PORTLAND, Ore. NCUA issued a legal opinion in conjunction with a suit by a disgruntled member of St. Helens Community FCU supporting the members’ bid to overturn last September’s failed board recall vote.
The March 29 legal opinion states the $160-million credit union was wrong to allow mail-in ballots in the recall referendum, which federal credit union bylaws do not permit.
More importantly, the legal opinion written by NCUA General Counsel Michael McKenna says Federal CU bylaws exempt state corporate laws and are binding, when clear and unambiguous.
The NCUA opinion was added to a lawsuit brought in federal court by one St. Helen’s Community member who is seeking to invalidate the vote at the special meeting, where the credit union asserted that members rejected the ouster bid. In response to the suit, the credit union told the federal court it has no legal jurisdiction over federal credit union bylaws designed by NCUA. "This court simply does not have subject matter jurisdiction over the claims alleged by the plaintiff because the claims arise under state law,” argued the credit union’s lawyers.
The credit union's lawyers were responding to a suit brought by a member of a group that sought the recall of five of the seven directors. The group claimed the unsuccessful recall ouster vote was rigged by a majority of the board. Among other allegations, the members claim the credit union's bylaws, adopted from standard bylaws developed by NCUA, restrict voting on director recalls to only those members present at a special meeting and do not allow for mail-in ballots, as St. Helen's Community allowed.
NCUA's legal opinion comes after years when NCUA refused to intervene in bylaw disputes and ceded decisions to state courts. But in 2007 NCUA approved a new regulation specifically giving it the power to enforce federal credit union bylaws.
The member claims the credit union's bylaws, adopted from standard bylaws developed by NCUA, restrict voting on director recalls to only those members present at a special meeting and do not allow for mail-in ballots, as St. Helen's Community allowed. After the special meeting the credit union said 1,413 members voted, even though only 175 members attended the special meeting. The credit union has never disclosed the voting results.
The lawyers for St. Helen's say that although federal regulations set out the bylaws a credit union may adopt, "disputes regarding adherence to the bylaws are a matter of state corporate law." "This is a purely state law question that does not require a 'federal decision,'" the lawyers argued to the U.S. District Court for the District of Oregon.
But NCUA’s McKenna asserts that directors may only be removed by members present at a special meeting after the directors have had an opportunity to be heard. “The use of the phrase 'present at a special meeting' precludes the possibility of voting in absentia by mail to remove a director,” he wrote. “If voting by mail were allowed in lieu of being present, members would be denied the opportunity to observe the director’s demeanor, hear the director’s defenses, and ask the director questions. The give and take that is part of being present at a special meeting provides a director with more due process and better informs the membership.”
