A credit union suing the government to uncover documents related to the failure of Capital Corporate Federal Credit Union won the first round of its legal battle.

The U.S. District Court for the Eastern District of Virginia denied a motion by the National Credit Union Administration to kill the case.

The June 7 order states there is "a strong presumption in favor of disclosure under the Freedom of Information Act, and as such the burden of proof is on the government to justify nondisclosure."

As an investor in Cap Corp, Pentagon Federal Credit Union lost money when the regulator seized the Lanham, Md., institution in January 1995. Pentagon Federal sued the NCUA to find out how the agency regulated, took over, and finally liquidated Cap Corp.

The NCUA argued that Pentagon Federal Credit Union's lawsuit should be dismissed because disclosure of the information might discourage credit unions from providing the agency with data.

"Although this is a legitimate fear, it is only speculative," the court concluded. "Against this merely speculative fear, Pentagon notes the strong public interest in investigating Cap Corp's failure and subsequent liquidation."

The 10-page order also notes that corporate credit unions, which submitted some of the documents Pentagon Federal is pursuing, have admitted disclosure of the information would not cause them competitive harm.

"If the very source of the information does not believe (the documents) to be confidential, how can NCUA assert they are?" Judge Leonie M. Brinkema wrote.

Robert Swan, a former NCUA director, has charged that the decision to liquidate Cap Corp was made by a small group of agency staff members without the board's approval.

The judge said Mr. Swan's accusation "creates a serious factual dispute about the legitimate decision-making process."

The case will now be argued, and a decision will be made on whether the NCUA must turn over the documents Pentagon Federal is seeking.

- By Celia Viggo Wexler and Barbara A. Rehm

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