Monday, October 27, 2008

Coming to a Neighborhood Near You: TEC Properties!

In the seesaw world of litigation, The Episcopal Church has recently been able to report that some courts have adopted its view of the Dennis Canon. I have in the past commented on the Canon in question, and it is time to place it in a larger perspective. That is what I shall attempt in this post.

On its face, the Dennis Canon (I.7.4 and .5) is an attempt to declare the existence of a trust:
Sec. 4. All real and personal property held by or for the benefit of any Parish, Mission or Congregation is held in trust for this Church and the Diocese thereof in which such Parish, Mission or Congregation is located. The existence of this trust, however, shall in no way limit the power and authority of the Parish, Mission or Congregation otherwise existing over such property so long as the particular Parish, Mission or Congregation remains a part of, and subject to, this Church and its Constitution and Canons.

Sec. 5. The several Dioceses may, at their election, further confirm the trust declared under the foregoing Section 4 by appropriate action, but no such action shall be necessary for the existence and validity of the trust.
As a declaration of trust, it is an attempt to change the title in which "all real and personal property held by or for the benefit of any Parish, Mission, or Congregation" in The Episcopal Church is held. Instead of each "Parish, Mission or Congregation" owning its real and personal property outright, after the enactment of the Dennis Canon in 1979 all such property is magically impressed with a trust in favor of TEC and of the diocese in which the property is located. And notice the hand-waving that goes on in section 5: "no such action [by any diocese to implement the trust---such as by having the parish vestry actually execute a written trust document] shall be necessary for the existence and validity of the trust" (italics added).

"Existence and validity"---these are lawyers' words, mustered for arguments in court, and they do not add anything when used this way in a statute. Legislating that a trust "exists" and is "valid" does not make it so; only a court can declare that a trust exists and is valid. That is a judicial function, and legislatures (such as General Convention) have no business exercising a judicial function.

[UPDATE 11/01/2008: I have modified the wording in the previous paragraph to respond to criticisms here and in the comment from Craig M. below that my language did not say what I meant. But I stand by my statement that section 5 accomplishes absolutely nothing to establish the "existence and validity" of a trust by itself. Over at StandFirm, DavidH suggests that "[section 5] recognizes that if some dioceses chose to take further action, lawyers could turn around and argue that such further action was required to implement the Dennis Canon. It cuts off that argument—the canon rises or falls on its own." Lawyers could make that argument whether or not section 5 said what it says: if state courts determine that the trust requires further action by a diocese to implement it, section 5 as it currently reads has no force or effect as law in a given State to prevent such a result. It would be more legislative in function if GC had created a rule of construction for canon law rather than attempting to legislate universal effectiveness by fiat; for example, it could have made section 5 say: "For purposes of the canon law of this Church, no further steps to implement the trust imposed in section 4 shall be construed as necessary or essential to its creation." That would have been a much more appropriate exercise by GC of its proper functions. The very fact that we lawyers have such disagreements over the basics is, no doubt, why the statute-books (and the canons!) are clogged with meaningless language that the courts simply disregard.]

So in section 4 we have an attempt to create a trust, and in section 5 we have an acknowledgment that the attempt might be of dubious validity, and so there is some legislative wand-waving to say that the trust created in section 4 needs nothing further done---no documents of any kind, no attempt whatever to have the trust "embodied in some legally cognizable form", as the Supreme Court put it in Jones v. Wolf.

Yet the courts in both California (to date; we have yet to hear from the California Supreme Court) and New York apparently do not require anything more than the enactment of the Dennis Canon itself to recognize the "existence and validity" of the trust it created. How can this be?

One looks in vain for an explanation from New York's highest court, the Court of Appeals, in its recent decision in Episcopal Diocese of Rochester v. Harnish (No. 152 [Oct. 24, 2008]---the opinion may be downloaded here). The court simply states in summary fashion:
We conclude that the Dennis Canons clearly establish an express trust in favor of the Rochester Diocese and the National Church (see Jones, 443 US at 606), and that All Saints agreed to abide by this express trust either upon incorporation in 1927 or upon recognition as a parish in spiritual union with the Rochester Diocese in 1947.
Citing to Jones v. Wolf for the authority to say the trust is valid is highly disingenuous. As I noted earlier, the opinion in Jones clearly says (albeit in dicta) that the trust established by a national church must be in a legally cognizable form. The Court of Appeal itself admits there is no such legally cognizable trust document binding the parish, so it is improper for it to cite Jones in support of its finding that the Dennis Canon alone is sufficient to create such a trust.

[UPDATE 11/01/2008: For DavidH (in the comment referenced above) and for many others (including the New York Court of Appeals), the Dennis Canon is self-executing; but as I demonstrate here and here, you cannot cite the authority of Jones v. Wolf to make it so and still call yourself a lawyer who knows the difference between the holding of a case and what is unnecessary to that holding ("obiter dicta"). Relying on the dicta in Jones to say the Dennis Canon is self-executing is not only disingenuous, but in the end it is completely circular reasoning as well.]

Thus the New York Court of Appeals offers no defensible rationale for its holding, and in doing so, it even undercuts the dictum of Jones, which made it a condition of the trust's recognition that it be put into a form that the courts could recognize:
And the civil courts will be bound to give effect to the result indicated by the parties, provided it is embodied in some legally cognizable form. [443 U.S. 595, at 606 n 4; emphasis added; footnote omitted.]
Thus for the New York Court of Appeals, the words "legally cognizable" are devoid of meaning. The beneficiary of a trust can simply wave one into existence, even though it does not actually own the property being impressed with the trust, provided it is The Episcopal Church.

And this brings me to the most troubling aspect of the decisions in both New York and California (I wrote about the latter case here): they uphold the Dennis Canon trusts solely because they are the creation of a so-called "hierarchical" church. (I say "so-called", because as Mark McCall's paper on the topic demonstrates, TEC is anything but.) Nevertheless, for the sake of argument, let me grant for a moment that TEC is "hierarchical." Why should that mean that it gets to create a trust by waving its hierarchical wand, rather than having to have trust documents drawn up and signed like everybody else?

Imagine the consternation if General Motors, say, could bootstrap itself out of its current economic difficulties by adopting a corporate bylaw which declared that as a condition of anyone being a GM dealer, all of that person's real or personal property used for GM business should be held in trust for GM. The attempt to create a trust thereby would be laughed out of any court in the land, including the New York courts. So what is different about a church---sorry, a "hierarchical" church?

Now be careful here---if you try to say that a church is different, because the relations between it and its parishes are not like the contractual relations between GM and its dealers, you are on shaky ground. A diocese joins the church, and a parish joins a diocese, by "acceding" to the latter's Constitution and canons, that is, by entering into a contractual relationship that is akin, as Mark McCall has shown, to a nation's acceding to an international treaty. The essence of the relationship is contractual, or if you want to make it more solemn-sounding, covenantal. But a covenant is still a form of contract---more formal and permanent, perhaps, but a contract nonetheless.

So if you hold, as does the New York Court of Appeals, that under "neutral principles of law", you must give effect to a national church canon purporting to establish a trust without bothering to do so in any legally cognizable form as required by state statutes governing trusts, you are perilously close to violating the Establishment Clause of the First Amendment. You are setting up a State-sponsored Church that gets treated specially in the courts just because it is the Church that it is---no other litigant, private or public, can bring a trust into existence simply by waving a wand and decreeing it so.

Not only is the church's trust given legal recognition without further ado in New York, but it is apparently irrevocable to boot---that is, the parish in question can do nothing to get out of it. It is found subject to the trust for as long as it remains in the Church, and while its congregation is free to walk out the door, the property stays in the trust.

And what does this say about TEC itself, in passing the Dennis Canon? What was its object in doing so, if I may be so bold as to ask?

If the response is that TEC wanted to prevent churches from leaving, then the next question surely is: And why should TEC be afraid of churches leaving---what was it on the point of doing in 1979 that might cause churches to want to leave? And if it was about to do some such thing (such as making women's ordination first optional, then mandatory), why would it want to keep the buildings and the property after the people that supported them had left?

We all know the answer which the current Presiding Bishop gives to that last question: "Because I have a fiduciary obligation to keep the property for future generations." But if that is the case, then why later offer the property for sale? And why sell the property not to the people who built it and paid for it, but instead to anyone but those people---including, if need be, to people who want to use it for a nightclub?

In the 15th and 16th centuries, the temporal power of the Catholic Church reached its zenith, and the result in part was the Reformation. Pope Julius II even marched at the head of an army to retake lands which he claimed for the Church from the princes who had seized it. The Church was obsessed with its temporalities, at the expense of its spirituality.

So I would say of TEC today. With its battles for buildings and physical property, it is acting no better than Pope Julius did, and its heritage is destined to be just as disgraceful. An army of lawyers is no more a suitable spiritual instrument than was an army of soldiers. The legal battles will be won and lost, while souls will only be lost, and not won.


  1. I am dumbfounded by this reasoning,

    "All Saints agreed to abide by this express trust either upon incorporation in 1927 or upon recognition as a parish in spiritual union with the Rochester Diocese in 1947."

    After all, the Dennis canon was enacted in 1979.

    You ask,

    "And what does this say about TEC itself, in passing the Dennis Canon? What was its object in doing so, if I may be so bold as to ask?"

    It says that the Episcopal Church is behaving like the U.S. Government's appointed agencies in enacting rulings that can be applied retrospectively (personal experience).

    The object is of course to set up a law of "eminent domain" for the National Church to take possession of that which it never owned whenever it so chooses.

    I doubt they would want to take away my little church right now with its 1.2 million dollar mortgage, but if we were ever to pay it off, look out.

  2. Underground Pewster, re:

    "All Saints agreed to abide by this express trust either upon incorporation in 1927 or upon recognition as a parish in spiritual union with the Rochester Diocese in 1947."

    The court clarifies this admittedly confusing statement two sentences later, when it says: "In agreeing to abide by all 'canonical or legal enactments,' it is unlikely that the parties intended that the local parish could reserve a veto over every future change in the canons."

    In other words, All Saints evidently promised, either in 1927 or in 1947, that it would "abide by all [future] canonical or legal enactments" of The Episcopal Church, and so when the Dennis Canon was adopted in 1979, All Saints was bound to accept the terms of the Canon by its earlier promise, according to the logic of the Court. The problem I have with that logic is, as I say, that the promise makes the trust so created apparently irrevocable (unless TEC gives its consent, and we know what those odds are).

    I agree, your mortgage is your safety. If ever it comes close to being paid off, take out a new one and build an addition!

  3. It is also unlikely that the parties in 1927 or in 1947 intended for 815 to claim title to the building and grounds to sell to whomever it pleases.

  4. The other, complementary wrinkle in Jones v. Wolf, one that was touched on in the case currently before the California Supreme Court, is that to be valid, a denominational trust clause as envisioned by the Court must not only be in a "legally cognizable form," but must also reflect "the result indicated by the parties."

    Here's the relevant passage from Jones (for the benefit of the blog's readers):

    At any time before the dispute erupts, the parties can ensure, if they so desire, that the faction loyal to the hierarchical church will retain the church property. They can modify the deeds or the corporate charter to include a right of reversion or trust in favor of the general church. Alternatively, the constitution of the general church can be made to recite an express trust in favor of the denominational church. The burden involved in taking such steps will be minimal. And the civil courts will be bound to give effect to the result indicated by the parties, provided it is embodied in some legally cognizable form.

    There are a lot of "theys" in that paragraph. Of course, the N.Y. Court of Appeals and the appellate court in California attempt to get around that by claiming that the local churches intended (by joining) the result of their being bound by whatever canons the national church might someday choose to pass.

    TEC also made a hokey "General Convention is representative government" argument to say that the Dennis Canon reflected the intent of every parish in TEC when it was passed, but that's easily refuted by the authoritative commentary on the Canons, White & Dykman (with which I'm sure Mr. Haley is intimately familiar).

    Anyway, all that's to say that the case for the Dennis Canon being both "legally cognizable" and reflecting "the result indicated by the parties" is not very compelling, rulings to the contrary notwithstanding.

  5. Jeff H and UP, thank you for those comments. They each zero in on the central weakness of the simplistic assumptions made by the New York Court of Appeals in its reasoning.

  6. I appreciate the frustration, but I have to disagree with the legal reasoning of this post.

    1) Legislative versus Judicial Act:
    A legislative body certainly may pass all manner of laws governing the creation and civil law recognition of trusts as well as the duties and decision standards of fiduciaries. See, e.g., Uniform Trust Code.

    Further, the US Supreme Court in Jones, 443 US at 606, while arguably dicta, would seem to provide whatever express Judicial legitimacy required for the the Dennis canon's legal effect: "Alternatively, [to ensure TEC control of local parish property in the event of a dispute], the constitution of the general church can be made to recite an express trust in favor of the denominational church."

    Basically, in 1979, the Supreme Court told TEC and all other denominations: "If your national structure wants to ensure control over local property, there are a couple of ways to do it, including by amending your national, governing document to recite an express trust over local affiliate property." If a local parish didn't want to be subject to the Dennis canon, it should have disaffiliated with TEC as soon a feasible after the adoption of the canon. There's something of a laches defence here: one can't enjoy the "benefits" (whatever those might be) of being part of a national organization, find oneself at opposition to some other faction of the national group, and decide its time to take your toys and go home. One doesn't get to decide the rules don't apply, just because they're now inconvenient. Frankly, a better tactic might be to concede the point about the property, tell TEC to take it, but then have the current parishioners/etc sue under concepts of fraudulent misrepresentation regarding their contributions/etc. If one could get into a realpolitik situation where there are cross-claims of approximately similar values (10 years worth of contributions + interest + punitive damages?), the local church would have significantly better negotiating posture vis-a-vis TEC to come to a resolution.

    2) "Legally Cognizable Form": I will admit, I don't understand from where the perceived disconnect with this phrase comes. "Legally cognizable" in SCOTUS jurisprudence merely means a claim or argument that is able to be properly considered by a court. If the canon were written, "It is an ecclesiastic duty and tenant of faith that all member parishes must (irrespective of civil law) refuse to defend against real property actions instituted by the Diocese," then a court wouldn't be able to properly consider it. While the intent behind it might have been the same as the Dennis canon (the imposition of a trust on all locally held property), the result is not. A civil court cannot properly determine if something is a religious obligation and what should happen if a dispute arises about the fulfilment of ecclesiastic obligations. However, when something is expressed in a "legally cognizable" form, it's merely something a court can look at and not have to consider theology in order to resolve the dispute. While not an exhaustive list, the Supreme Court clearly indicated that a court may properly review the language of the property deeds, the local congregation's charter, and the constitution of the general church for language that would provide for an express or an implied trust (emp. added).

    And that's what the NY CoA did, saying, in essence, 'we don't see anything

    Again, I think the line quoted above from Jones clearly indicates that a constitutional canon is sufficient. One of my primary areas of practice is trust and estate law, and it is long-standing principal that legally enforceable trusts do not have to take the form of a written trust indenture or trust agreement. In fact, a trust does not even have to be a written down to be enforceable many times (i.e., an implied trust). Now here, when dealing with real property, things get a bit sticky because of the "statute" of frauds, a legal principal where we normally require transactions that take over a year to complete or those transferring rights in real property to be written down if a court is going to enforce it. However, there are counter-arguments to a statute of frauds defense.

    Even if a state's substantive law, however, would refuse to hold an express trust over the property for the benefit of TEC (at the national level), there still are other hurdles to overcome too:

    - implied trust: the local parish has acted in ways consistent with an implied trust, i.e., "Up until this dispute occurred, did the Parish seem to act as if there was an implied trust with the National church?" (this is a very fact specific claim, but can be easy to get buy-in from a judge with non-obvious support: if, for example there was a diocesan requirement to inform the Bishop about and building or borrowing against the property, and the Parish in question had complied, that would support the idea that it was in trust for the Dioceses (and by extrapolation, TEC); another example of a supporting fact would be if the Parish property were insured as part of the Diocese's group policy and/or through the TEC's Church Insurance Group, which because of some arcana of insurance law, would also support an arguement for an implied trust).

    - laches/equitable estopple:
    agreement to be bound by the Denis canon discussed in (1) above, i.e., you had a chance to complain about the canon and quit then, but you waited too long. It's now been almost thirty years, and it's too late for you to complain about the canon now

    - constructive trust based on representation/cy pres: the Parish held itself out as an "Episcopal Church" and as a member of the Diocese and ECUSA when it conducted its activities and solicited its charitable contributions. It cannot then play "gotcha" with those donor's funds by making such a significant legal change as disaffiliating from TEC while "absconding" with the funds. Yes, a majority of the current members voted in favour of the disaffiliation, but those funds were not provided solely by the majority or even solely by the current membership. Charitable funds are always subject to special oversight/scrutiny because the state has an interest in seeing that they are used for the purposes that the donor intended. A constructive trust may be imposed on those funds if the holders of them intend to significantly divert from the express and implied representations made when the donation was solicited. Further, if a donor's intent for funds in trust or held for charitable purposes are frustrated (i.e., unrealizable or risk being diverted or forfitted beacuse of the current political/legal environment/situation), a court can direct the funds be used for purposes as close to those as the donor's intent and expectancy as possible under the cy pres doctrine. Consequently, a court could find, for example, that the money to build the parish was given by a cradle-to-grave Episcopalian, and it seemed clear that the intent was for it to be used for an Episcopal Church. So Parish, if you wish to disaffiliate from TEC, fine and dandy, Mr. State Court judge doesn't care and doesn't want to get into the middle of it. However, you're going to have to find somewhere else to move to because this land was given to be used for a TEC member church, and you don't get to keep it, just because you've been using it for the last XX years.

    If this were another member-based non-profit organization otherwise unconnected with religion, it would be something of a slam-dunk in most states, I would think, but the religious component muddies the waters. If this were a fraternity, for example, state courts have been very accepting of arguments along these lines (especially, even though you are an independent corporation, you held yourself out as being affiliated with the National Fraternity and all of your actions up to this dispute with the National organization have been consistent with your membership therein. Just because you, local frat of many years, want to disaffiliate from your national organization and start a new fraternity doesn't mean you get to take the house. The expectancies that led to the purchase, funding, maintenance, et cetera of that house were all based around your national affiliation. You cede that aspect of your local corporate entity, you've now departed so far from what you've held yourself out to be to the world when asking for money that you're no longer the 'same' entity that received the donations and are not entitled to keep them or their proceeds (i.e., the frat house).

    3) What's different between GM and a church: GM is a for-profit organization and a church is not. Churches are granted huge operational freedoms under law that other organizations are not (hence why a significant amount of money laundring in metropolitan cities are now being conducted through storefront "churches".

    Further, the legal relationship of affiliation between a dealership and a member church are different, but do share some common items. Often a dealer will have to sign a security agreement, personally guaranteeing all of the dealerships liabilities to GM as well as giving a broad security interest in both business and personal property. Further, there are very, very express limits on how a dealer can conduct his or her business while it is a GM licensee. If a dealer wants to go off the reservation, he or she can, but there will be significant financial repercussions.

    4) a minor quibble... the trust isn't irrevocable. All you have to do is get the canon changed at the next GC. Remove that, and then no trust (at the TEC level at least) would be imposed.

    5) Even if you removed the Dennis canon, you would still have diocesan issues in many circumstances. I'm going to pass on the "hierarchical" church question, not because it isn't a good and valuable question, but because there's a lot of existing civil law precedent holding that or discussing TEC as a hierarchical structure within the civil law definition. I think reasonable people could disagree, but in a variety of the current controversies, the point is somewhat moot because the principals of law indicated would apply at the diocesan level, since many of the diocesan canons have similar provisions or incorporate the TEC canons by reference.

    6) "why afraid of leaving": I think we all know the answer to that question, however this is a policy discussion that goes beyond the legal arguments otherwise presented (unless one is going to make an argument that TEC has so changed that the member parishes/dioceses are no longer bound by it structure, but I think most courts will view that as an ecclesiastic dispute upon which there is no way to apply the "neutral principals of law" doctrine.

    7) "offer for sale": is keeping the property for future generations, just in a different form. However, I think there's real danger (political and legal) if TEC/PB refuse to sell to a break-away parish and take a lower offer from another party. They can't cloak themselves in the mantle of fiduciary duty and then throw it away just so they can be petty. A parish leaving the supervision of TEC should get a third party to conduct a blind-bid sale on commercially reasonable terms and then make sure they have the resources to buy the building. PB couldn't do much about that: the departing vestry is meeting its fiduciary duty to any claims the TEC might have as trustees fbo TEC and then they still get to keep the building.

    Always enjoy the AC blog, but felt like I had to try and add some more background to legal side of the discussion.

    Attorney-at-Law (Va, DC, MD) & Certified Public Accounting (DC)

  7. Craig, your very thoughtful and welcome comment deserves a post of its own in reply, which you will find here.