What can happen when a church is perceived to have “deep pockets.”
By David T. Ball
I learned a few lessons worth sharing with others in defending the American Baptist Churches in the USA against a lawsuit based on tragic allegations of sexual abuse of minors by a pastor’s son. The pastor’s son was literally a bystander in the lawsuit. Having pled guilty to criminal charges, he was in jail.
Instead, the national, regional and district offices were all named as defendants even though as American Baptist entities they had no operational control over the local church, still less over a pastor’s son. Nor did these offices have any means of control over the pastor, since he was hired by the local church acting independently and his ordination was not recognized or approved by these related bodies.
The family was demanding $6 million and the church entities were perceived to be the “deep pockets.” Ultimately all of the church entities prevailed completely. The family’s case against them was so weak that not a single defendant had to pay out a single dollar. Yet these church entities had to pay out hundreds of thousands of dollars in attorney’s fees to fund their defense. Fortunately this was covered by their insurance policies.
That church entities (or their insurers) should be forced to pay such huge sums to defend a weak case may seem unjust, but in our legal system this was not that out of the ordinary. Plaintiffs lawyers know that winning a case is not their only obstacle – they must also prevail against a defendant that has resources to pay.
To a church leader who has never been through this experience before, this scenario may seem outrageous. There is no easy way out, however, if a church is named in a lawsuit, no matter how groundless. At a minimum the church will need able representation to seek dismissal—but that may come only after extensive discovery has taken place, which is extremely expensive.
If your church is named in a suit you have a serious legal situation on your hands. Since there is no “easy out” for churches it is important to learn from the experience of other churches that have weathered such a situation before. There are six lessons that church leaders can learn as they seek to navigate these treacherous waters.
Lesson #1: Check your church’s insurance policy
In recent years, with the proliferation of sex-abuse lawsuits insurance companies have begun to exclude coverage for liability arising out of sexual misconduct situations. Many clients are unaware of this change. All churches are encouraged to hire competent legal counsel to review their general liability coverage and their other types of policies (directors and officers liability, for example) to see if sexual misconduct liability coverage has been excluded. If it has, not only is your church not covered for the liability, there is no coverage for the cost of its defense.
Lesson #2: Press for coverage even if sexual misconduct liability is excluded
Even if your church’s policy excludes coverage for sexual misconduct liability, the effect of that exclusion may not be clear-cut under the laws of your state. Often, as in this case, there will be a number of causes of action against the various defendants, some of which would be separate and distinct from the underlying sexual abuse.
For example, in our case, in addition to the claims directly based on the sexual misconduct there were several claims based on allegations that the leadership of the local church had lashed out against the family after the allegations came to light. The family brought causes of action for defamation and intentional infliction of emotional distress based on this retaliatory activity. Whether the sexual misconduct exclusion barred coverage for these claims was not an easy issue, and the insurer provided coverage as a result.
Lesson #3: Keep any dispute about insurance coverage on the back burner
The case in which I was involved was actually two cases: The family’s suit against the church entities was one, and the insurance company’s against the national office over whether the sexual misconduct exclusion barred coverage was the other. The problem for the national office was that its legal fees incurred in defending against the insurance company’s coverage case were not reimbursed by its policy, whereas its fees in defending against the family’s suit potentially were.
It took some skilled lawyering to persuade the insurance company that the national office’s chances of prevailing against the family’s suit were so high that it made no sense for the insurance company and the national office to burn through more legal fees fighting over coverage in a second case.
In this situation it greatly benefited the national office that the insurance company cooperated by keeping its coverage case on the back burner until the underlying case was won. We were also able to negotiate an agreement with the insurance company that, no matter how the underlying case came out the insurance company would pay the national office’s fees incurred to that point.
Lesson #4: Carefully weigh the advantages and disadvantages of telling your side of the story at the outset
At the outset of a lawsuit, a defendant has a tough choice to make. It can either try to get the case dismissed on the grounds that, even if everything the plaintiff says is true, there still is no case against it under the law. The difficulty with this approach is that there is no way to correct whatever false statements may have been made in the plaintiff’s complaint. The alternative is to move for summary judgment, which allows the church entity to tell its side of the story in supporting affidavits. The drawback to this approach is that the court will likely not rule on the church’s motion for summary judgment until the plaintiff has had a full opportunity to conduct discovery (take depositions, request documents).
In our case, this meant waiting more than two years before the court would rule on our motion for summary judgment, while the plaintiffs deposed numerous individuals, who produced no testimony to support their case and pored over hundreds of pages of documents, most of which were completely irrelevant.
Lesson #5: Vigorously defend against any injunction restricting disposition of church assets
In our case, even before any of the defendants had been served with a summons and the complaint the plaintiffs obtained a temporary restraining order that prohibited the church defendants from disposing of any assets. Fortunately, the temporary restraining order could last only 28 days under state law and to be extended for the remainder of the case a hearing had to be held.
At this hearing the church defendants vigorously defended against such a restriction. There was no sign that any of the church entities was hiding any assets or doing anything tricky. And under the applicable state law it was improper to restrict disposition of assets when the assets were not the focus of the suit. The court properly declined to extend the temporary restraining order for the pendency of the litigation, and refused the plaintiffs’ fervent request to reconsider. This meant that the church defendants were able to manage their finances effectively for the four-plus years that the litigation continued.
Lesson #6: Press the plaintiffs’ attorneys to justify their case to you
Many imagine that opposing attorneys are so hostile to each other that they are barely on speaking terms. In our case I frequently contacted the plaintiff’s lead attorney to ask him about certain procedural aspects of the case in a cooperative fashion and I always took the opportunity to draw him out about what the basis for his case was against the church entities.
My client, the national office, had no knowledge about the alleged abuse until it received a letter from him demanding a huge settlement. The national office had no means of operational control over the local church where the abuse had allegedly occurred. Again and again I asked him how could he possibly prevail against my client. Each time as I pressed him he would refine his theory and be more and more forthcoming about its strengths and weaknesses.
This proved to be invaluable, since it enabled us to develop a strategy for the case that whittled his case down to a very thin thread, which was that although the national office had had no actual involvement and had no actual means of control, the national office was allegedly liable for what the district and/or regional officials had done or not done as the “agents” of the national office.
I hope that these lessons can help a church entity avoid what could easily have happened in our case: The bankruptcy or dissolution of a church entity so swamped by legal costs and potential liability that its ministries are seriously threatened if not extinguished.
David T. Ball is a partner of Rosenberg & Ball Co., LPA, an Ohio-based law firm that assists churches nationwide with a wide range of legal issues. Ball was the 2010 recipient of the American Bar Association’s Outstanding Young Nonprofit Attorney Award. [ www.rosenbergball.com ]