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Defendants Cite CapCorp in Motions to Dismiss 
1/27/2010 

 

In three separate lawsuits that involve U.S. Central Federal Credit Union and Western Corporate Federal Credit Union, defendants argue plaintiffs don’t have the right to sue, because charges are so-called “derivative claims.”

And, they’re citing the dismissed 1997 CapCorp case as precedent.

In Corporate Central Credit Union’s suit against U.S. Central Federal Credit Union, defendant NCUA cited Lafayette Federal Credit Union v. National Credit Union Administration, which it said was dismissed due to a “lack of standing” per federal law.

NCUA also cited Lafayette in the WesCorp case when it filed a Dec. 30 motion to replace the seven natural credit unions as plaintiffs, stating “only the Board, and not the individual credit union members, could bring a derivative suit.”

The NCUA also argued the Financial Institutions Reform, Recovery and Enforcement Act of 1989 applies in the WesCorp case, which has been successfully used by the FDIC in court.  FIRREA awards all rights, titles, powers and privileges to regulators in the event of a conservatorship.

Corporate America Credit Union CEO Thomas Bonds, whose credit union is suing U.S. Central for securities fraud, said CACU is alleging U.S. Central specifically defrauded the Alabama-based retail corporate, and therefore should be allowed to pursue a direct claim.

“We’re not alleging the defendants caused harm to U.S. Central, we’re alleging they harmed us,” he said.

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    • 1/28/2010 10:44:00 AM
    • Jeffry Pilcher
    • Too much legalese, not enough explanation
    • (1) What is a "derivative claim" or "derivative suit," terms used twice in this article? I had to look it up... "A derivative claim is a claim brought by a shareholder (rather than a director) on behalf of a company in respect of a cause of action belonging to a company. They are fairly rare as the directors will usually bring proceedings in the company's name." http://www.sykesanderson.com/Latest_news/news_050328_2.asp (2) In the third paragraph, a case was "dismissed du to a 'lack of standing.'" What does this mean? How did it work back then, and why does it apply today?
    • 1/28/2010 11:16:24 AM
    • Heather Anderson
    • Re: too much legalese
    • Thank you for your comments, Jeffry. To answer your questions, you are absolutely correct in your definition of a derivative claim; however, there is one very important detail to add: in the event the suit goes to court and defendants are found guilty, any damages are awarded to the harmed corporate, not the plaintiffs. That's because a derivative claim addresses overall damage to an institution. A direct claim involves specific damage to one shareholder, which explains Bonds' quote. By using the derivative claim defense, the NCUA is attempting to keep control over all the assets of the two seized corporate credit unions. The NCUA's 'right' to do this is supported by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, which awards all rights, titles, powers and privileges due members to regulators, in the event of a conservatorship. Do those words sound familiar? They should, the NCUA has been using the same terminology ever since they placed U.S. Central and WesCorp into conservatorship. The spirit behind the law is that for every dime and minute the NCUA spends defending WesCorp and U.S. Central, that's time and resources they're NOT spending on returning the corporates to solvency. The CapCorp suit is very relevant to the current cases, because of the conservatorship issue. However, it's up to the judge to decide whether or not to grant the derivative claim. All these questions are answers in the 'print edition' of this story, which publishes Feb. 3. Apologies for the lack of specifics, but our online stories have word limits. (Anybody want to help me condense this story down to 140 Twitter characters or less? haha)