Know Smart Moves, Bad Moves When You're Sued

SAN JOSE, Calif. – You suddenly learn the credit union is being sued. What do you need to know, what should you do? The first step in most credit unions is to tell the boss. It makes perfect sense to alert the CEO and board chairman and get word to your attorney. But Eric North, a lawyer who has worked for 25 years in financial services including legal representation for credit unions, warns you do have to watch what you say, even among top management. North recently conducted a Webcast for the California and Nevada Credit Union League on “When You’re Sued: What to Do First, What to Do Next.” Credit Union Times asked him for some pointers. “Be careful what you say among yourselves, and be careful who – inside and outside the credit union – you discuss the case with,” North emphasized. “Conversations among employees, management or even board members are not `privileged’ like conversations with your attorney are. As a result, the other side’s attorney is entitled to later ask what you talked about at that board meeting, or to see e-mails between employees.” Think how embarrassing it would be, North said, if offhand comments such as “We’re gonna lose this one” or “Boy, did we mess up big time” were repeated from the witness stand when the case goes to trial. The credit union should work with its lawyer as early as possible to determine who needs to be involved in any conversations, and should limit internal communications to those people as much as possible. If the attorney for the debtor calls and wants to get information, they can speak with anyone at the credit union until they know the credit union is represented by counsel. Even after they know the credit union has an attorney on board, they can speak with some people at the credit union if those people are willing to talk to them. As a general rule, North added, the credit union should tender the matter to its insurer as soon as possible. In most cases, that can be done without the assistance of an attorney. It makes sense, North explained, because the insurer might not reimburse the credit union for attorney’s fees paid before the insurer was notified. “On the other hand, it isn’t always a bad idea to contact your attorney first,” he said. “Many times the credit union’s attorney can package the matter in such a way the insurer clearly sees there is coverage and can get it to the right attorneys to handle that particular type of case. “I encourage my clients to contact me first. In many cases, after I’ve heard the story, I tell them to contact their insurance agent directly to tender the claim. In other cases, if I see value for the client in doing so, I may tender the claim on the credit union’s behalf.” Once you do have an attorney, North continues, there are ways you can make the most of the attorney’s time. A credit union may send the attorney piles of documents. The attorney then has to figure out what they actually need. Instead, someone at the credit union might have been able to organize that material with an index or a chronology. Saving the attorney’s time cuts the bill. “Do you really want to pay your attorney to wade through a stack of paper that has six copies of the same document and try to figure out if there are any differences between those copies?,” North asked. North agreed minds educated in financial matters and those focused on the law may see things differently. “The credit union is thinking, `I didn’t do anything wrong. So if I just tell the other side, they’ll go away.’ But the lawyer for the other side isn’t paid to go away. The lawyer for the other side is paid to find a way to use what the credit union person says to them on the phone to his client’s advantage.” North doesn’t have extensive statistics, but from what he’s seen the big legal issue facing credit unions right now involves auto loans. With indirect lending, the credit union and the dealer share liability. That means credit unions can get caught in the crossfire between members and dealers, Say a member wants to sue a dealer for failing to disclose things properly in the purchase contract, or improperly charging fees. Under federal law, and under California and some other state laws, anything the dealer can be sued for the credit union can be sued for, North said. “It’s routine for members to want to rescind their contract, return the vehicle and get their payments back,” he indicated. “If the dealer is out of business, which we’re seeing with greater frequency, they often want the credit union to return their down payment.” The bottom line when facing a lawsuit, he stressed – plan before you’re sued what you will do if you’re sued, then face it, act quickly and involve your attorney promptly. -