Pittsburgh Church Assets Thrown into Chaos

The Court of Common Pleas of Allegheny County, the Hon. Joseph M. James presiding, has now taken its next step into the devolving morass that litigation has made of the situation regarding church property in the Diocese of Pittsburgh. On October 6, 2009, the Court entered an order finding that four years earlier, in order to settle the claims being made by Calvary Church and others that the Diocese was making preparations to allow its parishes to leave ECUSA, the parties to the litigation had stipulated, in effect, that all property held or controlled by the Diocese of Pittsburgh would remain held and controlled by that entity. The Court further found that the Diocese had violated that stipulation when its Convention voted in October 2008 to realign with the Anglican Province of the Southern Cone -- even though the underlying legal entity had not changed. The Court read the stipulation to mean that the Diocese in question had stipulated and agreed -- through its attorneys of record, mind you, and not through any vote or act of the Diocese itself -- that it would always remain aligned with the Episcopal Church (USA) if it wanted to be in control of its own property.

In order to assert that the stipulation had been violated by the re-alignment (even though it had agreed beforehand not to argue that the re-alignment was illegal under Church law), Calvary Church and the other plaintiffs in the original action had to organize a brand-new "diocese", which they confusingly claimed was the same legal entity as the old Diocese. To keep the entities straight for the purposes of what follows, let us call the Diocese that existed as of the date of the Convention in October 2008 "Diocese 1", and the group that formed around the Rev. Dr. Jim Simons and Calvary Church after October 2008, with the collaboration of ECUSA's Presiding Bishop, "Diocese 2".

Both before and after October 2008, Diocese 1 still had the same officers, books and assets; the same physical offices in Pittsburgh; and the same legal form -- an unincorporated association organized under Pennsylvania law. Diocese 2, meanwhile, did not begin to come together until after October 4, 2008, when the minority who disagreed with the vote to re-align walked out of the Convention at which the vote passed by an overwhelming majority. It, too, formed as an unincorporated association -- with a much smaller number of members. But it claimed in law to be the legal continuation of, and successor to, Diocese 1.

Where did that leave Diocese 1? In the view of Diocese 2, Diocese 1 was from the moment of the vote no longer Diocese 1, but some new group of strangers who no longer belonged to the Episcopal Church (USA), and so who could no longer legally constitute Diocese 1. Thus, in the view of the members of Diocese 2, all the majority had left Diocese 1 to form a new diocese -- which we shall have to call "Diocese 3" if we are to keep things understandable from Diocese 2's point of view. Because as far as Diocese 2 was concerned -- even though it had to elect new officers, find a new location for its office, and open new bank accounts -- it had now become, for all intents and purposes, "Diocese 1".

The only problem was that all of the old property of Diocese 1 still remained, after the vote, in the hands of Diocese 1 -- or now (if you were a member of Diocese 2) had magically transferred in some illegal way to the hands of Diocese 3. And so the Court's assistance was needed to get those assets back into the hands of Diocese 2. Because, don't you see, Diocese 1 (or its attorneys, at any rate) had signed a legal stipulation that its property would always be held and managed by Diocese 1. And since, in the view of Diocese 2, it was now really the same old, same old Diocese 1 (even though it had completely different officers, offices and bank accounts), it just needed the Court to enter an order to that effect.

And that is just what Judge James obligingly did on October 6, 2009. (I criticized that ruling in this earlier post, and showed how it defied all legal logic to reach its forced conclusion.) He ordered that an inventory of the assets of Diocese 1 be drawn up, so that Diocese 2 could be placed in charge of them. Now the Special Master appointed by the Court has filed his report identifying those assets (in the hands of "Diocese 3", as the Court and Diocese 2 view things), and the Court has ordered that what it regards as "Diocese 3" cooperate in turning over control of those assets to Diocese 2 (pretending, of course -- but not actually deciding -- that Diocese 2 is really Diocese 1 for purposes of the 2005 stipulation).

Is all that perfectly clear? Good -- because I do not want to have to run through it again. And if you find yourself still confused, I am afraid you will have to blame Diocese 2 and Judge James, whose illogical arguments have carried the day, for the time being. What I want to point out in this post is the probable chaos that will now ensue, and which will most likely result in an undoable Gordian knot by the time any appellate court can get to the bottom of the mess.

Let us begin by singling out just the cash accounts, which totaled nearly $600,000 as of September 30, 2009 -- some four months ago. These were all at PNC Bank, except for a savings account (at "Dwelling House S&L") and for the petty cash ($400) kept in the safe in the offices of Diocese 1. We shall trace through them what has happened in the past, and what Judge James' order (which takes effect immediately) can now allow to happen. (They are listed on page 1 of Exhibit A to the report of the Special Master. This Exhibit is entitled "Inventory of Cash, Cash Equivalents . . . as of September 30, 2009".) The folly of the order just signed by Judge James will become immediately apparent, and it calls into question whether either he or the attorneys for Diocese 2 really understand what they are doing.

Let's take the savings account, for a start. This account, at the savings and loan above mentioned, held $61,199 as of September 30. Now as far as I am aware, this account had not been previously frozen by the S&L; the only accounts frozen at the prior request of ECUSA were those held by Morgan Stanley (which also invests a significant amount of ECUSA's own funds), as I explained in this post.

As everyone who has ever had a savings account knows, such accounts pay interest. And interest has to be reported to the Internal Revenue Service, so banks require a Social Security number for individual accounts, and a Federal Employer Identification Number, or FEIN, for corporate and institutional accounts. On September 30, 2009, this particular account was held in the name of the "Board of Trustees for the Protestant Episcopal Diocese of Pittsburgh", according to the Special Master. And just who are they?

Remember that Diocese 1 was (and is) an unincorporated association under Pennsylvania law. As such, the association is not allowed to take title to assets in its own name, or to sue in its own name. The reason is that an unincorporated association is not a single person or entity in the eyes of the law. It is just a collection of the individuals or individual entities (in this case, parishes and their clergy) which make up its members -- no one of whom has the right to act in the name of the whole group.

So now we come to the first major problem with the 2005 Stipulation, and the subsequent proceedings under it which Calvary Church started in 2006, and which culminated in Judge James's most recent order. Paragraph 1 of the Stipulation, which Judge James found that Diocese 1 violated by its vote to realign in October 2008, provided as follows:

1. Property, whether real or personal . . . held by the Episcopal Diocese of Pittsburgh of the Episcopal Church of the United States of America (hereinafter "Diocese") for the beneficial use of the parishes and institutions of the Diocese, shall continue to be so held and administered by the Diocese regardless of whether some or even a majority of the parishes in the Diocese might decide not to remain in the Episcopal Church of the United States of America. . . .

Do you see the conceptual problem here? The parties stipulated regarding property supposedly "held" by the Episcopal Diocese of Pittsburgh, but under Pennsylvania law that entity, which is an unincorporated association, cannot legally hold title to any property. And in fact, as the Special Master's Report now discloses in painstaking detail, virtually all of the bank accounts, and all of the real property, were held in the name of the "Board of Trustees for the Episcopal Diocese of Pittsburgh". (The exception are some minor discretionary accounts for individual officers of the diocese -- which even the Special Master agrees "are arguably not diocesan assets.") That Board of Trustees is a separate religious corporation under Pennsylvania law, and as a corporation it has the legal ability to hold title to real and personal property.

Thus the FEIN associated with the non-frozen bank accounts must be that for the Board of Trustees corporation that is associated with Diocese #1. (Its individual trustees were named as defendants in Calvary's original lawsuit, but the corporation itself was not named as a defendant. And the persons who were named as trustees of the corporation when the lawsuit started in 2003 are not any longer all trustees of the corporation.)

So the second major problem with Judge James's order is this: we have an entity which is not a party to the lawsuit being ordered to surrender control of its account at a bank which is also not a party to the lawsuit, and we have the Court telling a Bank which again is not subject to the jurisdiction of the court that it can accept instructions with regard to the account only from a stranger whose name is not on the account, and whose FEIN number is different from the one on the account.

Even if Judge James, ECUSA and Diocese #2 cannot tell the difference between Diocese #1 and Diocese #2, the Internal Revenue Service and the State of Pennsylvania have no such difficulty. Both have issued to the corporation which is associated with Diocese #1 a unique identification number which lets them tell it apart from all the other corporations in that State. And whatever may be the makeup and name of any corporation that has been formed in connection with Diocese #2, I can guarantee you that it has identification numbers which are different from those for the corporation associated with Diocese #1.

If Judge James's order is to take effect as literally written, then beginning on January 29, 2010 the Dwelling House Savings & Loan has to violate federal and Commonwealth law, by crediting interest to an entity which is not on the account, and whose FEIN is different from the entity that is on the account. Moreover, the S&L has to take the risk of accepting instructions from some person identified in writing by a "Bishop" whom the S&L has never heard of, and hope that it will not be held liable later on for following the directions of a court which had, and still has, no legal jurisdiction to give it any such order.

This is a recipe for financial chaos and madness. The same is true of the other $540,000 in accounts at PNC Bank, where so much more is at stake. Were I counsel advising those banks, I would tell them to inform the attorneys for Diocese #2 that unless and until the Court acquires proper jurisdiction over them, they are unable to comply with the Court's instructions, at risk of violating both state and federal law and their fiduciary duties to their actual client.

Such are the follies that ensue when churches try to play the shell game of pretending that entities recognized by the law can have their identities transmuted by episcopal fiat. Neither ECUSA, its General Convention, nor its Presiding Bishop has any earthly power whatsoever to dictate that a corporation which is affiliated with one unincorporated association one day shall thereafter be regarded as being affiliated with a different association on the next.

ECUSA, Calvary Church, Dr. Simons and their attorneys have made an unholy mess of things in Pittsburgh. It is a bed entirely of their own making, and now they shall have to lie in it. The sooner some appellate court in Pennsylvania puts a stop to this craziness, the better for all concerned.