Sunday, January 4, 2009

Arguing the Episcopal Church Cases (II)

This will be the third in a series of posts anticipating the opinions by the California Supreme Court in The Episcopal Church Cases (No. S055194), which will be announced at 10:00 a.m. Monday, January 5 on the Court's Website. (Yes, there will be more than one opinion---see my preliminary predictions for an explanation.) The first, introductory post may be read here; the second post is here.

In the previous post, I discussed the part of the oral argument last October that dealt with ECUSA's Dennis Canon, Canon I.7.4. As I explained, the central issue for the Court to decide is this: How can a beneficiary of a trust, even if it is a national church, create a valid trust with regard to real property in California without a trust document in writing signed by the owner of the property, as required by the express terms of California Probate Code section 15206? That statute says: 

A trust in relation to real property is not valid unless evidenced by one of the following methods:

(a) By a written instrument signed by the trustee, or by the trustee's agent if authorized in writing to do so.

(b) By a written instrument conveying the trust property signed by the settlor, or by the settlor's agent if authorized in writing to do so.

(c) By operation of law.

California case law, and the history of this statute (whose predecessors have been around since 1872) makes clear that the word "trustee" in subsection (a) applies to cases where the owner of real property puts it into a trust and makes himself the trustee of the property. In cases where the owner conveys the property to another person to carry out the trust, subsection (b) applies, and the owner is called the "settlor". So in either case, this statute requires the signature of the property's owner on an instrument in writing for a trust of real property to be valid in California.

The problem for ECUSA and the Diocese of Los Angeles arises under this statute because they have no such instrument; they instead have only the plain text of their canons. They have no deed from St. James conveying the property into a trust for their benefit; they have no declaration of trust executed by the board of directors of St. James in their favor; and no one is contending that any kind of trust arose on the property "by operation of law." So how is it that, given this statute, they can even argue that their canons operated to put an enforceable trust on the property of St. James parish?

What they do is invoke the terms of another statute, which the California legislature enacted in 1981 (two years after Jones v. Wolf, and two years after ECUSA's supposed adoption of the Dennis Canon). The relevant parts of that statute, Corporations Code section 9142, subdivisions (c) and (d), are as follows:

“(c) No assets of a religious corporation are or shall be deemed to be impressed with any trust, express or implied, statutory or at common law unless one of the following applies:

“(1) Unless, and only to the extent that, the assets were received by the corporation with an express commitment by resolution of its board of directors to so hold those assets in trust.

“(2) Unless, and only to the extent that, the articles or bylaws of the corporation, or the governing instruments of a superior religious body or general church of which the corporation is a member, so expressly provide.

“(3) Unless, and only to the extent that, the donor expressly imposed a trust, in writing, at the time of the gift or donation.

“(d) Trusts created by paragraph (2) of subdivision (c) may be amended or dissolved by amendment from time to time to the articles, bylaws, or governing instruments creating the trusts. However, nothing in this subdivision shall be construed to permit the amendment of the articles to delete or to amend provisions required by Section 214.01 of the Revenue and Taxation Code to a greater extent than otherwise allowable by law.”
I expect that even a non-lawyer can see the interpretative problem here. Probate Code section 15206, which I quoted first, is absolute in its requirements: "A trust in relation to real property is not valid unless . . . [it is in writing, signed by the property owner]." And section 9142 (c) speaks of a "deemed" trust, "express or implied, statutory or at common law", of a religious corporation. How are the two statutes to be read together?

The way that ECUSA and the Diocese read them (as well as some of the Justices at oral argument, to gather from the nature of their questions) is as separate and independent statutes. That is to say, section 9142 is the later-enacted one, so they argue that it overrides any contrary provisions of section 15206 when it comes to the property of religious corporations. In their view, so long as a trust on religious property is expressly imposed by "the governing instruments of a superior religious body or general church of which the corporation is a member," it is made valid by section 9142 regardless of what section 15206 provides. (One problem with this position, not mentioned in the arguments before the Supreme Court, is that section 9142 applies to trusts in all kinds of property and assets of a religious corporation, both real and personal, while section 15206 applies just to trust interests in real property. A general rule of statutory interpretation is that the specific overrules the more general, and not the other way around. In this sense, therefore, ECUSA's argument that section 9142 overrides section 15206 is applying the rule backwards, to have the general provision overrule the more specific one.)

The way St. James Church and its counsel read the two statutes is by saying that they work together: All trusts of real property in California must first satisfy the requirements of section 15206, and trusts of real property belonging to religious corporations must, in addition, satisfy the requirements of section 9142. To support this argument, they point out that section 9142 began its legislative life in 1980 as a vehicle by which a corporation, or an officer or director, or other specified persons, could bring an action in court "to enjoin, correct, obtain damages for or to otherwise remedy a breach of trust under which any or all of the assets of a corporation are held . . .". As initially enacted, subdivisions (a) and (b) of the statute applied to all corporations, and not just religious ones---and they still do. It is only subdivisions (c) and (d), added in 1981, that apply specifically to religious corporations. 

At the same time as it enacted the first two subdivisions of section 9142, the legislature had repealed another section (Corporations Code section 9505) which gave the Attorney General supervision over property held subject to a public or charitable trust. In the past, when the donor of property to a religious corporation wanted to complain that the corporation was not using the property as intended, the donor would apply to the Attorney General to investigate the matter, and to bring suit if necessary. With the repeal of the Attorney General's powers of supervision, however, donors were left without a means of enforcing the terms of their gifts. The provisions of section 9142 (a) and (b), as they took effect in 1980, did not assist the donors either. The legislature's solution to this problem was to enact subsections (c) and (d) in 1981. 

The legislative history of the 1981 amendment shows that the purpose of subsections (c) and (d) was not to expand the ability to create religious charitable trusts, but to limit them. The digest of the legislative bill on its third reading in the Assembly stated as follows:
“The bill's purpose is to limit a religious corporation's property subject to a charitable trust. It requires certain actions to take place in order for a gift of property to be considered a charitable trust.”
Notice that the digest speaks of "a religious corporation's property subject to a trust." In other words, the drafters of the bill assumed that the property of a religious corporation would be---without regard to enactment of the statute---already subject to a charitable trust, and then proposed additional conditions necessary to be satisfied before that charitable trust could be enforced in California courts. They assumed, in short, that there would be some kind of instrument in writing, signed by the settlor/donor, conveying the property to the religious corporation, and specifying the conditions and terms of the gift. Then they required, before that trust could be given effect by the courts, one of three things: either

(1) a resolution by the religious corporation's board of directors expressly committing to hold the assets in trust; or

(2) a provision in the articles or bylaws of the religious corporation, or (if it was a member of a more general church) in the governing instruments of that more general body, spelling out the terms of the trust; or

(3) a writing in which the donor expressly imposed a trust at the time of the gift.

Thus this statute assisted the donors who had been deprived of their remedies through the Attorney General to enforce a trust on a religious corporation, provided they were specific in spelling out the terms of that trust in writing when they made the gift, or else had the corporation acknowledge the terms of the gift in accepting it. At the same time, it was drafted to accommodate those religious societies (like ECUSA, with its Dennis Canon, and like the United Methodist Church, which had enacted a similar change to its Book of Discipline) who wanted to have local church properties be subject to an enforceable trust in favor of the national church, so long as they met the other requirements of State law.

It is significant that section 9142 (c) begins with the words "[n]o assets of a religious corporation are or shall be deemed to be impressed with any trust . . .". The problem was that, prior to the enactment of those subsections, California law had not been entirely clear as to when a gift to a religious entity created a trust. It was a generally recognized principle, for example, that the directors of a religious corporation held title to its property in trust for the members of the particular church which occupied and used the property. Trusts in favor of a more general church, of which the particular church was a subordinate member, were not generally recognized in California. (Presbytery of Riverside v. Community Church of Palm Springs [1979] 89 Cal.App.3d 910, 925-29.) A leading treatise thus described the purpose of the 1981 amendments to section 9142 in this way:
“It is not always entirely clear to what extent the assets of a religious corporation are impressed with a trust beyond a somewhat generalized charitable religious trust for the general purposes of the organization. In an effort to clarify this situation, Corp.Code § 9142 was amended effective January 1, 1983, to provide presumptive rules as to these trusts and to prescribe the circumstances under which they could be amended or modified.”
(Ballantine & Sterling, Cal. Corporation Laws (4th ed.1962) § 418.01(3)(c), 1982 supplement [fns.omitted].) Notice again that the authors presume the existence of an underlying trust, to which the statute's rules are then applied: they speak of "rules as to these trusts" (emphasis added). In the same way, the statute itself refers to trusts already existing: either "express or implied, statutory or at common law". That covers the gamut of trusts, and shows that the intent of the statute is to impose requirements for such already created trusts to be specifically enforceable in court under the provisions of subdivisions (a) and (b).

Putting this background all together, Eric Sohlgren argued for St. James to the Supreme Court in October that the purpose of subsections (c) and (d) was to specify when trusts of real property that otherwise met all the requirements of California Probate Code section 15200-15206 would be "deemed" enforceable as to religious corporations under California law. (The 1981 amendments to section 9142 were not limited, of course, to real property trusts. They applied broadly to all kinds of trusts, of real and personal property alike, affecting religious corporations and their assets. Probate Code section 15206, on the other hand, is a specific requirement that applies just to trusts in real property, whether for religious purposes or not). 

Read in this fashion, the real property of St. James could be imposed with a trust in favor of the Diocese and/or the national Church only if there was some writing that satisfied both the requirements of section 15206 (signed by the property owner) and section 9142 (c)---i.e., there was a resolution by the directors of the parish declaring their commitment to hold the property in such a trust; or if the deed to the property itself contained the terms of such a trust; or if there was a provision either in the parish's articles or bylaws, or in the governing instruments of the Diocese or of ECUSA, that spelled out the terms of the trust---and, in the latter case only, a ratification of those trust terms in writing, signed by the directors of St. James, and specifically describing the property subject to the trust. 

Another requirement for a trust to be valid is that the property of the trust be sufficiently described to enable it to be identified. The problem created by Dennis Canon trusts is that the Canon does not identify any specific property, but simply refers to "all" property held by a parish, mission or congregation. But what if a donor gave property to a local church that was in trust for a specific charitable purpose that conflicted with the purposes of the Dennis Canon? Suppose, for example, a donor gave funds to a local church to enable it to buy new property and leave the national Church? (Let's assume the church's existing property was somewhat run down, and subject to a mortgage to boot.) And suppose further that the gift met all the requirements of section 9142 (c) (3). Would ECUSA be able to argue that it owned the new property bought with the money once the church voted to leave? Which would take precedence under California law---the donor's own written terms, or the general terms of the Dennis Canon? Is the Dennis Canon to be read as not only imposing a unilateral trust on all local church assets, but also as preventing that local church from accepting any gifts whose terms are contrary to the purposes of the Dennis Canon? How far, in other words, are the Diocese of Los Angeles and ECUSA prepared to go in their assertion of the extent of the Dennis Canon as aided by their reading of section 9142? These questions were not addressed in the oral argument, and it will be interesting to see whether they are addressed in any of the Court's opinions on Monday. 
There is one final aspect of the section 9142 argument to be considered. Again, this aspect was not addressed in any of the oral arguments. Subsection 9142 (d) uses language that on first blush might appear to support the Diocese's and ECUSA's case: 
"Trusts created by paragraph (2) of subdivision (c) may be amended or dissolved by amendment from time to time to the articles, bylaws, or governing instruments creating the trusts. . ." (emphasis added).  
Does not this language indicate that the purpose of section 9142 (c) is not just to give effect to otherwise existing trusts, but also to create them? It may be read in that way, but to do so would lead to all of the problems just discussed---what is the extent, for example, of a trust "created" by applying subdivision (c)(2) just to the Dennis Canon, with no other defining terms or conditions? The "trust" so created is truly an odd bird, because the second sentence of the Dennis Canon makes clear that there are no limitations on the parish's use of the property, supposedly held in trust for the national Church and the Diocese, so long as the local church remains part of the national body:
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.
Thus the parish has the power completely to dispose of the asset supposedly held "in trust" while it remains part of ECUSA. This turns the Diocese and ECUSA itself into what are known as "secondary beneficiaries", who normally succeed to the benefits of the trust only after the primary beneficiaries are all gone. But who is the "primary beneficiary" under the trust so "created" by the Dennis Canon? It cannot be the parish itself, because there is no declaration of trust making the parish the beneficiary of its own property; nor would that make any sense. As the fee owner of the property, it already has the full benefit of the use of the property. 

A reading of Section 9142 (d) that would have it mean that religious trusts are "created" by the operation of subdivision (c) would, therefore, lead to nonsensical results in cases like that of the Dennis Canon. The preferred rule of statutory construction is to read a law in such a way as to give it meaning, rather than produce nonsense. And such a reading is the one argued for by St. James and its counsel. Under that reading, any such religious property trust is originated by the written instrument that satisfies the requirements of Probate Code section 15206. Then section 9142 (c) allows that trust to take actual effect in the case of religious corporations if it also satisfies one of its three paragraphs---and in that limited sense, subdivision (c) may be said to "create" the trust in question. 

Subdivision (c) of the statute has been construed by appellate courts only four times since its enactment. The first time it received only a cursory nod, as it was evoked in aid of a holding that the overall pattern of a church's deeds, articles and the governing documents to which it was subject confirmed the existence of a trust on the church's property. (Korean United Presbyterian Church v. Presbytery of the Pacific [1991] 230 Cal.App.3d 480.) The second time was in the California-Nevada case I cited and discussed in this earlier post. That court delved extensively into the legislative background and intent of the statute, quoting the digest of the bill in the legislature as I did above, and concluded (as I have argued here) that the statute was not intended to supplant, but rather to place certain limitations upon, the existing law concerning trusts imposed on the property of religious corporations. Its construction of the statute was sharply criticized in turn, in the manner I have described above, by the third appellate court to consider the matter---the Fourth District, in the case now before the Supreme Court. The fourth court was another panel of the Fourth District, in the case of New v. Kroeger (discussed in this post), which followed the analysis of its colleagues in the Episcopal Church Cases. Thus it will be up to the Supreme Court to give the definitive construction of the statute (at least, until the legislature changes it again).

At the oral arguments in October, Justice Kennard asked the most penetrating question concerning how subdivision 9142 (c) should be read. She pointed out that in Jones v. Wolf, the United States Supreme Court had told the States that nothing in the First Amendment precluded them from using "neutral principles of law" in resolving church property disputes, as long as they did not become entangled in matters of religious doctrine and interpretation. Then she asked whether an interpretation of a State statute which privileged a national church by allowing it, in preference to all other entities, to impose a trust on property without complying with any of the other requirements of State law could possibly be regarded as a "neutral principle of law". 

Heather Anderson, the counsel for ECUSA, avoided tackling the question, and simply assured Justice Kennard that in her opinion, the statute was "neutral" as so construed. When pressed by Justice Kennard to cite another example of a "neutral" statute that gave such a preference to one party, she could cite only Business & Professions Code section 17510.8, which simply codified existing common law that gifts to a charity are imposed with a trust to be used for the purposes of the charity. Justice Kennard, obviously not satisfied with that answer, said that she was "only looking for help", but Ms. Anderson was not inclined to give it to her. She simply assured Justice Kennard that it was "not a problem" that under her reading of the statute, it benefited only churches like her client. 

At another point, Ms. Anderson committed what is perhaps the worst mistake of an appellate lawyer: she actually accused Justice Kennard of misstating the facts in one of her questions. One should be willing to walk barefoot over hot coals before presuming to insult in that way a judge before whom one is arguing. However, according to testimony from BabyBlue, who witnessed a similar performance by Ms. Anderson in Virginia, such insouciance in addressing judges apparently does not trouble her:
Interesting how [the Curmudgeon] mentions Heather Anderson, whom we witnessed in action several times in the Virginia court as well, remembering most especially when she read the judge's earlier ruling back to him in a voice filled with ridicule and contempt, as he sat there listening politely to her until he finally said that he could remember what the ruling said since he wrote it. I don't recall if she ever returned to the Virginia court in person after that. Perhaps California was a better venue for her after all.
Yes, BabyBlue, California might be a better venue for her---but in the sense that, the way I read the justices at oral argument, St. James will need all the help it can get. 
Back to the merits of the matter: as one can see, were it not for having to decide what to do with provisions such as the Dennis Canon, one would be able to say that over 90% of the trusts in real property created in connection with churches satisfy the requirements of both section 15206 and section 9142 with one and the same instrument: either a deed, or a corporate resolution. Requiring an additional resolution in the case of Dennis Canon trusts fulfills three goals of trust law: it ensures the property owner is informed about and agrees to the existence of the trust, it describes the specific property that is subject to the trust, and it spells out the terms of the trust on which the property is held. Those are reasonable purposes for enacting the statute, and they are a rational way of making it work in conjunction with other State laws, and with the canons and provisions of national churches that (unlike the Catholic Church) do not hold title to all parish property themselves. Whether such a sensible reading of the statute is adopted by the Court on Monday is anyone's guess.

This completes my "preview" of the Court's decision on Monday. My posting once the opinions are published will probably take some time to appear, in order to integrate it with what I have already written. It is my hope that this series will provide, at least to some degree, a helpful background against which you can evaluate the decision once it is published (at this site).

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