Tuesday, January 12, 2010

Fiduciary Failings at All Levels

It is very difficult to make a blanket diagnosis of what is missing in the Episcopal Church (USA). There are so many geographical and demographic variations across this huge country that it seems an impossible task to try to draw any general conclusions. And yet . . .

I have been thinking about a comment made here some time ago, in connection with a post about the polity of the Church. "Polity" comes from the same Greek root as does "politics": the root is polis, meaning the unique form in which Greek democracy expressed itself -- the "city-state", or the body of citizens living in a common environment (city) and organized as a self-governing state.

In the polis of ancient Greece, the people came together to make decisions and to elect representative officials in a periodic assembly. All citizens could come to that assembly, and in Athens in the fifth century before Christ, there were assemblies of as many as 43,000. And do you know what the Greek term for that assembly was? It was called an ekklesia -- the same Greek word used by the early Church to describe its local assemblies of communicants in a given city, and from which comes our word "ecclesiastical", meaning "of or having to do with a church."

It was the function of the ekklesia, among other things, to decide whether to declare war, and to elect strategoi in charge of the armed forces of the polis -- or what today we would call generals. During times of peace, the strategoi became politicians -- Pericles was one oustanding example. Such leaders were elected to annual terms; the elections were usually held in the spring, at a regular ekklesia called for that purpose.

The concept of an elected leader or representative thus has a very long history, dating back for more than 2,500 years. A person so elected has always been regarded as receiving the trust of the people who do the electing. Or, said in legal terms, there is a fiduciary relationship between the person elected and those who elect that person. The representative has a duty, as a fiduciary (the word comes from the Latin fides, meaning "faith, or trust"), to act in the best interests of the electors.

As soon as a representative relationship is established, fiduciary duties arise, and are inescapable. The law is especially protective of the people for whom a fiduciary acts -- they are called beneficiaries, or people by whom the fiduciary must do well in order to perform his or her responsibilities to them.

And so we come to the point of this little excursus into ancient Greek history: one cannot have an ekklesia without there being fiduciaries and beneficiaries. The former are elected or appointed to act in the best interest of the latter in doing the job for which they were elected. Now let us see how all of this applies to churches in general, and to the Episcopal Church (USA) in particular.

A parish (an ekklesia of individual communicants) calls its rector, just as a diocese (an assembly, or ekklesia, of parishes) calls its bishop. Both are elected to their respective positions -- but elected to do what? In the most general sense, they are elected to be shepherds of their flock -- to be, in a word, fiduciaries.

As my friend some time ago reminded me, the law recognizes six primary duties owed by any fiduciary to a beneficiary: (1) undivided loyalty, (2) full disclosure, (3) the exercise of care, skill, diligence and good judgment, (4) obedience to appropriate instructions, (5) confidentiality, and (6) accountability. These are the same duties which an attorney owes to his client, which a doctor owes to his patient -- and which a rector owes to his parish, and a bishop owes to his diocese. Let us flesh them out a bit.

The duty of undivided loyalty stems from the Biblical injunction that "No man can serve two masters." To take just one prominent example of a failing in this department, the former bishop of Virginia, the Right Rev. Peter James Lee, at one point had reached a decision that it was in the best interests of his diocese to enter into a standstill agreement with eleven parishes which had declared their intention to realign with a different branch of the Anglican Communion. The parishes had taken the votes required for their decision, and had recorded the results of the vote with the local circuit court, in accordance with Virginia law. But there the matter would stop, while the parties tried to reach an amicable solution short of full-blown litigation.

Enter the Presiding Bishop of ECUSA and her Chancellor. They demanded that Bishop Lee refuse to renew the standstill agreement, and they stated their intention to file lawsuits on behalf of ECUSA itself against the realigning parishes. So Bishop Lee was faced with a choice: whom to serve? His own diocese, or the Presiding Bishop and her Chancellor? The latter claimed -- without authority of any kind expressly granted to them -- to represent the whole Episcopal Church (USA), and to be acting in the fiduciary interests of its members.

But how were those "fiduciary interests" identified? And who identified them? As far as I am able to discern from the facts which are known, the fiduciary interests of the whole Church were identified by the Chancellor, David Booth Beers, in consultation with his own personal beneficiary, the Presiding Bishop. (Very little has been said about the inherent conflict of interest in an attorney's recommending, as a fiduciary, that litigation be instituted -- when it is his own law firm that will benefit the most from his recommendation.) There was no consultation of ECUSA's membership at large. No ekklesia had been summoned to ascertain its will to "declare war" -- i.e., to start litigation in the courts. A small "Executive Board" took refuge in the diocesan canons, which it interpreted to require the instigation of a lawsuit to recover property held "in trust" (there is that fiduciary language again). But "in trust" for whom -- for a disembodied "Episcopal Church" that was being led by the very officials who were ignoring their own fiduciary duties?

And so Bishop Lee, if he had truly been acting as a fiduciary to his own diocese, was under a duty to reject this spurious claim to "represent" a larger fiduciary interest (which no one had ever bothered to ascertain, and which was simply "assumed" to be known), and to maintain his undivided loyalty to the parishes which had elected him. But he failed -- and the rest is history.

The duty of full disclosure proceeds from the unarguable point that a beneficiary is entitled to know everything which the fiduciary knows, in order to make an informed decision. And again, I ask: is the recent history of ECUSA marked by full disclosure on the part of its fiduciaries? Has the Presiding Bishop made full disclosure of all the trust funds and other revenues of the Church which are being spent on litigation? Recall that at the recent General Convention, a resolution to require such a disclosure was angrily shouted down, on the ground that it would provide information to "robbers."

That's right -- "robbers." Those who were once fellow parishioners, and whose only desire is to uphold and maintain the faith as it was delivered to them, are now characterized as thieves and robbers. And who, pray tell, made that judgment? Were the deputies who reacted in that way carrying out their fiduciary responsibilities? Just which master were they serving -- the Presiding Bishop, again, or the diocese and parishes which elected them?

I could continue with my catalog of fiduciary failings: Does the decision to maintain all of this litigation in the name of the national Church -- a decision which cost the Church nearly $2 million last year alone, and which is projected to cost it another $3 million by 2012, show the exercise of "care, skill and judgment" on the part of those who lead it? Just whose "instructions" are being followed by the fiduciaries at the top? From whom, indeed, does the Presiding Bishop take her instructions? (The last I heard, it was from all those faithful Episcopalians who left money for the mission of the DFMS -- who are long since dead, and hence can no longer speak for themselves.)

Confidentiality I see in spades, but it is a confidentiality at the top, which amounts to things being done, and decisions being taken, in complete secrecy. That is not the confidentiality required of a fiduciary, who is subject to a duty of full disclosure to his principals -- his beneficiaries. When decisions are taken in secret, without full disclosure to and consultation with all of the affected beneficiaries, there is a violation of the fiduciary relationship.

And then we come to the last duty, the duty of accountability. Who is there who will claim that the Presiding Bishop is accountable for her uncanonical and lawless acts? Where are her colleagues -- her principals, the ones who elected her -- who will hold her accountable?

A review of fundamental fiduciary principles in this manner shows that, whatever else may be said in general about the failings and shortcomings of ECUSA, the Episcopal Church (USA) suffers from a massive failure in fiduciary duties and obligations -- owed to the ekklesia by those who are supposed to represent it, and therefore to act in its best interests. Divided loyalties, proceedings and decisions in secret without full disclosure, no exercise of good judgment, no obedience, and no accountability -- all are there, for everyone to see.

The law affords ample remedies to correct breaches in fiduciary duty. It may be more complicated in the case of a church such as ECUSA, because of First Amendment considerations. But no fiduciary is immune from the law's reach. Holding its fiduciaries to account may well be the most important key to ECUSA's survival -- if it is to survive as an ekklesia.


  1. Wait a minute, you are saying that David Booth Beers, as an officer of ECUSA, BOTH recommends to ECUSA what litigation to pursue, AND has his law firm carry it out for pay??

    That point is extremely troublesome. Who is to know if Booth Beers isn't simply deciding in favor of actions that accrue financially back to his law firm? (And if he is a partner, back to himself directly?)

    Wouldn't it be "cleaner" if any recommendations to litigate would have the actual suing carried out through representation by ANOTHER law firm?

    How far removed is what Booth Beers is allegedly doing from what Ellen Cooke did? Decide that, for whatever reason, some of the church assets "belonged" to her and so did things to take them?

  2. Yes, Hoofin, that is exactly what I am saying. You may read more of the gory details in this post.

    Ellen Cooke's fiduciary failing was less open than that of David Booth Beers. His law firm has a lock on ECUSA's litigation because the in-house counsel directing that work for the PB is a former member of his firm. Yet no one calls the PB or him to account on this!

  3. Mr. Haley, this one might also be out of the box, but how far removed is what's going on from pure "ambulance chasing"? (Prohibited by ABA Model Rule 7.3, http://www.abanet.org/cpr/mrpc/rule_7_3.html )

    "A lawyer shall not by in-person, live telephone or real-time electronic contact solicit professional employment from a prospective client when a significant motive for the lawyer's doing so is the lawyer's pecuniary gain, unless the person contacted:

    (1) is a lawyer; or

    (2) has a family, close personal, or prior professional relationship with the lawyer."

    This extends to sending an agent out, for example, to the scene of an accident to solicit business on behalf of the firm.

    I am not sure that Kostel's status as a lawyer removes Goodwin Proctor's attorneys from 7.3 restrictions. One could fairly say that Goodwin Proctor "embedded" one of their lawyers within the ECUSA in order to solicit business for Goodwin Proctor.

    Like so much in America, when it's a bare-knuckles or working stiff right-and-wrong issue (like ambulance chasing), it's very real and no shades of gray.

    When it's a denomination parsing out millions over years in litigation fees, the white-collar world seems to know so well how to build in the shades of gray to make something that outwardly, well, looks the same as hiring a runner, seem different . . .

  4. You are right. Unfortunately, the people we are dealing with care nothing for the truth and will suppress it and twist it to their own ends.