Friday, March 29, 2013

Some of Church Officer's Liability To Synod Not Dischargeable In Bankruptcy

Southeastern Pennsylvania Synod of the Evangelical Lutheran Church in America v. Gotwald, (Bkrptcy. ED PA, March 26, 2013), is an opinion in an adversary proceeding filed by the Lutheran Synod attempting to prevent a bankruptcy court from discharging a congregational officer's asserted liability to the Synod growing out of actions surrounding the split off of a Philadelphia congregation from the Synod. After being placed in involuntary synodical administration, Philadelphia's Evangelical Lutheran Church of the Redeemer incorporated a new church entity, transferred church property to it, and then took out a $275,000 loan on the transferred property. Judith Gotwald was an officer of Redeemer and was one of two individuals who controlled the bank account in which the proceeds of the $275,000 loan were deposited.

Redeemer and the Synod both filed suit in state court in Pennsylvania. The Synod succeeded in obtaining an injunction ordering Gotwald to deliver to the Synod Trustees all keys to the Redeemer buildings, and all of Redeemer’s books, records and financial assets. Gotwald only delivered church records and did not deliver control of the bank account.

Meanwhile Gotwald filed a Chapter 13 bankruptcy petition. In this decision, the bankruptcy court concluded that any debt Gotwald may owe arising out of her participation in the mortgage loan on Redeemer property is dischargeable in bankruptcy. However, because Gotwald knowingly failed to comply with the state court injunction (and did not established a defense based on the advice of counsel), damages from her actions in concealing the bank account and dissipating the loan proceeds are not dischargeable.  Liability for those actions constitute a debt to the Synod for "willful and malicious injury" that is nondischargeable under 11 U.S.C. §523(a)(6).

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