Denominational Arbitration Procedures

Can arbitration procedures be enforced?

Church Law and Tax 1992-11-01 Recent Developments

Taxation – Church Property

A California appeals court refused to enforce a denomination’s binding arbitration procedure for resolving disputes with affiliated churches. A local Assemblies of God church in California voted in 1989 to disaffiliate from the denomination as a result of bylaw amendments adopted by the Southern California District Council of the Assemblies of God (the “District”). The church interpreted these amendments to adversely affect the sovereign rights of affiliated churches and allow the District to confiscate local church property at any time it chose. The District insisted that the church agree to arbitrate the dispute regarding the disaffiliation. It relied on the following arbitration provision in the District’s bylaws:

Any controversy or claim between any District Council member church … or any member or officer … for which either party may have a cause for legal action shall be submitted to binding arbitration by a panel of three arbitrators: one to be selected by the member church … [or] member or officer; one to be selected by the District Council … ; and one to be selected by the two previously selected arbitrators. Each arbitrator shall be selected from the panel of arbitrators elected in accordance with the bylaws.

To qualify as an arbitrator, the District bylaws require that an individual “be an ordained minister … [and] member in good standing in the District [who] has been so for at least two consecutive years … [and] who has been active and cooperative with the District … and is current with his financial responsibilities to the District.” The local church refused to arbitrate the dispute, and the District filed a petition with a civil court to compel arbitration. The church opposed the District’s petition, contending that the District’s arbitration clause was not enforceable since it required arbitration of disputes by “non-neutral arbitrators.” The trial court agreed with the church, and the District appealed.

The District argued on appeal that its arbitration procedure was fair and impartial and should be enforced by the civil courts. A state appeals court disagreed, relying on a 1981 decision of the California Supreme Court. In the 1981 decision, the state supreme court acknowledged that the civil courts favor arbitration, and that organizations generally can agree to any arbitrators they choose. However, “some minimum levels of integrity” are required for an arbitration procedure to be accepted and enforced by the courts. The supreme court observed:

[A] contract which purports to designate one of the parties as the arbitrator of all disputes arising thereunder is to this extent illusory—the reason being that the party so designated will have an interest in the outcome which, in the view of the law, will render fair and reasoned decision, based on the evidence presented, a virtual impossibility. Because, as we have explained, arbitration (as a contractually structured substitute for formal judicial proceedings) contemplates just such a decision, a contractual party may not act in the capacity of arbitrator—and a contractual provision which designated him to serve in that capacity is to be denied enforcement on the grounds of unconscionability. We have also indicated that the same result would follow, and for the same reasons, when the designated arbitrator is not the party himself but one whose interests are so allied with those of the party that, for all practical purposes, he is subject to the same disabilities which prevent the party himself from serving. Again, a contractual provision designating such an entity as arbitrator must be denied enforcement on the ground that it would be unconscionable to permit that entity to so serve.

The appeals court concluded that this language required it to disregard and not enforce the District’s arbitration procedure. It observed: “In this context, the provision for a panel of arbitrators comprised of the District’s loyal and ‘cooperative’ members in ‘good standing’ is patently unfair and unenforceable under [the supreme court’s 1981 ruling]. The District’s members are parties to the dispute and, as such, are presumptively unable to be disinterested and impartial toward this controversy.” The court also rejected the District’s claim that the failure to enforce the arbitration procedure was “an unconstitutional intervention into the District’s ecclesiastical governance procedures.” The court simply noted that this dispute was about the ownership of property and was not an ecclesiastical dispute.

This decision is very important since it represents one of the only court rulings to directly address the enforceability of a church arbitration procedure. The case illustrates that such procedures, to be legally enforceable, must satisfy “some minimum levels of integrity” including the selection of arbitrators who are impartial and not closely related to one of the parties. This requirement should present little difficulty to churches and denominational agencies desiring to implement an arbitration procedure. The California appeals court’s ruling should be viewed as an important clarification rather than as a setback for religious organizations desiring to implement arbitration policies. Southern California District Council of the Assemblies of God, Inc., v. Sonlite Tabernacle, Cal. App. 2 Dist. (unpublished decision, March 27, 1992).

See Also: Arbitration

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