Saturday, October 22, 2016

Judgment For Return of Pastor's Salary Is Not Dischargeable in Bankruptcy

In In re Andrews, 2016 Bankr. LEXIS 3786 (SD MI Bankr., Oct 20, 2016), a Mississippi federal bankruptcy judge held that amounts the former pastor of a break-away church owed to the parent body of the denomination are not dischargeable in a Chapter 13 bankruptcy proceeding.  Robert Andrews was the long-time pastor of Cross Point Church, a church under the ecclesiastical jurisdiction of the Mississippi Conference of the Methodist Protestant Church.  While pastors are paid by local congregations, they are appointed and removed by the parent Conference. Andrews and the Board  of Cross Point Church voted to break away from its parent Conference. The district president of the Conference in response removed Andrews as Cross Point's pastor. The Board of Cross Point nevertheless entered a one-year employment contract with Andrews, including a provision that if the Conference removed Andrews, the pastor would be entitled to his full year's salary.

When the Conference then voted to reject Cross Point's attempted withdrawal, Cross Point's treasurer gave Andrews a check for his remaining yearly salary of $69,505. Andrews and his backers on the Board also locked the church building, took the keys and church records with them and formed a new congregation. In a suit by the remaining members of Cross Point, a state court issued a preliminary injunction requiring Andrews and his backers to return the keys and records. In a subsequent jury trial, the state court awarded Cross Point a judgment of $69,505 against Andrews, finding that Andrews had converted funds belonging to the Church. When Cross Point attempted to garnish Andrew's checking account to recover the funds, Andrews filed for Chapter 13 bankruptcy protection.

Cross Point claimed that the debt owed to it is not dischargeable.  The bankruptcy court agreed.  It first held that the ecclesiastical abstention doctrine precludes it from revisiting the question of Andrews' removal as pastor of Cross Point. It held that under Sec. 523(a)(4) of the Bankruptcy Code, the debt is not dischargeable because it involved "defalcation while acting in a fiduciary capacity" and "embezzlement."  The court said in part:
Andrews admitted at Trial that as pastor, officer, and Board member, he owed a fiduciary duty to Cross Point Church to safeguard its funds.