CALIFORNIA CASE CAUSE FOR OPTIMISM ON CHURCH PROPERTY ISSUES

Case Has Implications For ECUSA, CLI Says

By The Rev. Charles H. Nalls

The Christian Challenge (Washington, DC)

August 18, 2004

Following on a Maryland Court of Appeals decision two years ago involving the African Methodist Episcopal Church, the United Methodist Church has suffered a sound defeat in a church property matter in California.

The case involved the issue of who controls a local church's property when the congregation ends its affiliation with a national or worldwide religious body. As such, the case has implications for other denominations, particularly the U.S. Episcopal Church (ECUSA), which claims a trust over parish properties based on an internal church rule.

The decision in California-Nevada Annual Conference of the United Methodist Church et Al., v. St. Luke's United Methodist Church (Slip Op. F041778 9; Ca. App. 2004) marks the reaffirmation of the "neutral principles" analysis of the 1981 Barker case — an action in which three of four defendant parishes avoided the effect of ECUSA's claimed trust.

The St. Luke's case also involved the application of specific provisions of the California corporate code and trust law. Thus, those seeking to apply it in other states should examine whether analogous provisions exist in their state codes.

As for the facts of the California case, they are familiar in church property cases. St. Luke's, a congregation in Fresno with substantial holdings, left the main denomination over a doctrinal dispute and an attempt by the bishop to replace the pastor. The Court of Appeals took pains to avoid describing the doctrinal issue, or the positions of the parties as to the issue.

The underlying litigation began when St. Luke's was sued by the California-Nevada Annual Conference of the United Methodist Church (a non-profit, religious corporation and a regional body of the United Methodist Church, hereinafter the "Annual Conference"), Bishop Talbert (the bishop responsible for oversight of local churches within the geographical area of the Annual Conference, including St. Luke's), and Rev. Healy (the District superintendent for the Fresno District of the Annual Conference). The action sought injunctive relief and damages.

St. Luke's filed a cross-complaint against the Annual Conference, Bishop Talbert and Rev. Healy seeking a declaration that the cross-defendants had no interest in the property, and that St. Lukes could revoke any trust interest which might exist in the real property by recording grant deeds (prepared and attached as exhibits to the cross-complaint) by which St. Lukes would deed the real property to itself, without any trust language.

After a non-jury trial, the trial court ruled that the local church held the church property in trust not only for the use and benefit of the local church, but also for the use and benefit of the United Methodist Church. The court also ruled that the local church could not revoke that trust. The trial court's ruling was based largely on its understanding of the meaning of subdivisions (c) and (d) of Corporations Code section 9142.

On appeal, the local church contended that (1) the court erred in concluding that a trust existed in favor of the United Methodist Church, and (2) even if such a trust existed, the local church could and did revoke that trust.

The Court of Appeals agreed with the lower court that the evidence presented at trial supports the trial court's conclusion that a trust in favor of both churches was created. Significantly, however, the appellate court sided with the congregation and found that it could and in fact did revoke the trust which had existed in favor of the United Methodist Church.

The case hinges on California Corporations Code section 9142, subdivisions (c) and (d) — sections which the court specifically noted that "may well be of particular importance to churches which now are, or in the future will be, experiencing difficult doctrinal disputes among their members." Certainly, this does not bode well for "Dennis Canon" claims by ECUSA in California.

Indeed, the court found that:

(1) subdivision (c)(2) of Corporations Code section 9142 does not authorize a general church to create a trust interest for itself in property owned by a local church simply by issuing a rule declaring that such a trust exists;

(2) a local church's creation of a trust interest in favor of the general church — including a trust interest created by the local church's agreement to a general church's rule calling for the local church to hold property in trust for the general church — may be revoked by the local church unless that church has expressly declared that trust to be irrevocable.

Interestingly, while the litigation was pending, and before the trial began, St. Luke's amended its Articles of Incorporation to state a change in the purposes of the religious corporation. Its purposes became "to establish and maintain a church which shall follow the tenets of Methodism, but which shall not be subject in any manner to the articles, rules, usage, discipline, or jurisdiction of the United Methodist Church or any organization or other entity which is part of and/or affiliated with the United Methodist Church." St. Luke's also purposed "to acquire, manage, and hold in trust for the sole benefit of this Corporation property of every kind and nature, both real and personal ..."

In short, St. Lukes would not be affiliated with the United Methodist Church and would hold its property in trust for itself only. Thus, the charter amendment was actually effected while the case was pending!

As there are pending matters in which CLI has been asked for assistance, the Institute will not undertake state-specific analysis at this time.

However, CLI believes that the reaffirmation of Barker, the Court of Appeals analysis of trust theory, and the trust revocation analysis, are all cause for optimism for those representing individual parishes and congregations in property disputes.

Finally, CLI urges reading this case together with the analysis in From the Heart Church Ministries, Inc. v. African Methodist Episcopal Zion Church, No. 3 September Term, 2000 (Md. 07/24/2002)

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