Opinion ID: 3165518
Heading Depth: 3
Heading Rank: 2

Heading: Premature Decision on Application of Doctrine

Text: As already described, plaintiffs’ complaint in this case is based upon four distinct causes of action based upon four familiar fields of law. In its allegation of the establishment of a trust and its breach, plaintiffs invoke an ancient and welldeveloped legal area with deep roots in Anglo-American law. On the count of corporate duties and irregularities, the plaintiffs implicate another much-litigated area. In its count on breach of contract and quasi-contract, plaintiffs raise issues 30 encountered by first-year law students. Finally, in its count on principal and agent, plaintiffs rely upon doctrines basic to our legal system. Thus, on its face, it would appear that this dispute is susceptible to resolution by “neutral principles of law” not requiring any forbidden inquiry into matters barred by the First Amendment. In our view, in the present posture of this particular case, a contrary conclusion should be based on a fuller exposition of the facts underlying each cause of action and not be decided on the pleadings prior to discovery and further evidentiary presentation by plaintiffs. To be sure, a court must “look not at the label placed on the action but at the actual issues the court has been asked to decide.” Samuel, supra, 116 A.3d at 1259 (citations omitted). And we are not unmindful of the principle that in a First Amendment case, a plaintiff must present facts that take the case outside the constitutional constraint and bears the ultimate burden to establish jurisdiction.22 As indicated in this opinion, however, we are satisfied that the plaintiffs’ pleadings are sufficient to survive dismissal on these grounds at this point in the precise circumstances here. This is not a suit directly against a church, synagogue, or 22 In this regard, we note, as we did in Samuels, that “The Supreme Court in Hosanna-Tabor [Evangelical Lutheran Church & Sch. V. EEOC] held that a defense rooted in the religious clause of the First Amendment was an affirmative defense, rather than a jurisdictional bar.” 116 A.3d at 1261 n.16 (citing HosannaTabor, 132 S. Ct. at 710 n.4). No party has raised this issue before us. 31 mosque or their immediate leadership. On the contrary, the defendant entity at issue here is a taxable, albeit nonprofit, corporation. Nor does it appear that the individual defendants have a direct religious role within the church as such, but rather are basically operating in a secular capacity. Any claim for early immunity from suit is far less compelling than may be the case in more typical disputes evoking First Amendment considerations. And, as we show, the actual issues determinative of the outcome of this case may well be resolvable without infringement into areas precluded from court consideration by the First Amendment.
In its order of dismissal, the trial court appeared to be particularly concerned with one aspect of this case. In its view, based on “[t]he available corporate documents in this case,” the trial court could not adjudicate any of the claims under neutral principles of law. We agree with plaintiffs’ argument that this pure documentary approach to deciding the abstention issue may have erroneously permeated the entire analysis. 32 The trial court read several decisions of this court23 to stand for the proposition that when a civil court is able to resolve a dispute implicating questions of church doctrine or polity, “it was able to do so because the corporate documents clearly established that [the legal theories at issue] were firmly established as distinct and separate from matters of church doctrine or polity.” Based on that reading, the trial court concluded that “[t]he available corporate documents in this case . . . are insufficient to permit the court to exercise neutral principles of law which could provide a sole basis for the resolution of this dispute.” It repeated this conclusion when it specifically found that the claims of breach of trust and breach of fiduciary duty could not be adjudicated because “there are no neutral principles of law apparent from the documents which have been presented to the Court” that would enable it to do so without “implicating the Unification movement’s polity.” We do not take issue with the trial court’s attachment of importance to UCI’s governing documents. But it does not follow that the application of neutral principles of law must depend on documentary evidence alone. This court has interpreted Jones v. Wolf, supra, and Maryland & Virginia Eldership of the 23 E.g., Prioleau, supra, 49 A.3d at 817; United Methodist Church, Balt. Annual Conference v. White, 571 A.2d 790, 793 (D.C. 1990); Save Immaculata/Dunblane, Inc., supra, 514 A.2d at 1153-57. 33 Churches of God24 to permit civil courts to “look to familiar corporate and trust principles of law for relief,” so long as courts do “not decide[] questions of church doctrine, polity, or administration.” Save Immaculata/Dunblane, Inc., supra, 514 A.2d at 1156-57. Jones itself permitted civil courts to adjudicate a property dispute under neutral principles of law, provided that the intent of the parties was “in some legally cognizable form.” 443 U.S. at 606. Legal rules underlying proof in trust, corporate, contract, and agency disputes are replete with circumstances under which non-documentary evidence may be relevant and permitted. See Bishop & Diocese of Colo. v. Mote, 716 P.2d 85, 100 (Colo. 1986) (discussing Jones, supra, 443 U.S. at 610-21) (noting that the Constitution does not mandate such a “narrow inquiry”). Neutral principles of law analysis may include “other principles from the common and statutory law of property, contracts, corporations or voluntary associations . . . .” Id. at 100-01; accord Hope Presbyterian Church of Rogue River v. Presbyterian Church (U.S.A.), 291 P.3d 711, 722-23 (Or. 2012) (noting that under the neutral principles approach, a civil court would be permitted to determine whether a trust existed under the Uniform Trust Code, which does not require documentary evidence to create a trust). Such an approach permits the parties to marshal as much evidence in support of their claim as possible, and 24 Maryland & Virginia Eldership of the Churches of God v. Church of God at Sharpsburg, Inc., 396 U.S. 367 (1970). 34 permits the trial court to make a reasoned, thoughtful determination on the issue of subject matter jurisdiction based on a more robust record, and helps to ensure that the doors to the civil courthouse are not closed prematurely.
On the breach of trust and corporate misconduct counts, the trial court was understandably concerned about its ability to locate the alleged authority of Reverend Moon to name the directors and how such exercise of authority was consistent with director fiduciary duty to UCI. Such concern, however, seems to postulate the binding authority of the corporate documents. Proof of the existence and terms of the alleged trust and of the circumstances surrounding the creation and operations of the corporation could impose an overriding fiduciary duty not necessarily inconsistent with the corporate documents. In certain circumstances, a long-standing pattern or practice of corporate behavior may give rise to a by-law. See, e.g., National Confederation of Am. Ethnic Grps. v. Genys, 457 A.2d 395, 399 (D.C. 1983) (noting that the “long and continuous usage of proxy voting has the force and effect of a by[-]law” (internal quotations omitted)) and citing, inter alia, Walker v. Johnson, 17 App. D.C. 144 35 (D.C. Cir. 1900); see also Lewis v. Don King Prods., Inc., 94 F. Supp. 2d 430, 444 (S.D.N.Y. 2000); Lamm v. Board of Comm’rs for Vermilion Hosp. Serv. Dist. No 1, 378 So. 2d 919, 922 (La. 1979); Dousman v. Kobus, No. 19258-NC, 2002 WL 1335621, at , 15 (Del. Ch. June 6, 2002) (quoting and citing In re Osteopathic Hosp. Ass’n of Del., 195 A.2d 759, 762 (Del. 1963)). The trial court dismissed plaintiffs’ argument, concluding that such an implied by-law relating to appointment of directors could not exist, because it would breach the directors’ fiduciary duty to act in the best interest of the corporation. We believe that the trial court’s conclusion was premature. It is of course a “basic principle” of corporate law “that directors are subject to the fundamental fiduciary duties of loyalty and disinterestedness.” Andarko Petroleum Corp. v. Panhandle E. Corp., 545 A.2d 1171, 1174 (Del. 1988). But the ultimate question here may be, under all the circumstances, where exactly that fiduciary duty lay. For example “in a parent and wholly-owned subsidiary context, the directors of the subsidiary are obligated only to manage the affairs of the subsidiary in the best interests of the parent and its shareholders.” Id. Here, plaintiffs have alleged in effect that although UCI was established as a nonprofit corporation, it was and is in fact a subsidiary entity, both to Reverend Moon’s oral trust in 1977, and to Family Federation. The original Articles acknowledge Reverend Moon to be the leader of 36 the Unification Church movement. For three decades, plaintiffs assert, Reverend Moon and his church entities guided the corporation in its activities and named every member to the Board of Directors. Moreover, and importantly, as already noted, these practices were not necessarily inconsistent with the corporate documents and might be viewed as supplemental thereto. It is in this context, if fully fleshed out and proven, that the precise fiduciary duties can be adjudged. Moreover, plaintiffs here in a separate count have alleged that a concrete principal-agent relationship existed between Family Federation and Preston Moon with respect to the operation of UCI. The trial court was concerned about this count as obligating it to impermissibly inquire into the governing hierarchy of the Church. But we fail to see why this necessarily must prove to be the case. The relationship between Preston Moon and Family Federation does not necessarily turn on facts involving religious doctrine and practices or the internal policies of the Unification Church. Plaintiffs assert that the “right to control and direct” Preston Moon can be established “through documents[,] [] testimony,” and the actual course of dealings between the parties, and not through application of “the Divine Principle or through any interpretation of Unification Church doctrine.” Neutral principles of law can govern the establishment of an agency relationship, and it may be that an examination of the structure and long-standing practices of 37 the Church will provide an answer to the actual existence of such a relationship. See Heard, supra, 810 A.2d at 880 (applying neutral principles of law to employment disputes); EEOC v. Miss. Coll., 626 F.2d 477 (5th Cir. 1980). At this stage, we believe that it is premature to preclude plaintiffs from proffering evidence in support of their claim that would permit an adjudication of this claim without impermissible intrusion into “religious doctrine and practice.” Apart from the appointment of directors, the trial court expressed concern about its ability to determine whether, in their actions reorganizing the corporation and changing its expenditure recipients, the defendants had deviated from the original purpose of the corporation or had acted ultra vires. In particular, it failed to see how it could determine whether those actions were or were not in accord with the “Divine Principle” expressed in the Articles of Incorporation. This is also an understandable concern but one, we think, that does not absolutely preclude consideration of plaintiffs’ claims at this point. Determining who the intended beneficiaries of a trust were and whether corporate assets were used in accordance with corporate laws are normally governed by neutral principles of law. See Hooker, supra, 579 A.2d at 612. While it may be difficult at times to draw clear lines, a deviation by a charitable corporation from its original 38 purpose may be so great as to preclude any argument that correction was not called for. It can be a breach of duty to “change substantially the objects and purposes of the corporation.” 7A Fletcher Cyclopedia of the Law of Corps. § 3718 (2006); see Queen of Angels Hosp. v. Younger, 136 Cal. Rptr. 36, 41 (Cal. Ct. App. 1977) (“The question is whether [the corporation] can cease to perform the primary purposes for which it was organized. That, we believe, it cannot do.”); Hollinger Int’l, Inc. v. Black, 844 A.2d 1022 (Del. Ch. 2004), aff’d, 872 A.2d 559 (Del. 2005) (distinguishing legal powers of directors from equitable duty); Matter of Manhattan Eye, Ear & Throat Hosp. v. Spitzer, 715 N.Y.S. 2d 575, 595 (N.Y. Sup. Ct. 1999) (breach of fiduciary duty to depart “from the charity’s central and wellunderstood mission”). From plaintiffs’ allegations, it appears that a profound alteration in the corporation, perhaps recognized by the directors themselves in changing the name and amending the article of incorporation, occurred under Preston Moon. An organization plainly established to promote the preservation of African wildlife and acquiring vast funds on that basis might well be barred from switching its purpose to expenditures on domestic cats and dogs regardless of how technically 39 such a switch might be read into the text of its articles of incorporation. On the present record, we cannot say with confidence that a somewhat analogous transformation cannot be shown to have occurred here. And, in any event, the allegation that corporate funds were used here to benefit one of the directors personally would appear readily subject to court review. 25 To be sure, the trial court should not be called on to make a lengthy and painstaking interpretation of UCI’s “Divine Principle,” as “the court must be cautious not to entangle itself in the decision-making process of the Church with regard to its religious obligations.” Costello Publ’g Co. v. Rotelle, 670 F.2d 1035, 1050 n.31 (D.C. Cir. 1981). However, these concerns “should not block the court, from at least considering,” id., “the circumstances of the alleged activity to determine whether a religious concern existed and whether a nonintrusive remedy could be fashioned.” Minker v. Baltimore Annual Conference of United Methodist Church, 894 F.2d 1354, 1360 (D.C. Cir. 1990) (discussing Costello Publ’g Co., supra, 670 F.2d at 1050 n.31). At least some factual inquiry by the trial court into 25 The same considerations apply to the Japanese Church’s claims of contract and quasi-contractual breaches, which are based upon the same assertion of misuse of funds donated by it, and it may be that the contract terms limited the permissible use of corporate funds more sharply than the articles themselves. “A church is always free to burden its activities voluntarily through contracts, and such contracts are fully enforceable in civil court.” Minker, supra, 894 F.2d at 1359 (citing Watson, supra, 80 U.S. at 714). 40 the nature of UCI’s use of assets by the trial court would not appear to violate the First Amendment. In sum, we agree with plaintiffs that the record at this early stage of a difficult and complicated dispute with many ramifications does not support a conclusion that the trial court must engage in inquiry banned by the First Amendment in order to resolve any of plaintiffs’ claims. See Prioleau, supra, 49 A.3d at 817 (concluding that at the motion to dismiss stage, “the record as developed” did not suggest that resolving plaintiff’s contract claim would “require the court to entangle itself in church doctrine”). Were we to hold that, based on the current record, the First Amendment precludes our civil courts from adjudicating plaintiffs’ claims, then it would approach granting immunity to “every nonprofit corporation with a religious purpose from breach of fiduciary suits . . . and prevent any scrutiny of questionable transactions.” Askew v. Trustees of the Gen. Assembly of the Church of the Lord Jesus Christ of the Apostolic Faith, Inc., 644 F. Supp. 2d 584, 597 (E.D. Pa. 2009).26 26 We take special note, however, as we did in Prioleau, that “going forward, if it becomes apparent to the trial court that this dispute does in fact turn on matters of doctrinal interpretation or church governance, the trial court may grant summary judgment to avoid excessive entanglement with religion.” 49 A.2d at 818 (internal quotation and citation omitted). 41