HARRISBURG, Pa. — Judge Yvette Kane of the U.S. District Court for the Middle District of Pennsylvania denied a motion for discovery by the American Bankers Association and other plaintiffs in its lawsuit against NCUA.
The plaintiffs had requested discovery in the nearly two-year-long battle regarding NCUA's approval of a community charter for Members 1st Federal Credit Union and subsequent others, because they alleged NCUA's record was incomplete and biased on the community charter approval. The credit union submitted its initial application for eight counties, which was rejected, then later submitted a draft for a six-county area that NCUA commented on and led Members 1st to the submission of the current community charter being challenged. AmeriChoice FCU, and New Cumberland FCU were also approved for the same community and are named in the suit.
The bankers claim this back and forth demonstrated bias in the application process. Judge Kane commented in her opinion, "Although the Banks allege that the NCUA acted in bad faith by coaching the Credit Unions, the Banks offer no support (and the Court is aware of none) for the proposition that the agency's willingness to meet with Members 1st and discuss its charter application rises to the level of bad faith necessary to warrant deviating from the firmly established rule that review must be limited to the administrative record…Furthermore, any allegation of bad faith must be considered in light of the undisputed fact that the NCUA rejected the initial, more expansive Members 1st community-charter application."
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The judge partially cited the credit union arguments stating, "The Credit Unions' response to these allegations is that the "interaction that [took] place between the credit unions and the NCUA staff during the application process is neither unusual nor inappropriate. It is in fact typical of the regulatory process and of the relationship between federal regulatory agencies and the parties they regulate." Similarly, the NCUA argues that the agency's 'willingness to assist regulated entities in complying with statutory and regulatory requirements' does not, as a matter of law, compromise the adequacy of the factfinding procedures," the opinion read.
Judge Kane stated, "In this case, the Banks raise serious public-policy questions regarding the wisdom of a statutory scheme that forecloses debate and permits only one view to be presented to the adjudicating agency. However, meritorious these concerns may be, the APA does not warrant their consideration in the context of an APA challenge. The Banks' issue is with the statute–not the agency's application of it."
On the matter of completeness, the ABA and others, argued that NCUA's record was incomplete without materials expressing other points of view and that the documents submitted to the court as the official record were not the ones reviewed by the NCUA Board. The court agreed with the credit union side that "an administrative record is not limited to those documents actually considered by the Board…Here, it is highly unlikely that the individual members of the Board carefully parsed through each line, page, and document included in the administrative record, but the record itself is not improperly overinclusive as long as the document were considered by the agency, either directly or indirectly."
The bankers also argued there were gaps in the documentation, but Judge Kane said they did not meet the burden on proof that "any critical documents" are missing. The application, Board transcript, and other documents were all included. "The cited gaps in the record do not frustrate effective judicial review. The document spans seven volumes and over 2,000 pages," she noted.
Judge Kane held that it is the rare exception where discovery beyond the administrative record is permitted in an Administrative Procedures Act case. "Whether the NCUA's investigation with respect to the community–charter application met with applicable standards is not presently at issue before the Court; rather, the narrow issue presented is whether the NCUA's factfinding procedures are legally deficient such that a de novo review is available. On that narrow issue, the Court finds that the factfinding procedures employed by the NCUA were adequate to develop a record upon which judicial review can occur."
NCUA Director of Public and Congressional Affairs John McKechnie commented, "The Court held that the review of the NCUA Board's decision will be limited to a review of the administrative record–there will be no discovery–and that the standard of review will be the "arbitrary and capricious" standard that is, the NCUA Board decision will be overturned only if it is found to be arbitrary or if the Board failed to follow procedural requirements required by law. This is the standard that grants deference to the agency. Overall, we are pleased with the decision, thankful for [the Department of Justice's] representation in the case, and looking forward to the Court's consideration of the merits."
Members 1st Federal Credit Union President/CEO Bob Marquette stated, "We're absolutely thrilled with the ruling. It's not only good for us but the credit union community and NCUA as well." However, he said he would not make any predictions about the final outcome of the case based on this matter.
"It's not the end of the case but it's a very good move for NCUA and the credit unions and CUNA and NAFCU because we intervened in this case," CUNA General Counsel Eric Richard said. The three affected credit unions, CUNA, the Pennsylvania Credit Union Association, and NAFCU all intervened in support of NCUA. The case originally filed in November 2005 by the ABA, the Credit Union Strategies Task Force of Pennsylvania–a partnership between the Pennsylvania Bankers Association and the Pennsylvania Association of Community Bankers–and several area banks.
Coming from Pennsylvania, where the ABA has made a number of legal challenges at the state level, PCUA Senior Vice President of Communications and Marketing Mike Wishnow said the association was relieved at the decision because the ABA has used similar tactics to introduce the issue of taxation in suits there. However, Wishnow added that was "purely conjecture" on his part.
According to NAFCU Senior Counsel and Director of Regulatory Affairs Carrie Hunt, a teleconference to decide on how to proceed with the case is slated for Oct. 10. No one is quite sure where things will go, whether they proceed with oral arguments or briefings, until that time.
Marquette is optimistic about the outcome and said, "We really do think the bankers should sit back and think" about whether their legal attacks against credit unions are worth the effort.
Members 1st has been "full steam ahead" with its community charter despite the legal challenge, opening branches and rolling out services, according to Marquette.
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