In re All Saints Episcopal Church
| Decision Date | 29 December 2021 |
| Docket Number | Case No. 21-42461-ELM |
| Citation | 638 B.R. 359 |
| Parties | IN RE: ALL SAINTS EPISCOPAL CHURCH, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
John D. Gaither, Patrick J. Neligan, Jr., Neligan LLP, Dallas, TX, for Debtor.
This bankruptcy case is but the latest chapter in a protracted property battle emanating out of the 2008 schism between the Protestant Episcopal Church in the United States of America (the "Episcopal Church ") and the then-majority of the voting leadership of the Episcopal Diocese of Fort Worth (the "Fort Worth Diocese ") who, having doctrinal differences with the Episcopal Church, elected to cause the Fort Worth Diocese to terminate its affiliation with the Episcopal Church and thereafter affiliate instead with the Anglican Church in North America (the "ACNA "). Naturally, the schism at the diocesan level also led to a splintering of leadership and membership at local parishes, including the parish of All Saints' Episcopal Church of Fort Worth ("Episcopalian All Saints "), one of the long-standing Episcopalian parishes in the Fort Worth area. In Episcopalian All Saints' case, a majority of the parish's leaders and members elected to cause the parish to reject the breakaway movement and remain in union with the Episcopal Church while a minority of the parish's leaders and members elected to follow the breakaway group by terminating their membership with Episcopalian All Saints and then reestablishing as a new unincorporated association in union with the Fort Worth Diocese that they also named All Saints' Episcopal Church (referred to herein as "ACNA All Saints ").
As a result of the split, a dispute arose between the Episcopal Church and certain local parishes loyal to the Episcopal Church, including Episcopalian All Saints, on the one hand, and the Fort Worth Diocese and certain local parishes loyal to its breakaway leadership, including ACNA All Saints, on the other hand, with respect to, among other things, control of the Corporation of the Episcopal Diocese of Fort Worth (the "Diocesan Corporation ") and the beneficial ownership of certain property held in trust by the Diocesan Corporation for the benefit of local parishes (the "Diocesan Trust Property "). Ultimately, in a judgment of the 141st District Court of Tarrant County, Texas (the "State Court ") that was later upheld by the Texas Supreme Court in 2020 (the "State Court Judgment "), the Fort Worth Diocese and local parishes that followed the breakaway leadership of the Fort Worth Diocese were successful in establishing that, under neutral principles of law, the Fort Worth Diocese and the Diocesan Corporation validly separated from the Episcopal Church and that in accordance with governing trust provisions of the Diocesan Corporation's organizational documents, the Diocesan Trust Property was held in trust by the Diocesan Corporation for the benefit of only those parishes in union with the Fort Worth Diocese, including ACNA All Saints. Once the United States Supreme Court declined to review the Texas Supreme Court's decision, the Fort Worth Diocese, the Diocesan Corporation, and parties aligned with them pursued enforcement of the State Court Judgment, successfully obtaining, among other things, possession of the church building that Episcopalian All Saints had used for years.
The outcome of the diocesan-level litigation coupled with the parish-level split that occurred within Episcopalian All Saints has now led to a new dispute with respect to the control of a separate Texas non-profit corporation also named All Saints Episcopal Church (hereafter, the "Debtor "), the chapter 11 debtor in this case. In this regard, in early October 2021, the Diocesan Corporation sent a letter to Frost Bank, the Debtor's bank, to claim control of the Debtor's Frost Bank accounts pursuant to the State Court Judgment and a post-judgment enforcement order of the State Court. In reaction to the demand, Frost Bank froze all of the Debtor's accounts. Unable to access the accounts and facing the prospect of having certain Episcopalian All Saints donor funds seized, the putative board of directors of the Debtor authorized the Debtor to pursue chapter 11 bankruptcy relief and on October 20, 2021, the Debtor initiated this case with the filing of its voluntary petition for such relief.
On November 4, 2021, the Diocesan Corporation and ACNA All Saints (together, the "Movants ") filed a joint Motion to Dismiss [Docket No. 46] (the "Motion "), arguing that the bankruptcy case must be dismissed because it was never authorized by the "legitimate" members of the Debtor's board of directors – being those individuals purportedly elected by the members of ACNA All Saints, the All Saints' Episcopal Church association that the State Court allegedly determined to be the one and only legally-recognized All Saints' Episcopal Church association. In opposition to the Motion, the Debtor – under the control of the board elected by members of Episcopalian All Saints – has filed the Debtor's Response to Motion to Dismiss [Docket No. 76] (the "Response "), asserting that its board was duly and legally elected in accordance with the governing organizational documents of the Debtor and that the filing was duly authorized by such board, to which the Movants have filed their Reply to Debtor's Response to Motion to Dismiss [Docket No. 79] (the "Reply ").
On November 30, 2021, the Court conducted an evidentiary hearing on the Motion. Having considered the Motion, the Response, the Reply, the evidence presented, and the representations and arguments of counsel, on December 15, 2021, the Court entered an Order Denying Motion to Dismiss [Docket No. 97] (the "Dismissal Denial Order "). The Court now issues this Memorandum Opinion to detail the reasons for the Dismissal Denial Order.
The Court has jurisdiction of the proceeding involving the Motion pursuant to 28 U.S.C. §§ 1334 and 157 and Miscellaneous Order No. 33: Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc (N.D. Tex. Aug. 3, 1984). Venue of the proceeding in the Northern District of Texas is proper under 28 U.S.C. § 1409. The proceeding is core in nature within the meaning of 28 U.S.C. § 157(b)(2)(A).
The Episcopal Church in the United States, founded in 1789, is a three-tiered religious organization. The highest tier of the organization is the General Convention, which consists of most of the bishops of the Episcopal Church and representatives from each Episcopal regional diocese. The General Convention, which is akin to the legislative body of the Episcopal Church, has the authority to, among other things, adopt and periodically amend the Episcopal Church's governing constitution and canons. The second tier of the organization is comprised of geographically defined regional dioceses. Each diocese elects a bishop to oversee the diocese, who must pledge to perform in conformity with the Episcopal Church's ecclesiastical regulations, and each diocese is governed by its own diocesan convention, which is comprised of the diocesan bishop and clergy and certain designated lay representatives from each of the local parishes, missions and congregations in union with the diocese and Episcopal Church. Similar to the General Convention, a diocesan convention has the authority to, among other things, adopt and periodically amend its own constitution and canons, but each diocesan constitution and set of canons must accede to the General Convention's constitution and canons. Finally, the third tier of the Episcopal Church is comprised of local parishes, missions and congregations in union with the particular regional diocese and the Episcopal Church, each of which must conform their operations to both the constitution and canons of the applicable regional diocese and the constitution and canons of the General Convention.1
Episcopalian All Saints has existed since the late 1940s. When first organized, it was affiliated with the Episcopal Diocese of Dallas (the "Dallas Diocese "). In early 1953, the members of Episcopalian All Saints determined to organize a non-profit corporation to facilitate its operations. Accordingly, on March 30, 1953, the Debtor was incorporated as a Texas non-profit religious corporation.2 Pursuant to the Debtor's Articles of Incorporation ("Articles "):
The purpose for which the corporation is formed is religious; that is to say, to associate ourselves together for the purpose of maintaining the worship of God and the preaching of the Gospel according to the doctrine, discipline and worship of the Protestant Episcopal Church in the United States of America in conformity with the Constitution and Canons of its General Convention and of the Diocese of Dallas, and to have all the powers and privileges and to be subject to all the restrictions contained in [the then-applicable Texas statutory provisions governing non-profit religious corporations3 ].
Articles (art. II).
In 1982, the Dallas Diocese voted to divide into a Dallas diocese and Fort Worth diocese. Thus, in conformity with the constitution and canons of the Episcopal Church, the Fort Worth Diocese was organized as an unincorporated association.4 At the initial November 1982 convention of the Fort Worth Diocese, the convention adopted a constitution (the "Diocesan Constitution ") and canons (the "Diocesan Canons "), both effective January 1, 1983, which, among other things, acceded to the authority of the constitution and canons of the General Convention of the Episcopal Church.5 In December 1982, the General Convention of the Episcopal Church admitted the Fort Worth Diocese into union with the Episcopal Church.6 As a result of the establishment of the Fort Worth Diocese, Episcopalian All Saints became a parish of the Fort...
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