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DEARBORN, Mich. – In court papers filed Feb. 28 in Wayne County Circuit Court, the $1.8 billion DFCU Financial FCU alleged that the DFCU Owners United group is nothing more than a front for the Michigan Credit Union League and that a former CU executive, now a league executive, defamed both the credit union and its board. The filing also alleged that the Owners United group’s Web site was registered to and paid for by the league, that one league employee promoted the group’s first meeting on league e-mail during business hours, and that league employees representing the league spoke at that meeting. The defamation charges tied to the league executive came against Alan Babcock, currently the league’s vice president for strategic consulting. Previously, he served DFCU Financial as vice president of lending. Babcock began working with the league in March of 2004. The credit union charged that Babcock defamed the credit union and its board of directors by telling attendees at the Feb. 8 DFCU Owners United meeting that the “only clear reason for the conversion was the enrichment of the Directors and Managers at the expense of the Members.” Babcock was named as a defendant in the suit on his own and declined to discuss the case. David Adams, CEO of the Michigan League, said that because the suit alleged that Babcock was working as an employee of the league at the time he was alleged to have made the statement, the league will defend him as well – even though the league contests that Babcock was working for the League at the meeting. There is also an odd split in the CU’s case. On the one hand, the CU wants to argue that the league staff who attended the first organizing meeting of the DFCU Owners United member group were there not as credit union members but “at all times” acting as agents for the league. Yet, the CU’s complaint also alleges that the league staff at the meeting should have identified themselves as league employees. “One of the most important material facts which should have been disclosed at the Opposition Meeting was the identity and/or affiliation of the group or individuals who were backing or assisted in the organization of `DFCU Owners United’,” the lawsuit stated. “This information allows the members to assess the possible motives of the speakers or organization and critically evaluate the information. The League’s involvement was not disclosed at the Opposition Meeting. In fact, attempts were made to distance the League from any involvement.” But one of the league’s positions opposing the suit is that the league staff attending the meeting did not do so as league employees and thus any identification with the league would have been inappropriate. Adams has said that when the league was notified of DFCU’s proposed conversion he told employees who were DFCU members that they could participate in the conversion debate but that they had to do so on their own time and at their own expense. He also noted that it was not surprising the DFCU members who were league staff might have been involved in setting up a members’ group since they were among the first DFCU members who knew anything about the conversion. “There were only a few courtesy calls that were made [about the conversion] that then created awareness among former employees, and others within the CU community,” Adams contended. “The DFCU Owners United group is entirely comprised of credit union members regardless of their other affiliations. They also are completely funded with individual member contributions as well as some credit unions and credit union organizations. Neither MCUL, nor any of its subsidiary companies have provided any funding whatsoever for the DFCU Owners United group,” he said. DFCU Owners United has refrained from commenting on the lawsuit directly, but has said that it funded its own operation and organization and that it is not a front for the league. In another curious aspect, DFCU’s suit suggested that the league has no business talking to individual CU members and that it has been precluded from talking about the proposed conversion by NCUA. “It is clearly inappropriate for a trade association, funded by member institutions, to take its views directly to individual members of a credit union and thereby interfere with the relationship between the credit union and its members,” the CU said in its court filing, characterizing MCUL’s action as “ultra vires” or beyond the league powers. The CU also suggested that concerns about NCUA are what has precluded it from speaking out about the conversion proposal to counter its critics. “DFCU is concerned about publicly commenting on the conversion prior to NCUA approval, because of the NCUA’s past actions, regardless of the inaccuracy of the comments made by the opponents of DFCU’s conversion,” the CU said. NCUA has said that its regulations do not preclude a credit union that is seeking to convert to a mutual bank from discussing that conversion with its members or answering their questions. As damages in the suit, DFCU asked the court to award it unspecified damages, attorneys’ fees and to “compel the League to cease and desist from aiding, supporting, funding, promoting, subsidizing or assisting in any manner whatsoever `DFCU Owners United’ or any other group opposing the conversion.” No information had become available as of press time about when arguments on this case might be scheduled on the docket. -

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