LEGAL OPINION TASK FORCE REPORT

TO THE

EXECUTIVE BOARD OF THE MISSOURI BAPTIST CONVENTION

APRIL 9, 2002

The Legal Opinion Task Force was appointed by MBC President and Chairman of the Executive Board Bob Curtis at the December 11, 2001 meeting of the Executive Board in response to the following motion approved during the 2001 MBC Annual Meeting:

The Task Force included Dr. Gary Taylor, chairman; Randy Comer, Monty Dunn, Jay Stinson, and David Tolliver, with Bob Curtis as an ex officio member without vote.

The Legal Opinion Task Force selected Michael K. Whitehead as legal counsel and charged him with the responsibility of choosing three of the top legal firms in Missouri to give us independent opinions. Michael Whitehead contacted us the first week of March and said he had the three opinions and we met as a task force. Michael Whitehead interpreted the opinions and we discussed the next steps to take.

The three firms consulted were Bryan Cave, with offices in St. Louis and Kansas City; Stinson Mag and Fizzell, with offices in Kansas City; and Sandberg Phoenix and von Gontard, with offices in St. Louis.

Each firm received a set of legal documents, including the governing documents of the Missouri Baptist Convention and each of the five agencies. The firms also reviewed the reports of five MBC study committees from 1925 to 1978. Each firm prepared a legal opinion letter which analyzed these documents under Missouri law.

The result of this process was a unanimous verdict by all the law firms: the unauthorized amendments to agency charters violated Missouri law. This is not a "gray area" or a "close question." The law is clear that the Missouri Baptist Convention has the legal right to control these agencies. The Legal Opinion Task Force has prepared a summary of the major findings of fact and conclusions of law.

 

Issues

• The Missouri Baptist Convention is a "member" of all five agency corporations, and as such must approve any charter amendments. The boards failed to treat MBC as a member, and hence the charter amendments are void.

   

  1. A "member" of a non-profit corporation is defined in the Missouri Non-Profit Corporation Act as follows:

     "without regard to what a person is called in the articles or bylaws, any person or persons who on more than one occasion, pursuant to a provision of a corporation’s articles or bylaws, have the right to vote for the election of a director or directors." R.S. Mo. §355.066 (21)

  2. The Missouri Baptist Convention constitution and the governing documents of each of the five agencies gave Missouri Baptist Convention the right to vote for election of directors or "trustees" of the agencies.

  3. The status as member is not dependent on a title conferred by a corporation’s articles or bylaws. Rather, the statutory test is operational. Based on this test, Missouri Baptist Convention is the sole "member" of each agency, with all the statutory rights of membership.

  4. One of the statutory rights of a member is to approve charter amendments. §R.S. Mo. 355.556. A board cannot unilaterally amend its charter to become independent and self-perpetuating, without strict notice requirements and member approval. §355.611

• Before the unauthorized amendments, three agency charters required that the charters could only be amended with the approval of the Missouri Baptist Convention. (Baptist Home, Missouri Baptist College and Missouri Baptist Foundation.)

   

  1. The Missouri Non-profit Corporation Act, R.S. Mo. §355.606, adopted in 1995, provides that "The articles may require an amendment to the articles or bylaws to be approved in writing by a specified person or persons other than the board. Such an article provision may only be amended with the approval in writing of such person or persons."

  2. The amendment approval clauses, adopted around 1960, do not use the phrase "in writing." There was no comparable statute in 1960 that used the phrase "in writing." This variance does not affect the legal validity of the MBC approval requirement.

  3. Agency attorneys argue that §355.606 makes an approval requirement enforceable only if written approval is required. They say that the subject approval clauses violate §606, and thus are not enforceable. They say that Missouri courts would invalidate these approval clauses, and would permit the agency trustees to do what they did: change the charters to self-perpetuating boards without approval by MBC. No legal authority supports this view.

  4. The agency charters, written in 1960, recognized substantive rights of ownership by the Missouri Baptist Convention, by virtue of the power to elect trustees and the power to control charter changes. Statutes cannot be applied retroactively to take away the substantive rights of the Missouri Baptist Convention. The MBC approval clauses in the charters would doubtless be upheld as lawful and binding, and §355.606 would be interpreted to require approvals to be in writing. Hence the putative amendments were invalid because MBC did not approve in writing, but expressly disapproved in writing.

• Before the unauthorized amendments, the Missouri Baptist Convention owned each agency corporation and its assets, by virtue of Missouri statutes, by virtue of the governing legal documents of MBC and the agencies, and by virtue of the covenant or contract relationship between the parties as evidenced by historical lines of authority, control and funding.

 

• The agency boards did not own the agencies free from MBC control.

   

  1. The agency boards cannot legally justify their actions by citing prior study committee reports on ownership of entities. These reports do not and could not nullify the plain meaning of the governing documents, that MBC owns and controls the agencies it funds.

  2. The 1978 study committee on the Ownership of Institutions was created due to a suggestion that MBC ownership of its agencies would be more secure if the all agency assets were titled in the MBC corporate name. The study committee resisted the idea of re-titling the assets for a number of reasons. The main argument was that the MBC already had beneficial ownership of the agencies, by virtue of all the governing legal documents, even though the separate corporations held legal title. The report of the committee observed: "The fact that the Missouri Baptist Convention does not own each institution in name should not cloud our vision so as to blind us to the fact that Missouri Baptists through the Convention do effectively control the six institutions that are the subject of this report." (emphasis added)

  3. The 1978 Report of the Committee on Ownership of Institutions recommended, and the convention adopted, an amendment to the MBC constitution, which was presented as though it merely expressed the status quo, rather than changing anything. The amendment added the phrase "or in covenant relationship" to Article IX, Section one, to read as follows:

     "This Convention shall own, operate or in covenant relationship contribute to and support such educational, benevolent, or other agencies approved by the Convention."

  4. The 1978 report also recommended: "4. That the Convention recommend that each of the institutions, by amendment to its charter or bylaws, provide that in the event of the ceased-existence of the institution that the assets would be safeguarded to the benefit of the Baptists of Missouri for a similar purpose."

  5. Nothing in this study report, or the others, hints that the agencies are autonomous from the beneficial ownership and control of the MBC, as prescribed in the governing documents of the MBC and of the individual agency, which is the basis for the so-called "covenant relationship."

• The Missouri Baptist Convention owns the agencies as "beneficial owner." Legal title to real estate and other assets is held in the name of each agency corporation, but such agency holds title, in effect, in trust for the Missouri Baptist Convention and its churches.

 

• The unauthorized amendments by the agency trustees constituted a breach of trust or breach of fiduciary duty toward the Missouri Baptist Convention. The MBC has supported the agencies through the MBC cooperative program with the expectation that MBC would maintain ownership authority and accountability over the agencies.

 

• Concerns about ascending liability could not justify board members actions in adopting charter amendments without approval by the MBC.

   

  1. Such concerns would not require, and cannot legally justify amending the charter without the approval of the MBC.

  2. Liability insurance is the normal way to protect against the risks of litigation. Both the MBC and all agencies have such insurance.

     1. Prior lawsuits against MBC agencies have not successfully implicated the MBC. Likewise, prior lawsuits against the agencies of the Southern Baptist Convention have not successfully implicated the parent corporation. Ascending liability is not a genuine risk.

     2. Other similar excuses by board members, such as concern for political influences in the state denomination, cannot justify unlawful, unauthorized charter changes.

• The filing of the unauthorized amendments with the Secretary of State was unlawful. The amendments contained false statements that no member or third party approval was required. Filing false records is a Class A misdemeanor. §355.056.

 

• MBC officials have the legal capacity or "standing" to seek legal remedies for the wrongful actions listed above.

 

• Individual trustees and agency officials may have personal liability for actual and punitive damages. Legal theories could include breach of fiduciary duty, breach of contract, misrepresentation, civil conspiracy, misappropriation or conversion of assets.

 

• In order to correct the record, the Missouri Baptist Convention should require the five agency boards, at a minimum, the following:

   

  1. The agencies must recognize new trustees duly elected by the MBC, and must remove any trustees not duly elected by the MBC.

  2. The agencies must rescind the putative amended charters and restate their former charters.

  3. The agencies must account for all actions taken in the interim, and be willing to rescind any decisions that are not approved by the Executive Board of the MBC.

 

Appendix

Pre-amendment language of governing documents.

1. Constitution of the Missouri Baptist Convention

   Article IX, "Agencies" Section 2 "All charters and charter changes shall be approved by the Convention upon recommendation by the Executive Board."

   Article IX, "Agencies" Section 3 "The convention shall elect or approve members of the governing board of each agency. Each board shall have full authority over the internal operation of the agency but shall be required to make a report of its operation and financial condition to the annual meeting of the Convention in accordance with the Business and Financial Plan.

2. Bylaws of the Missouri Baptist Convention

   Article VII, "Boards and Agencies of the Convention" Section 6 "Each agency may adopt its own bylaws, provided that the bylaws are consistent with the Convention Constitution, Bylaws, and Business and Financial Plan and with all applicable federal and state laws."

3. Business and Financial Plan of the Missouri Baptist Convention

   Article 15 "Charters" "All proposed charters or amendments to charters of the agencies of the Convention shall be submitted to the Convention, upon recommendation by the Executive Board for approval before they become effective. This provision shall also apply to subsidiary corporations of all agencies. Copies of all charters and amendments to charters shall be filed with the executive director of the Executive Board."

4. Articles of Incorporation of the Executive Board of the MBC

   Article 10 "The Board shall have general oversight over all educational and benevolent institutions which shall place themselves under its supervision and accept the conditions set forth in the Bylaws of the Board …The Board shall not extend any financial or other assistance to any of such institutions whose property and funds are not safeguarded to the Baptist denomination."

5. Bylaws of The Executive Board of the Missouri Baptist Convention

   Article XIV, "Educational and Benevolent institutions" Section A "Any educational or benevolent institution which shall desire to be owned or operated by the Missouri Baptist Convention through the Executive Board upon approval of the Convention shall only be eligible under the conditions set forth in Paragraph C of this article.

   Article XIV, Section B "Any educational or benevolent institutions, cooperating in covenant relationship with the Convention, which shall desire to receive contributions by the Executive Board from the Cooperative Program Allocations Budget as approved by the Missouri Baptist Convention shall only be eligible to do so under the conditions set forth in Paragraph C of this article."

   Article XIV, Section C, #2 "The governing board shall either have been elected or approved by the Missouri Baptist Convention.

6. Baptist Home Charter

   Article VII, Section 1 "This corporation shall be affiliated with and subject to the Missouri Baptist Convention. The members of the Board of Trustees of this corporation shall be nominated and elected by the Missouri Baptist Convention at the Annual Meeting of said Convention and shall automatically be removed upon withdrawal of the approval by the Missouri Baptist Convention or the Executive Board of the Missouri Baptist Convention."

   Article IX "This agreement of the corporation may be amended by an affirmative vote of two-thirds (2/3) of the members of the Board of Trustees at any meeting of the said Board of Trustees provided written notice of the amendment and the proposed wording thereof is mailed to each Trustee at least thirty (30) days prior to the date of said meeting by the Secretary of the corporation, and provided said Amendment is approved by the Missouri Baptist Convention."

7. Articles of Agreement (Charter) of the Missouri Baptist Foundation

   Article VI "The Trustees shall be nominated and elected in accordance with the procedures and practices of the Nominating committee of the Missouri Baptist Convention."

   Article VIII "The Trustees shall have the authority, at a regular or a special called meeting of the Board of Trustees, to amend these articles of Agreement in any manner consistent with the purposes of the Foundation as described in Article IV (A) herein, upon receiving the vote of a majority of the Trustees in office, by submitting any such amendment to the Executive Board of the Missouri Baptist Convention for its recommendation of approval to the Missouri Baptist Convention and, upon receiving the approval of the Missouri Baptist Convention of such amendment…"

8. Missouri Baptist College Charter

   Article II, Section 8 "The board of trustees shall consist of twenty-seven persons appointed by the Missouri Baptist Convention. At least seventy-five (75) percent of the trustees shall be members of Baptist churches affiliated with the Missouri Baptist Convention."

   Article II, Section 12 "The board of trustees may adopt one or more amendments to these articles of incorporation subject to the approval of the Missouri Baptist Convention upon recommendation of the Executive Board of the Missouri Baptist Convention."

9. Windermere Articles of Incorporation

   Article XII "The board of trustees shall consist of nine persons. Three of the nine trustees shall be permanent members by virtue of office. The permanent members are the Missouri Baptist Convention Executive Director, the Missouri Baptist Convention President, and the Chairman of the Windermere Board of Advisors. The remaining six trustees shall be presented by the Convention Nominating Committee for election by the Missouri Baptist Convention."

10. Word&Way Articles of Incorporation

Article XII "The Board of Trustees will include 12 members. Trustees will be nominated by the Missouri Baptist Convention Nominating Committee and elected at the Missouri Baptist Convention annual meeting."