Leveraging Conflicting NCUA Opinions
The NCUA has contradicted itself regarding the basis of a member’s lawsuit against the $161 million St. Helens Community FCU of St. Helen, Ore., and the examples of those contradictions are documented and working their way into court.
NCUA Public Affairs Specialist John Fairbanks said the agency is not taking any sides on the case. “This is a matter before the court and we will wait to see what the judge decides.”
But that hasn’t stopped both sides from using the NCUA’s words in court, including a Sept. 7, 2012, email from Region V Director Elizabeth Whitehead to a member, plaintiff Steve Knebel, that informed him the region had dismissed his Aug. 27 complaint that St. Helens violated Federal Credit Union Act bylaws when it counted absentee ballots during a special meeting to recall five directors. Knebel had warned the NCUA ahead of the meeting that the credit union had mailed more than 15,000 absentee ballots to members along with a letter from CEO Brooke Van Vleet encouraging members to retain the five volunteers because “an unwarranted and impulsive recall at this time will be disruptive to the credit union.”
The NCUA has discretion to take administrative action when those violations occur, Whitehead said, and when the agency contemplates further action, it considers safety and soundness and whether a violation of member rights occurred.
“We reviewed your complaint along with the information provided to us by the credit
union. Our investigation of this matter did not reveal there is a material safety and soundness issue nor a threat to the fundamental material rights of the members,” Whitehead said. She closed by telling Knebel if he wishes to pursue the matter further, he should consult with his own legal counsel.
Incidentally, Knebel said he never received that letter, originally sent as an email, which was sourced by the credit union’s legal defense April 12 as part of an ongoing attempt to dismiss Knebel’s lawsuit, filed Feb. 6 in U.S. District Court inPortland,Ore.
Because he didn’t learn about the existence of the letter until the credit union sourced it in a legal reply, Knebel filed a motion April 17 to respond to it in court. Region V Director of Supervision Kimberly Twieg confirmed in an email, which Knebel included in the motion as evidence, that it had been incorrectly addressed.
“Unfortunately, when sending you the original message we listed your email extension listed as .ent rather than .net so our email was misdirected,” Twieg said.
The credit union originally filed to dismiss the suit March 1, with Knebel countering April 1 with a reply that included a legal opinion from General Counsel Mike McKenna that appears to contradict Whitehead’s letter.
McKenna told Knebel in that opinion the credit union’s use of absentee ballots violated Federal Credit Union bylaws. McKenna also addressed a credit union legal argument to dismiss the federal case when he said “state law has no role.”
Further, McKenna said a member’s “fundamental, material and credit union member rights include a member’s right to participate in the election of directors and the right to petition for removal of directors and committee members.”
The legal opinion also said the bylaws “clearly and unambiguously provide that in-person voting is required at a meeting called to consider removal of a director.”
Knebel said he interprets McKenna’s legal opinion to mean that by violating the bylaws when it counted absentee ballots,St. Helensviolated members’ rights to a recall election.
“McKenna made it abundantly clear,” Knebel said. “A special meeting to recall a board member is like a jury, and if you’re an absentee voter, you’re making a decision based upon information from just one side. I appreciate the credit union’s attempts to make everyone’s voices heard when they sent out the ballots, but I’m sorry, it violated the bylaws.”
In an April 12 dismissal reply, the credit union’s legal defense didn’t source McKenna when addressing the question of rights but. rather, sourced Whitehead’s Sept. 7 letter than said no rights had been violated.
“As such, the plaintiff’s remedy is to enforce the bylaws as a contract between the Credit Union and Plaintiff in state court,” wroteSt. Helensattorney Harold B. Scroggins in the reply.
Further, Scroggins went into great detail regarding why the case should be dismissed on the basis of subject matter jurisdiction and argued the case should be handled by state court.
When the NCUA reincorporated federal credit union bylaws into its regulations in 2007, it did so to assure the regulator could take administrative action to avoid costly litigation between a credit union and member when appropriate,. That incorporation of bylaws into NCUA regulations did not, as Scroggins said Knebel claims, affect a member’s ability to enforce the bylaws as a contract under state law.
“NCUA views its involvement in bylaw disputes as an alternative to state court action. It does not usurp members’ state court remedies,” Scroggins wrote.
Scroggins also sourced McKenna’s letter in its April 12 dismissal reply, saying it interprets McKenna’s opinion regarding federal versus state court venues to mean that “state law does not supplant or alter the provisions of the bylaws. It does not address the question of whether federal courts have subject matter jurisdiction over breach of bylaw claims.”
The NCUA could have enforced the bylaws, but it declined to do so, Scroggins said. As a result of that decision, the NCUA authority to enforce and interpret federal credit union bylaws is irrelevant.
The owner of two hydroponic gardening supply stores – and a longstanding member business relationship with the credit unions–Knebel is part of a group of members seeking more control over the credit union after the board proposed a merger with the $152 million Wauna FCU and fired former CEO Jeff Schwarz. Although that merger has since been called off, the group successfully elected two of its own to the credit union’s board, and Knebel said the group will attempt to capture two more seats up for grabs at this year’s annual meeting.
St. Helensspokespersons have declined offers to comment on the case, citing a policy to not comment on pending litigation.