Local Church Retains Control of Property

Court denies Episcopal national church ownership of building used by newly dissociated church.

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 Texas Supreme Court ruled that a church that withdrew from the national Episcopal Church retained control of its property in a dispute with the national church.

Due to doctrinal differences with the Episcopal Church ("national church"), some members of a local Episcopal church (the "church") proposed disassociating from the national church and organizing as an independent church. The church conducted a called meeting during which the following resolutions were presented: (1) amend the corporate bylaws to, among other changes, remove all references to the national church; (2) withdraw the local congregation's membership in and dissolve its union with the national church; (3) revoke any trusts that may have been imposed on any of its property by the national church. The resolutions passed by a vote of 53 to 30.

After the parish vote, the local diocese of the national church took the position that the church could not unilaterally disassociate from the Diocese and that the vote did not have any effect on the church's relationship with the diocese or national church. The diocese held a meeting with the faction of the church loyal to the national church and appointed a new priest. The loyal faction elected a board (vestry), and the diocese recognized the loyal faction as the legitimate church.

Nevertheless, the withdrawing faction continued to use the parish property, so two vestry members of the loyal faction and the diocese asked a local court for a ruling recognizing the loyal faction as the true church, and affirming that all the parish property was held in trust for the national church. The national church filed a motion for summary judgment. It asserted that the Episcopal Church is a hierarchical church; its canons and rules provide that all property of a parish is held in trust for use of the national church and the respective diocese; and, when congregations of hierarchical churches split, Texas courts defer to the decisions of the church's superior hierarchical authority as to which faction comprises the true church.

In support of its position, the national church noted that in 1979 it amended its canons, adding Canon I.7.4 (often referred to as the "Dennis Canon") and I.7.5 for the purpose of placing church property in trust:

Section I.7.4. 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 or 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 Constitutions and Canons.

Section I.7.5. The several Dioceses may, at their election, further confirm the trust declared under the foregoing Section 4 by appropriate action, but no such action shall be necessary for the existence and validity of the trust. (Emphasis added).

The trial court granted the national church's motion for summary judgment, and this ruling was affirmed by a state appeals court. The case was appealed by the dissident faction to the Texas Supreme Court.

The Texas Supreme Court began its opinion by observing: "The question before us is what happens to the property when a majority of the membership of a local church votes to withdraw from the larger religious body of which it has been a part." The court noted that there are at least two methods for resolving church property disputes without violating the First Amendment guaranty of religious freedom—"deference" and "neutral principles of law."


The court noted that "whenever the questions of discipline, or of faith, or ecclesiastical rule, custom, or law have been decided by the highest of [the] church judicatories to which the matter has been carried, the legal tribunals must accept such decisions as final, and as binding on them" (quoting the decision of the United States Supreme Court in Watson v. Jones, 80 U.S. 679 (1872)). The deference rule is mandatory in such cases.

The court conceded that "differences between ecclesiastical and non-ecclesiastical issues will not always be distinct, and that many disputes of the type before us will require courts to analyze church documents and organizational structures to some degree. Further, deferring to decisions of ecclesiastical bodies in matters reserved to them by the First Amendment may, in some instances, effectively determine the property rights in question."

The court concluded that "absent specific, lawful provisions in a corporation's articles of incorporation or bylaws otherwise, whether and how a corporation's directors or those entitled to control its affairs can change its articles of incorporation and bylaws are secular, not ecclesiastical, matters."

Neutral principles of law

While the judicial deference to church authority is mandatory in disputes involving "discipline, faith, or ecclesiastical rule, custom, or law," this is not necessarily the case in church property disputes that do not implicate such issues. If a church property dispute can be resolved without inquiring into church doctrine or practice, then there are several potential ways for the courts to intervene. The Texas Supreme Court noted that the neutral principles of law approach was one such method, and it officially sanctioned it as the applicable rule for the resolution of church property disputes by Texas courts so long as the deference rule does not apply.

What, then, is the neutral principles of law approach to resolving church property disputes that do not implicate church doctrine? The court explained: "Under the neutral principles methodology, ownership of disputed property is determined by applying generally applicable law and legal principles. That application will usually include considering evidence such as deeds to the properties, terms of the local church charter (including articles of incorporation and bylaws, if any), and relevant provisions of governing documents of the general church."

The national church insisted that, under the neutral principles of law approach, the courts should apply the Dennis Canon, and award title to the national church or diocese. In support of this argument, the national church claimed that, according to the United States Supreme Court's decision in Jones v. Wolfe, 443 U.S. 595 (1979), "a superior hierarchical church organization's amendment to its constitution to include a trust provision is sufficient to establish a trust in property held by its subordinate churches." The national church pointed to the following excerpt from the Supreme Court's ruling in Jones:

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.

The court disagreed that the Dennis Canon was dispositive, for several reasons. First, the national church's pleadings and briefs only claimed that the church's property was retained by the national church as a result of the deference rule. The status of the property under the neutral principles of law approach was not addressed. Since the court rejected the deference rule in church property disputes, the national church's appeal to the deference rule was unavailing.

Second, if the effect of the Dennis Canon was to award title to the church property to the faction loyal to the national church, this "would subject the corporation's decision makers and the parish members who were qualified to vote under the bylaws to the dictates of persons not identified in corporate governing documents as having the right to make, control, or override corporate decisions." In this regard, the court added that when the church incorporated in 1974, the state nonprofit statute provided that "the power to alter, amend, or repeal the bylaws or to adopt new bylaws shall be vested in the members, if any, but such power may be delegated by the members to the board of directors." No provision empowered an "external entity … to amend them absent specific, lawful provision in the corporate documents," and there was no such provision in the church's bylaws.

Third, the court stressed that the church "was incorporated pursuant to Texas corporation law and Texas law dictates how the corporation can be operated, including how and when corporate articles and bylaws can be amended and the effect of the amendments." The court found no provision in the church's articles of incorporation or bylaws requiring amendments to be subject to the approval of the diocese or national church. To the contrary, the articles of incorporation and bylaws specified that "qualified parish members were entitled to elect the vestry and amend the bylaws."

Fourth, the court noted that "even assuming a trust was created by the Dennis Canon … we disagree that the Canon's terms make the trust expressly irrevocable as Texas law requires … . The Canon simply does not contain language making the trust expressly irrevocable … . Even if the Canon could be read to imply the trust was irrevocable, that is not good enough under Texas law. The Texas statute requires express terms making it irrevocable."

Fifth, the court noted that the national church "did not cite Texas law to support their argument that under the [church] was precluded from revoking any trusts actually or allegedly placed on its property."

Two justices dissented from the court's opinion. These justices would have awarded title of the church property to the national church. One reason for doing so was the doctrine of estoppel. They explained:

Alternatively, I believe the [national church] prevails under the doctrine of quasi-estoppel. The [national church] did not formally plead quasi-estoppel as an affirmative defense, though they did allege facts to support it. The summary judgment evidence establishes the applicability of the doctrine and precludes [the church] from claiming that it may revoke the trust in conjunction with its withdrawal from the national church. Quasi-estoppel precludes a party from asserting, to another's disadvantage, a right inconsistent with a position previously taken. The doctrine applies when it would be unconscionable to allow a person to maintain a position inconsistent with one to which he acquiesced, or from which he accepted a benefit … . Prior to [this dispute, the church] had promised conformity to the national church's doctrine and to its Constitutions and Canons; had accepted grants as well as no-interest and low-interest loans from the national church and the Diocese to assist in building the church; had declared that the church property was "secured from the danger of alienation … from those who profess and practice the Doctrine, Discipline, and Worship of this [Episcopal] Church"; and had accepted the conveyance of the property from the Diocese after the property trust provisions were added to Canons. Having made these promises and accepted these benefits [the church] may not now contend it is free to disregard these positions because a majority of its members have voted to do so.

The Texas Supreme Court rejected this argument, noting that "summary judgment may only be granted based on grounds pleaded and expressly presented in a motion for summary judgment. The national church neither pleaded estoppel nor urged it as a ground for summary judgment." So, the court rejected this potentially decisive argument on the ground that the national church failed to raise it in its motion for summary judgment.

What this means for churches

Note the following implications of this ruling:

  • First, the neutral principles of law approach to resolving church property disputes is now the official way for Texas courts to resolve such disputes.
  • Second, the deference rule requires civil courts to defer to the decisions of church bodies on matters of faith and polity.
  • Third, the court's ruling was not a ruling on the merits. Rather, the court was reversing the trial and appellate courts' award of summary judgment in favor of the national church. The court's ruling sends the dispute back to the trial court for trial. It is possible that the trial court, and appellate court, would again rule in the national church's favor.
  • Fourth, the court rejected the national church's estoppel argument since it had not been raised in its pleadings. Presumably, this argument can be raised in the trial court.
  • Fifth, the national church's pleadings and briefs only claimed that the church's property was retained by the national church as a result of the deference rule. The status of the property under the neutral principles of law approach was not addressed. Since the court rejected the deference rule in church property disputes, the national church's appeal to the deference rule was unavailing. The national church will have the opportunity to address its interpretation of neutral principles of law on remand of the case to the trial court.
  • Sixth, as the court noted, several other courts have reached the opposite conclusion and awarded title to the property of dissident Episcopal churches to the denomination. Masterson v. Diocese of Northwest Texas, 2013 WL 4608632 (Tex. 2013).

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