An Illinois court upheld the validity of a church arbitration policy despite the alleged “bias” of the arbitrators.

Church Law and Tax2006-03-01


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

* An Illinois court upheld the validity of a church arbitration policy despite the alleged “bias” of the arbitrators. In 1993 Pastor Kevin was hired as an associate pastor of a church affiliated with the Lutheran Church-Missouri Synod (LCMS). Several years later, the church’s administrative pastor convened a meeting with Pastor Kevin and two other pastors to discuss certain allegations of sexual impropriety made by members of the congregation against Pastor Kevin. At the end of the meeting, there was an agreement that Pastor Kevin would resign his position. However, he claimed that in return for his resignation, the church agreed to pay his salary, health insurance, and pension benefits for the remainder of the year.

Pastor Kevin sued the church claiming that it breached the agreement or “contract” to continue his salary and benefits for the remainder of the year. He also alleged that the church defamed him by telling members of the congregation that he had engaged in inappropriate conduct with a female member of the congregation, and that its acts constituted an “interference with contract.” The church asked the court to dismiss the lawsuit on the ground that LCMS bylaws require such disputes to be arbitrated. The trial court agreed, and dismissed the lawsuit. Pastor Kevin appealed.

Article VIII of the LCMS bylaws requires that church disputes be settled exclusively through a binding dispute resolution procedure, except for property and contract disputes. It states, in part:

The Synod in the spirit of 1 Corinthians 6 calls upon all parties to a disagreement, accusation, controversy, or disciplinary action to rely exclusively and fully on the Synod’s system of reconciliation and conflict resolution. The use of the Synod’s conflict resolution procedures shall be the exclusive and final remedy for those who are in dispute. Fitness for ministry and other theological matters must be determined within the church …. [The] aim [of the dispute resolution procedures] is to avoid the adversarial system practiced in society.

This chapter does not prescribe an exclusive remedy in the following matters unless they involve theological, doctrinal, or ecclesiastical issues: (1) Disputes concerning property rights (e.g., real estate agreements, mortgages, fraud, or embezzlement); (2) disputes arising under contractual arrangements of all kinds (e.g., contracts for goods, services, or employment benefits). The final decision of the Review Panel shall be binding upon the parties to that dispute and not be subject to further appeal.

Breach of contract claim

Pastor Kevin’s lawsuit alleged that the administrative pastor committed the church to continue paying his salary and benefits until the end of the year if he resigned and that the church reneged on the agreement. The church insisted that any alleged “contract” or breach of contract was an internal dispute of a “theological, doctrinal, or ecclesiastical” nature and was within the class of disputes that Article VIII required to be arbitrated. The court disagreed. It noted that Article VIII of the LCMS bylaws gives civil courts jurisdiction over contract disputes as long as they do not involve ecclesiastical issues, and it concluded that such issues were not involved in Pastor Kevin’s breach of contract claim. It agreed that the civil courts cannot resolve disputes between a pastor and church regarding termination. But, no such issue was involved in this case. Instead, Pastor Kevin was simply asking the courts to enforce an agreement, made by the church, to pay salary and benefits for a specified period. It concluded that “the contractual issue of compensation due is not ecclesiastical in nature and is excepted from arbitration by the LCMS bylaws.”

Defamation and interference with contract

Pastor Kevin also sued the church for “interference with an employment contract” and defamation. The court ruled that these claims had to be arbitrated: “Agreements to arbitrate are valid in Illinois under a mutual promise to arbitrate …. Parties are bound to arbitrate those issues which they have agreed to arbitrate. If a valid agreement to arbitrate exists, it will be enforced by the court. LCMS bylaws do not exempt tort claims from arbitration. Pastor Kevin is therefore bound by his agreement to abide by the bylaws and must submit his tort claims to the LCMS dispute resolution procedures.”

Arbitrator bias

Pastor Kevin argued that the arbitration procedure described in the LCMS bylaws was fatally flawed due to arbitrator bias, and should be completely rejected by the courts. He pointed out that the procedure called for arbitrators who are either members or employees of the LCMS. He claimed that these people cannot be impartial, and this made the agreement to arbitrate invalid. The court disagreed, noting that “the purpose of the LCMS dispute resolution procedure is to resolve disputes within the church,” and that Pastor Kevin had “not pointed to any specific prejudice he would suffer under the bylaws, but only a generalized fear of partiality. This anxiety is insufficient to overturn the LCMS arbitration process.” Further, the court noted that Pastor Kevin consented to this procedure when he became a pastor.

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 LCMS arbitration policy was legally enforceable will be a helpful precedent in support of the validity of such policies.

2. The LCMS arbitration policy did not cover certain disputes, including breach of contract claims not involving doctrinal issues. As a result, the court ruled that Pastor Kevin’s breach of contract claim (pertaining to the alleged agreement to continue his salary and benefits) was not precluded by the arbitration policy. Some courts would not agree with this court’s conclusion that Pastor Kevin’s breach of contract claim was purely secular.

3. Many other courts have ruled that they are barred by the First Amendment from resolving challenges by dismissed clergy to the legal validity of their dismissals, and that this principle covers claims that are “incidental” to the decision to dismiss (including claims for compensation and benefits).

4. This court rejected the claim that the LCMS arbitration policy was invalid because it required arbitrators to be either members or employees of the LCMS. The court noted that Pastor Kevin had “not pointed to any specific prejudice he would suffer under the bylaws, but only a generalized fear of partiality. This anxiety is insufficient to overturn the LCMS arbitration process.” Further, the court noted that Pastor Kevin consented to this procedure when he became a pastor.

5. Any arbitration policy should be drafted by an attorney, and submitted to the church’s liability insurer for review.Jenkins v. Trinity Evangelical Lutheran Church, 825 N.E.2d 1206 (Ill. App. 2005).

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