Tuesday, August 31, 2010

Experiencing St. Paul in a New Way

I apologize to my readers -- they do not need to apologize to me -- who do not share my interest or concerns with the state of the Episcopal Church (USA) and its attorneys hired to crush and overwhelm any former members that dare to oppose it in court, out of principles grounded in faith. The latest series on "How Did ECUSA Get its Attorneys?" has taken up much more of my time, and space on this blog, than I ever anticipated when I began it. (This is the way that research works: each little bit of information leads to still more.)

To give those whom I have thus abused a little breather from the heavy atmosphere engulfing these forays into uncharted legal territory (for I assure you, there truly has never been an American religious or charitable institution which has acted in the legal arena the way the Episcopal Church is acting today), I am posting below a change of pace. It is St. Paul -- the one of Jesus' disciples who had the most to say about how a church should operate -- who, after all, presciently warned Christians of the perils that resulted from "going to law" against their brethren in Christ. Therefore, I think St. Paul can provide us with the best antidote to the almost daily contamination from the lawsuits that currently rage around us, and that take up so much of the cyberspace on this particular blog.

The video below presents a graphic reading of the second chapter of St. Paul's Epistle to the Colossians. It does so through sight, animation and sound in a way that I found particularly suited to the resources of this twenty-first century after Paul first delivered the message, in written form, to the Colossians themselves. The message itself is timeless, and in this new media that lets us combine what the eye reads with what the ear hears, we can, I trust, rejoice in experiencing it anew:

Let us bless the Lord, who far from abandoning or withdrawing from us as the world closes in upon us, finds ever new ways to strengthen and preserve us in His faith.

Monday, August 30, 2010

Tiptoeing Through the Tulips: Lack of Oversight for ECUSA's Lawsuit Expenses

[N.B.: This is the fourth of a multi-part series entitled: "ECUSA and its Attorneys: a Runaway Train". The previous posts are the Introduction, Part I and Part II.]

Frank Kirkpatrick, professor of religion at Trinity College, wrote in a survey article in 2008 that "there were, as of December [2007], 55 [Episcopal Church] property disputes in one state or another of resolution around the country." (You may find a listing of those lawsuits in this post from August 2008, and see also the latest report from the American Anglican Council.) Of those fifty-five lawsuits, I estimate that ECUSA itself was a party to about half of them. Thus from the five lawsuits to which it was a party as Bishop Griswold ended his term in November 2006 (the Pawley's Island case in South Carolina, the three Los Angeles lawsuits, and a case involving St. James Church in Elmhurst, in the Diocese of Long Island), the number increased by five times in the first full year of Presiding Bishop Katharine Jefferts Schori's term.

Under Bishop Jefferts Schori, ECUSA did not just passively stand by as the property disputes emerged, and allow the diocese involved to carry the laboring oar. It aggressively prosecuted the cases in both California and Virginia, joined in filings in Connecticut, Georgia and New York (where it intervened as the DFMS against St. Andrew's, in Syracuse, and filed an amicus brief in this case in New York's highest court), became enmeshed in additional litigation in San Diego and Colorado, and threatened litigation against the dioceses of San Joaquin, Fort Worth and Quincy if they dared to withdraw from the Church. (The latter two threats were issued by the Presiding Bishop's Chancellor on his own initiative, as discussed in this earlier post.)

There are no records in the minutes of the Executive Council during this period to show that it was ever consulted before any of these multiple filings in the name of the Church took place; as quoted in the previous post, the Presiding Bishop held the view that only she personally, and neither the Council, nor even General Convention, had any authority over litigation. Thus she simply gave her Chancellor free rein -- and ECUSA's legal bills began to mount exponentially.

As we saw in the two previous posts, ECUSA's legal expenses exceeded a million dollars in each of 2006 and 2007 -- even though the former year was the last of a triennium (2004-2006) whose total for three years had been budgeted at $765,000, and the latter was the first year in a new triennium whose total for three years had been set at just $405,000. The current-year budget which the Executive Council adopted at its February 2008 meeting raised the amount allocated for legal expenses from the $135,000 which had been set in 2006 to just $450,000 (after it had already changed that same amount for 2007 to $800,000 the previous year). The Council thus appears to have continued to operate in the dark with regard to the mounting tsunami of legal bills which were the inevitable consequence of all the lawsuits authorized by the Presiding Bishop, acting on her own. What it saw instead was a need to reach out to provide additional assistance to the groups trying to "remain Episcopal" in the departing dioceses. At the close of its meeting in February, the Council had issued a statement, "Transformation and Hope", which contained the following paragraph:
We are deeply concerned for those who are members of The Episcopal Church but now find themselves in parishes or dioceses attempting to depart. To the members of The Episcopal Diocese of San Joaquin, know we stand with you. Your struggles and needs inform our prayers, deliberations, and plans. This is a new and unfamiliar landscape for all of us. We stand with you and commit ourselves to provide pastoral care, to aid in re-organization, and to support legal actions necessary to retain the assets of the diocese for ministry. We will hold clergy leaders accountable to their vows to uphold the doctrine, discipline and worship of this Church, and lay leadership accountable to the fiduciary responsibilities of the offices they hold. Up to $500,000 of income from trust funds will be made available in the calendar year 2008 to support the mission work of the Diocese of San Joaquin and similarly situated dioceses.
Note the description of the purpose of the $500,000 to be taken from trust fund income: "to support the mission work of the Diocese of San Joaquin and similarly situated dioceses." What was special about the Diocese of San Joaquin at this time was that its annual convention in December 2007 had voted overwhelmingly in favor of a constitutional amendment which would effectively remove it as a member of the unincorporated association of dioceses that comprises the Episcopal Church (USA). The only other dioceses that could be said to be "similarly situated" were those who were considering similar constitutional amendments: the Dioceses of Fort Worth, Quincy and Pittsburgh. Thus the need for "mission work" in just these four dioceses was a rhetorical fig leaf -- intended to provide legal cover for the fact that money left in trust to the Episcopal Church (DFMS) is generally earmarked for "the mission of the Church."

The Council's official statement could also be taken as a means of avoiding any response to the petition, with over 5,000 signers, circulated in the fall of 2007 by the American Anglican Council, requesting that ECUSA reveal how much money it had spent since 2004 on litigation against individuals and parishes. (There was little chance of the request's being granted, given that the Presiding Bishop had refused even to disclose the full amounts to the Executive Council itself.) In truth, it had no idea at this point of what the amount was, or what it was going to be by the end of the year. In the next paragraphs of its February statement, the Council showed that it was still operating on rosy assumptions:
Regarding the financial health of The Episcopal Church, we learned that in a time of economic recession, Episcopalians have demonstrated a renewed commitment to stewardship with an anticipated 4 percent increase in diocesan commitments and an excess of resources over expenses for 2007.

The budget approved for 2008 reflects these increases in diocesan commitments and for that we are grateful. Appropriations for block grants, covenant relationships and most other mission programs will continue at GC approved levels or higher in 2008. . . .
Attendance was declining -- the Church would later disclose that it had lost some 60,000 members between 2006 and 2008, the equivalent of the combined dioceses of Atlanta, Georgia, North Carolina, South Carolina and Upper South Carolina. But the Council remained steadfastly on the track set for it by 815, and refused to ask any hard questions about just how much was being spent on attorneys, and what the Church was receiving for all its money. Instead, it voted to "up the ante" in San Joaquin, as we shall see, and allocate accumulated trust funds in its charge for clergy salaries there in order to free up still more funds for litigation. (The money would go to pay for Bishop Lamb's local attorneys; the expenses of Goodwin Procter, as co-counsel on the case, would continue to be paid from the office of the Presiding Bishop.)

Thus it is fair to say that at this point, in February 2008, the entire Executive Council became complicit in an official conspiracy at the Church's highest levels. The conspiracy worked in this fashion:

1. At the head was the Presiding Bishop, who with her Chancellor decided whom to sue in the name of the "Church."

2. Next, the Chancellor was given free reign to "pile on" the Church's opponents -- to bring to bear against them as many legal resources at his disposal as he wished to employ. Although there was a nominal "budget" established for legal expenses, it served as a placeholder only, and acted as no kind of limit on his authority.

3. The Treasurer of the Church was left with the problem of finding the moneys needed to pay all the legal bills from accumulated trust funds, surpluses from past years (which were exhausted by 2007), and from other unrestricted sources.

4. To provide the local remnants with additional ammunition to harass their opponents, the Executive Council would duly rubber-stamp, based on the Treasurer's recommendations, the use of particular trust funds for "mission work" in the affected dioceses. The funds would be disbursed to relieve those dioceses of the burden of collecting pledges and donations to pay clergy salaries and ongoing parish expenses.

5. With the local moneys so collected, the remnant groups could pay their local attorneys to go after additional properties. The aim was to sell any church properties recovered -- the remnant groups were too small to have any use for them, or ability to keep them up -- and turn them into cash to fund more litigation (and later, to repay "litigation loans" from the Executive Council).

6. No sooner was money found by the Treasurer and appropriated by the Executive Council than it would be overspent before the year was over, and the cycle would begin all over again.

At their scheduled meeting in New York in September 2008, members of the Audit Committee began to show some concern over the propriety of using DFMS trust funds in this fashion. Here is an extract from their minutes on that occasion:
Ernie [Petrey] had questions regarding the funding approved by EC to help the Diocese of San Joaquin. He identified issues regarding the use of the term “income” in the Trust Funds Manual, regardless of the fund. A number of those funds came in prior to 1972, when the definition of income changed and it changed again after 1991. . . . He inquired, “If a document says you’ll use income for x, y and z is that interpreted to mean “return” or income?” . . . He questioned whether a) in the statement of unappreciated distribution in the trust funds [the amount] is $4.2 million or b) whether it is distributable. He observed there is no clear understanding that appreciation is not a factor and it is stated in the Trust Funds Book ‘we will not distribute appreciation.’ To spend it down contrary to that stated in the TF book is bad.

Kurt [Barnes -- the DFMS Treasurer] recalled that in 1997 there was an Attorney General-mandated review of the use of the trust funds. In 2005, Elsa Cumming (assistant in-house counsel at the time) was asked to review them also to make sure the language applied to the way the funds were being used. Each time there is a request of funds from a trust, counsel reviews it to make sure that EC has the authority and there is proper use of the funds. A memorandum is produced prior to the request being sent to EC. . . .
These were the questions to ask, but the discussion was occurring only among the six members of the Audit Committee, along with the staff and outside auditor members attending. What is disturbing, however, are indications that in-house counsel's review of the use of the trust funds in this manner may have been rather perfunctory, or perhaps even not professionally competent (bold emphasis added):
If at any point the corpus is below the original amount endowed, the trustee may have to cover the corpus; by accepting the trust, agreement is made to keep it intact. N[ot-]F[or-]P[rofit]s had to cover deficiencies in times past when the market was down. Donors never said anything about unrealized appreciation and this may be affected by [statute]. Additional conversation covered the nuances concerning pay-out rates, limits of fiduciary responsibility, possibilities of expending principal in a prudent manner and the importance of spending funds entrusted for the purpose.

Ernie . . . believes you can only spend income and, in that light, feels it necessary to look at the original language of the trusts. He is not convinced that any previous legal counsel, who may have had no experience with endowment funds, understood what it means. . . . We need to find out whether or not counsel reviewed the funds prior to approval by EC to spend for San Joaquin. Kurt confirmed that Elsa Cumming reviewed and provided a written opinion at the time.
Now the discussion reached the real heart of the matter: the Church's lack of an independent, outside counsel who could provide a competent and disinterested review of the actions taken and commitments being made in the name of the Church. Significantly, the member of the Audit Committee who puts his finger on the issue is the head of the Church's Property Task Force, established by the House of Bishops in response to the publication of the Chapman Memo (bold emphasis again added):
[Bishop] Stacy [Sauls] expressed his concern that the organization only has available to it 20 hours per week of legal counsel and is increasingly concerned that the church does not have a lawyer. The EC does not have counsel, even though the PB does have and, it seems, everyone assumes that the PB’s counsel is everyone else’s counsel. Kurt responded that there is a second person in the in-house counsel’s office, who also devotes 20 hours per week. Romey Mancini has replaced Elsa Cumming. He added that Chuck Robertson [the Presiding Bishop's Canon] is looking into independent counsel for the church and how that might be supported financially.
It is simply astonishing that a charitable organization as large as the Episcopal Church, after committing itself literally to dozens and dozens of lawsuits and millions of dollars in legal fees, finds itself asking how it might support the cost of independent counsel to review the appropriateness of the actions so taken. If any statement in the record could indicate the lock on ECUSA at this point enjoyed by its Chancellor and his law firm, it would surely be this last one.

The Executive Council of the Episcopal Church (USA) gathered in Helena, Montana for its third meeting of the year, a month after this meeting of the Audit Committee. From its minutes, it would seem as though the meeting occurred in a vacuum -- neither Bishop Sauls nor any other member of both groups appears to have brought the Committee's concerns to the full Council. No alarm appears to have been expressed at what had been spent over the previous nine months; there was no report from the Presiding Bishop about what she was doing on the legal front, or why. (Perhaps there was such a report in "executive session" -- one was noted as having taken place, but its subject is not disclosed. Nevertheless, the actions and resolutions of the Council afterward do not indicate that it had any concerns in this area -- and as noted in the previous post, the Presiding Bishop did not think the topic was within the jurisdiction of the Executive Council in any event.)

Consider this question: how long did the $500,000 voted by the Council for "Legal Assistance to Dioceses" in February 2008 last? The monthly operating statements tell the tale (although as explained below, they do not allow that amount to be tracked directly). By July 2008, the line item for "Title IV Expenses and Legal Assistance to Dioceses" had already passed the one-million-dollar mark. (The ongoing expenses of the trial of Bishop Charles Bennison in Philadelphia were putting another dent in the budget, on top of all the money being spent in intensive litigation in Virginia, San Joaquin and elsewhere.)

The monthly statement for September 2008, which the Council would have had before it in Helena, for the first time split into separate line items the amounts spent on "Title IV Expenses" and "Legal Assistance to Dioceses." As so split, the figures point up the meaninglessness of the budgeted numbers. For contrary to the February 2008 communiqué, the line item for "Legal Assistance to Dioceses" is shown as budgeted at only $100,000 (which was the original amount of this line item when the triennial budget was approved by GC 2006, before the Executive Council adjusted it upwards), instead of $500,000. Apparently, what the Executive Council voted on was simply to distribute accumulated income and appreciation which had already been booked, so no increase was made to the line item. Nevertheless, the year-to-date total expended is far over either amount, at $918,418! Meanwhile, the new line item for "Title IV" shows a budgeted amount for the year of $350,000 -- with a year-to-date expenditure (through the conclusion of Bishop Bennison's trial) of $534,977.

The explanation of what was going on can only be guessed at from a review of the minutes of the Helena meeting in October 2008. One would think that a considerable amount of time would have been devoted to such huge cost overruns -- where they were headed, and what alternatives existed to rein them in, if not contain them. But that was not the case. Instead, the Council spent most of its time on these matters discussing where further money could come from to fund an estimated $700,000 needed by the remnant "dioceses" for "mission work" in 2009! The proposal, again, was to use accumulated, unspent income and appreciation from certain specific trusts as the source of the needed funds; the Treasurer reported there was approximately $3 million of such money available. Along the way, the minutes make note of this fact (bold emphasis added):
The Executive Council authorized a draw of up to $500,000 to fund similar work in 2008. Through October, nearly $421,000 had been expended to support mission in the dioceses of San Joaquin, Fort Worth and Pittsburgh. These disbursements were reviewed and approved by legal counsel, who confirmed that the disbursements complied with the terms and conditions of the trusts.
But as just noted, the total shown on the September month-end statement for "Legal Assistance to Dioceses" stood already at $918,418. How, then, could the Treasurer make a report that the amount spent "through October" was only $421,000? The answer must be that the latter amount was included in the former, and hence that for reporting purposes, moneys spent by ECUSA on on ECUSA's attorneys were commingled with moneys given to dioceses to spend on their attorneys (or -- excuse me -- clergy salaries). But showing the expenditures without taking into account the sources (the accumulated trust moneys being disbursed) would, over time, exaggerate expenses in relation to revenues, and give a false picture of the financial state of the Church. The correction, however, was not made until the December year-end statement, which finally showed a line item in revenues for "Short-term Reserve Draw."

And the amount so finally shown? It was not $500,000 -- or any amount even in the neighborhood. No, the total short-term draw on funds needed to keep the Church able to pay its bills in 2008 pretty much exhausted the entire $3 million which the Treasurer had reported was "available" for reserve funding in 2009: it was just over $2.5 million. That left the Treasurer to find still more individual trusts with undistributed appreciation and income in order to fund the appropriation for "Legal Assistance to Dioceses" in 2009.

Why did so much have to be drawn from short-term reserves in 2008? Because legal expenses were out of control. As we saw above, the amount had already climbed over $900,000 by September 2008, and the December monthly statement shows a further $900,000 paid out in that month alone! The total spent on legal fees and assistance in calendar 2008 came to a whopping two million, sixty thousand, two hundred and eleven dollars. And that figure did not include the now separately budgeted "Title IV expenses," which in 2008 amounted to nearly another nine hundred thousand dollars all by themselves!

All told, the Church's legal bills, and its provision of legal assistance to dioceses, cost the Church in 2008 a total of $ 2,954,855 -- when at the beginning of the year it had revised its budget to establish a total of just $450,000 for those expenses -- or fifteen percent of the amount that was eventually spent. Obviously, the figures would have to be further revised for 2009, given the track record of the Church to date in this area. Shall we recap the figures? The original triennial budget established at GC 2006 allocated a total of $405,000 for the three years 2007-2009 to be spent on "Title IV expenses and Legal Assistance to Dioceses." But at the end of just two years of that budget, the actual figures spent were:

2007 - $1,304,137

2008 - $2,954,655

2-yr Total: $ 4,258,792

And even that, as we shall see, was not a final figure. Nor, because Goodwin Procter also discounted its fees as a pro bono contribution to the Church, does it even represent the full amount of legal work that was ordered to be done.

We are now at the point where General Convention 2009 is approaching, and Executive Council is striving mightily to come up with a proposed new triennial budget for adoption in Anaheim in July 2009. So what happened next? Stay tuned -- if you think what has been described to date is bad, you haven't really seen anything yet. With the next post, we will see how greatly "the plot thickens."

Friday, August 27, 2010

Leading the Church into Lawsuits - Pt. II

In this series of posts, we are examining the relationship between the Episcopal Church (USA), its two most recent Presiding Bishops, and their counsel of record, i.e., David Booth Beers, Mary E. Kostel, and the Washington, D. C. offices of the law firm of Goodwin Procter. (Note at the outset that Mr. Beers is no longer a partner in the firm, but remains "of counsel" to it, while Ms. Kostel is also no longer with the firm, but is a consultant on the staff of the Presiding Bishop. Nevertheless, at the time their respective attorney-client relationships were established with ECUSA itself, both were members of the firm.)

In the first post of the series, we established the ethical framework and requirements for that relationship, given that both attorneys are members of the District of Columbia Bar, and hence governed by its Rules of Professional Conduct (which are very similar, and in most cases identical, to the Model Rules of the American Bar Association). One of the essential results of that examination was that in order to represent both an organization and an officer of that organization, an attorney must have the "informed consent", in writing, of both parties. Just to recap what that means, here is a portion of the definition of "informed consent", taken from the D.C. Rules:
The lawyer must make reasonable efforts to ensure that the client or other person possesses information reasonably adequate to make an informed decision. Ordinarily, this will require communication that includes a disclosure of the facts and circumstances giving rise to the situation, any explanation reasonably necessary to inform the client or other person of the material advantages and disadvantages of the proposed course of conduct and a discussion of the client’s or other person’s options and alternatives. In some circumstances it may be appropriate for a lawyer to advise a client or other person to seek the advice of other counsel. . . . In determining whether the information and explanation provided are reasonably adequate, relevant factors include whether the client or other person is experienced in legal matters generally and in making decisions of the type involved, and whether the client or other person is independently represented by other counsel in giving the consent. . . . In all circumstances, the client’s consent must be not only informed but also uncoerced by the lawyer or by any other person acting on the lawyer’s behalf.
In the second post of this series, we began examining the historical record of the attorney-client relationships, as a preliminary to making an evaluation of the conflicts of interest between the organization (ECUSA) and the officer client (the Presiding Bishop) that could have arisen in the course of their dual representation. To that end, we saw how the line items for legal services varied over the three triennial budgets for ECUSA established under the leadership of Presiding Bishop Frank T. Griswold, III. (These were the budgets for the periods 2001-2003, 2004-2006, and -- submitted to General Convention by Bishop Griswold, but then implemented by his successor -- 2007-2009.)

In particular, we saw how the proposed budgets for each three-year period went from $420,000.00, to $765,000.00, and then, rather strangely, given the trend in litigation to that point, back to just $405,000 for the period 2007-2009. In the next few posts, we shall take a much closer look at how the events of that triennium made the latter estimate hopelessly inadequate, and how many interim adjustments and borrowings were required to fill the gaps -- each made by the Church's Executive Council, without any participation from General Convention (in 2009). The framework will then be established for our final post(s) of the series, in which we address the ultimate questions of who exactly benefited from these adjustments and changes, and who was harmed by them. These are the very questions which, as a matter of fiduciary duty to its constituents, the Church ought to be raising under the current circumstances -- but which it is not.

When we left off with our consideration of the budgetary record, we were at the beginning of 2007, when the bad financial news for calendar 2006 was just beginning to arrive, and when the Executive Council met in February to adjust the budget for 2007. Significantly, what was taking place on the legal front at this time was that the really heavy-duty litigation in Virginia was just getting under way -- the Diocese of Virginia and ECUSA separately filed eleven separate lawsuits against the CANA parishes in late January-early February 2007 (for details, see this post). This was an abrupt turnaround in strategy, as the parishes in Virginia all attested, and no one appears to have notified the Executive Council of the impact such a move would have on the 2007 budget. From testimony given later in the litigation, it seems that the Presiding Bishop and her Chancellor decided on the move themselves. Bishop Jefferts Schori testified, in the course of her videotaped deposition, as follows:
1 Q. Did you not tell Bishop Lee to pull out
2 of negotiations with the II congregations?
3 A. I told Bishop Lee that I could not
4 support negotiations for sale if the
5 congregations intended to set up as other parts
6 of the Anglican Communion.

. . .
21 Q. So do you view this current litigation
22 as a means for you to validate the notion of
[page 63]
1 territorial integrity?
2 A. I understand it as a means to preserve
3 assets of the Episcopal Church for the ministry
4 and the mission of the Episcopal Church.

. . .
[page 83]
17 Q. What did you tell Bishop Lee?
18 A. I told him that the National Church had
19 an interest both in the financial compensation
20 and that another branch of the Anglican Communion
21 not be set up in our territory for reasons of
22 mission strategy.
We thus have the Presiding Bishop of ECUSA taking it on her own to devise and then direct the implementation of a "national mission strategy" that precludes any diocese in the Church from selling church property to any body that plans to use it to worship as part of another denomination within the Anglican Communion. This policy, please note, was not developed and then fleshed out by General Convention, or even the Executive Council. And it had huge consequences for the budget of the Episcopal Church (USA), as we shall see. In the next passage from her Virginia deposition, the Presiding Bishop tells us exactly and forthrightly that the entire matter of what lawsuits are to be instituted in the name of the Church, and how much money is to be spent on them, is completely within her sole discretion (I have added the italics, but they probably are superfluous; the entire testimony is simply amazing):
13 Q. You instructed the Episcopal Church to
14 intervene [in the Virginia litigation]; did you not?
15 A. To join that litigation.
16 Q. You, yourself?
17 A. Yes.
18 Q. And you also instructed the lawyers for
19 the Episcopal Church to file suit, a separate
20 suit against the 11 congregations; did you not?
21 A. That has been our practice, that is what
22 we did.
[page 85]
1 Q. On your instruction?
2 A. Uh-huh.
3 Q. And you have been approving payment for
4 the legal bills that have been incurred in the
5 litigation, have you not?
6 A. I actually don't see the bills, but,
7 yes, they are approved by my office.
8 Q. Who in your office approves them?
9 A. I believe -- no, actually, I can't tell
10 you. I am not the sure whether it is the
11 treasurer or the canon who has just retired, who
12 had been doing that.
13 Q. Did the General Convention authorize the
14 Episcopal Church to intervene in the 57-9
15 proceedings?
16 A. That is not a duty of the general
17 Episcopal Church.
18 Q. So the answer is no?
19 A. Correct.
20 Q. Did the General Convention authorize the
21 Episcopal Church to file suit against the CANA
22 congregation?
[page 86]
1 A. That is not a duty of the General
2 Convention.
3 Q. Is it a duty of the Executive Council?
4 A. No.
5 Q. That is your duty?
6 A. It is.
7 Q. So it is your view that you are the
8 authority to initiate litigation, without the
9 formal approval of the General Convention?
10 A. Yes.
11 Q. And it is your view that you have the
12 authority to incur substantial legal expenses in
13 litigation without the approval of the General
14 Convention?
15 A. Yes. The General Convention has
16 provided some funds in its budget to be used as
17 necessary.
The last statement, as we have already seen, is an egregious exaggeration of what was actually done in General Convention 2006. The budget for the triennium 2007-2009 had been prepared and presented to the Convention by the Executive Council, acting under Presiding Bishop Griswold, before Katharine Jefferts Schori was even elected. She obviously had no input into what was provided "to be used as necessary" in that budget.

Moreover, as we have also seen, the amounts provided in the budget by General Convention for the period 2007-2009 were lower by far than the previous three years, and even lower than Bishop Griswold's initial budget (2001-2003). (See the recap above.) One could hardly say that General Convention had been apprised of, let alone that it budgeted for, the institution of eleven separate lawsuits at once in the courts of Virginia. But within just two months of her taking office, the Presiding Bishop -- without advising the Executive Council, and without receiving any budgetary authority, committed the Church to a massive cost overrun in litigation expenses simply by instructing her Chancellor to proceed.

And, because the Presiding Bishop does not concern herself with approving the legal bills, but leaves that function to a subordinate in her office, the Presiding Bishop left it entirely to her own Chancellor to choose his own law firm to carry out her instructions, and to decide just what, and how much, legal work needed to be done. (As we shall see in a later post, the hook for this blank check was an offer to discount the future fees as a pro bono gift to the Church.)

Now, it should be apparent even to a lay reader at this point that something is seriously wrong in this sequence of events, and in the Presiding Bishop's sworn testimony, as quoted above. She testified to a clear understanding that it was her duty, and hers alone, to decide on what litigation should be brought in the name of ECUSA, and how much money should be spent on that litigation. But she was just barely three months into her office when she came to such an understanding, and acted on it without consulting any other branch of the Church! The conclusion seems inescapable: she could only have gained such an understanding of her duties based on legal advice given to her by her Chancellor, David Booth Beers.

The absence of any "informed consent" (as defined in the quotation above) of the organizational client here (in whose name the suits were filed) is glaring and blatant. Despite what she may think, the Presiding Bishop is not the "Protestant Episcopal Church in the United States of America." She is, properly speaking, not even an officer of that organization, which is made up of unincorporated dioceses. The Constitution of ECUSA provides for a Presiding Bishop of the House of Bishops -- hence her title. But it makes no provision for that officer to be the President or Chief Executive Officer of ECUSA itself. A CEO would have the ability to command the organization's members, and she admitted in her deposition that she had no such authority (page 84, lines 1-5).

There is a comment on Rule 1.7 of the D.C. Bar's Model Rules of Professional Conduct which would appear to be directly in point (I have added the emphasis):
[24] If representation otherwise appropriate under the preceding paragraphs seeks a result that is likely ultimately to have a material adverse effect on the financial condition of the organization client, such representation is prohibited by Rule 1.7(b)(3). . . . Obviously, however, a lawyer should exercise restraint and sensitivity in determining whether to undertake such representation in a case of that type, particularly if the organization client does not realistically have the option to discharge the lawyer as counsel to the organization client.
Now, let us turn to the details of the material adverse effect on ECUSA of Chancellor Beers's decision to have his own law firm carry out the instructions of the Presiding Bishop in the organization's name. Let us begin with what then was called the "Audit Committee of the Executive Council", whose primary function was to ensure that the moneys of the DFMS (see this previous post for an explanation of that organization's role in these matters) spent on Church purposes were accounted for in such a way as to ensure that the required annual independent audit could be certified without any reservations or qualifications. At its meeting held in New York in September 2007, the Audit Committee held a "short discussion" about how to characterize legal expenses as a line item in the budget, and commented on the amounts accruing, but otherwise showed no knowledge or awareness of the Virginia litigation in particular, or how much would have to be spent on it (italics added):
Reviewing the statement of operations for 8/31/07, Alpha [Conteh, the DFMS's Controller] stated they are essentially as expected at this time of year. Question arose about the title, “Property protection for mission,” and comment made that it may wiser to re-title the line to show that it is a legal expense. Some folks have inquired about the source for funding the legal expenses specific to helping dioceses having property disputes. Consensus was that the line should be called what it is. Del [Glover] and [Bishop] Stacy [Sauls] will take this back to A[dministration] & F[inance] where the request originated about the line’s title. Short discussion followed regarding budget accruals for anticipated legal expenses. Prior to 2007, expenses have been met by using short-term reserves.
(These minutes were downloaded sometime ago from the Audit Committee's home page. But with its recent transformation into this body, the minutes of the former group no longer appear online.) At the next meeting of the Audit Committee, in December 2007, there was this intriguing disclosure, which showed how a deliberate decision was made not to share with the full Executive Council the information about the ballooning costs of litigation (italics again added):
Attempt was made and was unsuccessful to contact Bishop Sauls by phone so that he could participate in the discussion about legal expenses for property protection. During an executive session of the Executive Council (EC) a discussion was held in regard to the amount of funds spent on legal fees in property issues. The PB and chairs of two committees of EC (Administration & Finance and National Concerns) discussed this, deciding, for a variety of reasons, not to share the amount with EC.
This disclosure prompted a response from the DFMS's Treasurer attending the meeting -- Kurt Barnes:
Kurt assured A&F that if he didn’t know what the exact number was spent on legal fees he would not sign the audit report. Kurt has initiated a review of all the legal bills that have come in; Jose Gonzalez is making the review. Bills come in either to in-house counsel, Suzanne Baille, or to the PB’s Canon. They are reviewed and identified by subject matter and presented for payment. Kurt and Suzanne complete a similar review and the dollar amounts are coded appropriately for entry. Kurt has asked what bills might exist that do not go through accounts payable. Discussion covered this issue as well as the difference in reporting ‘fees’ and ‘expenses,’ which is an inclusive number apart from the fees – travel, administrative, pro bono services, etc.

Acknowledging that this is a sensitive issue, opinion was expressed that there should be a body, either of EC or EC and Staff, that should know exactly what the fees and expenses are. Without such oversight an environment of distrust is inevitably created. It was agreed that Audit needs to ask EC with confidence and conviction to take care how they deal with the matter; Audit wants to support EC and has fiduciary responsibility for accuracy.
This is precisely why the Model Rules require that an organizational client's informed consent must be obtained in advance of legal counsel's representing both an organization and an individual in that organization. But as these disclosures at the time reveal, there was no kind of consent, let alone informed consent, obtained from independent members of ECUSA in advance of undertaking the eleven Virginia lawsuits.

Is it any wonder, given the foregoing, that at the end of 2007, the official year-end audited financial statements of the DFMS contained the following note by the auditor? (P. 19; bold emphasis added.)
The Society is subject to various claims and legal proceedings that arise in the course of ordinary business activities. The Society is not aware of any pending litigation which will have a material adverse effect on the consolidated financial statements.
By the end of calendar 2007, the $500,000 which the Executive Council had added the previous February to the budget for "Property protection for Mission" had experienced an overrun of $402,921, totalling $902,921 for the year. Similarly, "Title IV Expenses", whose budget had been tripled from $100,000 to $300,000, still came in more than $100,000 over that revised figure. For the second year in a row, the Episcopal Church had spent more than a million dollars on legal fees and expenses relating to litigation and the trials and depositions of bishops, while budgeting much less. The trend was upward -- from $1,179,167 in calendar 2006 (as shown in the previous post) to $1,304,137 in calendar 2007. And the end was by no means in sight.

Since there is a limit to how much can be absorbed in any one post, I shall conclude this one at this point, as of the end of calendar 2007. In the next post, we will begin with the events of 2008.

Thursday, August 26, 2010

Here's One Politician Who Has His Priorities Straight

Tired of all the political grandstanding and game-playing going on as an election draws near? Watch the video below, and learn how a great communicator conveys, in the simplest of terms, what is wrong with the idea of paying taxes to Washington so they can employ mindless bureaucrats who make idiotic (and apparently irreversible) decisions, that use a trivial clerical error as the sole basis to deny hundreds of millions of dollars coming back to benefit the people who paid those taxes in the first place. This would have been unbelievable as recently as twenty to thirty years ago, but it is the kind of government you are paying (and paying!) for today:

Hats off to Governor Christie for laying it out straight!

(And a tip o' the Rumpolean bowler to Power Line.)

Wednesday, August 25, 2010

Leading the Church into Lawsuits - Pt. I

My previous post on this topic raised the issue of how the law firm of Goodwin Procter obtained ECUSA's "informed consent" to hire it to prosecute multiple lawsuits against realigning parishes and dioceses in its name, given that attorneys from Goodwin Procter at the time also represented ECUSA's Presiding Bishop. In this current post, I shall provide an overview of the financial impacts of that decision on the Church's triennial budgets, approved at each General Convention. Along the way, we shall review some of the evidence pointing to the lack of an informed decision in the matter of the Church's resort to so many lawsuits.

All of the following financial information comes from documents and statements available online at the website of the Church's Finance Office. I have simply integrated the budgetary information with the timeline of the Church's involvement in property litigation.

In July 2000, the General Convention of the Episcopal Church (USA) adopted a budget for the Church covering the years 2001-2003. Interestingly enough, the chair of the Joint Standing Committee on Program Budget and Finance at the time was a certain Ms. Bonnie Anderson -- later to become (in 2006) President of the House of Deputies. The budget for the Presiding Bishop's Chancellor (David Booth Beers, who had been serving in that position for more than eight years) was a straight $40,000 per year, or $120,000 for the three-year period. There was also a line item in the Budget for "Title IV Contingencies," which included the cost of any disciplinary investigations and trials at the national level involving the clergy (chiefly, at that level, the Church's bishops). The Budget allocated $100,000 per year to that item, for a total of $300,000. Thus we have:

Budget allocated to Church legal expenses, 2001-2003 (under +Griswold): $420,000.00

During that first triennium of the new century, the only property litigation in which the Church was involved, as far as I am aware, was the lawsuit brought by All Saints Parish, Waccamaw, in South Carolina. The suit began in October of 2000, and ECUSA was named as a defendant.

The next triennial budget was adopted at General Convention 2003, which saw the confirmation of the election of V. Gene Robinson to be the diocesan of New Hampshire. All of the consequences of that election were still off in the future, but Ms. Anderson's Standing Committee saw fit to nearly double the budget for legal expenses. They did double the amount for "Title IV Contingencies", from $100,000 to $200,000 per year, and they boosted the stipend to the Chancellor from $40,000 to $55,000 per year. This meant a

Budget allocated to Church legal expenses, 2004-2006 (under +Griswold): $765,000.00

The Presiding Bishop of the Episcopal Church (USA), the Most Rev. Frank T. Griswold III, had famously given out his opinion that church property disputes were matters for the dioceses to handle, and did not involve the national church. After the appellate court sent the South Carolina case back to the trial court in March 2004, Bishop Griswold might have thought his litigation expenses would lighten a bit, but events proved differently. Out in the Diocese of Los Angeles, a dispute was brewing between its bishop, the Rt. Rev. J. Jon Bruno, and three parishes whose congregations and rectors became disaffected following Bishop Bruno's participation in the consecration of Bishop Robinson of New Hampshire, and performance of a same-sex blessing in his own diocese. In August 2004, the vestry of St. James parish in Newport Beach voted to realign with the Anglican Province of Uganda. It was followed in short order by All Saints parish, Long Beach, and St. David's parish, in North Hollywood.

In a knee-jerk response that has now become typical of ECUSA's leadership, Bishop Bruno responded by having his standing committee rubber-stamp charges of "abandonment" against the realigning clergy (even though, as explained at length in this prior post, the abandonment canon for clergy spells out precisely that leaving ECUSA for another church within the Anglican Communion is not "abandonment"). Next, he filed suit against them, their parishes and their vestries (seeking punitive damages against the latter), and asked the national church for help. It is not clear why Bishop Griswold responded with the filing of a lawsuit against the three parishes in the name of ECUSA; it may be that he felt weak in light of the recently issued Windsor Report, and (probably at the urging of his Chancellor) wanted to back up a diocese which was facing well-funded opponents. At any rate. Chancellor Beers soon had a major legal fight on his hands, and costs began to escalate.

The year 2005 was a new low point for the Episcopal Church (USA). In February, the primates meeting at Dromantine asked ECUSA to withdraw from participating in the upcoming session of the Anglican Consultative Council at Nottingham in England. The House of Bishops met in March, and in response to the Windsor Report, declared a moratorium on all episcopal ordinations until General Convention 2006. The controversy over the leaked Chapman Memo continued to boil, and nineteen more parishes declared they were realigning with other provinces, in addition to the twenty-six who had done so the year before. The Connecticut Six filed suit in federal district court. And more troubles broke out in California: the Diocese of San Diego, under Bishop Mathes, met with resistance from three parishes, each of which voted to realign in 2006.

In March 2006, the Presiding Bishop's Canon, the Rev. Carl Gerdau, reported to the Executive Council that "the Church had spent $500,000 in 2005 to defend congregations and dioceses in [church property] disputes." (The Council's response? It voted to declare that the "expenses associated with Title IV investigations and trials and legal support for dioceses in excess of the previously budgeted amounts in 2004 and 2005 be considered as extra-budgetary items funded with surpluses accumulated from prior trienniums." [sic]) The problem of how properly to account for legal cost overruns would continue to dog the Executive Council for each of the ensuing years.

By the time General Convention met at Columbus in June 2006, ECUSA's leadership was virtually in panic mode. It needed an affirmative response to the Windsor Report, or it feared that ECUSA would lose its place in the Anglican Communion. But it almost failed to get one -- until an extraordinary, last-minute appeal to the House of Deputies from both Presiding Bishop Frank Griswold and the new Presiding Bishop-elect, Katharine Jefferts Schori, saved the day. (See the full chronology here.)

Meanwhile, the Diocese of San Joaquin, led by Bishop John-David Schofield, had amended both its own constitution and the articles of its diocesan corporation sole so as to minimize the role that ECUSA or General Convention would have in its affairs -- including the selection of any successor bishop. The day after General Convention finished its business, the Rt. Rev. William E. Swing, Bishop of California, addressed a strong letter to Bishop Schofield (scroll down to the sixth and seventh pages), in which he demanded that the latter sign and return by the next day an agreement to take all appropriate steps needed to reverse the steps taken by his diocesan convention. The letter explained the reason for its unusual demands (emphasis added):
My point is this: you have led your diocese to take actions that put all Episcopal dioceses in the State of California in jeopardy. I am not talking about interpretation of Scripture or theological points of view. I am specifically talking about your legal language. All Episcopal dioceses in California are questioned by the court system as to whether or not we are a hierarchical church. You have taken unilateral actions that destroy any chance that the rest of the Episcopal dioceses in California could ever argue that we are a hierarchical church. That will create chaos for all of us for all time.
I beg you to take the lead in reversing the actions of your diocese. No need to apologize; great need to begin now in reversing the situations. This issue of internal governance is crucial, and the moment is volatile."
When he received no response, Bishop Swing, joined by Bishops Lamb, Bruno and Mathes, who each also feared that the moves by San Joaquin could weaken their positions in ongoing or future litigation against realigning parishes, brought an accusation against Bishop Schofield for -- you guessed it -- "abandonment of communion."

In retrospect, it is obvious that the four complaining bishops coordinated their legal moves with Chancellor David Booth Beers, who had been stage-managing the Church's legal strategies since at least October 2004, when he called together all the diocesan chancellors for an extraordinary conference in the wake of the Windsor Report. According to sources who participated in the conference, Mr. Beers made it clear that the Church would not tolerate a diocese which did not aggressively pursue departing parishes for their buildings and assets. And when the correspondence to Bishop Schofield leaked in July 2006, Mr. Beers at a later conference "expressed annoyance that details of private correspondence had been published."

From this point forward, with Presiding Bishop Griswold on the way out, and "a new sheriff coming to town" in the person of Presiding Bishop Katharine Jefferts Schori, David Booth Beers assumed complete responsibility for the litigation policy of the Episcopal Church (USA). And under his direction and management of that policy, ECUSA's legal bills multiplied enormously.

The lack of advance warning for what was about to occur may be seen in the final triennial budget (2007-2009) proposed to General Convention by its outgoing Presiding Bishop. In that document, downloaded from the Finance Office's website, the amounts budgeted for the Chancellor dropped from $55,000 per year to $35,000 per year, and the amounts budgeted for "Title IV Expenses" were slashed to their 2001 level, from $200,000 per year to $100,000 for each of the next three years. This was an overall reduction in the budget for legal matters of nearly 43%, or $360,000 -- an amazingly short-sighted step to take for an organization that was becoming enmeshed in more and more lawsuits:

Initial allocation for Church legal expenses, 2007-2009 (last +Griswold budget): $405,000.00

The shortsightedness of these cuts in the triennial budget, however, reflected the views of the Presiding Bishop's Chancellor. Leading a workshop at the initial meeting of a group calling itself "The Episcopal Majority", at St. Columba's in Washington, D.C. in November 2006, Mr. Beers expressed those views as follows:
Beers briefly discussed instances of litigation that have arisen in the last few years after congregations have sought to leave TEC with their church building. He noted that TEC had prevailed in all situations that have already been decided except for one in Los Angeles (involving three parishes), although there have been some unfavorable developments in cases in San Diego, South Carolina and Central New York. Beers said he expects the Los Angeles decision to be overturned on appeal and a favorable final verdict in the other cases. He added that church officials were watching four other potential church property conflicts, which he did not identify.

"That's not an epidemic; it's not a flow of victories" for conservatives, Beers said.
"Not an epidemic" -- perhaps not at that point, but litigation certainly was not in a downtrend, either. And once again, the increase in litigation was spurred in part by the actions of the Presiding Bishop's Chancellor.

As the Diocese of San Joaquin moved closer to the adoption of amendments which would take it out of the Church altogether, Mr. Beers in the fall of 2006 took it upon himself to write letters to the Dioceses of Fort Worth and Quincy, where similar constitutional amendments had either been made, or were under active consideration. The full article describing the letters is no longer online, but here is a link to a copy of it. According to Steve Waring, reporting for The Living Church, the letters demanded that the dioceses bring their constitutions and canons into a state of "unqualified accession" to the Episcopal Church's Constitution and Canons, and ended by saying that "should your diocese decline to take that step, the Presiding Bishop will have to consider what sort of action she must take in order to bring your diocese into compliance."

The "she" referred to in Mr. Beers's letters was, of course, the Presiding Bishop-elect, who was still to assume the duties of office when Mr. Beers wrote. And remarkably, at the Episcopal Majority workshop mentioned earlier, Mr. Beers admitted that he had not consulted with either Bishop Jefferts Schori or with Bishop Griswold until after sending out the letters (emphasis added):
Beers said he wrote the letters on his own initiative but with the knowledge of Jefferts Schori and now-former Presiding Bishop Frank Griswold. He told the Episcopal Majority workshop that he had written a similar letter to the chancellor of the Diocese of San Joaquin, another Network diocese, last summer . . .
From his other remarks at the workshop, it is easy to see how the future litigation strategy of the Episcopal Church against departing dioceses was already in the Chancellor's mind:
Beers noted that he could not say how Jefferts Schori would respond if a diocese did pull out without convention permission. However, he said at a different point that, in the case of a vacancy in a see, he assumed that TEC's leader would "obey the canon calling for her to consult," provide the diocese in question with "episcopal care," facilitate the selection of a new diocesan standing committee and council, and help the diocesan leadership bring a lawsuit to recover the property, signs and symbols of the diocese.
(As documented in this post, the Presiding Bishop's special counsel for litigation and discipline, Ms. Mary E. Kostel, absorbed all of these strategies from her mentor at Goodwin Procter, David Booth Beers.)

Three short months after the Episcopal Majority workshop, the realities of the situation began to hit the Episcopal Church (USA). At their regular meeting in March 2007, the members of the Executive Council learned some unpleasant budgetary facts: (a) the canonical expenses for calendar 2006 had overrun their budget by some $425,000, thanks in part to an unscheduled grant of $443,519 for unspecified "legal assistance to dioceses" again; and (b) the Church's own Title IV expenditures had mushroomed to $430,648 -- more than four times the $100,000 that had been budgeted for that category. As a consequence, it was recommended to increase the 2007 budget for these items two items to $300,000 (Title IV) and $500,000 (legal assistance), respectively. The rationale given? "Reflects reality of 2006." (Remember that this was just nine months after General Convention had been told that $300,000 would be adequate funding for Title IV expenses for the entire triennium.)

So to recap: after increasing its budget for legal expenses in the 2004-2006 triennium from $405,000 to $765,000.00, the Church actually ended up spending $1,179,167.00 -- and so passed its first million-dollar milestone in ongoing legal expenses. And it did so after the fact, without ever bringing the matter before General Convention, and after having slashed the official budget presented to that body in the first instance. In a pattern that we will see recur, the Executive Council was required to make the painful adjustments in the interim, by tinkering with the Church's endowment funds to make up the shortfall:
So as not to have to reduce programs for the Church's mission and ministry, the council agreed in Resolution AF-21 to raise the investment income payout rate for 2007 from 5 percent to 5.5 percent, creating a one-year exception to the rate established in June 2005, and to take up to $2.3 million from short-term reserves to add to the 2007 budget's income.

Treasurer and Chief Financial Officer N. Kurt Barnes told the council March 3 that, while he generally supports leaving the payout rate at 5 percent in order to protect the endowment funds against "de-capitalization," the funds can withstand a one-year increase. . . .
We will leave the Executive Council on that note, as it had to adjust the official 2007 budget radically to deal with unbudgeted legal expenses, on which it received no independent advice. In the next installment, we will see how the Council had to adjust the official budgets upward again in 2008 and in 2009; then we bring the whole legal and financial story forward, to the current day. And then, in a concluding installment, we will ask the hard questions which no one in ECUSA appears to be asking -- such as: Cui bono?

Tuesday, August 24, 2010

ECUSA -- the Big Bad Wolf of Texas

When it comes to litigation strategy, that which the Presiding Bishop is following is simple, and consists of two principles:

1. If you win, well and good -- that frees up resources for the next lawsuit.

2. If you lose, apply more resources to the litigation until you win.

This is what is now taking place in the lawsuits in Fort Worth and in Hood County. First, let's let Bishop Iker's diocese explain matters from its perspective:

The Episcopal Church and its local supporters have re-filed their lawsuit in Tarrant County in an ongoing effort to seize all our property and assets in the Diocese of Fort Worth. This new pleading was needed in order to bring the plaintiffs into compliance with the June 25th order of the State Court of Appeals. The appellate court found that attorneys Kathleen Wells and Jonathan Nelson could not represent entities calling themselves “The Episcopal Diocese of Fort Worth” or the “Corporation of the Episcopal Diocese of Fort Worth” and required that all pleadings made in those names be struck from the suit. Instead, the local TEC plaintiffs must now present themselves as individuals who are in fact suing the true Diocese and Corporation. The claims and goals of the suit continue as before: To force all our property and assets – including our name and insignia – to be relinquished to them.

In addition, in a case in Hood County, concerning a bequest to St. Andrew's Episcopal Church in Fort Worth, they have appealed previous court rulings favorable to our position and engaged two new Dallas attorneys to represent Bishop Wallis Ohl and The Episcopal Church before the Court of Appeals. Their hope is that the court will award the bequest funds, which were left to the church by a longtime parishioner, to Bishop Ohl and his diocese instead.

There is a September 2 hearing scheduled in the Hood County litigation to consider an additional motion brought this summer by the TEC parties, which would bar our attorneys from representing the Diocese and Corporation.

Your continued prayers for our attorneys in responding to all of this are greatly appreciated.
There are links to download the new filings on the page with the statement just quoted. I shall not add to what I have already written about the claims ECUSA is making in Hood County. Suffice it to say that ECUSA is going way out on a limb claiming the authority to come into court and change the terms of a private trust written in 2002, on the basis of the infamous Dennis Canon. The latter ostensibly applies to property held by or for a parish, but held by someone who is subject to the Church or the Diocese, not a private trustee appointed by a third party. And now it has hired even more attorneys -- in fact, it has hired one of the largest law firms in Texas (Vinson & Elkins) to help it make these untenable claims. It is as though Katharine Jefferts Schori and David Booth Beers think that this is the Civil War again, and the side who can bring more troops into the fray will win through sheer force of numbers.

With the second amended petition filed in the Fort Worth proceedings, what is gone are the putative entity plaintiffs, by which I mean that the plaintiffs no longer include the entities which they call "the Episcopal Diocese of Fort Worth", or "the Corporation of the Episcopal Diocese of Fort Worth." Other than ECUSA itself, the plaintiffs (petitioners) are all individuals, starting with Bishop C. Wallace Ohl, who swears that he is the "Provisional Bishop of the Episcopal Diocese of Fort Worth." Next come the six members of the "Standing Committee"; then five persons whom Bishop Ohl appointed as "trustees" of the Corporation; and finally seven persons who claim to serve as "trustees" of the "Fund for the Endowment of the Episcopate". (ECUSA has also brought in Vinson & Elkins on this case as well; their name is on the pleadings.)

The plaintiffs name as defendants their counterparts -- the members of the Standing Committee, and the Corporation and Foundation trustees -- who, they each allege, are "holding themselves out as being" those persons. They also name Bishop Iker and an entity they call "The Anglican Province of the Southern Cone's 'Diocese of Fort Worth'", which they say "is an entity of unknown form which has no relation to the Church or Diocese and purports to be affiliated with the Anglican Province of the Southern Cone. The Southern Cone Diocese holds itself out and is doing business as 'The Episcopal Diocese of Fort Worth.'"

From the foregoing you can see that ECUSA's strategy has barely changed. Deprived of the right to sue in the names of the diocesan entities themselves, the plaintiffs now take the tack that the Episcopal Diocese of Fort Worth has been hijacked, and is being occupied and operated by impostors. However, as we will see below, they have not thought through the implications of this strategy.

In this new guise as "concerned individuals and leaders of the diocese", for example, the vulnerable point in their position is now crystal clear. They recognize the weakness when they try to fend it off by putting this allegation in their petition (para. 29):
The Diocese of Fort Worth is not a Missionary Diocese. The Constitution and canons of the Church do not provide for or permit the release, withdrawal, or transfer of any diocese that is not a Missionary Diocese.
Notice that the language is generic: "the Constitution and canons of the Church . . .". There is no citation to, or quotation from, any specific provisions in the Constitution or canons (except to its provisions about "missionary dioceses", which are irrelevant). The generic reference calls to mind this earlier exchange between the Judge Chupp and the attorneys for ECUSA and the rump diocese:
THE COURT: Well . . . I don't see in the constitution where it says once you're a diocese in the Episcopal Church Province, we own you, and you can never leave. . . .

MR. NELSON: . . . Your Honor, that's been litigated.

THE COURT: Well, if --

MR. NELSON: And you're absolutely right, there isn't anything in there that says that specifically, nevertheless, the Courts have held that they cannot leave.
(Transcript of hearing 09/09/2009, at p. 51; emphasis added. See this earlier post for links and a full analysis.)

So even though there is no language preventing or forbidding member dioceses from withdrawing (i.e., amending their own constitutions so as to remove the clause "acceding to the Constitution and canons of [ECUSA]", which not all dioceses have to begin with), dioceses still cannot leave because "the Courts have held that they cannot leave."

That is the kind of misrepresentation of the law that can cause an attorney to lose credibility with the judge. For the fact is that no court of record anywhere has ever held that a diocese may not leave the Episcopal Church (USA); all of ECUSA's successes to date have occurred by piggy-backing on cases brought by individual dioceses to prevent individual parishes from leaving. Since a good number of those parishes adopted bylaws which could be amended only with the permission of the bishop or standing committee, and those bylaws had further language making the parish "permanently" or "irrevocably" (one case even had the word "perpetually") subject to the constitution and canons of ECUSA and the diocese, those cases cannot serve as precedent when there is no such language in the governing documents.

And note that the attorney's argument to the court, even though mistaken, is inconsistent with the allegations in the second amended petition: the latter does not allege that there are court decisions which prevent dioceses from leaving, but that the "Constitution and canons" themselves are what prevents dioceses from leaving, because they make no "provision" for it.
(The Constitution and canons also make no provision for ECUSA's joining an organization that advocates for a woman's "right" to kill her child in the womb, either, but that has not stopped ECUSA from doing so. Arguments from silence are the weakest of all arguments.)

The second amended petition contains further untruths and outright falsehoods, in an attempt to sweep the Presiding Bishop's failure to follow the Church's canons under the rug. In paragraph 52 we read this tall tale:
On December 5, 2008, following a public statement by defendant and counterdefendant Iker on November 24, 2008 that he no longer had any connection with the Church, the Presiding Bishop of the Church declared that defendant and counter-defendant Iker had voluntarily renounced his ordained ministry in the Church and that he was "therefore, removed from the Ordained Ministry of [the] Church and released from the obligations of Ministerial offices" in the Church. Defendant and counter-defendant Iker thereby ceased to be a bishop of the Church or the Diocese.
This language is cleverly constructed to make it look as though "the Church" is the same church throughout -- that is, ECUSA. However, the canons make clear that a "voluntary renunciation of one's orders" is not just a resignation from ECUSA, but is accompanied by an expression of "desire to be removed therefrom" (Canon III.12.7; emphasis added). One can consult this earlier post for the details, but it is a gross distortion of what occurred to allege that Bishop Iker expressed any desire that the Presiding Bishop accept his "renunciation" and remove him from his orders.

In the very next paragraph (#53), the petition trots out the canard that Canon I.17.8 (providing that every officeholder in this Church shall perform faithfully the duties of such office) automatically makes officers in a diocese, and elected only by that diocese, ineligible to continue serving in the offices to which their diocese elected them once the diocesan convention votes to amend the diocesan constitution to realign with another province in the Anglican Communion. If that is the case, let us all now ask, how is Bishop Bennison entitled to be restored to his "office in this Church" in the Diocese of Pennsylvania? He was found guilty of "conduct unbecoming a member of the clergy"; certainly he did not well or faithfully perform the duties of his office in so acting -- so if Canon I.17.8 automatically ejects the Fort Worth trustees, why does it not automatically eject Bishop Bennison from his position as well? (Technically, Canon I.17.8 applies only to lay officeholders, but as paragraph 53 of the petition argues, the corresponding provision for clergy is the oath of conformity all clergy take upon being ordained. Bishop Bennison signed that oath not just once, but three times -- for each level of his orders. So the logic still applies, even if the canons do not: the Presiding Bishop claims the power to "derecognize" the clergy members of standing committees for violating their oath, but she cannot go so far as to "derecognize" +Bennison? Truly, the left would not know how to be consistent if their very lives depended on it.)

The second amended petition continues by sweeping more inconvenient facts under the rug. It alleges there was a "special convention" in February 2009, but it does not allege who called the convention, or with what authority. It alleges that the "diocese" elected a "provisional bishop" at that special convention, but it does not allege that there was a proper quorum present to carry out any such action.

Then the petition reaches a new height in absurdity, with this sentence in paragraph 56: "The Church recognizes the Diocese as the continuing Episcopal Diocese of Fort Worth under the leadership of plaintiffs and counterclaimants." "The Church" -- just who is that? Which part of "the Church" has done the "recognizing"? Certainly not General Convention -- it adopted no resolution admitting the 2009-formed "diocese" into union with it. (The "deputies" sent by the "special convention" may have been seated at General Convention, but that was the pre-Convention decision of the president of the House of Deputies, Bonnie Anderson. There was no formal action taken by General Convention itself.)

And so, this amorphous "Church" -- whatever people and parts the pleader had in mind -- recognizes "the Diocese." But which Diocese? Has the pleader forgotten about this language in the recent opinion from the Court of Appeals in Fort Worth?
It is undisputed that there is only one Corporation and only one Fort Worth Diocese, regardless of how those entities are named or characterized in the underlying suit - whether as entities, as individuals "holding themselves out" as those entities, or as individuals "associated with" one or the other Bishop. There is a single Fort Worth Diocese and Corporation, which both a majority and a minority faction claim to control. . . . We are aware of no statute or common law rule allowing attorneys to prosecute a suit in the name of a corporation or other entity on behalf of only one faction or part of that corporation or entity against another part or faction.
(Emphasis added; footnotes omitted.) If there is only one Diocese of Fort Worth, and "the Church" recognizes it, then why are we in this lawsuit? And if the minority faction is suing the majority, how can it claim to be "the Diocese which 'the Church' recognizes" in doing so?

These are problems which the drafters of the second amended petition obviously never thought through before rushing to file their latest pleading. Shorn of their ability to claim in the pleadings that they are "the Diocese of Fort Worth" -- and there is only one such diocese -- they have fallen into the trap of maintaining the fiction that they are, and have consequently fallen into incoherence and absurdity, since they obviously cannot be what they claim to be, until they start following the prescribed procedures to become a real diocese, and do it right.

It is as though the Big Bad Wolf in Little Red Riding Hood, after having eaten Grandma and dressed up in her clothes, came into court claiming to be Grandma, and asked the court to award him the deed to her cottage. "But Little Red Riding Hood recognized me as her Grandma," the Wolf exclaims. "That makes me Grandma, and I'm entitled to all Grandma's property."

We shall see if this second amended petition fares any better than did the first. The Big Bad Wolf eventually may have to cough up Grandma, and start eating some crow instead.

Saturday, August 21, 2010

How Did ECUSA Get its Attorneys?

As this is a principled blog, let's start with some principles. I shall use as my authority the Model Rules of Professional Conduct as adopted by the American Bar Association, which have mostly been adopted without change by the various state bar associations.

Begin with Rule 1.13, which covers a lawyer's representation of an organization as a client. The Rule provides in part:
(a) A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.
. . .
(g) A lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders or other constituents, subject to the provisions of Rule 1.7. If the organization's consent to the dual representation is required by Rule 1.7, the consent shall be given by an appropriate official of the organization other than the individual who is to be represented, or by the shareholders.
Both David Booth Beers, who, as a former partner, is now "of counsel" to the Washington D.C. office of the law firm of Goodwin Procter, and Mary Kostel, who was formerly with that same office but is now an in-house special assistant counsel to the Presiding Bishop, have represented, and are representing, the Episcopal Church (USA) in litigation in various state courts. When they do so, then according to subsection (a) just quoted, their client is the organization itself, the unincorporated association of 100+ dioceses which make up the Church. (The local rules of the District of Columbia Bar Association do not vary significantly from the ABA's Model Rules.)

However, David Booth Beers is also the "Chancellor to the Presiding Bishop" under Canon I.2.5, who serves "as counselor in matters relating to the office and the discharge of the responsibilities of that office." And as just noted, Mary Kostel is the Presiding Bishop's personal assistant for litigation and discipline. So both Mr. Beers and Ms. Kostel have the Presiding Bishop as their client, as well. This is specifically allowed by subsection (g) quoted above, provided that the Church gives its "informed consent" to the dual representation through "an appropriate official of the organization other than the individual who is to be represented," or by the members themselves.

Note that, as "Chancellor to the Presiding Bishop", Mr. Beers is not "Chancellor to the Episcopal Church (USA)" as well. The latter position, if it were created (and it has not been created), would involve duties owed to the wider Church, such as appearing on its behalf in disciplinary proceedings (which role is currently filled by "Church Attorneys" under Canon IV). Nevertheless, when he puts his name on a pleading filed on behalf of "The Episcopal Church" in court (see the last page), he is representing to the court that he is the attorney for the whole Church. Thus he has engaged in two concurrent roles -- the first, as canonical advisor to the Presiding Bishop, and the second as attorney for the Episcopal Church (USA) in litigation.

Now here we encounter the first serious problem. Consent to dual representation of an organization and one of its officers is required by Rule 1.7 if there is a "concurrent conflict of interest," which the Rule defines as existing if:
. . . there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer . . .
Hmmm . . . let's see now: what "personal interest" of Mr. Beers could possibly interfere with his representation of both the Presiding Bishop and ECUSA itself? Could it possibly be the interest he has in Goodwin Procter, which is currently earning millions of dollars annually for all the litigation it is conducting in a dozen or more states on the Church's behalf? (I will get to the amounts and other details in a later post.) One would think so.

A second reason for requiring informed consent of the client is that the concentrated campaign of ECUSA litigation with Goodwin Procter at the helm did not really get under way until after Katharine Jefferts Schori became the Presiding Bishop of the Church in 2006. Long before that time, Mr. Beers began serving as the personal Chancellor to the Church's Presiding Bishops, and was also serving on the Church's Executive Council in 1991. (He is a man evidently used to wearing many hats.) Thus, his professional relationship with the ECUSA organization goes back for more than twenty years, and his recommendation that it engage his law firm to manage its litigation involved essentially a suggestion that would lead to his personal gain -- in a very substantial way.

In addition to the obvious solicitation issue (covered by Model Rule 7.3), there is a Model Rule of Professional Conduct which covers that situation, too: it is Rule 1.8, which provides in part:
(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:
(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;
(2) the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction; and
(3) the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer's role in the transaction, including whether the lawyer is representing the client in the transaction.
Note that this Rule requires the informed consent of the client to the transaction, as well. A search of the digital archives of ECUSA's Executive Council revealed no resolution adopted between the years 1976 and 2007 which contained the words "Goodwin Procter", "Shea & Gardner" (the firm Mr. Beers was with before it merged with Goodwin Procter in 2004), or even the words "legal services." A similar search through the resolutions adopted by General Convention also turned up nothing.

The question then arises: When did ECUSA give its "informed consent" to the engagement of the Chancellor's own law firm, at a cost of millions of dollars -- and who gave that consent? Two related questions are just as important: Who independently oversees the legal work that the Chancellor asks his law firm to perform? And who approves the payment of its bills?

Raising the issue of payment brings in yet another organizational client: since ECUSA itself cannot hold any money or other property, all expenses incurred on its behalf are paid by the Domestic and Foreign Missionary Society (of the Protestant Episcopal Church in the United States of America), which is a New York religious corporation. Its chief executive officer is the Presiding Bishop, and its board of directors is the Executive Council. So we are going in circles here -- everything comes back to the Presiding Bishop and the Executive Council.

The issue of the authority of the Presiding Bishop to authorize and conduct litigation on behalf of the whole Church was thoroughly analyzed in this paper by Mike Watson, Esq. for the Anglican Communion Institute. The bottom line is that the Presiding Bishop has never been so authorized by the organization which employs her. So the question then becomes: If the Presiding Bishop has no authority to conduct litigation on behalf of the Church, then how does she have the authority to engage her Chancellor's own law firm? Just how would the Church, through her, give its "informed consent" to the engagement?

"Informed consent" denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.
Given that he is associated with a very large law firm, David Booth Beers must have written a long and detailed letter to the Church informing it of "the material risks of and reasonably available alternatives to" the proposal to hire his own law firm while he continued to function as Chancellor to the Presiding Bishop. But the question is -- to whom did that letter go? For remember what Rule 1.13 says: the consent to dual representation must be given "by an appropriate official of the organization other than the individual who is to be represented." (Since David Booth Beers was a partner in Goodwin Procter [and is now "of counsel", a relationship signifying "a close, regular, personal relationship"], when he serves as Chancellor his law firm has the Presiding Bishop for a client, as well. Thus the entire law firm, and not just Mr. Beers, has the problem of obtaining informed consent to its dual representation of both the Church organization and its Presiding Bishop.)

The evidence of what independent oversight exists in ECUSA over the millions and millions of dollars it is spending on litigation is very slight and unsatisfactory. An attempt to bring the expenses of litigation into the open at General Convention 2009 was literally shouted down, on the ostensible grounds that it would provide information to "robbers." In responding to several queries from five bishops, two lawyers serving as the chairpersons of, respectively, the Executive Council's Standing Committee on Administration and Finance, and its Standing Committee on National Concerns, wrote in November 2007 as follows:
We have no knowledge of the amounts that are spent by Dioceses and Parishes on this litigation. As for the “national” Church, we know the amounts expended (none from the Church Pension Fund), and we also know of the many hours of lawyer time that have been donated at no charge to the Church. As it happens, we are both lawyers with very many years of experience with state and federal court litigation. We give you our professional opinion that the Church is receiving extraordinary value for the funds it does expend.
The first sentence of this paragraph is truly remarkable: as I made clear in this post and this one, the Executive Council has approved millions of dollars in gifts and loans from accumulated money left in trust for the Church's "mission efforts" -- in order to enable the putative "Diocese of San Joaquin", "Diocese of Pittsburgh" and "Diocese of Fort Worth" to carry on with their litigation (in which Goodwin Procter is also heavily involved). (The Council votes money for "clergy salaries" so that it can say that it is officially supporting "mission work" in those areas. This subterfuge enables the faux dioceses to spend their plate collections on legal fees. The sickness inherent in such chicanery lies at the heart of all that is wrong with the current Episcopal Church.) So it can hardly be the case that members of the Executive Council have "no knowledge of the amounts that are spent by Dioceses and Parishes on this litigation" -- or if it is, then the statement should be cause for great concern.

What is even more important is that the context of the two lawyers' statement would seem to make it clear that they have not been appointed to conduct, nor have they in fact conducted, a full-scale independent review of the monies being spent by the Church on litigation against former parishes and dioceses. They offer their informal, "professional" opinion only -- but based on what? They just do not say. Moreover, that opinion is offered in defense of a resolution adopted by the Executive Council which condemned the ability of dioceses to amend their own Constitutions. Since that resolution was obviously adopted on the advice of Mr. Beers, so that he could cite it (as he has) in litigation against those same dioceses, it is not as though the Council is receiving advice from a fully independent source.

All of this falls far short of what the professional rules of ethics require. Given that ECUSA is an association of member dioceses, those rules at a minimum would require that each and every diocese be fully informed of the potential conflicts from, and alternatives to, hiring the Goodwin Procter law firm. Such information would have to include assurances that the nature, quality and costs of the work would be independently reviewed by persons having no association (present or former) with the Chancellor and his law firm. It would appear that such "informed consent" has never been sought or obtained.

In response to being brought down in Fort Worth by a Rule 12 motion challenging his local attorneys' authority to represent the Diocese of Fort Worth and its Corporation, David Booth Beers recently had those attorneys file a counter-motion under Rule 12 against Bishop Iker's attorneys; it is due to be heard in Hood County District Court on September 2 -- just six days before oral arguments go forward in the writ proceedings in Fresno. But as just shown, David Booth Beers is the last person who should be challenging the hiring of other people's attorneys.

In a subsequent post, I shall give a detailed history of the enormous growth of the Church's legal and litigation budget under the advice and counsel of Mr. David Booth Beers and Ms. Mary E. Kostel.