in Fort Worth, Texas-Consisting of just one nondescript office building with five classrooms and a small library, Tyndale Theological Seminary seems an unlikely setting for an insurrection. But this tiny Fort Worth, Texas, school has become the focal point of a legal battle against government control. At issue is a state law forbidding a religious school to call itself a seminary or award degrees unless it purchases a $3,000 "certificate of authority" from the state. The 13-year-old Bible school hosts about 60 students on campus, but educates another 260 through long-distance correspondence. Controversy erupted after the seminary awarded 34 diplomas using academic terms like bachelor and master at a graduation ceremony in June 1998. Unbeknownst to seminary staff, a state official at the ceremony collected incriminating graduation programs. One month later, the state higher education board fined the school $5,000 for each degree awarded, plus an additional $3,000 for calling itself a "seminary" without permission. Fines totaled $173,000. State officials gave the school 20 days to pay up or appeal. Instead, Tyndale filed a lawsuit and recruited two other schools-the Hispanic Bible Institute of San Antonio and the Southern Bible Institute of Dallas-to join its case. Founded in 1927 as an outreach for African-American men, the Southern Bible Institute awarded "bachelor of theology" degrees for 30 years until the state made it stop in 1975. "We lose students all the time because we cannot give out degrees," said the school's president, Gordon Mumford. Both institutes say state-imposed standards hinder their efforts to provide flexible course hours and economical tuition for minority students. A two-year legal battle has ensued with each side claiming the moral high ground: The state says it's fighting fraud. The seminaries say they want religious freedom. At the heart of the debate lies a question with national ramifications: Should the government define standards for seminaries? "We are not trying to have authority over seminaries; we are simply trying to protect the public from fraudulent or substandard degrees," said David Linkletter, the state official who crashed Tyndale's graduation. In 1975, the state extended certification requirements to religious schools to stem the tide of "degree mills" producing diplomas with little value, explained Mr. Linkletter. As an added precaution, the legislature added "seminary" to its list of "protected terms" in 1997. That frustrated Tyndale Seminary president Mal Couch-the colorful character at the center of this feud. A 6'2" former radio commentator with degrees from Wheaton Graduate School and Dallas Theological Seminary, Mr. Couch makes his case in a booming Southern drawl: "The state stole the word seminary from us. That's religious language," he said. "This is a freedom-of-religion issue." It's also an economic issue. In addition to the $3,000 application fee, state-certified schools must make expensive adjustments to meet 25 state standards-like adding more volumes to the library or hiring more teachers with state-approved degrees. After that, the state requires them to be "accredited" by a state-recognized organization-an eight-year process that costs some $1,800 a year in membership dues. If schools do not become accredited, they pay another $3,000 fee every eight years or so for the right to award a degree. Many states, including Florida, Louisiana, and Washington, have tightened their regulation of upper-level religious schools in recent years, said Rick Walston, president of the evangelical Columbia Seminary in Washington. The author of several religious school guides, Mr. Walston has surveyed state requirements for over 200 religious schools. Despite the trend toward tighter regulation, most states stay within constitutional confines by simply charging schools a one-time registration fee and then leaving accreditation choices up to the school, he said. Most states stop short of directly penalizing privately funded institutions. For instance, Bob Jones University-a private Baptist school in South Carolina-is state chartered but not accredited. South Carolina does not charge the school a renewal fee nor mandate that it be accredited. But Texas crossed constitutional lines by requiring schools to meet state-imposed standards, penalizing a privately funded school, and attempting to define the word seminary. That sends an ominous warning sign to small seminaries who find themselves in a catch-22: They either pay crippling fees or forgo the right to award "degrees"-ultimately reducing the marketability of their school and their chances of receiving foundation grants. In February, Mr. Couch won half the battle: A district judge knocked down a Texas law requiring a school to get state permission before calling itself a seminary. Still, the judge upheld the $170,000 penalty for awarding degrees without state approval. To win the rest of the war, Mr. Couch says he's willing to take the case to the Supreme Court: "They [state officials] want to come in here and tell us what kind of religion degrees our teachers should have. That's our business. Not theirs."