Higgerty Law is representing the CEF depositors in their Representative Action and as part of their action they’ve made statement of claim against the various defendants in their legal action.
Duhaime’s Law Dictionary defines a statement of claim as:
A written statement of the initiating litigant, called a plaintiff, in which he/she must state their case: the facts on which they intend to rely upon and the relief they seek, to the defendant and for the public record, for which they seek a civil trial and judicial determination.
This statement mentions a “Quisclose Trust” which Wikipedia defines as:
A Quistclose trust is a method by which a creditor can hold a security interest in loans, through inserting a clause into the contract which limits the purposes for which the borrower can use the money. If the funds are used for a different purpose, a trust is created around the money for the benefit of the moneylender. This allows the moneylender to trace any inappropriately spent funds, and, in the case of the borrower’s insolvency, prevents the money from being taken by creditors.
In this portion of their statement of claim Higgery Law details the allegations pertaining to CEF loans made to POP Church and School.
Please note that these are allegations only and this case has not been adjudicated in a court of law. As always, if you have any legal questions or need legal advice please consult appropriate legal counsel.
From Higgerty Law Statement of Claim
G. The POP Congregation Loan
82. The POP Congregation was a small congregation of about 230 members and consistently ran operating deficits. By about 2005, the POP Congregation operating deficit was $1,200,000.00. It was unable to meet its operational financial requirements and its obligations to ABC District in respect of previous mortgage loans from the CEF.
83. POP Congregation deficits continued to increase and were met by further loans from the ABC District. By about 2008, ABC District advances to the POP Congregation for construction of the church and school and operating deficits had accumulated to $8,000,000.00 (the “POP Congregation Loan”).
84. The LCC and/or LCCFM were aware of and approved the POP Congregation Loan.
Alternatively they were willfully blind to the POP Congregation Loan.
85. The POP Congregation Loan violated the mandate of the ABC District’s Church Extension Program and the terms of the CEF Trust in that it was granted, in whole or in part, to pay off the POP Congregation debts and to finance its operating deficit and not for the purposes of building churches and schools in which to carry out the ministry of the Lutheran Church.
86. Further, the Prince of Peace Congregation Loan violated the Loan Eligibility Policies, Loan Criteria and Loan Conditions of the ABC District, and the terms of the CEF Trust, in that:
a. The POP Congregation was not financially a “congregation in good standing” within the meaning of the ABC District Loan Eligibility Policy;
b. The Prince of Peace Congregation Loan was in whole or in part for operating purposes rather than a capital project;
c. The POP Congregation had no ability to service the debt;
d. The Prince of Peace Congregation Loan was unsecured or alternatively inadequately secured;
e. The Prince of Peace Congregation Loan was not accompanied by a Loan Repayment Agreement signed by the officers of the congregation;
f. The POP Congregation was operating at a deficit and could not meet its existing financial obligations to the ABC District to repay a previous mortgage loan;
g. The POP Congregation did not and could not make a commitment to promoting Church Extension deposits among its members; and
h. The ABC District did not require the POP Congregation to submit its financial statements on an annual basis, or alternatively failed to scrutinize those financial statements to assess the risk that the Prince of Peace Congregation Loan would not be repaid.
87. Further, or in the alternative, the Prince of Peace Congregation Loan violated the terms of the CEF Quistclose Trust, in that:
a. The POP Congregation Loan was very risky in that the POP Congregation had no ability to service the debt;
b. The Prince of Peace Congregation Loan was unsecured or alternatively inadequately secured;
c. The POP Congregation was operating at a deficit and could not meet its existing financial obligations to the ABC District to repay a previous mortgage loan; and
d. The POP Congregation Loan was used to subsidize operating deficits.
88. In or about 2009, the ABC District on the advice and with the assistance of Taman, forgave $6,000,000.00 of the $8,000,000.00 POP Loan in exchange for the right to receive proceeds from the future sale of certain property owned by the POP Congregation (the “POP Congregation Land Sale Proceeds Assignment Agreement”).
89. The LCC and/or LCCFM were aware of and approved the POP Congregation Land Sale Proceeds Assignment Agreement. Alternatively they were willfully blind to the Assignment Agreement
90. The POP Congregation Land Sale Proceeds Assignment Agreement does not stipulate a date nor any deadline for the sale of the subject property, and the ABC District has no recourse in the event that the eventual sale proceeds are insufficient to discharge the $6,000,000.00 loan receivable in full. Accordingly, the POP Congregation Land Sale Proceeds Assignment Agreement is wholly inadequate consideration for ABC District’s forgiveness of the POP Congregation’s $6,000,000.00 debt to the CEF Trust or the CEF Quistclose Trust.