Arbitration
Key point 7-04. Churches and denominational agencies can avoid church property disputes by adopting appropriate nondoctrinal language in deeds, trusts, local church bylaws, or denominational bylaws.
An Iowa court ruled that a dispute over control of a church’s property following its attempt to withdraw from a parent denomination was governed by a binding arbitration clause in the denomination’s governing document. In 2002, an Iowa church requested formal affiliation with the Evangelical Methodist Church (EMC), headquartered in Indianapolis, Indiana. In 2010, the church voted unanimously to sever its affiliation with the EMC, which prompted the EMC to ask a court to compel the dispute to be resolved through binding arbitration. Iowa law specifies that “a provision in a written contract to submit to arbitration a future controversy arising between the parties is valid, enforceable, and irrevocable unless grounds exist at law or in equity for the revocation of the contract. This subsection shall not apply to any of the following: A contract of adhesion, a contract between employers and employees, or unless otherwise provided in a separate writing executed by all parties to the contract, any claim sounding in tort whether or not involving a breach of contract.”
existence of a valid contract to arbitrate
EMC claimed that its governing document (the “Discipline”) “is contractual even though it does not specifically use the term ‘contract’ in identifying the parties’ relationship.” In essence, the Discipline functions as an offer to local churches to join the EMC, and the terms of the offer are the terms contained in the Discipline. Paragraph 701 of the Discipline states, in pertinent part:
The Evangelical Methodist Church, its districts and congregations (collectively, the “Parties,” individually, “party”) agree that they will attempt to resolve all non-doctrinal disputes among themselves without resort to the courts. A non-doctrinal dispute is a dispute within the Evangelical Methodist Church that a civil court could otherwise decide and, therefore, does not include matters of church doctrine. For example, all disputes between the Parties concerning real and personal property, including all property questions arising out of or related to the withdrawal of a congregation from the Evangelical Methodist Church, are non-doctrinal disputes. The Parties agree to abide by the requirements of the Discipline regarding withdrawal and other non-doctrinal disputes. This Chapter does not govern disputes regarding a minister’s or member’s alleged violation of church doctrine.
The court noted that “a valid contract must consist of an offer, acceptance, and consideration,” and that “in this case, the Discipline contained EMC’s offer and the Resolution for Affiliation was the church’s acceptance. By its statement in its Resolution for Affiliation to accept ‘the collection of rules and procedure and organization entitled, Discipline of Evangelical Methodist Church,’ it agreed to be bound by the provisions of the Discipline, including the arbitration provision …. Based on general principles of contract law, the record supports there was an offer and acceptance between the parties in their assent to be bound and formally affiliated.”
The third element of a valid contract is “consideration,” which the court concluded was satisfied by “the mutual benefits obtained through the denominational relationship.” The court concluded: “Because the three requisite elements of a contract—offer, acceptance, and consideration—were present between the parties … the parties agreed to be bound by the provisions encompassed in the Discipline.”
The church claimed that even if a contract to arbitrate the dispute existed, it was unenforceable since it was a “contract of adhesion.” A contract of adhesion is a contract “drafted unilaterally by the dominant party and then presented on a take-it-or-leave-it basis to the weaker party who has no real opportunity to bargain about its terms.” The church argued that when it signed the Resolution for Affiliation, “there was no negotiation back and forth with EMC relative to any terms and conditions in the discipline,” nor was it “advised by EMC or made aware by them of any provisions in the Discipline relative to arbitration or any provisions relative to withdrawal from the church. Rather, all that was discovered later.”
EMC claimed that the church’s Resolution for Affiliation was not a contract of adhesion because it “freely chose to affiliate with EMC [and so] the Discipline is a contract among equals and not an adhesion contract.”
The court concluded that the Discipline was not a contract of adhesion: “The determination of whether a contract is a contract of adhesion involves the issue of unconscionability …. Factors which may contribute to a finding of unconscionability in the bargaining process include the following: belief by the stronger party that there is no reasonable probability that the weaker party will fully perform the contract; knowledge of the stronger party that the weaker party will be unable to receive substantial benefits from the contract; knowledge of the stronger party that the weaker party is unable reasonably to protect his interests by reason of physical or mental infirmities, ignorance, illiteracy or inability to understand the language of the agreement, or similar factors.” The court concluded that “none of these factors, nor any other facts provided by the parties, indicate the agreement between the two parties and contained in the Discipline was unconscionable. We therefore conclude that the agreement between the parties was a valid contract—and not a contract of adhesion.”
a dispute covered by the arbitration agreement
Having found that a valid arbitration agreement existed, the court turned its attention to the question of whether the dispute over the church’s property was the kind of “nondoctrinal” dispute the Discipline required to be arbitrated. The EMC insisted that the dispute was nondoctrinal, while the church claimed the dispute was doctrinal since the underlying dispute “concerns doctrinal differences between the pastor and EMC.”
The court concluded that “because either a proper withdrawal under the Discipline or an improper withdrawal where the church’s building could be left in the hands of EMC will affect the property interests of both parties, and these property interests are contemplated in and embraced by the language of paragraph 701 [quoted above] we find that a non-doctrinal dispute exists between the parties and that the dispute concerning the property, which stems from the proposed withdrawal, is subject to resolution via the agreed upon method under the Discipline utilizing ‘Christian conciliation, mediation, or arbitration.’ We therefore affirm the district court’s ruling, granting EMC’s application for order to compel arbitration.”
What This Means For Churches:
This case demonstrates that a binding arbitration provision in denominational governing documents represents one way to resolve church property disputes, so long as the provision meets any applicable legal requirements and clearly applies to property disputes. General Conference of Evangelical Methodist Church v. Faith Evangelical Methodist Church, 809 N.W.2d 117 (Iowa App. 2012).
