Conflicting NCUA Opinions Filed by Both Sides in St. Helens Recall Suit

Seemingly conflicting NCUA opinions regarding the basis of a member's lawsuit against the $161 million St. Helens Community FCU of St. Helen, Ore., are working their way into court, despite the regulator's attempts to stay out of the conflict.

NCUA Public Affairs Specialist John Fairbanks said the agency is not taking any sides on the case, saying, “This is a matter before the court and we will wait to see what the judge decides.”

But that hasn't stopped both sides from using the NCUA's words in the case, in which plaintiff Steve Knebel is suing the credit union over the results of a Sept. 4, 2012 special meeting to recall five board members.

Knebel alleges the credit union violated Federal Credit Union Bylaws when it counted absentee ballots in the failed recall attempt.

Knebel sourced a March 29 legal opinion from NCUA General Counsel Mike McKenna in an April 1 reply to the credit union's March 1 motion to dismiss the case. McKenna also addressed the question of whether the case should be heard in state or federal court – one of the credit union's legal defenses – saying that “state law has no role.”

Further, McKenna said a member's rights include right to petition for removal of directors and committee members, and that the bylaws “clearly and unambiguously provide that in-person voting is required at a meeting called to consider removal of a director”.

Knebel said he interprets McKenna's legal opinion to mean that by counting absentee ballots, St. Helens violated members' rights to a recall election.

St. Helens, represented by attorney Harold B. Scroggins III, countered April 12 by sourcing a Sept. 7, 2012, email from Region V Director Elizabeth Whitehead to Knebel informing him the region had dismissed his Aug. 27 complaint.

Whitehead was responding to Knebel's complaint prior to the meeting reporting the credit union had mailed 15,000-plus absentee ballots to members.

The NCUA “has discretion to take administrative action” when those violations occur, Whitehead said, and when the agency contemplates further action, it considers just two things: safety and soundness, and whether a violation of member rights occurred.

“We reviewed your complaint along with the information provided to us by the credit union. Our investigation of this matter did not reveal there is a material safety and soundness issue nor a threat to the fundamental material rights of the members,” Whitehead said.

Knebel said he never received the email, a claim he backed up in court Wednesday when he filed a motion to respond to the document and attached an email from Region V Director of Supervision Kimberly Twieg, who said the email was incorrectly addressed.

Also at issue in the case is the matter of jurisdiction.

Scroggins continues to argue that the federal case belongs in state court.

When the NCUA reincorporated Federal Credit Union Bylaws into its regulations in 2007, it did so to assure the regulator could take administrative action to avoid costly litigation between a credit union and member when appropriate, Scroggins said in the March 1 motion to dismiss. That incorporation of the bylaws into NCUA regulations did not, as Scroggins said Knebel claims, affect a member's ability to enforce the bylaws as a contract under state law.

“NCUA views its involvement in bylaw disputes as an alternative to state court action. It does not usurp members' state court remedies,” Scroggins wrote.

Scroggins also sourced McKenna's letter in his April 12 dismissal reply, saying he interprets McKenna's opinion to mean that “state law does not supplant or alter the provisions of the bylaws. It does not address the question of whether federal courts have subject matter jurisdiction over breach of bylaw claims.”

The NCUA could have enforced the bylaws, but it declined to do so, Scroggins said. As a result of that decision, the NCUA authority to enforce and interpret federal credit union bylaws is irrelevant.

The owner of two hydroponic gardening supply stores – with a longstanding member business relationship with the credit union – Knebel is part of a group of members seeking more control over the credit union after the board proposed a merger with the $152 million Wauna FCU and fired former CEO Jeff Schwarz.  

Although that merger has since been called off, last year the group successfully elected two of its own to the credit union's board, and Knebel said the group will attempt to capture two more seats up for grabs at this year's annual meeting.

St. Helens spokespersons have declined offers to comment on the case, citing a policy to not comment on pending litigation.