A significant ruling from the Texas Supreme Court has determined that a regional branch of the United Methodist Church, which oversees Southern Methodist University (SMU), is entitled to sue the university for alleged breach-of-contract claims as a third-party beneficiary.
This decision comes on the heels of SMU’s Board of Trustees voting in 2019 to amend the university’s articles of incorporation, thereby removing references to its connection with the church’s South Central Jurisdictional Conference.
The university’s governing documents had not been updated since 1996 and previously indicated that SMU was under the control of the conference, which required approval from the conference to make changes to those articles.
The amendments occurred approximately nine months after the United Methodist Church voted to enhance prohibitions on gay weddings and the ordination of pastors in same-sex relationships.
In response to SMU’s action, the conference filed a lawsuit against the university after the amendments were submitted to the Texas secretary of state’s office. The conference sought a court ruling to declare the amendments void, and it claimed that SMU had breached its contractual obligations and had made a materially false statement to a government agency.
Initially, a Dallas County district court dismissed the conference’s claim, ruling in February 2020 that it lacked standing to sue.
However, the Dallas-based 5th Court of Appeals later reversed this decision, asserting that the conference did possess the standing needed to contest the 2019 amendments. The appellate court also ruled that the trial court had erred by granting summary judgment on the conference’s false filing claim while dismissing its breach of contract allegations and the call for a declaratory judgment.
Following this ruling, SMU requested the Texas Supreme Court to review the case, and oral arguments were presented in January.
Justice Debra Lehrmann, speaking for the majority, stated that the conference has statutory authority to sue SMU to enforce its rights under the articles and state business organization law.
In her opinion, Lehrmann also noted that the conference could pursue its breach-of-contract claim, although the justices agreed that SMU was entitled to summary judgment regarding the false filing allegation.
With the ruling, the Texas Supreme Court has sent the matter back to district court for further proceedings focused on the breach-of-contract claim.
In a joint statement following the ruling, Bishop Laura Merrill and the Rev. Derrek Belase from the conference expressed their satisfaction that the court’s opinion supports their position, emphasizing that the university needs to seek the conference’s approval to amend its articles of incorporation.
They conveyed, “Our desire is to see this matter brought to a peaceful resolution so that our historic connection to the university can be fruitfully maintained for future generations.”
Meanwhile, an SMU spokeswoman, Megan Jacob, acknowledged that the university was still in the process of reviewing the court’s 32-page opinion. However, she indicated that SMU was pleased the justices recognized its compliance in filing amendments with the secretary of state’s office.
Jacob stated, “We’re prepared to return to the trial court on the remaining issues, where we will continue to defend the SMU Board of Trustees’ right to act in the best interests of the university.”
She further emphasized, “SMU remains proud of its Methodist heritage as we move forward with advancing SMU’s mission and providing enriching education for all students.”
The ruling clarifies that SMU operates as a nonmember, nonprofit corporation focused on public benefit. Justice Lehrmann explained that although the articles of incorporation suggest that SMU would be ‘controlled by’ the conference, the university is not obligated to act solely for the conference’s benefit.
“Nor does the code provide for the equivalent of a shareholders’ agreement in the nonprofit context,” she noted.
Lehrmann elaborated that while the articles represent a contract between SMU and the state of Texas, they do not constitute a contract between SMU and the conference.
The court recognized the conference’s allegation that it is a third-party beneficiary entitled to pursue breach-of-contract claims.
A specific section of the state’s business organization law permits religious associations to affiliate with a nonprofit educational corporation and to elect and control the board of that corporation.
Lehrmann pointed out that this statute validates the provisions in the 1996 articles which granted the conference third-party control.
She stated, “The right to sue is available only to the third party to whom the contract expressly grants contractual rights — here, the conference.”
In a dissenting opinion, Justice Jane Bland expressed disagreement with the majority’s interpretation of the breach-of-contract analysis.
Bland argued that recognizing such a claim could create unnecessary legal precedent, as she believed a nonprofit’s charter does not inherently provide third-party beneficiary status.
Thus, the ruling marks a pivotal moment in the relationship between SMU and the United Methodist Church, potentially reshaping their historic connection moving forward.
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