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Dermody v. Presbyterian Church (U.S.A.)

Court of Appeals of Kentucky

July 28, 2017



          BRIEFS FOR APPELLANT: Stephen B. Pence Louisville, Kentucky.

          BRIEF FOR APPELLEE: John O. Sheller Steven T. Clark Louisville, Kentucky AMICUS BRIEF: Bryan H. Beauman Lexington, Kentucky Eric S. Baxter Washington, DC.



          ACREE, JUDGE.

         This appeal arises from a summary judgment in favor Presbyterian Church (U.S.A.) relating to an action claiming slander and libel brought by a former employee, Roger Dermody. Appellate review requires consideration and application of the ecclesiastical-abstention doctrine and ministerial exception. After review, we affirm.


         Presbyterian Church (U.S.A.) (PC(USA)) is the corporate entity for the largest Presbyterian denomination in the United States. The highest ecclesiastical governing body of PC(USA) is the General Assembly which oversees five agencies, including the Presbyterian Mission Agency (PMA). The PMA is the mission and ministry agency of PC(USA). Its operations are governed by a Board and such operations must comply with the directives of the General Assembly and PC(USA)'s Constitution.[1]

         Roger Dermody was ordained by the Presbyterian Church as a minister in 1997. In June 2010, PMA recruited Dermody from Bel Air Presbyterian Church in Los Angeles, California, to be the Deputy Executive Director for Missions in Louisville, Kentucky. In his position at the PMA, he had oversight of the agency's five ministry areas of missional work and their respective employees.

         One of PMA's mission projects was called "1001 New Worshipping Communities, " and the Director of the initiative reported to Dermody. In late 2013, in what the record indicates was well-intentioned efforts to facilitate the project, several PMA staff members created and incorporated a non-profit corporation, Presbyterian Centers for New Church Innovation, Inc. (PCNCI). It is unfortunate that these efforts were not in compliance with the Church's Incorporation Policy and Criteria and lacked the General Assembly's approval.

         In January 2014, in two email threads, each of which included Dermody as a participant, there was discussion of the existence of the non-profit entity, its incorporation and its pursuit of tax-exempt status. For Dermody's part, he asked why PC(USA) employee Craig Williams, one of PCNCI's incorporators, was not making his expected and regular contacts with Presbytery leadership (the Mid-Council Engagement initiative). The answer came from another PC(USA) employee and PCNCI incorporator, Eric Hoey, who explained that Williams was "running his own shop as a non-profit entity." Dermody responded, "That's what I thought but I wanted to make sure." (R. 775). Nothing in this or any part of the record indicates that Dermody inquired of Hoey or Williams as to whether, in the process of forming the non-profit entity, they had complied with PMA regulatory policy or obtained approval of the General Assembly. Dermody would later say, in response to PC(USA)'s written Employment Warning, "It never dawned on me that our staff would do something as stupid as go outside our organization and separately incorporate." (R. 753).

         After incorporating PCNCI, its principals submitted grant requests to fund the project. In March 2014, $100, 000.00 of PC(USA) funds were transferred to the new non-profit.

         Shortly thereafter, the PMA Office of Legal Services learned of PCNCI's existence through internal control procedures. Steps were taken to end PCNCI's operations, to return the transferred funds, and to prevent an additional transfer of funds that was in progress. These events prompted PC(USA)'s internal audit and investigation of the matter.

         The Audit Committee issued a Report to the PMA Board of Directors in August 2014. The Report was posted on the PC(USA) website in October 2014. The report concluded:

The actions which led to this investigation indicate a serious lack of regard for and adherence to the established policies and procedures of the PC(USA) and PMA. The Board and PMA have a solemn fiduciary responsibility to their donors, who expect their gifts to be used wisely and in accordance with restrictions and with budgets and priorities which have been adopted appropriately. These policies are in place to safeguard these assets. . . .
An independent corporation was formed by PC(USA) employees, without PMA authorization, using a virtually identical program name and website, transferring grant funding, and planning transfer of PC(USA) employees and further grant funding to the unauthorized separate corporation. The claimed purpose was to ensure the future existence of the program without reliance on PMA budget constraints, without exposure to PMA budget cuts and without potential impact from any changes in PMA leadership.

(R. 216). The Report identified four employees who were found to have violated the Ethics Policy based upon failure to follow established and known policies in the establishment of the unauthorized corporation. Dermody, in his role atop the PMA structure, was one of the four identified. The findings as to Dermody were that he: failed to properly supervise his subordinates who created PCNCI without proper authority; failed to inform legal counsel when he learned in January 2015 of PCNCI's existence; contributed to a culture of disregard of PC(USA) policies by his subordinates; and empowered Hoey, a PMA employee with "known performance issues, " to control a significant PMA initiative without proper oversight. These findings were deemed sufficient to conclude that Dermody had committed ethics violations because its Ethics Policy provides:

All funds received and administered by the PMA . . . are entrusted to the organization by God through the faithful financial support of PCUSA members and friends. The highest degree of stewardship and fiduciary responsibility is expected of all employees . . . .

         Dermody received a written Employment Warning as required by the PMA Employee ...

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