Federal judge considers liquidating assets of Charles Street AME in bankruptcy hearing

U.S. bankruptcy Judge Frank J. Bailey ordered attorneys for both the Charles Street AME Church and OneUnited bank to submit briefs that could offer the legal basis to liquidate all of the church’s assets in order to satisfy more than $5 million in church debt.

In the surprising order, Judge Bailey also asked the attorneys to consider whether the appointment of a U.S. trustee or an examiner to monitor the day-to-day church operation would violate the separation of church and state.

The order was made after last week’s trial involving the church’s proposed repayment plan and financial reorganization. The trial also heard arguments on OneUnited’s motion to dismiss the church’s bankruptcy petition outright.

Judge Bailey has not made a ruling on either but has set a July 16 deadline for the briefs. Bailey also said that closing arguments in the case are scheduled for July 22.

At issue is whether the court will accept the church’s proposed plan to repay nearly $5.2 million in loans to OneUnited bank, the nation’s largest black-owned bank.

Charles Street filed for bankruptcy in March 2012 in a move to keep the church operating as it has for nearly the last two centuries. In addition to its debts to OneUnited, Charles Street owes about $630,000 to Thomas Construction Co., the Dorchester firm hired to build its proposed community center; another $450,000 is owed to Tremont Credit Union for a loan to repair the church’s roof.

OneUnited attorneys have opposed the church’s repayment plans in large part because of what they have discovered are significant problems with the church’s financial statements that are being used to determine the repayment plan.

The litany of financial problems goes on and on, the most recent involving the use of Lilly Foundation funds which were designated for use only to support the church’s pastoral program.

Groover testified last week that after a thorough review of the church’s financial records, they improperly transferred $825,000 from the Lilly funds to pay for day-to-day church expenses.

In his order, Judge Bailey asked the attorneys to file briefs on several specific constitutional questions.

“Would [Charles St.] object on First Amendment religious freedom clause grounds to the appointment of a Chapter 11 trustee were dismissal the only alternative,” Bailey asked. “If [Charles St] would have religious freedom concerns or objections, could the role of a chapter 11 trustee be sufficiently limited or defined to overcome the objection?”

+Publisher/Editor Melvin B. serves on the Board of OneUnited Bank.