KENSINGTON, Md. — Lafayette Federal Credit Union's conversion controversy appears headed to court.
The $320 million CU has sued its former CEO, William Brooks Sr., and his son over alleged actions and statements opposing the conversion.
The CU has also cut off the ATM and branch privileges of another member who had been removed from a branch and prevented from soliciting member signatures for a special meeting petition to recall board members.
According to court documents, Lafayette has charged that Brooks and his son, Bill Brooks Jr., violated agreements they signed with the credit union when they left the CU by publicly opposing the credit union's conversion attempt. The law firm that prepared the suit, the Rockville, Md.-based firm of Bromberg Rosenthal, does some credit union work, according to its Web site. Bromberg Rosenthal had not responded as of press time to an inquiry as to whether there was a familial relationship between law partner Barry Rosenthal and Arnold Rosenthal, chairman of Lafayette's Board.
Brooks, who formally left the CU on Feb. 20, 2004, according to court documents, agreed not to malign or disparage the CU, its board, employees, volunteers, etc. and the CU charged he did so in two e-mails to Kent Krudys, an attorney with the law firm of Luse, Gorman, Pomerenk and Schick, the law firm Lafayette had hired to prepare its charter change application.
In the e-mails, he allegedly accused the CU's leadership of trying to "loot" the CU and being "no better than people who robbed the credit union at gun point." The CU also charged that Brooks was partly behind the Aug. 24 press conference and rally against the conversion that was held in front of the headquarters of the U.S. Agency for International Development, where many Lafayette members work.
Lafayette alleged that Brooks declined to shake Krudys' hand at the press conference and rally, saying in the presence of a third party "I will not shake hands with a snake" and allegedly telling Krudys later that he would do everything in his power to oppose the conversion.
Lafayette also charged Brooks and/or Brooks Jr. with organizing, founding and/or running Web sites opposed to the conversion and with publishing false and disparaging comments about the CU's leadership. The CU is seeking damages from both men in the millions of dollars.
News of the suit spread quickly and reactions have also been swift.
Bucky Sebastian, CEO of the $2.1 billion GTE Federal Credit Union, headquartered in Tampa, Fla., and one of the founders of the National Center For Member Trust, called the suits "unconscionable" and said the National Center would examine whether it will get involved in the defense.
"I think the whole point of these suits was to establish a chilling effect in the industry and make it clear that if any member sticks their head up to oppose their credit union being converted to a mutual bank, you will be sued," Sebastian said. "These men are part of democratically organized, cooperative institutions and they should be allowed to express their opinions about the directions those institutions take or don't take. It's like if someone held a rally against the conduct of the Iraq war and then got sued for holding it."
Sebastian pointed out in particular that the Web sites which the CU has charged the Brookses with organizing or running did little but provide a place for members to express their opinions about the proposed conversion.
He said that consistent with the National Center's policy on getting involved in legal battles where there are principles and not merely personalities at play, the Center would consider contributing to any legal defense fund which might be created on the Brookses behalf. Paul Hazen, CEO of the National Cooperative Business Association, which had actually established one of the Web sites that the Brookses were accused of organizing or running, said that the NCBA had established a clear policy position against conversions from the cooperative business model and said that the organization "would not be intimidated" from working in members' interests in future conversion fights.
In late January, Lafayette posted a Jan. 29 letter from board chairman Rosenthal, which blamed the National Center for Member Trust and CUNA, the Maryland and D.C. Credit Union Association and the National Cooperative Business Association for the credit union having failed to gain member approval for its charter change vote.
A statement on the credit union's Web site (www.lfcu.org) dated Jan. 29 detailed the charges, which accused the National Center of putting the agenda of the credit union "movement" before the needs of individual credit unions.
"The National Center for Member Trust is comprised of a group of credit union CEOs who believe no conversions should be allowed and apparently have taken it upon themselves to disrupt any proposals. They place more importance on the credit union 'movement' than on the credit union," Rosenthal wrote, adding:
"They are abetted by the Credit Union National Association (CUNA), an industry lobby group whose avowed neutrality on the conversion issue is belied by their manipulation of ancillary groups like the Maryland and District of Columbia Credit Union Association (MDDCCUA) and the National Cooperative Business Association (NCBA), both of which publish outrageous falsehoods with impunity."
The National Center, NCBA, Maryland and D.C. Credit Union Association and individual members have all denied Rosenthal's allegations.
The CU has apparently also turned off the ATM card of a member who had been circulating a petition seeking a special meeting at which some or all of the board members could be recalled.
Scott Stein, a Lafayette member who works for the U.S. Agency for International Development, has also been barred from all the credit union's branches but has been told he remains a member and his loan status has not changed.
Stein confirmed that a security officer escorted him from the CU's branch in the Small Business Administration headquarters after approaching members waiting in line for the tellers whether they had voted in the conversion balloting and then to sign the petition if they had voted against it. Stein said he viewed the CU's move as essentially retaliatory and meant to discourage members from circulating the petition or acting to support the special meeting. "The essential message is an attempt to intimidate," he said. "Fortunately I am not easily intimidated."
One member who opposed the conversion saw Rosenthal's letter as the beginning of an effort by the chairman and other board members facing possible recall to keep their jobs.
"There is something about this [letter] that just doesn't mesh," said Amber Brooks, a member of the credit union who works in the U.S. Agency for International Development and who was one of the members who opposed the charter change. "If this was all on the up and up, why do they care if the members decided they didn't want it? I think this is the first move in a bid to keep their jobs by painting members who opposed the idea in a poor light."
Brooks denied the members opposed to the charter move had been recruited into their positions or that they had hired any attorneys to write letters for them. There were attorneys who volunteered their services, she said, but they were on a pro-bono basis. "We definitely didn't have the money to go hiring any attorneys," Brooks said. –dmorrison@cutimes.com
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