Mosque Members’ Lawsuit Concerning Financial Improprieties Must Be Resolved By Binding Arbitration Due to Mosque Bylaws’ Arbitration Clause

Court concluded that the mosque’s bylaws constitute a contract between it and plaintiffs.

Bio

State: New Jersey
Categories: Arbitration, Charters, Constitutions, and Bylaws

Key point 10-16.8. Churches have various defenses available to them if they are sued as a result of a personal injury. One such defense is an arbitration policy. By adopting an arbitration policy, a church can compel members to arbitrate specified disputes with their church rather than pursue their claim in the civil courts.

A New Jersey court ruled that a lawsuit that members of a mosque brought against other members as a result of alleged financial improprieties had to be resolved by binding arbitration as a result of an arbitration clause in the mosque's bylaws.

In 1989, a mosque was incorporated under the New Jersey Nonprofit Corporation Act. The mosque is a nonprofit charitable, religious, and educational organization. Its certificate of incorporation asserts its purpose is, among other things, to serve members of the Islamic faith by providing a house of worship, and its bylaws provide the different types of membership one may have in the mosque. One type is to be a member of the general assembly. The general assembly is composed of all "active members," defined as those who attend prayers regularly, participate "actively" in mosque "activities," abide by the bylaws, pay dues, and practice Islam daily. The general assembly is the highest authority in the mosque, although the Board of Trustees (board), which represents the general assembly, is the highest policy-making authority.

Several members of the mosque's general assembly sued the mosque and other members (the "defendants") alleging mishandling of mosque funds. Specifically, the lawsuit alleged that one defendant used the mosque's credit cards to pay for some of his personal expenses and the legal expenses of the mosque's imam. The plaintiffs also claim that the mosque retained a member as an insured on its health insurance plan after he ceased working for the mosque, and arranged to have the mosque pay for his children's school tuition.

The defendants asked the court to dismiss the complaint on the ground an arbitration clause in the bylaws compelled the claims in the complaint be submitted to arbitration. This arbitration clause provides as follows:

The board shall create an Islamic Arbitration Committee of 3-5 members in case of disagreement among board members or general assembly members of matters related to the center, such committee shall consist of a Lawyer, an Imam, and Community Leaders. All disputes arising hereunder shall be resolved by arbitration by the aforementioned committee pursuant to policies and procedures established by such committee from time-to-time. All parties involved shall approve of the members of the Arbitration Committee. Decisions of the committee shall be binding on all parties and may be entered in a court of competent jurisdiction.

The trial court declined to dismiss the plaintiffs' complaint, finding the allegations were "cognizable claims in a court. They deal with misuse of a corporate fund. They address those types of concerns that are standard in a corporation type dispute with regard to the conduct of the board. And those are things that clearly belong in a court to be adjudicated."

The defendants appealed, claiming that the arbitration clause required the lawsuit's claims to be submitted to arbitration.

A state appeals court began its opinion by noting that "arbitration is a favored method of resolving disputes," and that "the New Jersey Arbitration Act provides, in part, that an agreement contained in a record to submit to arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of a contract."

Because of their favored status, arbitration agreements "should be read liberally to find arbitrability if reasonably possible … . If there is a valid and enforceable agreement to arbitrate disputes and the particular dispute between the parties falls within the scope of the agreement, the agreement must be enforced."

The court noted that "nonprofit corporate associations are given the utmost latitude in their regulation and management of intra-corporate affairs," and that "a voluntary association may, without direction or interference by the courts, draw up for its government and adopt rules, regulations and bylaws which will be controlling as to all questions of doctrine or internal policy." The court continued:

A non-profit organization's private law generally is binding on those who wish to remain members. Typically, a court will not intervene in the affairs of a non-profit association unless the complaining parties have suffered an invasion of their civil rights, of person or of property. Only the most abusive and obnoxious bylaw provision could properly invite a court's intrusion into what is essentially a … thicket. Ordinarily, the contracting parties, not the courts, must weigh and evaluate the wisdom of their corporate agreements and regulations. Having voluntarily submitted to the rule of the corporate majority, all members are thereby bound and are barred from seeking judicial redress unless the corporate rule or action complained of contravenes the certificate of incorporation, [state] law or a strong public policy of that state.

In the present case, the plaintiffs claimed that the arbitration provision was not contained in a contract but merely in the mosque's bylaws to which, they contend, they are not parties and thus not bound. However, the court noted, "as a matter of law, bylaws of a voluntary association become a part of the contract entered into by a member who joins the association … . Thus, the mosque's bylaws constitute a contract between it and plaintiffs."

The court ordered the plaintiffs' claims to be resolved by arbitration.

What this means for churches

This case is important because it illustrates that arbitration is a potential means of resolving internal church disputes without having to go to the civil courts. It is imperative that any arbitration provision be drafted by an attorney, since several courts have refused to enforce arbitration provisions in the governing documents of churches and religious denominations on the basis of technical defects not understood by the laypersons who drafted the provision. An attorney also will be able to apprise church leaders of the advantages and potential pitfalls of this form of dispute resolution. Matahen, et al. v. Sehwail, et al., 2016 WL 1136602 (N.J. App. 2016).

Legal Developments

Arbitration of Disputes

Arbitration is a potential way to resolve church disputes without going to the civil courts.

Richard R. Hammar, Attorney, CPA

Bio

State: Iowa
Categories: Arbitration

Church Law and Tax

Arbitration of Disputes

Arbitration is a potential way to resolve church disputes without going to the civil courts.

Richard R. Hammar, J.D., LL.M., CPA

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.

Key point 10-16.8. Churches have various defenses available to them if they are sued as a result of a personal injury. One such defense is an arbitration policy. By adopting an arbitration policy, a church can compel members to arbitrate specified disputes with their church rather than pursue their claim in the civil courts.

An Iowa court compelled a church to submit to the arbitration of a dispute it had with a denominational agency as a result of an arbitration provision in the agency’s governing documents. A pastor wrote his denomination (the “national church”) informing it that his church had voted unanimously to withdraw from the national church. An officer of the national church informed the pastor that the actions of his church violated the denominational Book of Discipline in several respects, including a requirement that all disputes be resolved through Christian arbitration. The Book of Discipline specifies that the national church and its affiliated congregations “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 … that a civil court could otherwise decide and, therefore, does not include matters of church doctrine.”

When the pastor refused to resolve the dispute through arbitration, the national church responded by asking a court to compel arbitration as required by the Book of Discipline. The court granted the national church’s request and ordered the dissident church to submit to arbitration. The church appealed, claiming that there was no enforceable agreement to arbitrate.

A state appeals court began its opinion by noting that arbitration “is a matter of contract and parties cannot be compelled to arbitrate a question which they have not agreed to arbitrate.” The court cited a state statute requiring agreements to arbitrate to be contained in a “written contract.” The court ruled that the Book of Discipline constituted a written contract requiring disputes to be settled through arbitration even though it did not use the term “contract.” It construed the Book of Discipline as an “offer” to local churches to join the national church, and churches “accepted” the offer by adopting a resolution for affiliation. The court concluded that “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.”

Having found that a valid arbitration agreement existed, the court addressed the question of whether the conflict in this case was non-doctrinal in nature, since such a finding would compel arbitration under the Book of Discipline. The court agreed with the national church that the dispute was non-doctrinal since it involved control of church property, which is an issue that the civil courts may resolve. It concluded:

Because either a proper withdrawal under the Discipline or an improper withdrawal where [the church’s] building could be left in the hands of [the national church] will affect the property interests of both parties, and these property interests are contemplated in and embraced by the language of [the Book of Discipline] 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 [the national church’s] application for order to compel arbitration.

What This Means For Churches:
This case is important because it illustrates that arbitration is a potential means of resolving internal church disputes without having to go to the civil courts. It is imperative that any arbitration provision be drafted by an attorney, since several courts have refused to enforce arbitration provisions in the governing documents of churches and religious denominations on the basis of a technical defect that was not understood by the laypersons who drafted the provision. General Conference v. Faith Church, 809 N.W.2d 117 (Iowa 2012).

This article first appeared in Church Law & Tax Report, March/April 2013.

Church Law & Tax Report is published six times a year by Christianity Today International, 465 Gundersen Dr. Carol Stream, IL 60188. (800) 222-1840.© 2013 Christianity Today International. editor@churchlawandtax.com All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. “From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.” Annual subscription: $69. Subscription correspondence: Church Law & Tax Report, PO Box 37012, Boone, IA 50037-0012.

Legal Developments

Breaking Away from the Parent Denomination

Binding arbitration clause controls church property dispute.

Richard R. Hammar, Attorney, CPA

Bio

State: Iowa
Categories: Arbitration

Church Law & Tax Report

Breaking Away from the Parent Denomination

Binding arbitration clause controls church property dispute.

Richard R. Hammar, J.D., LL.M., CPA

Arbitration

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).

Legal Developments

Disaffiliating from a Parent Denomination

Two rulings address the control of church property.

Richard R. Hammar, Attorney, CPA

Bio

State: Georgia
Categories: Arbitration, Church Property

Church Law & Tax Report

Disaffiliating from a Parent Denomination

Two rulings address the control of church property.

Richard R. Hammar, J.D., LL.M., CPA

Key point 7-03.3. Most courts apply the “neutral principles of law” rule in resolving disputes over the ownership and control of property in “hierarchical” churches. Under this rule, the civil courts apply neutral principles of law, involving no inquiry into church doctrine, in resolving church property disputes. Generally, this means applying neutral legal principles to nondoctrinal language in any one or more of the following documents: (1) deeds to church property; (2) a church’s corporate charter; (3) a state law addressing the resolution of church property disputes; (4) church bylaws; or (5) a parent denomination’s bylaws.

The Georgia Supreme Court issued two rulings addressing the control of church property when churches disaffiliate from a parent denomination. The two cases, involving an Episcopal and a Presbyterian church, are summarized below.

Case #1: Rector, Wardens, Vestrymen of Christ Church in Savannah v. Bishop of Episcopal Diocese of Georgia, Inc., 718 S.E.2d 237 (Ga. 2011)

This case involved a dispute over control of property belonging to the oldest church in Georgia, Christ Church in Savannah (“Christ Church”), with a history spanning almost three centuries. As with so many hierarchical church property disputes that end up in court, this case had its genesis in doctrinal positions taken by the general denomination—the Protestant Episcopal Church in the United States of America (“Episcopal Church”)—that were opposed by a majority faction of the local congregation. In March 2006, the leadership of the majority faction voted to sever Christ Church’s 180-year-old ties with the Episcopal Church and the Episcopal Diocese of Georgia (“Georgia Diocese”) without advance notice to the Bishop of the Georgia Diocese. The congregation voted to denounce the Episcopal Church for “abandoning the faith,” and join the Diocese of Soroti in the Anglican Province of Uganda.

The minority faction, which remained loyal to the Episcopal Church, had to find another place to worship. The Georgia Bishop recognized the minority faction as the true Christ Church entitled to control of the church property. The Bishop also recognized the rector, wardens, and vestry elected by the minority faction as the rightful leaders of Christ Church. However, the majority faction refused to surrender the church property, prompting the Georgia Diocese to ask a court to declare that all property of Christ Church is held in trust for the Episcopal Church. The trial court granted summary judgment in favor of the Episcopal Church and Georgia Diocese, and a state appeals court affirmed this ruling. The majority faction appealed to the state supreme court.

Having reviewed the governing documents of the local church and the general church, we concluded … that a trust on Christ Church’s property in favor of the Episcopal Church existed well before the dispute erupted.

The Georgia Supreme Court began its opinion by noting that “secular courts may resolve church property disputes,” and “to avoid First Amendment concerns, Georgia courts apply neutral principles of law to determine whether the local congregation or the parent, or general, church in a hierarchical denomination like the Episcopal Church has the right to control local church property, while avoiding any inquiry into religious doctrine.” These neutral principles include “deeds and other instruments of title, state statutes, and documents regarding local and general church government.”

The court quoted from a 1979 ruling of the United States Supreme Court, which approved the “neutral principles” approach to resolving church property disputes. Jones v. Wolfe, 443 U.S. 595 (1979). The Supreme Court said:

Under the neutral-principles approach, the outcome of a church property dispute is not foreordained. At any time before the dispute erupts, the parties can ensure, if they so desire, that the faction loyal to the hierarchical church will retain the church property. They can modify the deeds or the corporate charter to include a right of reversion or trust in favor of the general church. Alternatively, the constitution of the general church can be made to recite an express trust in favor of the denominational church. The burden involved in taking such steps will be minimal. And the civil courts will be bound to give effect to the result indicated by the parties, provided it is embodied in some legally cognizable form.

Two months after this ruling, at the Episcopal Church’s 1979 General Convention, the House of Bishops passed the following amendment to Title I, Canon 6 of the Canons of the Episcopal Church:

All real and personal property held by or for the benefit of any Parish, Mission or Congregation is held in trust for this Church and the Diocese thereof in which such Parish, Mission on Congregation is located. The existence of this trust, however, shall in no way limit the power and authority of the Parish, Mission or Congregation otherwise existing over such property so long as the particular Parish, Mission or Congregation remains a part of, and subject to, this Church and its Constitution and Canons.

The amendment, along with others that were enacted at the same time, became known as the “Dennis Canon.”

Over the next two decades, Christ Church continued to obtain property without making any effort to avoid the general church’s control and otherwise continued to function as a constituent member of the general church, complying with the constitution and canons of the Episcopal Church and the Georgia Diocese. This changed in 2003 when the Episcopal Church General Convention approved the election of a non-celibate gay person, and the recognition that same-sex unions are a part of our “common life.” The dispute deepened in 2004 and 2005, as representatives of Christ Church continued to express concerns to the Georgia Bishop about the theological direction of the general church. In 2007, the board of Christ Church adopted a resolution, later approved by a 172-24 vote of the congregation, which denounced the Episcopal Church and the Georgia Diocese as having abandoned the faith and purported to place Christ Church under the ecclesiastical authority of the Anglican Province of Uganda and the Diocese of Soroti.

The Georgia Supreme Court, based on a neutral principles of law analysis that relied primarily on the Dennis Canon, concluded that the property of Christ Church was held in trust for the benefit of the general church and the Georgia Diocese:

Having reviewed the governing documents of the local church and the general church, we conclude … that a trust on Christ Church’s property in favor of the Episcopal Church existed well before the dispute erupted that resulted in this litigation …. Like the highest courts of other states, we view the Dennis Canon as making explicit that which had always been implicit in the discipline of the Episcopal Church (and the Church of England before it), as shown in the documents setting forth, in legally cognizable and nonreligious terms, the property-related rules and the relative authority of Christ Church, the Georgia Diocese, and the Episcopal Church, as well as the parties’ understanding of them as revealed by their course of conduct. The Dennis Canon adopted in 1979 merely codified in explicit terms a trust relationship that has been implicit in the relationship between local parishes and dioceses since the founding of [Episcopal Church] in 1789 ….

[The majority faction of Christ Church] characterizes this dispute as the Episcopal Church trying to take Christ Church’s property. We disagree with that view of the record and the law. The First Amendment allows [the majority faction] to leave the Episcopal Church and worship as they please, like all other Americans, but it does not allow them to take with them property that has for generations been accumulated and held by a constituent church of the Protestant Episcopal Church in the United States of America. Our conclusion regarding the effect of the governing documents of the local and general church in this case is consistent with U.S. Supreme Court precedent, this Court’s prior cases, and the decisions of several other state supreme courts ….

In the end, it is fair to say, as the trial court did, that Christ Church “can no more shrug off the trust, than the National Church could unilaterally impose it. The trust has historical roots going back to the English church and the founding of the Episcopal church in this country. Christ Church got the benefit of its bargain with the National Church for many years. The National Church has the right to insist on its part of the bargain as well.

Case #2: Presbytery of Greater Atlanta, Inc. v. Timberridge Presbyterian Church, Inc., 719 S.E.2d 446 (Ga. 2011)

A church affiliated with the Presbyterian Church (U.S.A.) in 1983. For the next several years the church functioned as a regular member of the national church. Its pastor from 1978 to 1984 stated that the church “took part in the governance of the denomination by regularly attending meetings of the Atlanta Presbytery” and “experienced benefits of being associated with the [PCUSA] such as participation in the representational governance … and the availability of the denomination’s resources.” Similarly, the church’s pastor from 1984 to 2003 stated that the church “actively participated in the governance of the denomination” and “experienced some of the benefits of being associated with the greater denomination, such as locating an Associate Pastor with the help of the [Presbytery] and taking advantage of a year round camp and conference center.”

By 2007, however, a dispute arose between the church, the Presbytery of Atlanta (the “Presbytery”), and PCUSA as to who controlled the church’s property. In 2007, the church asked a court to declare it the owner of all church property, and to affirm that it did not hold it in trust for the benefit of the PCUSA. The Presbytery filed a counterclaim in which it asserted that the church held the church property in trust for the benefit of the PCUSA and should be enjoined from transferring the property. In November 2007, a majority of the church congregation voted to disaffiliate from the PCUSA. A few months later, the church affiliated with the Evangelical Presbyterian Church, a separate denomination.

A trial court concluded, among other things, that Section G-8.0201 of the PCUSA Book of Order created a trust in favor of the PCUSA as to any property held by the church. A state appeals court reversed the trial court’s decision. It concluded that the Book of Order did not clearly impose a trust on all church properties in favor of the PCUSA. It concluded, “In the absence of some showing of intention and assent on the part of [the church], neutral principles of law cannot support the unilateral imposition of a trust provision drafted by the purported beneficiary of the trust and the resulting deprivation of the opposing party’s property rights.” The Presbytery appealed to the state supreme court.

The Georgia Supreme Court began its opinion by quoting section G-8.0201 of the Book of Order: “All property held by or for a particular church … whether legal title is lodged in a corporation, a trustee or trustees, or an unincorporated association … is held in trust nevertheless for the use and benefit of the [PCUSA].” Section G-8.0301 provides that if a local church stops using its property as a church of the PCUSA, the property “shall be held, used, applied, transferred, or sold as provided by the presbytery.” Section G-8.0601 similarly provides that, in the event of a schism within the membership of a local church, “the presbytery shall determine if one of the factions is entitled to the property because it is identified by the presbytery as the true church within the Presbyterian Church (U.S.A.). This determination does not depend upon which faction received the majority vote within the particular church at the time of the schism.”

The court noted that the church’s corporate charter specified that the corporation’s purpose was “to be a church institution which is a member of the Presbytery of Atlanta of the [PCUSA] or any successor Presbytery thereof” and that its bylaws cannot conflict with the PCUSA Book of Order “as the same now exists or may hereafter from time to time be amended.”

The court noted that:

To avoid First Amendment concerns in resolving property disputes in hierarchical religious denominations, secular courts apply “neutral principles of law” to determine whether the local church or the parent church has the right to control local property, avoiding any inquiry into religious doctrine. These “neutral principles” include relevant deeds, state statutes, and the governing documents of the local and general churches …. We review all of these materials, keeping in mind that the outcome of these church property disputes usually turns on the specific facts presented in the record, that the neutral principle factors are interrelated, and that our ultimate goal is to determine “the intentions of the parties” at the local and national level regarding beneficial ownership of the property at issue as expressed “before the dispute erupted” in a “legally cognizable form.”

In concluding that the church held its property in trust for the Presbytery and PCUSA, the court observed:

The church joined the PCUSA … in 1983. There is no dispute that at that time the PCUSA’s governing constitution plainly stated that local churches hold their property in trust for the use and benefit of the general church, see Book of Order § G-8.0201 …. Moreover, when the church affiliated with the PCUSA, it agreed that it “was a local expression of the universal church,” Book of Order § G-4.0102, that it would be “governed by this Constitution,” § G-4.0104, that its active members have “voluntarily submitted to the government of this church,” § G-5.0202, and that it would “function under the provisions of this Constitution.” § G-7.0101 …. Thus, contrary to the [appellate court’s] view that the PCUSA “unilaterally imposed” the trust provision without any assent by the local church … the church’s act of affiliating with the PCUSA in 1983 with the trust provision already in its governing constitution demonstrated that it assented to that relinquishment of its property rights …. And the church’s continued membership in the PCUSA, for nearly a quarter of a century in all, with the trust provision always in full effect, further bolsters this conclusion ….

The neutral principles doctrine, as approved by the [United States Supreme Court’s 1979 ruling] in Jones v. Wolf and as applied by this court, allows hierarchical denominations to structure the property relationships between the general and local churches before disputes arise. The result is not pre-ordained; it depends on the deeds, statutes, and national and church governing documents. What has happened over the years since Jones v. Wolf is that many hierarchical denominations have added more explicit property provisions to their general and local church governing documents, as the Supreme Court said would be appropriate. Thus, instead of our finding no mention of property issues in those documents, we find provisions showing either that the general church does not control local church property or, as in this case and others, provisions showing that local church property is held in trust for the general church. Applying the neutral principles with an even hand, we simply enforce the intent of the parties as reflected in their own governing documents; to do anything else would raise serious First Amendment concerns.

In sum, the resolution of this church property dispute in the national church’s favor does not rest on the “mere connectional relationship between a local and general church.” Instead, our decision derives from the specific language of the governing documents adopted by the local and general churches …. Like the trial court, we conclude that neutral principles of law demonstrate that an implied trust in favor of the PCUSA exists on the local church’s property to which the church holds legal title.

Legal Developments

Arbitration

A federal appeals court enforced the decision of an arbitrator in an employment dispute between a church-operated school and its principal.

Richard R. Hammar, Attorney, CPA

Bio

State: Federal
Categories: Arbitration

• Key point 10-16.8. Churches have various defenses available to them if they are sued as a result of a personal injury. One such defense is an arbitration policy. By adopting an arbitration policy, a church can compel members to arbitrate specified disputes with their church rather than pursue their claim in the civil courts.
Negligence as a Basis for Liability

* A federal appeals court enforced the decision of an arbitrator in an employment dispute between a church-operated school and its principal. The principal ('Julie') of a private Christian school was fired from her position, and she later sued the school for breach of contract and discrimination. The school asked the court to compel Julie to arbitrate her claims pursuant to an arbitration provision in her employment contract. Julie was reluctant at first to pursue arbitration because she was concerned that the ICC was biased in favor of the school. She ultimately agreed to the arbitration policy with modifications. One modification made the arbitration procedure subject to the Montana Arbitration Act. The court granted this request, and an arbitration was conducted in accordance with the Rules of Procedure for Christian Conciliation ('Rules') of the Institute for Christian Conciliation ('ICC'). In arbitration, Julie prevailed on her breach of contract claim and was awarded $150,000 in damages. In reaching his decision, the arbitrator determined that the school had wrongfully discharged Julie by failing to follow biblical precepts, as required in her employment contract; specifically, the conflict resolution process described in Matthew 18.

The school asked a federal district court to 'vacate' the arbitration on the basis of the Montana Arbitration Act, which empowers the civil courts to vacate arbitration awards under narrow conditions including arbitrator bias and an arbitrator acting outside the scope of his or her authority. A federal district court ruled that none of these exceptions applied, and the school appealed.

A federal appeals court agreed that none of the narrow grounds for vacating the arbitrator's award existed in this case. It concluded:

The parties freely and knowingly contracted to have their relationship governed by specified provisions of the Bible and the Rules of the ICC, and the arbitrator's determination that the school had not acted according to the dictates of Matthew 18 relates to that contract. Further, the Rules of the ICC indisputably contemplate that an arbitrator will have extremely broad discretion to fashion an appropriate remedy; and no language in the parties' contracts expresses their intent to depart from the Rules of the ICC. We hold that the arbitrator's award of damages is rationally derived from Julie's employment contract with the school and is not contrary to any express contractual provisions, either biblical or secular. Consequently, the school is not entitled to a vacating of the arbitrator's decision on this ground.

The court also rejected the school's claim that the arbitrator's award should be vacated on the basis of the arbitrator's lack of impartiality since the school failed to address or explain this argument in the brief it submitted to the court.

Application
. This case is important for the following reasons:

1. It illustrates the value of using arbitration policies to resolve disputes. Our research indicates that employment disputes are one of the most common forms of church litigation. One way that some churches are attempting to manage this risk is to implement arbitration policies. This is one of the few courts to address the validity of such policies. The court's conclusion that the school's arbitration policy was legally enforceable will be a helpful precedent in support of the validity of such policies.

2. Note that the arbitrator ruled in favor of the employee and against the school. Church leaders should recognize that an arbitration clause does not necessarily mean that the church will be 'better off' than if employment disputes were resolved in court.

3. The case also illustrates the fundamental principle that arbitration awards ordinarily are binding and not subject to civil court review except under very narrow conditions that were not met in this case. A party that 'loses' in an arbitration proceeding generally cannot run to the courts to have the award reversed.

4. Any arbitration policy should be drafted by an attorney, and submitted to the church's liability insurer for review. It is advisable that any church arbitration procedure be conditioned on its acceptance by the church's insurers.

5. The ability of employers to apply new policies to current employees has been a troubling legal question. In general, for a promise or commitment (such as an employee's "agreement" to be bound by a new employment policy) to be legally enforceable, the employee must receive some "consideration" or value in exchange for his or her agreement. Is continuing employment sufficient consideration to extend new policies to current employees? The courts have reached different answers to this question. To be certain, it is always advisable to offer additional consideration to current employees in return for their agreement to be bound by a new employment policy. This is another reason why it is important to have an attorney work with you in implementing an arbitration policy. Prescott v. Northlake Christian School, 141 Fed.Appx. 263 (5th Cir. 2005).

Copyright © 1994 – 2006 Christianity Today International.All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, A publication of Christianity Today International, 465 Gundersen Drive, Carol Stream, IL 60188.

Legal Developments

Arbitration

A federal court in Louisiana ruled that an employee of a church school was required to have her sex discrimination and sexual harassment claims resolved through binding arbitration rather than litigation.

Richard R. Hammar, Attorney, CPA

Bio

State: Louisiana
Categories: Arbitration

From Pastor, Church & Law Key point 10-16.8. Churches have various defenses available to them if they are sued as a result of a personal injury. One such defense is an arbitration policy. By adopting an arbitration policy, a church can compel members to arbitrate specified disputes with their church rather than pursue their claim in the civil courts.

The Case

A woman ("Jill") was hired by a church school, and signed an employment contract specifying that "any claim or dispute arising out of, or related to, [the contract] or to any aspect of the employment relationship" was to be submitted to binding arbitration. A few years after being hired, Jill filed a lawsuit against her employer in which she alleged sex discrimination, sexual harassment, and breach of contract.

The church school filed a motion asking the court to compel Jill to submit her claims to binding arbitration, pursuant to the employment contract. The court agreed with the school, and ordered Jill to arbitrate her claims.

It based its decision on the Federal Arbitration Act ("FAA"). The FAA was enacted in 1925 as a response to the hostility of American courts to the enforcement of arbitration agreements. To give effect to this purpose, the FAA compels judicial enforcement of a wide range of written arbitration agreements. The FAA specifies that

a written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

The FAA excludes from coverage "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." As a result, arbitration cannot be mandated in employment contracts for these workers.

But does this exemption apply only to employment contracts of seamen, railroad employees, and other "transportation" employees, or does it apply to the employment contracts of all employees regardless of their occupation?

In a landmark 2001 case, the United States Supreme Court ruled that this exemption applied only to employment contracts of transportation workers, and not other employment contracts. Circuit City Stores, Inc. v. Adams, 121 S.Ct. 1302 (2001). As a result, the Louisiana federal court ruled that the FAA compelled Jill to arbitrate her claims.

Application

The Supreme Court's decision in the Circuit City case is addressed in a feature article in the July-August 2001 issue of this newsletter. The Louisiana case represents the first time that a court has applied the FAA to an employment contract involving an employee of a church or church school. Church leaders should review the previous article in this newsletter in order to evaluate the desirability of inserting arbitration clauses in employment contracts. Prescott v. North Lake Christian School, 2001 WL 740506 (E.D. La. 2001).

Arbitration

Mosque Members’ Lawsuit Concerning Financial Improprieties Must Be Resolved By Binding Arbitration Due to Mosque Bylaws’ Arbitration Clause

What this means for churches

Arbitration of Disputes

Arbitration of Disputes

Breaking Away from the Parent Denomination

Breaking Away from the Parent Denomination

Arbitration

existence of a valid contract to arbitrate

a dispute covered by the arbitration agreement

What This Means For Churches:

Disaffiliating from a Parent Denomination

Disaffiliating from a Parent Denomination

Arbitration

Arbitration

The Case

Application

Arbitration of Church Disputes

Arbitration

Denominational Arbitration Procedures

Taxation – Church Property

Arbitration

Arbitration