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KELSEY v. RAY

November 12, 1998

MICHAEL
V.
KELSEY, SR., ET AL., APPELLANTS, V. JOHN RAY, ET AL., APPELLEES.



APPEAL FROM THE SUPERIOR COURT, DISTRICT OF COLUMBIA, SHELLIE F. BOWERS, J. [719 A2d Page 1249]

Before Terry and Farrell, Associate Judges, and Belson, Senior Judge.

The opinion of the court was delivered by: 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 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, *fn1 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." Id. at 428, 430. 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. *fn2 [719 A2d Page 1250]

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:

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] 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 [719 A2d Page 1251]

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." Bible Way Church, 680 A.2d at 427. In this appeal, the plaintiffs defend the trial court's 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 ...


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