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.

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).

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