SCV: Church merger raised issues of contract, not religion

A circuit court had jurisdiction to decide a merger dispute between two churches. Resolution centered on the parties’ merger agreement, not their religious doctrines or other ecclesiastical questions.

Background

After falling behind on its mortgage payments, Pure Presbyterian Church of Washington filed for bankruptcy in November 2015. The Grace of God Presbyterian Church initiated discussions with Pure to buy Pure’s property or merge with Pure. The respective congregations put the merger issue to a vote, and both voted for merger. National denomination leaders met to ensure the two churches were doctrinally compatible. They concluded the merger could take place.

The congregations began joint worship services at what had been Pure’s property on March 20, 2016. To assume responsibility for the debt on Pure’s property, Grace sold its Falls Church property and took out a loan.

Grace’s leaders drafted a two-page Merger Agreement, dated April 4, 2016, to memorialize the merger. It specified which pastor would guide the congregation, which elders would continue serving, and that Grace would pay Pure’s outstanding debt. The church chose a new name and formed a “merger administration council” that met as needed.

In June 2016, Pure filed its proposed plan of reorganization with the bankruptcy court, and the court approved it in September 2016. The plan contemplated that Pure would either merge with another church within six months or sell its property.

In November 2016, leaders of the unified church received notice that Pure wished to withdraw from the “proposed” merger. At that point, Grace had sold its old building, and the two congregations had been worshiping together as one for almost seven months. The next month, the pastor and a deacon discovered that they were locked out of the church building. Meanwhile, Pure attempted to sell the property to a third party.

Grace sought and obtained a temporary injunction allowing it to worship at the new property. It also sought declaratory judgment as to whether the churches had agreed to merge and whether Grace complied with the agreement. Pure argued that the churches had agreed only to a trial period. A jury found that the parties had agreed to merge and that Grace had performed its obligations under the agreement.

Pure has appealed.

Jurisdiction over churches

The trial court had subject-matter jurisdiction to adjudicate a dispute over the existence of a contract to merge the two churches. Disputes within churches require judicial caution and respect for religious freedom, but courts are nevertheless permitted to resolve church property disputes subject to constitutional limitations.

Whether Grace is the successor church to Pure is not, as Pure argues, a fundamentally ecclesiastical dispute requiring interpretation of congregational voting and clergy authority. Rather, it is a property dispute raising neutral legal principles.

While a merger dispute could turn on questions of church doctrine, that is not the case here. Whether a church voted to merge is a question of fact that does not require a court to resolve an “ecclesiastical” question. Although the merger agreement spelled out who would continue to serve as pastor and which entity would survive, neither the parties nor the court relied on any theological or ecclesiastical principles to resolve the issue of whether the churches agreed to merge and whether Grace honored its commitment under the agreement.

Unlike in Serbian E. Orthodox Diocese v. Milivojevich, 426 U.S. 696 (1976), where a court was second-guessing a church’s compliance with its own internal procedures, the circuit court here inquired whether there was an agreement to merge and, if so, whether it was honored. Thus, consistent with Milivojevich, the circuit court adjudicated a contractual dispute without resolving underlying controversies over religious doctrine. If courts categorically lacked jurisdiction to adjudicate disputes that affect church governance in any way, churches – which enter contracts for a wide variety of purposes – would be singularly disfavored as compared to all other litigants in enforcing those agreements.

Declaratory-judgment jurisdiction

The circuit court also had subject-matter jurisdiction to entertain a suit for declaratory judgment. Courts have authority to issue declaratory judgments and to grant other forms of relief, including injunctions, specific performance, and monetary damages. Although it may grant a specific form of relief in error, that does not mean that the court lacked subject-matter jurisdiction to award the relief.

Should a trial court err in hearing an action for declaratory judgment, the proper remedy is to raise the point in the trial court and, if necessary, seek relief on appeal. Finding otherwise would expose every final declaratory judgment to the possibility of creative challenges sometimes years after the judgment had become final, based on claimed jurisdictional defects.

The trial court here had subject-matter jurisdiction either to adjudicate a breach-of-contract claim or to issue a declaratory judgment on the merger contract (even in error).

Effect of bankruptcy

The pending bankruptcy didn’t foreclose the trial court’s adjudication of the merger contract.

Pure argues that, at the time of filing, the bankruptcy court implicitly retained in rem jurisdiction over the property for all purposes other than effecting a merger or sale, and it also retained jurisdiction over the indebtedness. But under Pure’s reorganization plan, which the bankruptcy court approved on September 21, 2016, the bankruptcy court retained jurisdiction only for an enumerated list of purposes not relating to the church property or merger agreement. Thus, nothing foreclosed the circuit court from exercising post-confirmation jurisdiction to determine whether a merger had occurred.

Affirmed.

Pure Presbyterian Church of Wa. v. The Grace of God Presbyterian Church, Record No. 171098, Aug. 16, 2018. SCV (McCullough), from Fairfax (Gardiner). VLW No. 018-6-061, 15 pp.