Wednesday, April 1, 2015

Memorandum to Presiding Bishop Jefferts Schori (CONFIDENTIAL)

MEMORANDUM TO: Her Excellency, the Most Rev. Dr. Katharine Jeffers Schori
FROM: Chancellor to the Presiding Bishop
DATE: April 1, 2015
SUBJECT: Need for Immediate Pastoral Direction


Your Excellency:

There is urgent need for you to send out a Pastoral Directive to all diocesan bishops before their public objections to the passage of laws such as Indiana's Religious Freedom Restoration Act (RFRA) get out of hand, and impair the position which The Episcopal Church™ is taking in the civil courts. Allow me to explain.

The statutes recently passed in Indiana and Arkansas are modeled upon the 1993 RFRA legislation which was introduced in Congress by Rep. Charles Schumer (D-NY) and by then-Senator Ted Kennedy (D-MA). RFRA passed the House on a unanimous vote, and cleared the Senate with just three dissenting votes. It was then signed into law by Democratic President Bill Clinton, and renewed by Congress in his second term, in 2000.

The statute works at the state level just as it does at the federal level: it forces the government to justify any law or legal precedent that burdens the practice of one's religion. Originally designed to counter a Supreme Court ruling that upheld Oregon's dismissal of native-American employees for smoking peyote as part of their rituals, RFRA most recently was applied by the Supreme Court in the Hobby Lobby case to uphold the right of a closely-held corporation to decline to provide coverage for certain contraceptives to its employees.

In the ongoing church property litigation cases, we are frequently faced with the argument that the trust interest declared by the Church's Dennis Canon cannot be given recognition, because the Church did not own the parish properties in which it claimed a beneficial interest, and declarations of trust have to be signed by the owner of the trust property to satisfy what is called the "Statute of Frauds." (The latter was a 16th-century law passed by Parliament that required all deeds affecting real property to be in writing, signed by the owner, and it passed into our States' laws after the Revolution.)

We have always countered that argument by contending that the Dennis Canon is an inherent part of The Episcopal Church™'s polity -- that by requiring TEC™ to satisfy the Statute of Frauds, state law was interfering with the Church's free exercise of its religion. Recently, we have made exactly the same argument in the cases involving dioceses that claim the right unilaterally to withdraw -- we contend that TEC™'s polity requires that a diocese's union with General Convention is perpetual and irrevocable, regardless of what the Constitution and Canons do or do not say.

You can appreciate now, I presume, the importance of the various RFRA statutes to the support of these arguments which we are making in court. It is embarrassing, to say the least, to have the various bishops of TEC™ spouting off against a law about which they know very little, and arguing for its repeal. We must maintain a unified front against the forces that are allied against us, and which recently have been on the upswing in Texas, Illinois and South Carolina, as I reported to you earlier.

Your Excellency, please send the following Pastoral Directive out at once to all of your subordinate bishops and clergy in the Church:

Grace and peace to you, from your sovereign Lord and Presiding Bishop. In the furtherance of The Episcopal Church™'s spiritual mission, and in defense of her most sacred polity, as handed down to us since the American Revolution, I hereby exercise my pastoral position and authority to counsel and advise each and every one of you that from this day henceforth, you are not to take any public or private stand against the passage of statutes modeled on the Religious Freedom Restoration Act (which Congress passed in 1993 and versions of which have since been adopted in over 20 States). Nor are you to advocate in any way the repeal of any such statutes. They are absolutely necessary to the Church's being able to carry out its mission in a secular and increasingly hostile world. Rest assured that their impact upon various segments of our society who have historically been the victims of bigoted and unjust discrimination, such as that impact may be now or in the future, pales before the importance of their impact on the ability of this Church to keep its house in order. 
You are all to conduct yourselves henceforth in accordance with this Pastoral Directive, or else answer to the appropriate ecclesiastical authority in accordance with the provisions of Title IV of the most sacred Canons of The Episcopal Church™.   

Tuesday, March 31, 2015

As Predicted: Federal Appeals Court Returns Trademark Action to SC District Court

In a published decision earlier today, the United States Court of Appeals for the Fourth Circuit reversed an earlier decision of Senior District Judge C. Weston Houck to abstain from exercising  jurisdiction over a case alleging infringement of trademarks under the Lanham Act. The case had been filed by Provisional Bishop Charles vonRosenberg of the Episcopal Church in South Carolina against Bishop Mark Lawrence of the Episcopal Diocese of South Carolina. The validity of its allegations turns upon the question of whether a diocese is free to disaffiliate from the Episcopal Church (USA).

ECUSA has now lost the argument over whether one of its dioceses may withdraw of its own volition from union with General Convention, without asking the latter body for permission. The courts of Illinois have issued a ruling contrary to ECUSA's position, and that decision is now final, or what attorneys call res judicata ["the matter has been adjudged"]. The term means that the Illinois decision is no longer subject to being changed or altered in any way.

The Illinois courts were diligent and extremely thorough in examining ECUSA's constitution and canons in minute detail. Not only could they find no restrictions upon dioceses' powers to amend their own governing documents so as to remove or change their affiliation with the Episcopal Church (USA), but they also could find no adjudicatory body of any kind within ECUSA that had been given the authority over dioceses, to tell them what they could and could not do.

(General Convention is only a legislative, not a judiciary, body -- it cannot decide a dispute with a diocese, or order a diocese to do anything, and has no means within the Church itself of enforcing its canons against a diocese. Inside the Church, and as regards a member diocese, the canons have mostly moral, rather than legal, force. And that is why ECUSA uniformly has been forced to seek relief against withdrawing dioceses in the secular courts.) 

The legal doctrine of res judicata will now prevent ECUSA's attorneys from continuing to argue to State and federal courts that its dioceses may not leave without permission. That is why the reversal today of Judge Houck's earlier decision will probably have little consequence over the long run. As I wrote in this earlier post:
[W]hat about the case argued last week before the federal Fourth Circuit Court of Appeals, in Richmond? Could that case still go forward?

I listened to the recording of the oral arguments in that case (mp3 file available for download using this link). Based on the questions asked of both sides, I think the Court of Appeals will most likely return the case to Senior District Judge Houck and direct him to use a different technical standard in deciding whether or not to abstain from exercising jurisdiction over the case (which was brought by Bishop vonRosenberg to address charges of federal trademark infringement by Bishop Lawrence and his Diocese).

Judge Houck will have the benefit (which the Court of Appeals may not) of reading Judge Goodstein's well-written opinion -- which decides the trademark issues under State law. Moreover, the injunction against Bishop vonRosenberg claiming to be the "Bishop of the Diocese of South Carolina" is now made final against him, and he cannot disobey it while the case is on appeal without getting the injunction first stayed (see Rule 62 [c], which you may read here). So he can no longer argue to the federal courts that he has the rights to that title unless he can get a South Carolina Appeals Court justice to stay the injunction, and I personally doubt he will be able to do so.

If this analysis correct, the federal case is dead unless and until ECUSA and ECSC manage to get a court to reverse Judge Goodstein's decision. And this Curmudgeon, at this point, just does not see how that could ever happen.
So there are now two very good reasons why ECUSA and its rump group should have no cause to celebrate their opportunity to go before Judge Houck once more with their claims of "infringement." The first is that the injunction against Bishop vonRosenberg remains in effect pending their appeal (which they have asked the South Carolina Supreme Court to hear directly, thus bypassing the Court of Appeals if the Supreme Court grants their request). If he is prevented from claiming to be the Episcopal Bishop of the Diocese of South Carolina, how can he say he owns the trademarks which have been adjudicated to belong to Bishop Lawrence and his Diocese?

Second, if the Episcopal Diocese of South Carolina had the right to withdraw from ECUSA, as now finally adjudged in the Illinois courts, then it has the right to keep its marks and trade names -- and ECUSA (and by extension ECSC, since the latter claims to be one of ECUSA's dioceses) are both now barred from arguing to the contrary.

Judge Houck thought he was doing Bishop vonRosenberg a favor by declining to accept jurisdiction of his suit. Now that he is required to revisit that decision, however, he might just proceed (in due course, after appropriate motions and briefing) to the merits, and add his own adverse decision to the ones in the State courts of Illinois, Texas and South Carolina. ECUSA has asked for a decision, and now it will get one (but not for several more months).

Thursday, March 26, 2015

The Church's Finances (I): Not as Rosy as Claimed

The Executive Council of the Episcopal Church (USA) has commended the staff at Church headquarters (815 Second Avenue in New York) for producing an operating "surplus" of some $2.4 million for calendar 2014.  A resolution adopted at the Council's latest meeting last week took note of the “consistent, visionary leadership” of Chief Operating Officer Bishop Stacy F. Sauls and Treasurer and Chief Financial Officer N. Kurt Barnes.

The commendation would appear to be premature. The "surplus" claimed exists only if one ignores the full operating statements of the Church, which include in particular the numbers for its Episcopal Migration Ministries ("EMM") -- the arm of the Domestic and Foreign Missionary Society (the incorporated part of the Church handling all money and finances) which provides government-subsidized services to international refugees admitted for resettlement in the United States.

Working through 30 partner organizations in some 22 states, EMM helps the United States government relocate approximately 5,000 new refugees in the United States each year. In exchange for its services provided to the new immigrants -- helping them blend in and become productive members of American society -- the government reimburses EMM for what it spends on relocation services. The reimbursement includes staff and overhead costs, as well as all out-of-pocket expenditures.

Because EMM income is unrelated to regular income of the Church, it is reported in its own section at the end of the monthly operating statements, after the accounting for the usual Church revenues and expenses. And for budgeting purposes, the Church projects EMM reimbursements to be equal to EMM expenditures -- so the numbers should be a wash.

But they are not -- this is the government, remember? Its reimbursements can lag greatly behind expenditures, so that the Church is actually in the position of having to front money for EMM operations which it expects (eventually) to receive back. It's almost like having to invest "working capital" into a business before it can become profitable.

With this background, anyone can now evaluate the strength of 815's "surplus" claim by examining its preliminary 2014 year-end profit-and-loss statement here. According to that statement:

(A) Total ordinary income for the year (line 15) was $ 40,685,373;

(B) Total ordinary expenses for the year (3d page) were $ 38,278,771; producing a nominal

(C) "Budgetary surplus" for the year (A - B) of $ 2,396,602.

But now add in the EMM figures (bottom of the third page):

(D) 2014 EMM reimbursements received were $ 13,322,419; while

(E) 2014 EMM expenditures amounted to $ 16,811,183; for a net

(F) Annual EMM operating deficit of $ 3,488,763, which more than wipes out (C) above, and leaves

(G) A net operating loss for 2014 of $ 1,092,161 !!

In other words, the Episcopal Church is in the hole to the tune of over a million dollars for calendar 2014.

Notice how the budgeted 2014 numbers for EMM were to equal each other: $15,931,732 of reimbursements was supposed to equal $15,931,732 of expenses. That, however, is not how things actually worked out. 

The Church spent the money for EMM in 2014; any money spent in excess of actual reimbursements had to come from the Church's other pockets. And by the time the government reimburses the EMM deficit of $3,488,763 later this year, the Church will already be spending money on EMM in 2015. It will most likely never catch up -- because, as I say, of the long time it takes the government to process claims for reimbursement.

Because of that reality, it looks as though the Church, in order to avoid having to draw down its trust funds excessively to finance EMM operations, pretty much has to find the necessary funds from elsewhere in its operations. So had it not been able in 2014 to increase its rental incomes, and save money on refinancing its loans and in other ways, the operating loss would have been far higher.

And that is my point in this first post on the Church's Finances -- there is no "surplus" for which the Episcopal Church may pat itself on the back. But there is still a lot more to say about EMM, and the Church's 2014 figures, as well. They will be the subject of my next posts in this series looking at the Church's Finances leading up to General Convention 2015.