The $2 million, 1,500-member SMHA Federal Credit Union inCanton, Ohio, has sued the agency that chartered the credit unionmore than a decade ago.

The Stark Metropolitan Housing Authority, which signed a charterFeb. 15, 2001, to create the SMHA FCU, is being sued for breach of contract, according to alawsuit filed a week ago in Stark County Common Pleas Court inCanton.

The lawsuit, filed by Cleveland attorney Mark Wallach,representing the credit union, alleges that the Housing Authorityhas attempted to wrongfully recover $2 million previously allocatedto SMHA FCU, withheld $100,000 in subsidies, and threatened toraise rent on the building currently used as the credit union'sheadquarters.

The lawsuit contends that the housing authority's actions havejeopardized a proposed merger between SMHA CU and another creditunion and interfered with SMHA FCU's mission of providingaffordable banking services to low-income residents of local publichousing.

The parties involved in the lawsuit have not returned calls forcomment.

The creation of the credit union was funded, in part, by a HUDgrant, along with city and county funds, according to the lawsuit,and the housing authority entered into a contract to pay the creditunion annual support payments. The suit says the agency has ceasedpaying and is in default of its obligations under that agreement inan amount of $100,000.

Friction between the credit union and the housing authority hasheated up since July 15 when the U.S. Department of Housing andUrban Development Office of Inspector General announced that arecent audit of the Housing Authority revealed that the agency hadwrongly used public housing funds on projects that didn't providepublic housing opportunities — including financially backing thecredit union, according to the lawsuit.

The audit report, which is posted on the HUD Office of Inspector Generalwebsite, concluded that the housing authority “did not follow HUD'srequirements and its own policies regarding the administration ofits program.”

“The [Housing] Authority, under the direction of its formerexecutive directors, inappropriately used more than $6.3 million inpublic housing operating and capital funds to pay ineligibleexpenses for its commercial development, Metropolitan Centre, andtwo nonprofit developments, Ruthe and Isadore Freed HousingCorporation and Stark Metropolitan Federal Credit Union,” accordingto the audit report.

In the audit report, HUD recommended that “funds determined tobe inappropriately used should be reimbursed by the [Housing]Authority to its operating or capital fund as appropriate,” andthat the agency should “pursue appropriate administrative sanctionsagainst the former executive directors for failing to comply.”

Instead of following HUD`s recommendation to reimburse itsoperating and capital funds, the lawsuit states that the housingauthority attempted to deflect its own responsibilities by seekingto blame the credit union and sent a letter dated April 30, 2013,to Greg Kinsley, the manager of the credit union, demanding thatthe credit union (rather than the housing authority) reimburse$2,145,269 supposedly misspent by the agency.

In the lawsuit filed last week, the credit union alleges thatthe housing authority's “assertion of meritless claimsagainst the credit union” has been done “maliciously and with theintention of harming the credit union” and in attempt to force thecredit union to pay back funds that the credit union does notowe.

The credit union is asking the court to:

• Award the credit union damages from the housing authority in anamount in excess of $25,000, plus interest from the date each ofthe agency's support payments to the credit union were due;
• Declare that the previous agreements between the housingauthority and credit union were legal and enforceable when enteredinto, and that the agency is not entitled to demand that the creditunion repay all or any portion of the amounts paid to the creditunion or its employees by the housing authority;
• Issue an order enjoìning the housing authority from continuingto interfere with the credit union's merger negotiations, includingcontinuing to assert legally unsupportable claims against thecredit union;
• lssue an order preliminarily enjoining the housing authorityfrom taking any actions to attempt to evict the credit union fromits premises during the pendency of this litigation;
• Award the credit union punitive damages against the housingauthority for its malicious and intentional interference with thecredit union's business relations; and
• Such additional and further relief as the court findsappropriate.