Litigation against Disaffiliating Dioceses: Is it Authorized and What does Fiduciary Duty Require?
By Mike Watson, ACI
full footnoted text available for download here (.pdf)
This paper examines whether the Presiding Bishop is authorized to initiate and conduct recent property litigation and finds no source for such authority in the Constitution and Canons of the Episcopal Church. Arguments based on a presumed equivalence of the roles of the Presiding Bishop and Executive Council to those of a corporate CEO and board of directors are found not to be valid. The paper also examines claims that pursuit of litigation is necessitated by fiduciary duty. It concludes that no convincing case has been made that this is so. First, no person is under a fiduciary duty to undertake something that has not been authorized. Putting aside the issue of authorization, several factors relevant to a proper fiduciary duty analysis suggest refraining from litigation such as has been commenced against disaffiliating dioceses. In this connection, relevant fiduciary duties are not limited to those that may be owed to TEC as an organization, but also include duties owed to its member dioceses. Claims that a member diocese cannot disaffiliate and retain ownership of its property implicate the latter set of duties. The paper presents a case that the duties to dioceses include duties to those that have withdrawn because the claims against them are based on alleged consequences of their having been dioceses of TEC rather than the actions of an unaffiliated third party.
Presiding Bishop Katharine Jefferts Schori and others have maintained that pursuit by The Episcopal Church of property litigation is required by fiduciary duty. For example, in October 2007 the Presiding Bishop gave deposition testimony in the Virginia litigation against several congregations, saying, “I have a responsibility both in a fiduciary sense and an ecclesiastical sense to protect the assets of the Episcopal Church and to protect the integrity of the Episcopal Church” and also that “I believe I have a fiduciary responsibility to protect the assets of the Episcopal Church for the mission of the Episcopal Church.” In the same testimony, asked about her refusal to suspend litigation in response to the requests of the Anglican Communion Primates in the Dar es Salaam communiqué, she responded, “I cannot suspend what I have a fiduciary duty to protect.” In connection with the San Joaquin litigation, Bishop Jerry Lamb said the litigation was required by “a canonical, fiduciary and moral duty to protect the assets and property of the church for the church’s mission.”
A recurring element in statements attempting to justify litigation against dioceses and parishes is the assertion that TEC needs the assets for “mission.” Apparently it is assumed that the Church’s mission cannot be conducted unlinked from a national organizational structure. The linkage of litigation to mission has even worked its way into the Episcopal Church’s financial reporting and budget categories. The litigation line item in the financial statements and budgets bore the caption “Property protection for mission” beginning in March 2007 and continuing until September 2007 when the words “legal costs” were appended after concern was expressed by audit committee members that the caption did not clearly indicate the nature of the expense. A more recent association of property lawsuits with the Episcopal Church’s mission was made in a post-General Convention 2009 letter from the Presiding Bishop to the House of Bishops, attributing her position on property disputes to the requirements of “our participation in God’s mission as leaders and stewards of The Episcopal Church . . . .”
In the same letter to the House of Bishops, the Presiding Bishop elaborated on conditions for property settlements that possibly indicate she is facing pressure from at least some quarters for a less rigid stance. It is not at all clear at this point, however, that the fine tuning expressed in the letter points to any new flexibility that will make a practical difference.
It is at least a starting point that the Presiding Bishop acknowledges that she has duties that are of a fiduciary character. Nonetheless, the basis for the conclusion that those duties require the pursuit by TEC of the legal battles currently being waged is less than clear. A purpose of this paper is to explore some of the considerations relevant to determining whether the Presiding Bishop’s conclusion is correct. In doing this, it is necessary first to consider whether the Presiding Bishop is even the appropriate person to exercise the responsibility claimed. These objectives will be undertaken primarily in the context of the pending litigation against four withdrawn dioceses and related individuals and affiliated diocesan organizations.
Because ultimately the laws of many different states are (or may in the future be) at issue, because the objective is to discuss principles rather than attempt to express definitive conclusions applicable to particular pending cases, and for reasons of economy, reference will frequently be made (primarily in the notes) to legal sources of broad applicability, such as Restatements of the Law published by the American Law Institute and to statutory provisions and related commentary promulgated by the National Conference of Commissioners on Uniform State Laws and the Committees on Corporate Laws and Nonprofit Organizations of the Section of Business Law, American Bar Association, rather than to state-specific authorities.
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