Court OKs CU's Suit Over U.S. Central Funds

Register now

BIRMINGHAM, Ala.-A federal appeals court has upheld the right of Corporate America CU to sue RubinBrown, LLP over a valuation the St. Louis firm provided U.S. Central FCU in the conversion of $450-million of member capital in the fall of 2008 just weeks before all of the capital was wiped out by massive losses at U.S. Central.

In a ruling handed down last week, the U.S. Court of Appeals for the Eleventh Circuit, said the company is arguing that its arbitration clause with U.S. Central prevented Corporate America's claim, could not also claim the clause prevented the Alabama corporate from filing a civil suit. "Equitable estoppel precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes," ruled the court. "The purpose of the doctrine is to prevent a plaintiff from, in effect, trying to have his cake and eat it too; that is, from relying on the contract when it works to his advantage by establishing the claim, and repudiating it when it works to his disadvantage by requiring arbitration."

In its suit Corporate America claiming fraud and negligence, the corporate says it relied on a valuation provided by RubinBrown in agreeing with other corporates to have U.S. Central convert $450 million of member capital shares to paid-in-capital, which were erased by growing U.S. Central losses within weeks. The suit also names various U.S. Central officers and directors as defendants.

RubinBrown sought to be dismissed from the case by claiming the arbitration clause it had with U.S. Central prevented a third party, like one of the corporates, from suit. But that claim was dismissed in May by the lower court, the U.S. District Court for the District of Alabama.

The arbitration clause, a standard provision in most contracts of this kind, stated "the parties agree that any and all disputes between them in any way concerning the services provided by RubinBrown pursuant to the agreement...shall be committed to binding arbitration."

The appeals court ruled that Corporate America's claims against RubinBrown "arise from alleged negligent and/or fraudulent misrepresentations contained in the valuation report prepared by RubinBrown. They do not arise from the terms of the contract between RubinBrown and U.S. Central."

For reprint and licensing requests for this article, click here.
Corporate credit unions