||D. August Boto and
James P. Guenther
||January 27, 2005|
||The Executive Committee
||Response to reservations about|
sole membership posed by the New Orleans seminary
Advice and Counsel to the Executive Committee of the Southern Baptist Convention
The General Counsel of the Executive Committee of the Southern Baptist Convention and the General Counsel of the Southern Baptist Convention are of the opinion that the Amended and Restated Articles of Incorporation (charter) of New Orleans Baptist Theological Seminary adopted by the seminary's board of trustees should be approved by the Southern Baptist Convention.
The proposed charter correctly declares the existing governance arrangement between the Convention and the seminary's board of trustees. The charter precisely follows the present Southern Baptist Convention's Charter and Bylaws. The proposed charter declares that the seminary is governed by a board of trustees elected by the Convention. The proposed charter provides that the Convention's right to elect the trustees cannot be taken away by that board of trustees. Thus, the proposed charter requires that the Convention must approve any decision by the board of trustees which would affect the Convention's right to determine those persons who sit on the governing body of the seminary, acts such as the amendment of the charter, dissolution, merger, consolidation, lease or sale or the creation of a subsidiary.
The proposed charter is in all respects appropriate. It clearly calls for the Convention's rights to be exercised by the messengers in the annual meeting of the Convention. The rights of the board of trustees are not diminished; rather they are explicitly declared to be as the Convention's bylaws declare them to be. The necessary language required for tax exempt charities who are described in Section 501(c)(3) of the Internal Revenue Code is recited. The proposed charter contains the same trustee removal process which appears in the charters of some of the other entities of the Convention and which was originally suggested by the International Mission Board. The proposed charter complies with the requirements of the Louisiana Nonprofit Corporation Law.
The proposed charter establishes the Convention as the sole member of the seminary corporation. This gives the Convention a clearly recognized corporate role in which the Convention may appropriately exercise the rights given to the Convention in the charter. The proposed charter, including the establishment of the Convention as the seminary corporation's sole member, makes the Convention secure in its rights in perpetuity. The “member” role also gives the Convention statutory immunity from the seminary's obligations. ("A member of a corporation shall not be liable personally for any obligation of the corporation." Section 219, Louisiana Nonprofit Corporation Law.)
The proposed charter has been analyzed by special Louisiana counsel for ascending liability risks under Louisiana statutory and case law. It is his opinion that the charter does not increase, and in fact diminishes the risk that the seminary's liabilities will be imputed to the Convention.
It is legally appropriate for the Convention, a Georgia corporation, to occupy the sole member role in this Louisiana seminary corporation. Not only is it legally appropriate, it is the opinion of counsel that the charter and the sole member role for the Convention precisely declare the historic corporate relationship between the Convention corporation and the seminary corporation in language recognized in Louisiana law.
The proposed charter well serves the Convention and the seminary and is legally sound.
Counsel have noted the "reservations" expressed by the seminary's board. Counsel are all of the opinion the reservations are not well taken. Counsel's detailed response to the asserted reservations is offered below.
No Authorities Cited
There is no basis in fact or in the law to justify the reservations. The reservations are not accompanied by any legal authority. Louisiana law does not support the reservations. Baptist history does not support the polity alleged nor the supposed negative polity impact asserted. The reservations are based only upon vague fears and incorrect assumptions. The fears are simply not warranted.
Over the past seven years the reasons offered by the seminary's board for its opposition to the sole member model has changed as each successive reason was shown to have no merit. The "reservations" the seminary has now announced contain only conclusory statements; they offer no statutory or case law authority for their conclusions. Had the reservations been accompanied by a legal rationale for the conclusions, counsel could analyze that rationale. But the seminary has never cited legal authority for its opposition, and the seminary now offers no legal authority for its "reservations."
Increased Liability Concerns Unjustified
The seminary has reservations about the Convention's liability risks under the charter. In fact, the charter will help protect the Convention and every entity of the Convention from being held liable for New Orleans Seminary's obligations. All of the other entities have adopted the sole membership plan. In so doing, all of the other entities have helped insulate New Orleans Seminary from the risk of becoming infected with their liabilities. Approval by the Convention of the newly adopted charter of New Orleans Seminary will cause that seminary to reciprocate and help the Convention set up a barrier which will help prevent the spread of that seminary's liabilities to its sister institutions and to the Convention itself.
The Convention elects separate boards to manage each entity corporation. Each of those boards has the power to manage its institution. The Convention and each entity are well served if each entity corporation is solely accountable for its obligations. Sole membership helps accomplish that goal.
Counsel are also satisfied that the charter precisely declares the way the Convention and the board which the Convention elects share governance over that seminary; it correctly states Baptist polity. It states the present arrangement, and it does so with precision.
That precision is legally important. The proposed charter precisely enumerates the Convention's governance rights as sole member; it declares that in all other ways the board that the Convention elects governs the institution. The charter is important both because it declares what the Convention controls, and it declares what the Convention does not control or what is controlled by the entity's board of trustees.
The Convention's governance rights are designed to protect against the various ways an entity might later try to leave the Convention. That solves one issue.
The declaration that it is the board which otherwise controls the seminary sets in place a corporate structure which will help solve another issue. It will show that the management control and the legal responsibility that is a result of that control is exclusively the seminary’s. Furthermore, the fact that the Convention will be the member, a recognized corporate actor, of the corporation will give clarity to the Convention's governance role. With the sole member status, the Convention will enjoy statutory immunity from the obligations of the seminary.
By specifically limiting the Convention's governing role as the entity corporation's member to exclude management decisions, the charter establishes a structure that counsel believes and advises will help counsel defeat the several legal theories by which the courts have imputed the liability of a religious institution to its denominational parent.
Counsel have followed every major effort by someone to cause liability to ascend in the denominations of this country, from an institution of the denomination to the denomination itself. Counsel are satisfied that they understand the theories and the facts on which those theories turn.
And because it is counsel who must defend the Southern Baptist Convention in such cases, we would prefer to defend them upon those theories and relational constructs we believe would be most in keeping with historic Baptist polity and would be most successful. While we have heard the seminary prefers to use alternative methodologies of accomplishing a sound defensive strategy that also fits the way the SBC has always related to its entities just as sole membership does, none has been offered in the several years of discussion of this issue, nor have any even been identified.
Special Louisiana Counsel has provided case law analysis of the "five-pronged test" which has been used by the Louisiana courts to determine when justice requires a deviation from the general rule that only the corporation which acted is liable for the action. Special Louisiana Counsel has also advised of recent cases which speak of the courts' need to evaluate the "totality of circumstances" in determining if one corporation should be liable for the actions of another corporation.
If a court were to hold the Convention liable for the obligations of an entity of the Convention, the Convention might not have the means to satisfy the obligation. The Convention has few reserves. The monies which flow through the Cooperative Program to the entities of the Convention are given by Southern Baptists to support those ministries. They are distributed as and when received. So, the Convention is not structured in such a way that the Convention has the resources with which it could pay significant obligations of the entities.
Catholic dioceses with millions of dollars of assets have been forced into bankruptcy as the result of judgments against them for the conduct of Catholic priests. The Southern Baptist Convention is regularly sued by someone who claims to have been injured by a minister or employee of a church related to the Convention. And just as regularly, the Convention is sued by someone injured by an employee or agent of an entity of this Convention. The Convention has never lost one of these cases. But, it would not take a judgment against the Convention in an amount seen in the Catholic child abuse cases to put the Convention in legal peril. Even a relatively small judgment would threaten the Convention and its Cooperative Program support line to the ministries which the Convention fosters. The sole membership plan is a significant step toward avoiding that risk in counsel's opinion.
SBC polity enables counsel to demonstrate that the Convention does not control a church or a minister or other employee of a church. Absent control, the Convention is not responsible for their acts. With sole membership charters in place, Convention counsel can more readily show that the Convention similarly does not control the employees of the entities. With that demonstrated, the Convention can be more quickly dismissed in these cases.
The sole member model is the result of counsel's experience, counsel's study of the experience of other denominations, and counsel's careful analysis of the law by which the courts determine if liability of an institution "ascends" or does not. Southern Baptist Convention polity naturally provides the Convention a defense in these cases where hierarchical churches have no defense. The Convention bylaws have always been precise when it comes to the Convention's lack of management control over churches and Convention entities. Sole membership causes the entities' legal instruments to be equally clear on the subject of Convention control, or when it comes to ascending liability, the Convention's limited control.
In summary, the proposed charter does two things: It says precisely how the Convention controls the seminary, and it says precisely how the Convention does not control the seminary. It enumerates the matters the Convention must approve. It provides that in all other matters the seminary is controlled by its board of trustees. It is legally important to distinguish precisely how the Convention controls from how the board controls.
With the charter's saying precisely how the Convention controls the seminary, the charter will prevent the Convention from losing those rights of control. The only control rights the charter gives the Convention relate to the fundamental right of the Convention to elect the seminary's trustees. The charter says the Convention elects the trustees and that the Convention has the right to approve any action by the seminary which would destroy that right. Those actions are the amendment of the charter, merger, sale, lease or dissolution of the seminary or the creation of a subsidiary. In other words, the Convention's rights in the charter simply give the Convention the right to elect the trustees and to do so in perpetuity. The board must secure the Convention's approval if the board wants to do any of these enumerated things.
With the charter's saying that the board of trustees otherwise governs the institution, the charter will help the Convention demonstrate that the Convention does not control those risks which cause people to sue the entity and sometimes the Convention. For example, it will be clear that it is the seminary which selects, employs and supervises its employees, not the Convention. Thus, the Convention can point to the seminary's charter to show that the Convention ought not be held responsible for what the Convention does not control, that the Convention ought not be responsible for the seminary's decisions regarding its employees and their activities.
Counsel offer the following advice regarding the following specific reservations:
1. Claim: "Sole membership in Louisiana means something different than sole membership in the home states of other entities."
Response: Every state's nonprofit corporation act is probably unique in one way or another. But, Special Louisiana Counsel has confirmed the general counsel's understanding that there is nothing different about sole membership in Louisiana which makes the plan faulty. While the seminary has made vague references to the differences in Louisiana law, the seminary has never offered any statutory or case law authority to support their reservation in this regard. Early on, the seminary's attorney corrected the seminary and assured the seminary's board that "the Napoleonic Code" had nothing to do with modern nonprofit corporation law in Louisiana nor with sole membership.
2. Claim: "Multiple Louisiana attorneys have told us it is impossible for this proposal to fulfill both requests . . . (that is, to assure) the messengers historic rights and give the Convention legal immunity. . . . The overwhelming consensus of all the opinions we sought is that making the SBC the sole member of our Louisiana corporation will dramatically increase the risk of financial liability for the SBC in the state of Louisiana. Messengers must decide if the possibility of putting the Cooperative Program at risk in a lawsuit is worth adopting this measure . . . ."
Response: The seminary has never shown counsel any written opinions to this effect. Thus, counsel cannot identify why the opinions are in error.
Counsel does know that at least one of the attorneys who offered the seminary his opinion that the proposed charter would increase the Convention's liability stated that he understood the Convention does not now have the rights which the new charter will give the Convention. Naturally, therefore, he saw the proposed charter as increasing the Convention's control rights over the seminary. In the opinion of counsel, the seminary's attorney simply did not understand Southern Baptist polity.
The Convention understands and has always understood that the Convention has the right to elect the seminary's trustees and the right to protect that right by approving any action of the board which would defeat its right. The seminary's attorney only seemed to know about the Convention-seminary relationship from what he could read in the seminary's present and proposed charter. Therefore, if he came to the legal conclusion that the present charter is deficient when it comes to giving the Convention the right to elect the seminary's trustees in perpetuity, then that is another reason the new charter is an improvement over the present charter.
Furthermore, the messengers need not worry that claiming the Convention’s ownership rights comes with a “liability price tag.”
· The Louisiana law says that a member of a nonprofit corporation does not become liable for the corporation's obligations. There is no dispute about that. Presently, the trustees are also the corporation's members. But Louisiana courts should not be confused and made to believe that Baptists think their trustees should be the owners of their institutions. If the Convention becomes the corporation's member, the Convention gains the statutory immunity, and the courts will understand clearly, in secular corporation language, that the seminary belongs to the Convention.
· Additionally, the control rights the Convention claims, the right to elect trustees and approve dissolution, sale, lease, merger, etc., do not give the Convention the right to govern the institution in those areas which cause law suits for damages.
Thus, the proposed charter gives the Convention the statutory immunity which comes with being the member of the seminary corporation, and it makes it clear that the Convention does not control and, thus the law says, has no responsibility for, the management of the seminary out of which litigation arises.
But, even if the messengers were put to the choice either to make certain that the seminary would always remain an entity of the Southern Baptist Convention or to risk liability, counsel suspect the messengers would choose to make certain the seminary remains an entity of the Southern Baptist Convention. Risk accompanies all ministry. If avoidance of risk became the Convention's primary goal, the Convention should abandon ministry.
3. Claim: "The specific process that has been initiated by the Executive Committee could increase the legal liability for the SBC."
Response: This "reservation" points to the fact that at its Executive Committee’s recommendation, the Convention requested the seminary's board of trustees to adopt a new charter, making the Convention the seminary corporation's sole member, and reciting that the member had these certain enumerated powers and that otherwise the board governs the institution. The Convention's request fully recognized the authority of the board of trustees of the seminary when it came to the seminary's ability to amend its charter. The Convention does not now have the right to amend the seminary's charter and will not have that right under the new charter. The Convention's right under the present charter and under the new charter is the same: Amendment of the seminary's charter is accomplished by the vote of the seminary board and the approval of the Convention's messengers.
If the Convention could unilaterally amend the seminary's charter, counsel presume the messengers would have done that when the Executive Committee of the Southern Baptist Convention first recommended sole membership, and no commotion would have occurred. But, the messengers knew they did not have that authority.
4. Claim: "Sole membership . . . is a step toward the centralization of control and authority in Southern Baptist life."
Response: Counsel believe that "Centralization of control and authority in Southern Baptist life" is an alarm sounded by the seminary without any basis whatsoever. Counsel cannot discern one iota of centralization of control and authority in this plan. The seminary's reservation is explained by a vague fear that somehow, someway, maybe not now, but in the future, the Executive Committee of the Southern Baptist Convention might somehow gain power in this change. While fear of the Executive Committee is being claimed, counsel can only see it as a fear of the messengers, since the proposed charter says that only the messengers constituting the Southern Baptist Convention in session have the powers enumerated. The Executive Committee has no authority and never shall have any authority beyond that which the messengers choose to give it.
Sole membership has nothing to do with the Executive Committee of the Southern Baptist Convention, which itself is planning to make the Southern Baptist Convention its sole member. The only two parties in the seminary’s sole membership plan are the messengers, acting for the Convention, and the seminary's board of trustees. The present division of power between the messengers and the board is perpetuated in the plan. The proposed charter cements the messengers' authority.
Seminary representatives have spoken vaguely of a fear that the Executive Committee of the Southern Baptist Convention would come to replace, counsel suppose, the role of the seminary's board. Sole membership has nothing whatsoever to do with the Executive Committee's role in the structure of the Convention. The Convention's bylaws say precisely that the seminary's board, not the Executive Committee of the Southern Baptist Convention, manages the seminary. Sole membership does not change that.
The charter adopted by the seminary is carefully crafted to make clear that it is the Southern Baptist Convention, a Georgia corporation, which is the sole member of the seminary corporation. It is not the Executive Committee of the Southern Baptist Convention, a Tennessee corporation.
But, for the sake of argument, suppose that the messengers decided in the future that they wanted the Executive Committee of the Southern Baptist Convention to elect the seminary’s trustees, not the Southern Baptist Convention. The only way that could occur would be if the seminary’s newly adopted charter is again amended. That is so because the proposed charter says it is only the messengers who elect the seminary's trustees. That charter can never be amended except after the seminary's board votes to amend it. The charter itself says that, too. So, if sole membership is a smoke screen behind which lurks some sinister power-grab by the Executive Committee, it seems fatally flawed to counsel. And since counsel initiated the original concept of sole membership, and counsel had no notion of rearranging the power of the Executive Committee, any effect of sole membership on Executive Committee authority evaded counsel then and continues to evade counsel, and, counsel supposes, will continue to do so until someone documents a rational theory showing how such a thing could be possible.
Counsel simply fail to comprehend the seminary's reservations on this point. Counsel especially fail to understand the point in the reservation which says: "The centralization of control and authority will ultimately lead to a diminished voice for the messengers of the Convention. A diminished voice of the messengers leads to a diminished voice of the local church."
Counsel cannot imagine any button the seminary could press which would cause a more visceral reaction among Southern Baptists than to raise the specter of a diminished voice of the messengers and the churches in the affairs of the Southern Baptist Convention. Counsel can see no basis whatsoever for this alarmist reservation, especially in light of the fact that sole membership actually has the opposite effect, firmly establishing the voice of the messenger in trustee selection and other approval processes.
||D. August Boto|
General Counsel and Vice President for Convention Policy
Executive Committee of the Southern Baptist Convention
||James P. Guenther|
General Counsel, Southern Baptist Convention
1 At every point in this opinion where the word "member" appears, one should think "Southern Baptist Convention"