Members Block Church’s Disposition of Assets

In some states, members may challenge a church board’s decision to dispose of assets.

Key point: Church members may have the right under state law to have a receiver appointed by a civil court to oversee the disposition of the church's assets.

A Georgia court ruled that church members could obtain a court order blocking a church's planned disposition of its assets, and appointing a receiver to oversee the church's property.

A church was organized in 1976 and at one time had as many as 80 members. By late 1989, membership had dwindled to 23 and the church's board of trustees (consisting of the pastor, the pastor's son-in-law, and a third person) decided to sell the church property to a commercial buyer for $725,000. From these proceeds the church paid off a first mortgage loan of $164,000, a second mortgage loan of $156,000 owed to the pastor, and closing costs of $75,000 ($29,000 of which was paid to the pastor who was a licensed real estate broker and who served as a broker in the sale).

The last church meeting occurred in 1990, at which time a majority of the members present approved as "retirement benefits" for the pastor a lump sum gift of $100,000 and transfer of the parsonage. The remaining proceeds of the sale were to be used for religious activities with the pastor having control of the funds.

Some of the church members brought a lawsuit against the pastor and the church in which they sought a court order dissolving the church corporation, the appointment of a receiver to take control of the church's assets, an injunction prohibiting the pastor or church from disposing of church assets, and proper disposition of those assets.

A trial court appointed a receiver over some of the church's assets and forbade the pastor from disposing of the assets in his control. The pastor later sued one of the members who brought the lawsuit, claiming that he had defamed him by referring to him as "Jim Bakker on a smaller scale." A jury later awarded the members who brought the lawsuit $56,000 of the $156,000 mortgage debt paid to the pastor, the full $29,000 real estate commission paid to the pastor, and the remaining church funds of $200,000.

However, the pastor was awarded the parsonage and the $100,000 retirement gift, but the pastor's defamation suit was dismissed. The pastor appealed this ruling to a state appeals court, claiming that (1) the trial court's exercise of jurisdiction over this dispute was prohibited by the first amendment's guaranty of religious freedom; (2) the members who brought the lawsuit lacked "standing" to do so since they did not represent a majority of the church's members; and (3) the first amendment prohibits the appointment of a receiver over church assets.

The appeals court rejected all of these claims. In rejecting the pastor's claim that civil court resolution of this dispute violated the first amendment, the court quoted from a 1969 decision of the United States Supreme Court:

[T]he first amendment severely circumscribes the role that civil courts may play in resolving church property disputes. It is obvious, however, that not every civil court decision as to property claimed by a religious organization jeopardizes values protected by the first amendment. Civil courts do not inhibit free exercise of religion merely by opening their doors to disputes involving church property. Presbyterian Church in the United States v. Mary Elizabeth Blue Hull Memorial Presbyterian Church, 393 U.S. 440 (1969).

The court concluded that the trial court's exercise of jurisdiction over this dispute was permissible since "the property dispute here was capable of resolution by reference to neutral principles of law … without infringing upon any first amendment values." Next, the court rejected the pastor's claim that the members who brought the lawsuit lacked "standing" to do so. It observed:

Courts are reluctant to [intervene] in questions affecting the management of the temporalities of a church; but when property is devoted to a specific doctrine or purpose, the courts will prevent it from being diverted from the trust …. [I]f the majority of the church depart from its organization and doctrines, they do not represent the church, and such majority cannot divest the church property from the trust to which it has been devoted. Accordingly, under the circumstances presented by the [this] case, particularly where the resolution of the property dispute strictly followed neutral principles of law, the [members who brought the lawsuit] had standing in this action alleging a diversion of the church property from the purpose for which the church and its assets had been devoted.

In rejecting the pastor's contention that the first amendment prohibits a civil court from appointing a receiver over church assets, the court observed:

Under [state] law the superior court has full power to liquidate the assets and affairs of a nonprofit corporation when it is established that the acts of the directors or those in control of the corporation are illegal or fraudulent, the assets are being misapplied or wasted, or where the corporation is unable to carry out its purposes. [State law] authorizes the superior court to issue injunctions or appoint a receiver as needed to preserve the corporate assets. Inasmuch as the church chose to incorporate under the Georgia Nonprofit Corporation Code, and appointment of a receiver is authorized under those codified neutral principles of law regarding liquidation of nonprofit corporations, we reject the contention that the first amendment prohibited the involuntary receivership in this case.

This case illustrates some of the legal remedies that are available to church members in some states who want to challenge decisions of the church board to dispose of church assets. Crocker v. Stevens, 435 S.E.2d 690 (Ga. App. 1993).

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