DFCU Case Awaits Judge's Decision on Jurisdiction; Special Meeting Which Could Recall Board Members at Stake
DEARBORN, Mich. - The attempt of initially two, and now three, DFCU Financial members to force the credit union to hold a special meeting at which all or part of the board of directors could be removed now awaits the judge's decision about whether his court has jurisdiction to make a decision in the dispute. The DFCU members took the CU to court after a members group, DFCU Owners United, gathered over 1,700 signatures of CU members seeking the meeting in the wake of the board decision to attempt to move the credit union to a mutual bank charter. DFCU has roughly 160,000 members.
Despite having its roots in the charter argument, the members of DFCU Owners United insist that their call for a special meeting has more to do with the CU refusing to let them see documents related to the conversion decision. The documents, the members argue, would reflect whether the board members fulfilled their fiduciary duty to the CU's members in the charter change decision.
The $1.8 billion CU had countered the members' legal position by arguing that the court did not have jurisdiction and that the members themselves lacked standing to bring the case because the two original plaintiff members, Richard Sly and Raymond Ward, were not among the CU members who had originally asked to see documents relating to the conversion.
To counter that argument the plaintiffs added Margaret Blohm, a member of DFCU Owners United who had asked to see the documents, to the case. Blohm stressed that she was asked to the join the suit in her capacity as a CU member and not as member of DFCU Owners United.
Though it did not speak through Blohm, the group did not remain silent about the hearing or the issues it raised.
Among those who attended the hearing were Jeanne Dawson-Collins, treasurer/manager of the Blue Water Federal Credit Union, the members group reported. In a prepared statement, the group quoted Dawson-Collins as a board member of Blue Water.
"I'm concerned that the board of a lucrative, well capitalized credit union would choose to become a mutual savings bank and possibly gain financially as individuals instead of giving back to their members" in the form of financial services or dividends.
"I also find it interesting that they [DFCU Financial's board and management] could even think that they don't have to hold a special meeting that's been requested by their members," Collins said, reflecting the sentiments of most of the credit union members present at the hearing.
But not surprisingly, DFCU did not see the situation in that light, arguing the jurisdiction question and suggesting that seeking revenge for the charter change move is what motivated the case.
"It is in this context that the demand for the special meeting must be examined," the CU argued in its briefs. "The petition for the meeting is not in response to the directors withholding documents from inspection. That is a pretext. Owners United-and certainly Plaintiffs Sly and Ward-never even bothered to bring this `issue' to the attention of the Board. The real issue is and always has been the `audacity' of the directors even to consider proposing a conversion from a credit union to a mutual savings bank. Plaintiff Sly has conceded as much..The Court lacks subject-matter jurisdiction to adjudicate this case," the CU added.
"This Court may not recognize or divine a `federal common-law' cause of action.Plaintiffs therefore do not set forth a federal question sufficient to confer jurisdiction on the Court, and the Complaint should be dismissed on this basis alone," the CU stated.
For their part, the CU members cited instances where the courts previously had made decisions about federally chartered credit unions and did not see any question of their jurisdiction to do so.
"Subject matter jurisdiction over Plaintiffs' Complaint is based on federal common law," the CU members argued. "Pursuant to established federal common law principles, federal courts have long recognized the unique federal interest in applying and interpreting federally mandated credit union bylaws in a uniform manner. Both the Sixth Circuit Court of Appeals and the Eastern District of Michigan have specifically recognized the need to protect these interests and have found federal subject matter jurisdiction to adjudicate lawsuits concerning the interpretation and application of federal credit union bylaws. These decisions have not been overturned. Because these cases recognize a federal common law cause of action for enforcement of credit union bylaws by members, this Court may properly exercise subject matter jurisdiction."
The members cited a previous, similar case, Barnett v. Cross, where Judge Friedman of the same court granted a preliminary injunction in favor of members of Flint Automotive Credit Union, ordering a special meeting of the membership to consider removal of the directors for alleged violations of the Federal Credit Union Act and the credit union's bylaws. Defendant board members appealed.
Even though the board members appealed, The Sixth Circuit affirmed the entry of the preliminary injunction. "Although Barnett does not specifically address the subject matter jurisdiction issue, it is apparent that Judge Friedman found subject matter jurisdiction to enter a preliminary injunction ordering a special meeting to enforce the federal credit union bylaws concerning the removal of directors, and the Sixth Circuit did not dismiss on subject matter jurisdiction grounds."
On July 6, Judge Lawrence Zatcoff said he would decide on whether his court had jurisdiction before ruling on the plaintiffs' complaint. In their briefs, the plaintiffs cited examples where the U.S. District Court for Eastern Michigan had ruled on credit union cases, demonstrating its jurisdiction. -email@example.com