In Re Church of St. James the Less

DISSENTING OPINION BY

President Judge COLINS.

I respectfully dissent to the majority’s decision to strip the Church of St. James the Less of its property and to award it to the Diocese.

The Church of St. James the Less (St. James) was founded in 1846 by laymen living in the East Falls/Allegheny West area of Philadelphia. St. James remains on the property where it was founded. Improvements consist of a church building, a sexton’s house, a rectory, a parish hall and day school, a bell tower and a burial ground. The real and personal property of St. James has been acquired through donations by parishioners and by purchases made with funds donated by parishioners. The deeds for the real property of St. James indicate that St. James is and has always been the fee simple owner of its real property.

The Diocese is one of over 100 dioceses of the Episcopal Church in the United States (ECUS). The ECUS and the Diocese are governed by separate, consistent constitutions and canons. There is a hierarchical structure to the Episcopal Church by which parishes are affiliated with a diocese and the diocese with the ECUS, but no central body or prelate is able to exercise authority over Diocesan affairs. Individual parishes within the ECUS possess broad powers to conduct their own affairs.1 In recent years, issues such as the ordination of women and the open acceptance of homosexuality within the priesthood have caused a widening breach between the Diocese and traditional parishes such as St. James. The traditional parishes consider the Bible to be revealed *328truth; more liberal parishes and the Diocese view it as a guide to a personal religious interpretation. This breach between the Diocese and St. James resulted in the separation of St. James from the Diocese in April 1999. The separation was effected by the merger of the original corporation of St. James into a new non-profit corporation established for that purpose. The merger took effect after an almost unanimous vote of the membership on April 25, 1999. The merger merely separated St. James from the diocese and the ECUS; it did not affect the day-to-day operation of St. James. In May, 1999, subsequent to the merger, the Bishop and the Standing Committee of the Diocese, ostensibly acting pursuant to Diocesan Canon 13.4,2 declared the Diocese to be the trustee of the real and personal property of St. James and sought a ruling to that effect from the Orphan’s Court. The Orphan’s Court agreed, and St. James filed this appeal.

The questions we are asked to address are: 1) whether St. James holds unimpaired title to its real property free of any trust interest in favor of the Diocese; 2) whether the First Amendment to the U.S. Constitution and Article 1, Section 3 of the Pennsylvania Constitution preclude an interpretation of 10 P.S. § 81 (Act of 1935) that gives title and control of the real property of St. James to the Diocese; 3) whether the merger of St. James with the CSJL Foundation (the Foundation) was a valid and proper corporate action; and 4) whether the members of the Vestry of St. James breached their fiduciary duty to St. James by approving a merger of St. James with CSLJ and submitting that merger to a vote of the parishioners of St. James.

The trial court found that an express trust existed because the ECUS placed explicit trust language in its Constitution and Canons at Canon 17.43 (“the Dennis Canon”) pursuant to the U.S. Supreme Court opinion in Jones v. Wolf, 443 U.S. 595, 99 S.Ct. 3020, 61 L.Ed.2d 775 (1979). In reaching this conclusion, the majority misconstrues Jones v. Wolf because the case simply does not and cannot support such a conclusion. Here is what the majority said,

In Jones v. Wolf the Supreme Court held that a national church may enact canons at any time before property disputes erupt to ensure that factions loyal to the hierarchical church will retain the church property. Once a national church enacts such a provision the civil courts will be bound to give it effect. (Emphasis added.)

Majority opinion at 324.

Jones v. Wolf however, does not say that “a national church may enact canons ....” It suggests that a national church and its individual parishes should jointly *329agree that, in the event of a schism within a parish the faction loyal to the national church will retain control of the church property. The facts of Jones v. Wolf are starkly distinct from this case, and the majority’s reliance on its misreading of Jones has lead it to a conclusion that is not only unsupported by the language of Jones but that is in clear conflict with our own well-settled law of trusts. Jones dealt with a schism within a parish, not a conflict between a parish and a denomination. In the instant matter, the national church had no property to “retain.” One faction in Jones wanted to disaffiliate with the denomination, one wanted to remain with it and both claimed the real and personal property of the parish. The holding in Jones established the principle that the First Amendment does not require a state to compulsorily defer to religious authority in resolving church property disputes, but that civil courts were to resolve property disputes within religious denominations by the application of neutral principles of law.

The Dennis Canon arose from dicta in Jones in which the court suggested that denominations which wished to avoid the type of dispute addressed there should adopt language in the constitution of the denomination agreeable to both parties, the denomination and the local parish, by which the denomination would retain control over the property in trust for the loyal faction. One thing that Jones did not do was to sanction, or even suggest that a denomination could impose a trust on parish property by the unilateral amendment of its governing documents. Thus, the majority relies on dicta in Jones to strip St. James of land that it has held solely in its name for generations while ignoring that the holding in Jones established the principle that the First Amendment does not require a state to compulsorily defer to religious authority in resolving church property disputes, but that civil courts were free to resolve property disputes within religious denominations by the application of neutral principles of law. If we follow Jones, as we must, and apply “neutral principles” of law, we reach the inescapable conclusion that St James remains the owner of its property. Jones was decided July 2,1979; the Dennis Canon was adopted by the ECUS at its General Convention on September 12,1979. Ap-pellees tell us, “There is no evidence that the proposed [Dennis] canon was circulated to local parishes prior to its adoption, nor that anyone from St. James was present when it was adopted. (R. 197a, 230-31a).” Reply Brief of St. James at 3, fn. 1. There is no schism within St. James; there is no faction loyal to the Diocese. The entire parish disaffiliated from the Diocese in 1999, just as freely as it had affiliated with it in 1846.

The majority’s misreading of Jones also leads it to turn our law of trusts on its head when it concludes that a beneficiary can, as the Dennis Canon purports, unilaterally create a trust. There is simply no mechanism by which a beneficiary can create a trust in Pennsylvania without the explicit consent and cooperation of the set-tlor. A trust may be created only by clear and unambiguous language on the part of the settlor (St. James) and not on the part of the beneficiary (the Diocese). Here is what our Supreme Court said in the controlling case on this issue, Presbytery of Beaver-Butler of the United Presbyterian Church v. Middlesex Presbyterian Church, 507 Pa. 255, 489 A2d 1317 (1985), cert. denied, 474 U.S. 887, 106 S.Ct. 198, 88 L.Ed.2d 167 (1985).

In order for a court to find that a trust has been created there must exist in the record clear and unambiguous language or conduct evidencing the intent to create the trust. This Court has previously held:
*330No particular form of words or conduct is required to manifest the intention to create a trust. Such manifestation of intention may be written or spoken words or conduct indicating that settlor intended to create a trust. (Citations omitted.) Nevertheless, lack of formality does not obviate the necessity for the appearance of all the elements of a completed trust. Every trust symptom must be present, regardless of the informality surrounding the inception of the relationship, or none exists. A trust must be created by clear and unambiguous language or conduct, it cannot arise from loose statements admitting possible inferences consistent with other relationships. [Emphasis in original omitted].
Bair v. Snyder County State Bank, 314 Pa. 85, 89, 171 A. 274, 275 (1934).
In conducting this inquiry the primary focus must be on the intent of the settlor at the time of the creation of the alleged trust. See § 45 Bogert, Trusts and Trustees, p. 457 (2nd ed.1984); Restatement, Second, Trusts § 23. The putative settlor in this case was clearly Mid-dlesex. In support of this conclusion we note that the Middlesex church was not a creation or offshoot of the central denomination. Rather, the record establishes that the Middlesex church was created and incorporated on the local level by members of the parish; and that all property was retained in the corporate name of the local church.

507 Pa. at 268-69, 489 A.2d at 1324 (Emphasis added).

To paraphrase: “The putative settlor in this case was clearly [St. James]. In support of this conclusion we note that [St. James] was not a creation or offshoot of the central denomination. Rather, the record establishes that [St. James] was created and incorporated on the local level by members of the parish; and that all property was retained in the corporate name of the local church.”

The court in Beaver-Butler goes on to conclude,

The denomination here has cited no evidence that Middlesex ever intended to convey their property interests to them. To the contrary, throughout their entire affiliation Middlesex retained all property in their own corporate name. The Commonwealth Court’s reliance on selected passages from the Book of Order was misplaced in that the court ignored the overall intent of that book as a means of overseeing the spiritual development of member churches. In addition, these selected provisions, which at most evidence the putative trustee’s desired interpretation, are far from constituting the clear unequivocal evidence necessary to support a conclusion that a trust existed.

507 Pa. at 269-70, 489 A.2d at 1325.

Simply substitute Diocese for denomination and St. James for Middlesex and you have the conclusion that should be reached in this case.

The majority compounds the error of its misreading of Jones by concluding that St. James is bound by the Dennis Canon because it did not “opt-out” of the Canon by leaving the Diocese when the Canon was enacted. By law, the only way that St. James could have been bound by the Canon would have been if it had given its “clear and unambiguous” consent to being bound by it. No amount of silence on the part of St. James could have acted to create the trust that the majority would so easily impose.

Our Supreme Court overruled this Court in reaching its decision in Beaver-Butler. Our Supreme Court found that *331we erred when we found that the statute at issue here, 10 P.S. § 81, Act of 1935, created a trust in favor of the denomination (diocese). We said “The Act of 1935 provides that the control of local congregations over property is subject to the regulations of and requirements of the denomination of which it is a part... .[NJeutral principles include consideration of the applicable statutes and the applicable Pennsylvania statute requires that the [decision in favor of the denomination] be upheld.” 80 Pa.Cmwlth. 211, 471 A.2d 1271, 1279 (1984) (citations omitted). In reversing us, the Supreme Court did not specifically address the Act of 1935 but it did reject any reasoning based on it or that would lead to it. The neutral principles approach and the Act of 1935 are simply incompatible. If we apply “neutral principles” to this case we reach the conclusion that a trust does not and cannot exist and that St. James is the fee simple owner of its property. The Act of 1935 violates the neutral principles approach enunciated in Jones that was derived from the U.S. Supreme Court’s examination of the First Amendment as it applied to church property disputes. I would find that the Act of 1935 violates both the United States and the Pennsylvania Constitutions because it defers to ecclesiastical law over civil law in violation of the neutral principles approach enunciated in Jones.

The majority’s initial mistake of fact, that St. James was formed as part of the Diocese, when it actually joined the Diocese after it was incorporated, has led it to err in its conclusions regarding the actions taken by the vestry to disaffiliate St. James from the Diocese.

Here is what the majority said about the establishment and purpose of the Foundation

The Court agrees with the Orphans’ Court and the Diocese that the Foundation was established for a purpose completely different than that of the Church, namely, to take the property claimed by the Church out of the Diocese. Whether or not this founding [sic] was an act of bad faith, movement of church property from the Church to the Foundation would plainly constitute a change of purpose requiring the Orphans’ Court’s approval.

Majority opinion at 325.

The majority bases this conclusion on its reading of 15 Pa.C.S. § 5547(b) which provides,

Property committed to charitable purposes shall not, by any proceeding under Chapter 59 (relating to fundamental changes) or otherwise, be diverted from the objects to which it was donated, granted or devised unless and until the board of directors or other body obtains from the court an order under 20 Pa. C.S. Ch 61 (relating to estates) specifying the disposition of the property.

St. James, however, was not, as the majority concludes, required to seek Orphans’ Court approval before it disaffiliated from the Diocese because the purposes for which St. James was incorporated did not change when it affiliated with the Diocese and there is no evidence in the record that those purposes changed when it disaffiliated from the Diocese. In a footnote, the majority “rejects this position inasmuch as property given to the Church as a unit of the hierarchical National Church and subject to its control was not given to a wholly independent entity subject to no control.” (Majority opinion at 10, fn. 7) This is circular reasoning; it assumes the facts necessary to support the ultimate conclusion — that the Diocese controlled the property of St. James. This is not a fact in evidence-it is the heart of the dispute before this Court. The Diocese never controlled the property; it has always been *332held in fee simple by St. James. The only way that the majority can reach its conclusion above is to assume that the Diocese is correct. Establishing the Foundation did not change the purpose for which St. James was incorporated, it was merely a mechanism by which St. James was able to stay true to its original purpose.

Finally, the majority errs once again when it addresses the question of whether the Vestry breached its fiduciary duty to the parishioners. The majority concludes that the Vestry breached its duty solely because it decided to merge the original corporation into the Foundation rather than file a quiet title action. The majority makes this remarkable statement in its opinion, “The Diocese notes that the court made first-hand credibility determinations and found that the advice of the Church’s counsel was to file a quiet title action rather than to proceed with the merger. In acting against this advice the vestrymen acted in bad faith.” The majority cites no law to support this conclusion and I am unaware of any that could be cited. A client is free to accept or reject the advice of counsel and, even if a client rejects good advice in favor of bad, which has not been shown here, that, without more, is not an act of bad faith. A showing of bad faith must be based on some extrinsic evidence that demonstrates that the choice was made knowingly against the best interests of the corporation, something that both the trial court and the majority have failed to do in this case.

Having addressed my differences with the majority’s conclusions on corporate law, I am constrained to point out that it was not the business of the Diocese or the trial court to question St. James on its conduct of its corporate affairs. The parties with the standing to object to the merger are the parishioners of St. James, and the record reveals absolutely no objection or even the suggestion of an objection on the part of the parishioners or anyone affiliated with St. James. The same is true of questioning the members of the Vestry on their fiduciary duty. The parishioners have standing to question the Vestry on its duty to them, the Diocese does not, and there is no suggestion in the record the petitioners raised the question.

For all the above reasons, I must respectfully dissent from the well-argued opinion of the majority and would reverse the trial court in toto.

. This structure is in stark contrast to the Roman Catholic Church, which exercises a rigid hierarchical control over parish affairs that extends in a direct line up to the Pope.

. Entitled Providing for a Trustee for Corporations Unable to Function, this Canon provides, inter alia, that the Diocese will take under trust any parish property from a parish which, in the sole discretion of the Bishop and the Standing Committee of the Diocese, "has ceased to act in accordance with the Constitution, Canons, doctrine, discipline, and worship of the Episcopal Church and the Constitution and Canons of this Diocese ... anything in the articles or by-laws of such incorporated body to the contrary notwithstanding. ...”

. The Dennis Canon states,

All real and personal property held by or for the benefit of any Parish, Mission, or Congregation is held in trust for this Church and the Diocese thereof in which such parish, Mission or Congregation is located. The existence of this trust, however, shall in no way limit the power and authority of the Parish Mission, or congregation otherwise existing over such property so long as the particular Parish, Mission or Congregation remains a part of, and subject to, this Church and its Constitution and Canons. ["Church” refers to the ECUS]