SHERMAN, Texas – At least in the viewpoint of Magistrate Judge Don Bush, all disputes in the Community Credit Union vs. National Credit Union Administration lawsuit revolved around one issue: how the member disclosure document was folded. As such, current regulations governing charter conversion disclosures don't speak to how that document, or any other document contained in a credit union's member disclosure package, should be folded. Thus, Judge Bush ruled in favor of Community Credit Union during the Aug. 17 hearing here at U.S. District Court for Eastern Texas, saying that Community Credit Union has complied with NCUA's rules and regulations and that NCUA acted in an "arbitrary and capricious" manner without any foundation in the court's administrative record, the set of documents used to present the case. Judge Bush will submit his report and recommendation to Judge Richard Schell, and the parties have 10 days to appeal or reject the decision. Typically, the judge ratifies the magistrate's recommendation if no one objects within 10 days. About two dozen individuals were present for the hearing, located in this small town about an hour's drive northeast of Dallas. Renee Orleans, staff lawyer from the U.S. Justice Department's Civil Division represented the NCUA; Cass Weiland, a litigator with the Washington, D.C.-based law firm of Patton Boggs, represented the credit union. Preliminary arguments lasted two hours, and following a lunch recess, counsel for each side presented closing arguments lasting a total of 45 minutes. The judge recessed the court once again before rendering his decision in the case. Judge Bush confined both sides' arguments to documents contained in the record, a move that spectators say hurt NCUA's chances of success. While the credit union and its regulator had had multiple conversations about the "order" in which documents – cover letter, boxed disclosure notice, credit union rebuttal – should appear in the member disclosure mailings, no written instructions supported NCUA's wishes. No written instructions supported the folding of the documents, either. Bill Donovan, general counsel, NAFCU, suggested that if NCUA had had a written agreement, the outcome could have been different. "Today's ruling is extremely significant. The judge has signaled clearly to NCUA when assessing applications for conversions that NCUA must dot every `i' and cross every `t' and document every aspect of the process. The judge also put on notice any credit union contemplating conversion that the judge expects full compliance with NCUA's rules and regulations," he said. Eric Richard, general counsel, CUNA, echoed the sentiment. "The fact that the judge confined the arguments to the record and didn't acknowledge any verbal agreements between NCUA and the credit union was not good for NCUA. It may have been the determining factor in the outcome of the case." Confining the arguments to the record eliminated submission of any additional evidence obtained after the suit was filed, including amicus briefs and expert witnesses. NCUA refuted the idea that the issue was the folding of the materials, saying it was, rather, the presentation of disclosures in a "prominent and conspicuous" manner that mattered. Community Credit Union had received preliminary approval of all its materials from NCUA in March 2005. Nothing changed materially from the first set of materials to the set that was mailed to members. However, the credit union submitted unfolded documents – in the correct order – for approval. In an apparent effort to chide the credit union if they knowingly went against NCUA's expectations, the judge asked the credit union if they had sent out the first two notices with the rebuttal on the front side of the boxed disclosure page hoping no one would notice, to which credit union counsel replied, "A resounding `no.' " NCUA appeared to face an uphill battle early on as the judge tried to identify ways in which the credit union had failed to comply with NCUA's regulations. The judge asked if NCUA could point to any rules or regulations that specify order or format of documents to be included in the disclosure package. " If not, I have no alternative but to find your actions arbitrary and capricious," Judge Bush said. NCUA's Chevron analysis arguments for deference to the regulator when statutes are ambiguous and Community Credit Union's de novo review arguments went largely ignored by the judge. [email protected]