MILWAUKEE – In a move that could prevent corporate credit unions from suing to recover losses from U.S. Central FCU and WesCorp FCU, NCUA asked a federal court here to dismiss a suit brought by Corporate Central CU asking for reinstatement of regular distribution of funds under U.S. Central bylaws.
In an unusual claim, NCUA argues that neither Corporate Central nor any other corporate has standing to sue the credit union regulator because, under federal law, once NCUA took U.S. Central under conservatorship last March 20, NCUA obtained all the powers of members, directors and officers. Therefore, only NCUA has the authority to sue NCUA over matters related to U.S. Central.
"Based on the statutes' unambiguous language, in placing U.S. Central in conservatorship on March 20, 2009, the NCUA succeeded to all rights, titles, powers, and privileges held by each of U.S. Central's members," asserted the credit union agency in its motion to dismiss the suit. "This includes Plaintiff's right as a member of U.S. Central to sue the NCUA as conservator of U.S. Central or U.S. Central for damages arising from Plaintiff's investment in U.S. Central.
The lawyer for Corporate Central CU, a $2 billion corporate based in the Milwaukee suburb of Hales Corner, Wis., scoffed at the NCUA’s reasoning. "That’s an odd reading of the situation and obviously one with which we disagree. And ultimately I don’t think that’s going to be a winning one," said Daniel Kelly, a partner with the Milwaukee firm of Reinhart Boerner Van Deuren.
"Essentially, what they’re [NCUA is] saying is they’re immune from lawsuits and I don’t think that they have immunity," Kelly told The Credit Union Journal yesterday.
The case has enormous ramifications for the 27 corporate credit union members of U.S. Central, which have lost some $3 billion of capital they had invested with the one-time $52 billion central bank for credit unions.
While the stakes in this case may appear small, it could affect any other suit brought by corporate credit unions challenging the losses at U.S. Central.
If NCUA prevails in its motion to dismiss, it also would affect any efforts to recover losses by credit union members of WesCorp FCU, which likewise has been run under NCUA conservatorship since last March 20. A group of WesCorp members have filed suit in state court against WesCorp, its officers and directors asking for recovery of funds in that case.
In its suit, Corporate Central claims U.S. Central owes it more than $6 million and may owe corporates as much as $100 million in so-called excess investments it routinely returned to members until its financial problems accelerated in December 2008. The Board of U.S. Central, starved for capital at that point, voted to change the bylaws of the troubled corporate on Dec. 18, 2008, allowing it to retain and put to its own use the members’ excess investments. Corporate Central and the other corporates were notified by U.S. Central of the new policy on Dec. 22, 2008, just weeks before U.S. Central was to announce a $1.2 billion loss for the year, since multiplied four-fold and wiping out all of U.S. Central’s capital and retained earnings.
Lawyers representing NCUA in the case did not return phone calls seeking comment.
