally permitted can obtain support for a variance.

INSURANCE CLAIMS – THE LEGAL MINEFIELD

One of the axioms that govern lawsuits is that litigating about litigating is almost always the best first strategic move by the defense.  It is almost always the Plaintiff in a lawsuit that has suffered some loss and then to recover the loss legal fees and expenses must be paid.  This has the impact of deepening the loss without certainty of recovery.  Also, litigation choices, which are almost always at best guesses about future events in a case, e.g., whether this expert witness will persuade when another might not, or whether a witness will give reliable trial testimony or whether a deposition should be taken to reduce that uncertainty, will drive the cost but not always the outcome.

An example of this is Ministerio Evangelistico International v United Specialty Insurance Company, Slip Op. (SD FL, Miami Div., 2017).  Ministerio endured water damage from a roof leak and could not reach an accord with its insurance carrier.  The opinion does not disclose the reason for the dispute but a reasonable speculation might be that the insurance carrier thought a neglected maintenance issue was the culprit rather than roof damage from a casualty loss.  Regardless, Ministerio sued but sought a declaratory judgment, a declaration of rights under the policy, rather than merely a breach of contract claim or a bad faith claim.  The insurance carrier moved to dismiss the declaratory judgment claim, only one of two claims the church had, and the court dismissed it.  The case continued as a breach of contract claim but Ministerio likely incurred legal fees resisting the carrier’s motion to dismiss the declaratory judgment claim.  The case started in state court at the end of 2015 and by April 2017 had only reached the Answer stage, meaning a year and a quarter passed.  Many federal courts in the United States can still bring a case to conclusion in that amount of time.

The longer a case lasts, higher legal fees, higher expenses, and greater fatigue are often the result.  Insurance carriers, however, because litigating risk is part of their business model and part of their cost of doing business, are less sensitive to such fatigue than would be a church.  Thus, a lesson from this case is that church litigants should be focused and not scattershot in their lawsuits to avoid, if possible, the trap of litigating about litigating.  Indeed, in this case, after a year of litigating about litigating, the case is not over but is barely under way.