CCU Replies to NCUA's Position, DOJ Adds Another Lawyer While Bankers Weigh In

SHERMAN, Texas – The case pending between the NCUA and the two Dallas area credit unions that are seeking to become banks continued to build last week as the credit union filed its counter-arguments to NCUA’s first submission and the U.S. Justice Department beefed up its legal team. In addition two banking associations, America’s Community Bankers and the Independent Community Bankers of America, submitted their contentions about why the NCUA regulations should be overturned. The two credit unions, the $1.4 billion Community CU and the $1.2 OmniAmerican CU have sued NCUA in an attempt to force the agency to reverse its previous decision not to validate their charter change votes, because, in the agency’s view, the disclosure packages the credit unions sent to the members violated regulations. Attention in the early days of the legal struggle has centered on the credit union’s attempt to convince the Court to grant a preliminary injunction against the agency to force the agency to reverse its previous decision and validate the vote, an attempt the agency has countered in its arguments. In last week’s developments, legal sources familiar with the Justice Department speculated that the addition of another lawyer from its Civil Division to the case likely meant that the case is moving up in importance on the Department’s list of priorities, noting that there is usually plenty of litigation for DOJ lawyers and that the Department was sometimes stingy about parsing out its legal talent. In addition to Renee Orleans, the lawyer with the Civil Division already assigned to the case the DOJ has added Marcia Tiersky, also with its Civil Division to the fight. Tiersky’s recent work includes being part of the legal team which defended the USDA’s policy of allowing the import of cattle younger than 30 months old from Canada. This is a hard fought case which pitted Canadian beef producers and the USDA against U.S. cattlemen seeking to keep Canadian beef out of the country because of fear it might be tainted by the so-called “mad cow” disease. Tiersky and the government lawyers eventually prevailed in that case. Meanwhile, the Court set a date to hear OmniAmerican’s complaint seeking a preliminary injunction for Aug. 31. Community’s law team will be in the Sherman courtroom making its arguments on August 17. In its most recent brief filed in response to NCUA’s initial defense of its actions, Community tried to cast the fight as little more than an out of control regulator seeking to preserve its own turf. “This is a simple case of government overreaching,” Community wrote in its 34 page brief. “The National Credit Union Administration, an agency in decline with a bloated budget funded by credit unions like CCU through its members, has attempted to halt the steady departure of `client’ institutions by exercising authority, which Congress has specifically precluded. In this case it determined to nullify the will of thousands of credit union members based on the way a page was folded.” The core of Community’s brief centered on trying to convince the court that it did not need to hear the case under the U.S. Administrative Procedures Act but could hear it under the Federal Credit Union Act. The distinction is important to its legal effort because under Supreme Court decisions Courts judging federal agencies under the APA have to grant them a very high degree of deference while Courts viewing their actions on a different basis do not have to do so. Unsurprisingly, the credit union also argued that even if the Court should examine the agency’s actions under the APA it should still find them unacceptable, in part because the NCUA’s actions violate the FCUA’s requirement that its regulations on charter change be no more or less restrictive than other Federal financial regulators. NCUA contended that its regulations were consistent with other regulators, just not identical, and used the Office of Thrift Supervision’s regulations of banks going from mutual to stock as an example of this. But Community countered with the argument that the OTS regulations are meant to govern the change of ownership, from mutual to stock, where as NCUA’s regulations merely govern the movement from a cooperatively owned credit union to a mutually owned bank. Community also argued that it merits a preliminary injunction against NCUA’s decision because the agency’s regulations violated its right to freedom of speech and, if left in place, would cause it irreparable harm. “Without question, NCUA’s mandated disclosures and its attempts to control the order of presentation of materials constitute compelled speech without adequate government justification,” the credit union wrote. The credit union also argued that NCUA’s actions have caused it irreparable injury, one of the standards for whether the Court can grant a preliminary injunction, by arguing that having to go through a trial and another vote might mean it never gets to become a bank. The credit union pointed out that the OTS approval of its charter conversion only lasts 120 days and cannot be guaranteed to happen again, the credit union argued. Meanwhile, the America’s Community Bankers and the Independent Community Bankers of America announced their brief in the case, although as of press time the brief had not yet appeared on the docket record. “This is an `origami’ case,” the ACB said its brief would argue, because the NCUA action was not based on the substance of the disclosure CCU made to its members, but rather revolves entirely on how a piece of paper that transmitted information about the conversion to credit union members was folded. Origami is the Japanese art of folding paper into decorative shapes. “This is a case about charter choice. It is about the right of credit union members to choose the charter that would “better serve the interests of its members and of the local community,” the brief notes. “Congress and the States have provided many forms of charters for depository institutions,” the brief explains. And it has provided depository institutions “with a great deal of freedom to convert from one type of charter to another.” Some 33 state bank associations also signed on to the brief, which was prepared by Venable LLP and filed late Tuesday. “What NCUA attempts to characterize as `interpretation’ of its own rule is, in reality, an attempt to impose an illegal, bootleg requirement, which was never subjected to public notice and comment and which is without any support whatsoever in the text of the rule the agency actually adopted,” the ACB’s announcement said. -