The NCUA is standing firm in its position that it doesn’t want to get involved in a lawsuit brought by a member against an Oregon credit union, but according to a prominent industry attorney, last week’s ruling could have repercussions for the federal regulator.
U.S. District Judge Marco A. Hernandez in Portland, Ore., dismissed plaintiff Steven Knebel’s claims against the $170 million St. Helens Community FCU of St. Helens, Ore., on May 20. Knebel sued the credit union after it allegedly violated bylaws by counting mailed ballots during a special meeting to recall directors. According to federal credit union bylaws, only votes placed in person at the meeting may be counted.
In his opinion, Hernandez wrote that the Federal Credit Union Act doesn’t provide Knebel with a private right of action in federal court. Furthermore, the judge questioned whether the FCUA, including the bylaws, has “the status of federal law.”
That’s a problem for the NCUA, said Washington-based attorney Steven Bisker, because the agency incorporated the by-laws into the Federal Credit Union Act in 2007 specifically so members could bring legal action against violating credit unions.
“This court has an opinion that says federal credit union bylaws are not federal law, which is clearly incorrect,” said Bisker, a former NCUA assistant general counsel who left the agency 25 years ago to open his own firm. “You don’t like to have a bad decision on the books. Although just because a court said it doesn’t make it so, you still have a decision in a federal district court that says the bylaws are not federal law.”
Bisker said he realizes the NCUA has “bigger fish to fry” than getting involved in a squabble between a credit union member and its directors, and has to give priority to safety and soundness when allocating agency time and resources.
However, he said it may be prudent for the agency to get involved in a “friend of the court” capacity, which would allow the NCUA to make a statement regarding the status of its federal bylaws, without being a party to the case. Additionally, he said including the bylaws in federal law also give the NCUA the ability to take administrative action when suits between credit unions and members become costly.
“We understand the plaintiff is planning an appeal, so we consider this litigation to be continuing,” he said.
Indeed, plaintiff Knebel said he does plan to file an appeal in federal court, and will also file a suit in state court.
“We’re not letting this die,” Knebel said. “Too many people are counting on this.”
The disgruntled member said he also plans to meet with his members of Congress to ask them to pressure the NCUA into becoming involved in the suit. Knebel said the case has become a matter of principle, and he’s fighting on behalf of not just his fellow members, but other credit union members that may face the same situation.
And, Knebel said he’s looking forward to the credit union’s annual meeting in June, when two board seats will be up for grabs. Last year, Knebel and his supporters successfully elected two of its own to the board, and should they elect two more, the group would hold a majority.
The recall election followed a failed merger between St. Helens and the $154 million Wauna FCU of Clatskanie, Ore. Knebel is among a group of members who opposed the merger and objected to the board’s firing of former CEO Jeff Schwarz.
Despite the NCUA’s efforts to stay out of the case, both Knebel and credit union attorney Harold B. Scroggins III have sourced the NCUA in their legal arguments. Knebel submitted to the court a legal opinion from NCUA General Counsel Mike McKenna solicited by Bisker that said bylaw violations don’t belong in state court. Although McKenna’s opinion didn’t specifically address the St. Helens case, the opinion did support Knebel’s claims by stating that only in-person ballots can be counted during recall elections.
Scroggins presented to the court a Sept. 7, 2012, email from Region V Director Elizabeth Whitehead to Knebel informing him the region had dismissed his Aug. 27 complaint.
“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 in the email.
St. Helens spokeswoman Barbara Harris was not available for comment on Wednesday.