BROOKLYN, N.Y. - Adminstering a double whammy to the hopes of six (of nine) ousted Polish and Slavic FCU (P&SFCU) board members seeking to reverse an April 17 seizure of their credit union, NCUA February 2 filed a stinging response here to the directors' December 20 appeal brief and, on the following day, voted to return the $600 million-asset FCU to it members.
In the response brief, agency lawyers dismissed appellants' arguments on the restricted permissibility of conservatorship as both technically inadmissible and factually incorrect, and moved for court affirmation of the lower court ruling mostly on threshold grounds of maladministration.
In addition, agency lawyers contended that a joint "friend of the court" filing in support of P&SFCU directors-from the Polish-American Congress and the Association of Polish-American Credit Unions-"essentially restates the positions advanced by the Credit Union Board" and also "misses the point."
And in the related action, the NCUA Board voted to return P&SFCU to an appointed advisory board of members, announcing a complete restoration of internal audit procedures and the negotiation of a $185,000 fine from the Treasury Department for currency reporting violations that, in part, led to the seizure.
Recapping its case against P&SFCU (CU Times, April 28, May 5, May 19, May 26, June 30, and January 5, 2000) in the first part of its 48-page response brief, NCUA then unmasked main batteries and hammered away at threshold matters of conservatorship law that tried to cast most, if not all, of P&SFCU claims as beside the fact.
Citing as its basic conservatorship authority a Federal Credit Union Act passage that authorizes seizure if "the (NCUA) Board determines that such action is necessary to conserve the assets of any insured credit union or to protect the (Insurance) Fund or the interest of the members of such insured credit union," NCUA argued that, even based on the administrative record (NCUA's internal conservatorship record) alone, threshold statutory grounds for P&SFCU's seizure existed.
It then stated that the district court's July ruling upholding the conservatorship affirmed this position when U.S. District Court Judge Jack Weinstein said, "The record of the administrative hearing by the NCUA Board supports its finding that a conservatorship was appropriate. There was substantial proof before the NCUA Board from which it might find serious deficiencies in the (Credit) Union's operational structure, internal controls, asset liability management and business planning, as well as conflicts of interest and Bank Secrecy Act violations."
The point is important because P&SFCU directors are arguing in appeal that the administrative record is biased and selectively compiled and that, therefore, a full record (or de novo) review is in order to ascertain if grounds truly existed for the conservatorship.
In line with this tack that a faultily imposed conservatorship is "arbitrary and capricious," even assuming an agency right to conserve a solvent and viable FCU (P&SFCU had $600 million in assets and a capital ratio of 15% when conserved), the directors also are now disputing NCUA's statutory authority for conservatorship in cases where there is no imminent threat of insolvency and liquidation.
It is an argument that NCUA attorneys categorically dismiss.
"The Credit Union Board argues," NCUA's brief reads, "for the first time on appeal that `Congress intended that the drastic remedy of conservatorship be reserved for emergency situations in which the credit union is faced with imminent liquidation....' This argument should be rejected at the outset because this Court has `repeatedly held that if an argument has not been raised before the district court, (the Court) will not consider it.'"
"In any event," the brief continues, "the Credit Union Board's argument ignores the plain language of the Act and its legislative history, which indicate that conservatorship is among the several enforcement methods granted to the NCUA Board in carrying out its statutory mandate of regulating and supervising federally insured credit unions."
The brief then goes on to agree with P&SFCU that agency establishing authority for conservatorship resides in the 1982 "Garn-St. Germain Act"-whose legislative history P&SFCU used to make its case for restricted conservatorship authority-but adds that this law was subsequently modified by the Competitive Equality Banking Act of 1987 which made it clear that conservatorships could be imposed in other than extreme situations.
Accordingly NCUA concludes: "Thus an imminent insolvency is not required before a conservatorship is ordered. Instead, conservatorship is authorized when, as in this case, `the Board determines that such action is necessary to conserve the assets of any insured credit union or to protect the Insurance Fund or the interests of the members of such insured credit union.'"
But the brunt of NCUA's appeal argument is borne by its threshold points.
Here it seeks to make irrelevant all de novo P&SFCU claims (some of which were entertained in the lower court proceeding) such as suppressed evidence, ethnic bias, personal vendetta, and investigatory conflict of interest because "sufficient evidence (existed) in the administrative record to form a reasoned opinion that the statutory grounds for the appointment of a conservator exist."
"Nothing elicited at the hearing changed the fact that the Credit Union faced substantial potential fines for violations of the Bank Secrecy Act...," NCUA's brief drives home. "Nothing elicited at the hearing changed the fact that the Credit Union Board sought to restrict the authority of CEO Ron Thomas, whose hiring had led to NCUA's earlier decision to withdraw the threat of civil money penalties...," it went on, adding several other of its named grounds as threshold points for a legal seizure.
"The district court properly denied the Credit Union Board's application to enjoin the conservatorship," it concluded.
For its part, however, P&SFCU's appeal is disputing all these threshold claims as the product of tainted evidence and selective investigation.
The case is not expected to go to trial for several months. -
gmcorrigan@mindspring.com
