Michael V. Kelsey v. John Ray
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DISTRICT OF COLUMBIA COURT OF APPEALS
No. 97-CV-1133
MICHAEL V. KELSEY, SR., et al., APPELLANTS,
v.
JOHN RAY, et al., APPELLEES.
Appeal from the Superior Court of the
District of Columbia
(Hon. Shellie F. Bowers, Trial Judge)
(Argued October 6, 1998
Decided November 12, 1998)
Frederick A. Douglas, with whom Curtis A. Boykin and Laura E. Jordan were
on the brief, for appellants.
Ronald C. Jessamy, with whom Joanne Doddy Fort was on the brief, for
appellees.
Before TERRY and FARRELL, Associate Judges, and BELSON, Senior Judge.
FARRELL, Associate Judge:
This appeal once again presents the issue of the
competence of the courts to inquire into matters of ecclesiastical governance.
Plaintiffs-appellees, members of the New Samaritan Baptist Church ("the Church"),
brought suit for injunctive and declaratory relief against the pastor and current
and former deacons and trustees of the Church, collectively the "Official Board."
The complaint alleged breach of fiduciary duty in the defendants' management of
Church property, principally in the manner by which they had loaned Church money
to the new pastor interest-free for the purchase of a residence, and had secured
approval of the loan by the Church membership without disclosing information
which, they alleged, the members needed to cast an informed vote.
The defendants
2
moved to dismiss under Super. Ct. Civ. R. 12 (b)(1) and (6) (1998) on grounds
that judicial intervention in the Church's management would violate the First
Amendment.
The trial judge denied the motion in all but one respect,1 stating
that he was "confident" he could adjudicate the dispute by applying statutory law
and the Church's Constitution and By-Laws "without becoming involved with any
ecclesiastical matters or doctrines."
In Bible Way Church of Our Lord Jesus Christ of the Apostolic Faith v.
Beards, 680 A.2d 419 (D.C. 1996), this court dealt with a similar claim of
financial mismanagement by the pastor and trustees of a church, including their
failure to account for church funds and issue financial reports to its members.
Reversing the denial of a motion to dismiss, we held that the plaintiffs had
failed to allege the application of neutral legal standards, either statutory or
embodied in the church's governing instruments, that were "clear [and] objective"
enough to permit a court to examine the church's financial practices without
"involv[ing it] in resolving a dispute with doctrinal implications."
430.
Id. at 428,
In this case, we conclude that the plaintiffs' claims ultimately cannot be
distinguished from those in Bible Way Church and that our analysis and holding
there dictate the outcome here.
We therefore reverse the denial of the motion
to dismiss.2
1
The court granted the motion as to count I, which demanded injunctive
relief in the form of an order requiring disclosure of financial information
before completion of the December 16, 1996 Annual Meeting of the Church, since
that meeting had already taken place. No cross-appeal has been taken from that
ruling.
2
As Bible Way Church, 680 A.2d at 425-26, and United Methodist Church v.
White, 571 A.2d 790, 791-92 (D.C. 1990), also dictate, the trial court's
interlocutory order is appealable.
(continued...)
3
I.
Background
The Church operates in the District of Columbia under a Constitution and
By-Laws adopted on May 19, 1948.
The Church was incorporated on November 6,
1956, under then D.C. Code § 29-501 et seq. (1951) (the "Religious Societies
statute").
In 1993, the Church selected Pastor Michael V. Kelsey, Sr., to
replace its previous pastor.
In September 1994, the Official Board of the
Church, consisting of the pastor, deacons, and trustees, agreed to lend Pastor
Kelsey money toward his purchase of a $325,000 home at an interest rate of six
percent.
The pastor did not take part in the vote.
At a "special called"
meeting of the Church membership that month, the Board recommended approval of
the loan.
One Church member apparently suggested that the loan be interest-free,
commenting that "the Church should not profit from this loan to the Pastor."
The
membership approved a no-interest loan at the meeting and eventually loaned the
pastor some $256,000 for the purchase, which took place in October 1994.
In
February 1996, the pastor signed an agreement to repay the loan, and the purchase
money mortgage held by the Church was recorded.
In December 1996, the plaintiffs wrote a letter to the pastor requesting
disclosure of certain financial information to the membership within fourteen
days.
Specifically, they requested:
2
(...continued)
A motions division of this court ordered further briefing on whether the
appeal was timely noted.
We hold that it was timely, and regard further
discussion of the issue unnecessary.
4
all the facts and documents surrounding the Church's
role in helping the Pastor purchase a home; that the
names of the members of the Auditing Committee (required
by the Church By-laws) and any Audit Reports for the
years 1994, 1995 and 1996 be made available; that all
claims and lawsuits, settled or pending, against the
Church or the Pastor . . . be made available; and that
any information relating to the Church's affiliation
with a religious body that requires as a condition of
membership that the Church and its members comply with
its governing documents and the financial obligations of
the Church to such religious body be made available to
all Church members to review and inspect . . . for a
period of thirty (30) days.
The plaintiffs asked particularly for records of the "special called" meeting at
which the loan to the pastor had been approved, and the Church's records of past
filings with the Internal Revenue Service.
They apparently had learned of an
audit and management report prepared by an outside CPA and submitted to the
Trustee Board in 1993, which warned that loans made by the Church to "members and
sons of the church" would endanger its tax-exempt status.
Not satisfied with the leadership's response, the plaintiffs brought this
suit.
In their amended complaint, they alleged that the various Boards of the
Church had become, "for all practicable purposes, . . . mere alter egos of the
Pastor," acting "in the sole interest of the Pastor and not the Church."
In
particular, while conceding that at the 1994 "special called" meeting a majority
of the Church members present had approved the interest-free loan to the pastor,
they alleged that the defendants had failed to inform the membership of the 1993
audit report
admonishing against such loans.
The complaint charged generally
that throughout the relevant period, the defendants "were the only persons privy
to
pertinent
information
which
the
Church's
membership
would
need
to
make
informed decisions about recommendations that were presented to the [Official]
5
Board and the Church. They routinely failed to provide the necessary information
to the Church's membership."
Illustrative was the 1996 Annual Church Meeting at
which, according to the complaint, "[t]he Deacons' report was presented but
copies were not shared with the congregation for members to review," after which
"[t]he Trustee Report was . . . presented [and] again copies were not shared with
the congregation."
This resulted in the members being asked to approve a $50,000
expenditure for a new car for the pastor "without knowing how much money the
Church actually had on hand or what its financial budget was for 1997."
The
plaintiffs alleged that their requests for information in the December 1996
letter to the Pastor had been unmet, as had their request for a copy of the
minutes of the 1994 "special called" meeting and documentation of past IRS
filings.
The
complaint
sought
a
declaratory
judgment,
inter
alia,
that
the
defendants had breached their fiduciary duties; that the members "have a right
to receive, review and inspect information and documents . . . that will inform
the members regarding the Church's finances, compliance or non-compliance with
Federal and local laws[,] and other liabilities"; and directing the defendants
"to have an audit conducted of the Church's finances by an outside Certified
Public Accountant Firm."
II.
Discussion
"The issue of subject matter jurisdiction is a question of law, and thus
we review the denial of the Rule 12 (b)(1) motion de novo."
680 A.2d at 427.
Bible Way Church,
In this appeal, the plaintiffs defend the trial court's
6
conclusion
that
it
could
adjudicate
their
suit
without
involvement
in
ecclesiastical matters by arguing that they seek only an outside audit and
disclosure of information to the members which the Church is obliged to provide
by
its
own
Constitution
incorporated.
and
By-Laws
and
the
statute
under
which
it
is
Specifically, they assert that
as members of the Church they are entitled to receive
and review annual audit reports and to know the names of
the Audit Committee . . . . Moreover, as members of a
church incorporated under D.C. Code § 29-501 et seq.
. . . they are entitled to receive and review financial
information about the Church and such other information
[as] would allow them to make informed decisions about
the business affairs of the Church.
Br. for Appellees at 8.
The plaintiffs concede that our decision in Bible Way
Church, supra, is a sizable barrier that must be overcome if they are to prevail.
The allegations in Bible Way Church bear a close resemblance to the present
ones.
As here, the complaint there alleged that the church leadership had
allowed itself "to 'fall under the complete domination' of the pastor," as
exemplified by its failure to monitor funds received; to account for funds turned
over to the wife of the founding pastor, as well as other funds; to comply with
federal and local tax laws; "to provide annual financial reports to the members";
and to maintain accurate financial records.
By these failures to account for and
report on church finances, the church allegedly "had violated a duty of care owed
to its members" that was reflected in published, well-established standards for
audits and accounts and "'[r]esponsible [s]tewardship.'"
A.2d at 424.
Bible Way Church, 680
7
This court rejected the lawsuit on the ground that entertaining it "would
involve the court in an ecclesiastical dispute -- an involvement forbidden by the
Free Exercise Clause" of the United States Constitution.
Id. at 426.
Contrary
to the plaintiffs' contention that the Bible Way Church's liability could be
established by "neutral principles of law" (see Jones v. Wolf, 443 U.S. 595, 604
(1979)) in the form of "'objective, well-established concepts of [accounting and
record-keeping],'" Bible Way Church, 680 A.2d at 426 (citation and footnote
omitted), we were persuaded that
a church's financial regime, including any required
reports to members, necessarily reflects an array of
decisions about a member's obligation to pledge funds,
and about the leaders' corresponding responsibility to
account for those funds, that a civil court cannot
arbitrate without entangling itself in doctrinal
interpretations.
Id. at 429. We explained further, quoting with approval from the church's brief,
that
[a]ccounting is an area riddled with major subjective
decisions. When the entity in question is a religious
society, those subjective decisions raise questions of
internal church governance which are often themselves
based on the application of church doctrine.
Id.
The plaintiffs had not demonstrated that the accounting and reporting
principles they relied on were "so universally -- and indisputably -- applicable
to every organized church that they can, indeed must, be taken for granted
without need for church action to adopt them."
Id. at 428.
Nor had they shown
that Bible Way Church had adopted those principles so as to "itself . . .
obviate[ ] all First Amendment concerns."
Id.
Without either of these showings,
8
a court could not be certain of applying neutral principles, i.e., "a previously
prescribed, authoritative, nondiscretionary -- and clear -- policy" to resolution
of the management dispute "without ecclesiastical judgment or intrusion." Id.
We therefore ordered dismissal of the suit in favor of "the primacy of church
tribunals for deciding such matters, consistent with the First Amendment."
Id.
at 431 (citing, inter alia, Serbian Eastern Orthodox Diocese v. Milivojevich, 426
U.S. 696, 713 (1976)).
The plaintiffs here seek to avoid Bible Way Church's holding by contending
that the New Samaritan Baptist Church has expressly adopted an annual audit
requirement and an obligation to report to the membership annually on its
finances.
They point first to Article VI of the Church's Constitution, which
states in part that the Official Board "shall be authorized to transact all
business of the Church and report annually, or at request of the Church, of its
work," and to Section 1 of the By-Laws' General Church Regulations stating that
"[a]ll new business pertaining to the Church must be brought to, and considered
by, the Official Board before any action is taken by the Church."
These
provisions, they argue, obligate the Official Board to furnish the members "with
complete and accurate information," Br. for Appellees at 3, on matters on which
"action is [to be] taken by the Church."
These provisions do not surmount the Bible Way Church barrier.
While
Article VI "authorize[s]" (though it does not literally compel) the Board to
"report annually" to the church membership, it is silent about the content of
9
such reports or how much information they must contain.3 It says nothing at all
about the kind or particularity of information "necessary" (in the complaint's
words) for the members to be able "to understand and determine the financial
conditions of the Church."
Consequently, for a court to decide -- as the
complaint demands -- what disclosures are needed "to help [the members] in making
. . . informed decision[s]" would thrust it into that realm of subjective and
even doctrinal decisionmaking that Bible Way Church declares out of bounds.
Underscoring the point is the directive at the end of the By-Laws which states
that "[w]here these regulations do not cover, we shall look to the New Testament
and the Hiscox Directory for guidance."4
Cf. Williams v. Mount Jezreel Baptist
Church, 589 A.2d 901, 909 (D.C. 1991) (court could not look to definitions of
church membership in Hiscox Directory without forbidden involvement in doctrinal
interpretation).
The plaintiffs also gain no help from Article IX, Sec. 4 of the Church
Constitution, which states that "[t]he Trustees . . . shall see that all moneys
[sic] are paid according to the wishes of the Church."
Even if the members
received inadequate information before approving the loan to the pastor, nothing
in Section 4 states that the wishes of the Church have to be based on full or
even accurate information -- matters very much in the eye of the beholder.
The
plaintiffs do not claim the leadership failed to determine the wishes of the
congregation on the interest-free loan, only that it withheld information needed
3
The complaint acknowledged that at Annual Meetings (in December 1996, for
example) a Trustee's Report is presented which apparently describes the "work"
(Art. VI) of the trustees.
4
The "Hiscox Directory" is a general guide to conducting church
organization and management in Baptist churches.
10
by the members to make an "intelligent and informed decision."
The language
cited provides no "clear, objective accounting and reporting standards," Bible
Way Church, 680 A.2d at 428, enabling a court to evaluate that claim.
Finally, the plaintiffs refer to the first sentence of Article IX, Sec. 4,
declaring the trustees to be "custodians of all Church property," and argue that
in Mount Jezreel Christians Without a Home v. Board of Trustees of Mount Jezreel
Church, 582 A.2d 237 (D.C. 1990), we permitted a suit by members of the church
to go forward alleging breach of fiduciary duty by the trustees in managing the
church's assets and business affairs.
However, in doing so we were careful to
state that the plaintiffs had "standing to sue the trustees in the event that the
trust property is used or disposed of in a manner contrary to the stated purposes
of the [church] trust."
Id. at 239 (emphasis added).
That decision is thus in
keeping with Bible Way Church's insistence that, failing principles "universally
. . . applicable to every organized church," Bible Way Church, 680 A.2d at 428,
the church itself must have "adopted clear, objective accounting and reporting
standards," id., before a court may entertain a dispute over its financial
management.
The plaintiffs here have not met that test.5
In support of their related demand for an audit of the Church finances by
an outside accounting firm the plaintiffs cite Section 4 of the By-Laws' General
Church Regulations, which states that "[t]he Auditing Committee, named by the
5
We observe as well that the plaintiffs make no claim that the asserted
failure to account to the membership amounted to fraud or collusion. See Bible
Way Church, 680 A.2d at 427 (noting cases raising possibility of a fraud or
collusion exception to church immunity from civil suit).
11
Church, shall audit the books of the Church once a year."
That language self-
evidently provides no basis for compelling an audit by an outside accountant;
nor, indeed, does it say anything about the form that an in-house audit would
have to take; and it confers no right on the members to learn the names of past
Auditing Committee members.
The plaintiffs' remaining contention is that the defendants may be held
accountable by a court under the neutral principles of the District of Columbia
Nonprofit Corporation Act (DCNCA), D.C. Code § 29-501 et seq. (1996).
That claim
fails because the plaintiffs pled no facts demonstrating that the Church either
was "organized" under the DCNCA6 or has since "elect[ed] to accept the provisions
of" that act.
D.C. Code § 29-503 (a).
See Bible Way Church, 680 A.2d at 430
("[W]hen the First Amendment casts a shadow over the court's subject matter
jurisdiction, the plaintiff is obliged to plead unqualified jurisdictional facts
that clearly take the case outside the constitutional bar.").
We thus have no
occasion to consider what we recently termed "the difficult substantive question
whether
a
church
which
has
elected
to
incorporate
under
the
DCNCA
may
successfully assert a First Amendment defense against a well-pleaded complaint
alleging" conduct in violation of that statute.
West v. Morris, 711 A.2d 1269,
1273 n.6 (D.C. 1998).
Accordingly, the order of the Superior Court denying the motion to dismiss
is reversed, and the case is remanded with directions to dismiss the complaint.
6
In fact it was incorporated in 1956 under the Religious Societies
statute, six years before the DCNCA was enacted.
12
So ordered.
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