Legal Actions Linger as Texans Aims for Efficiency, New Service Balance
For starters, the $2 billion financial institution has been hit with a litany of lawsuits from former executives with charges ranging from wrongful termination, failure to abide by an arbiter's ruling of reinstatement and breach of contract.
The latest legal action came in October when Richard M. Boyd, the real estate investor who bought the majority share of Texans Commercial Capital in 2007, filed a suit against Texans to recoup between $5 million and $10 million for allegedly breaching a contract involving branch leases, according to Michael Lynn, Boyd's attorney. Boyd had borrowed money from Texans CU to purchase property and build two branches for the CU. Lynn said Texans CU agreed to lease the properties for the financial institution's use. The allegation, according to Lynn, is that the CU "failed to live up to their side of the bargain." As a result, Boyd incurred the cost of the debt. The case is pending.
In another case this past October, attorneys for Kevin Curley, the former president of Texans Insurance Group who was terminated in April 2007, filed a new legal action against Texans for violating an arbitration ruling to reinstate Curley and award him back-pay and benefits. The lawsuit alleged that Texans illegally fired Curley from his post as president of the company and then refused to follow a July 2008 arbitrator's award that found Curley should be reinstated. Texans initially told Credit Union Times that Curley had been reinstated on Sept. 1. However, William A. Brewer, Curley's attorney, disputed that claim, saying Texans had not allowed Curley to resume his post and was refused entry to the premises. Like Boyd's case, Curley's action is still pending.
Texans' lawsuit woes go back to 2006 when former Texans Commercial President/CEO John C. O'Shea; Paul J. Valdez, former senior vice president/chief financial officer; and Joel B. Fox, former executive vice president/chief operating officer, were fired by Texans CU President/CEO David Addison, in a convoluted case involving defamatory statements, discussions of a bank conversion, a possible sale of the commercial lending CUSO to a larger CU and unpaid compensation packages, according to the petition. A jury ruled in the executives' favor, saying each was entitled to $1 million in damages, according to Hal Gillespie, their attorney. At last check, Texans vowed to appeal the case.
Through it all, Texans CU has offered few comments on either of the suits bound by legal restrictions on what it could and could not respond to.
Amid its legal snafus, the credit union's commercial lending CUSO, Texans Commercial Capital, had to make several adjustments to counter a drop in its member business lending activity. In July, Texans said it made the decision not to originate any new loans as a result of reaching its 12.25% member business lending cap. According to NCUA data as of Sept. 30, the credit union had $454.2 million in total member business loans less unfunded commitments, down from $613 million in September 2007. Construction and development loans were up to $243.5 million as of Sept. 30, a 7.5% increase over figures for June 2008 but significantly down from March's $348.5 million. Total MBL charge-offs were $9.2 million and recoveries were $2,500.
"We will continue to offer loans to businesses. As the economy and real estate market evolve, our decisions will be based on the prudence required," Texans CU said in a Dec. 11 e-mail to Credit Union Times.Still, the credit union said it will continue to maintain its focus on managing its existing commercial loan portfolio to minimize exposure. "Reasonable" business loans, even in a "difficult climate," are also expected in 2009. A number of goals are on the table for the New Year. Texans CU said it will continue to focus energies on member-checking growth, debit card usage, e-statement adoption and new and used auto loans on the retail side. It is also looking to expand the businesses it serves through treasury management services. In July, the credit union transition beyond what it described as a move from a "margin-shrinking retail banking product set" with the launch of Innovative Support Solutions, a risk management, fraud protection, operations and consulting services CUSO.
"Texans will also focus on internal operating costs," the credit union said on its 2009 targets. "Our organization grew substantially during the last up cycle in the economy. As the down cycle continues, Texans will focus on increasing its operational efficiency and reduce operating costs where appropriate."
And, to take a more proactive approach on sharing its side of the story, Texans CU hired Margaret J. Blankers Public Relations Group LLC in November to make it happen.