SHERMAN, Texas - The case pending between the NCUA and the twoDallas area credit unions that are seeking to become bankscontinued to build last week as the credit union filed itscounter-arguments to NCUA's first submission and the U.S. JusticeDepartment beefed up its legal team. In addition two bankingassociations, America's Community Bankers and the IndependentCommunity Bankers of America, submitted their contentions about whythe NCUA regulations should be overturned. The two credit unions,the $1.4 billion Community CU and the $1.2 OmniAmerican CU havesued NCUA in an attempt to force the agency to reverse its previousdecision not to validate their charter change votes, because, inthe agency's view, the disclosure packages the credit unions sentto the members violated regulations. Attention in the early days ofthe legal struggle has centered on the credit union's attempt toconvince the Court to grant a preliminary injunction against theagency to force the agency to reverse its previous decision andvalidate the vote, an attempt the agency has countered in itsarguments. In last week's developments, legal sources familiar withthe Justice Department speculated that the addition of anotherlawyer from its Civil Division to the case likely meant that thecase is moving up in importance on the Department's list ofpriorities, noting that there is usually plenty of litigation forDOJ lawyers and that the Department was sometimes stingy aboutparsing out its legal talent. In addition to Renee Orleans, thelawyer with the Civil Division already assigned to the case the DOJhas added Marcia Tiersky, also with its Civil Division to thefight. Tiersky's recent work includes being part of the legal teamwhich defended the USDA's policy of allowing the import of cattleyounger than 30 months old from Canada. This is a hard fought casewhich pitted Canadian beef producers and the USDA against U.S.cattlemen seeking to keep Canadian beef out of the country becauseof fear it might be tainted by the so-called "mad cow" disease.Tiersky and the government lawyers eventually prevailed in thatcase. Meanwhile, the Court set a date to hear OmniAmerican'scomplaint seeking a preliminary injunction for Aug. 31. Community'slaw team will be in the Sherman courtroom making its arguments onAugust 17. In its most recent brief filed in response to NCUA'sinitial defense of its actions, Community tried to cast the fightas little more than an out of control regulator seeking to preserveits own turf. "This is a simple case of government overreaching,"Community wrote in its 34 page brief. "The National Credit UnionAdministration, an agency in decline with a bloated budget fundedby credit unions like CCU through its members, has attempted tohalt the steady departure of `client' institutions by exercisingauthority, which Congress has specifically precluded. In this caseit determined to nullify the will of thousands of credit unionmembers based on the way a page was folded." The core ofCommunity's brief centered on trying to convince the court that itdid not need to hear the case under the U.S. AdministrativeProcedures Act but could hear it under the Federal Credit UnionAct. The distinction is important to its legal effort because underSupreme Court decisions Courts judging federal agencies under theAPA have to grant them a very high degree of deference while Courtsviewing their actions on a different basis do not have to do so.Unsurprisingly, the credit union also argued that even if the Courtshould examine the agency's actions under the APA it should stillfind them unacceptable, in part because the NCUA's actions violatethe FCUA's requirement that its regulations on charter change be nomore or less restrictive than other Federal financial regulators.NCUA contended that its regulations were consistent with otherregulators, just not identical, and used the Office of ThriftSupervision's regulations of banks going from mutual to stock as anexample of this. But Community countered with the argument that theOTS regulations are meant to govern the change of ownership, frommutual to stock, where as NCUA's regulations merely govern themovement from a cooperatively owned credit union to a mutuallyowned bank. Community also argued that it merits a preliminaryinjunction against NCUA's decision because the agency's regulationsviolated its right to freedom of speech and, if left in place,would cause it irreparable harm. "Without question, NCUA's mandateddisclosures and its attempts to control the order of presentationof materials constitute compelled speech without adequategovernment justification," the credit union wrote. The credit unionalso argued that NCUA's actions have caused it irreparable injury,one of the standards for whether the Court can grant a preliminaryinjunction, by arguing that having to go through a trial andanother vote might mean it never gets to become a bank. The creditunion pointed out that the OTS approval of its charter conversiononly lasts 120 days and cannot be guaranteed to happen again, thecredit union argued. Meanwhile, the America's Community Bankers andthe Independent Community Bankers of America announced their briefin the case, although as of press time the brief had not yetappeared on the docket record. "This is an `origami' case," the ACBsaid its brief would argue, because the NCUA action was not basedon the substance of the disclosure CCU made to its members, butrather revolves entirely on how a piece of paper that transmittedinformation about the conversion to credit union members wasfolded. Origami is the Japanese art of folding paper intodecorative shapes. "This is a case about charter choice. It isabout the right of credit union members to choose the charter thatwould "better serve the interests of its members and of the localcommunity," the brief notes. "Congress and the States have providedmany forms of charters for depository institutions," the briefexplains. And it has provided depository institutions "with a greatdeal of freedom to convert from one type of charter to another."Some 33 state bank associations also signed on to the brief, whichwas prepared by Venable LLP and filed late Tuesday. "What NCUAattempts to characterize as `interpretation' of its own rule is, inreality, an attempt to impose an illegal, bootleg requirement,which was never subjected to public notice and comment and which iswithout any support whatsoever in the text of the rule the agencyactually adopted," the ACB's announcement said. -

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