First Basin CU Launches Legal Fight After Conversion Plan Washes Out
The now $129 million First Basin Credit Union filed its application to convert to a mutual bank charter in August 2007 but withdrew it before the member balloting was completed. At the time the CU said it withdrew the application because of a campaign of "misinformation," including phone calls, among members about the effects of the conversion.
Those allegations form the kernel of First Basin's legal complaint against six of its members, along with the National Center for Member Trust and the $303 million Self-Help Credit Union.
These six members were the most vocal against the charter change, organizing and supporting a member group called Save First Basin to fight it. The suit named Letty Ayala-Moreno, Carol Uranga and Sylvia Acosta--all organizers of Save First Basin--as well as Armando Rodriguez, a commissioner for Ector County, Manny Puga, who is CEO of the Odessa Hispanic Chamber of Commerce, and a Save First Basin supporter, Danny Armstrong.
The legal action seeks $600,000, the price tag First Basin put on the failed conversion attempt. The suit was formally filed last month in Ector County, Texas, district court.
The defendants have denied all the allegations in a pro forma legal filing, and no dates have been set yet for further proceedings.
"Of course, we denied everything completely," said Calvin Hendrick, an attorney with the Odessa firm of Shafer, Davis, O'Leary & Stoker. "The complaint is completely without merit," he added. "All these people did was speak up to say they didn't agree with the conversion of their credit union to a bank and why, and that is not a crime in the U.S."
Hendrick cryptically suggested that the CU's motives in the suit had more to do with intimidating members of credit unions nationwide from voicing opposition to credit unions conversions. He hinted that there may be further legal action from the members to come.
Because under Texas law the courts can compel some testimony before a complaint is filed, representatives of the members and the credit union each testified for an hour under oath.
During their depositions, First Basin CEO Shem Culpepper and Board Chairman Annette Snowden said that the credit union leadership commissioned no outside analysis or opinion on whether converting to a bank would have been in the best interest of First Basin Members. Neither mentioned the analysis or opinions in opposition to the idea that Culpepper received from CUNA Chief Economist Bill Hampel.
Hendrick explained that the depositions that the court has allowed in the case were not meant to be tied to this sort of legal action, and thus the court limited the initial discovery to one hour for each person. More time and the more formal discovery process would allow for more research and a more thorough understanding of the events of the conversion attempt, Hendrick explained.
Among the allegations contained in the complaint, First Basin charged that Save First Basin had either said or allowed others to post comments on its Web site that were untrue and that the staff for the National Center and Self-Help CU prepared the press releases and other materials.
"However, in essence, the entire conversion opposition process was underwritten and manipulated and controlled by defendants National Center for Member Trust and Self-Help CU," First Basin wrote in its complaint. "The literature that was handed out by the individual defendants was given to them by the National Center for Member Trust and Self-Help CU."
In their depositions, the members acknowledged learning what had happened in other mutual bank conversions from the National Center Web site (www.membertrust.org).
This has been an ongoing source of tension at other credit unions attempting this type of conversion. Credit unions seeking to convert have argued that the possibility they might convert further to a stock-issuing organizational structure should be irrelevant to the initial decision to convert to a mutual bank. Opponents of the conversions have argued that credit union members evaluating the options need to know all the effects it could have in the future.
First Basin included an appeal for an injunction in its filing as well. The credit union argued that the members, using letters that the National Center has ghostwritten, "continually and wrongfully interfere with the management of the plaintiff's business and its affairs by continual and frivolous complaints" filed with the state CU regulator.
So far, the courts have not scheduled any deadlines for further legal arguments. Neither First Basin nor its lawyer have commented on the case.