NCUA Files for Dismissal in Members 1st FOM Case

SCRANTON, Pa.-NCUA is seeking a dismissal of the lawsuit challenging its approval of a six county community charter for three Pennsylvania credit unions as the credit unions involved and their trade associations were approved to intervene in the case. On Feb. 6, NCUA filed papers with the U.S. District Court for the Middle District of Pennsylvania requesting dismissal with prejudice in the American Bankers Association lawsuit seeking to strip Members 1st FCU, AmeriChoice FCU, and New Cumberland FCU of their community charters. NCUA approved Members 1st to serve Adams, Dauphin, Lebanon, Perry, York, and Cumberland counties in Pennsylvania, and the entire Borough of Shippensburg (which is in Cumberland and Franklin Counties) on April 24, 2003. AmeriChoice and New Cumberland were subsequently approved for the same community charter. The ABA and others filed a lawsuit Nov. 1, 2005 stating that the area is not a well-defined community as required by regulation and statute. The bankers were successful just over a year ago in forcing NCUA to repeal a community charter approved for Tooele Federal Credit Union and three others in Utah. In NCUA’s filing, the Department of Justice on behalf of the agency wrote, “Defendant denies that plaintiffs are entitled to the relief requested, or to any relief whatsoever. “Defendant hereby denies all allegations not expressly admitted or denied. THEREFORE, having fully answered, defendant asserts that plaintiffs are not entitled to the relief requested, or to any relief whatsoever, and requests that this action be dismissed with prejudice and that defendant be given such other relief as the Court deems just and proper.” At the same time, CUNA, NAFCU, the Pennsylvania Credit Union Association and the three affected credit unions also petitioned the court to become intervenors in the case, which the trades have declined to do thus far in another field of membership challenge in Utah (See related story, p. 1). According to the motion to intervene, “Federal Rule of Civil Procedure 24(a) provides that [U]pon timely application anyone shall be permitted to intervene in an action:. . . (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant’s ability to protect that interest, unless the applicant’s interest is adequately represented by existing parties. “An applicant seeking to intervene in an action must meet four requirements: (1) timeliness; (2) sufficient interest; (3) potential impairment of the interest; and (4) lack of adequate representation by existing parties.” The brief outlined how each of the organizations seeking to intervene met each of the criteria. “This relief, if granted, would have a severely adverse effect on these financial institutions, effectively blocking their ability to add new members from the field of membership approved by NCUA,” it read regarding the federal credit unions. “This will disadvantage the Credit Unions in competing with other financial institutions, including the plaintiff Legacy Bank, and other Pennsylvania banks that are members of the plaintiff bank trade associations.” As far as the credit unions and trades are concerned, “They seek to limit the scope of credit union membership for community-based credit unions as much as possible. If the Court were to grant the relief sought by the plaintiffs, the precedent would have adverse competitive significance to many federal community-based credit unions, including those that are members of the Credit Union Associations.” Upon hearing of the approval of the joint motion to intervene, CUNA General Counsel Eric Richard said, “We appreciate the court granting our request and look forward to representing the interests of credit unions in this case, the adjudication of which we believe could have a strong impact on other credit unions nationwide.” The trades and credit unions had argued that their interests would not be sufficiently represented by NCUA. Though the interests of those seeking to intervene are similar to the existing defendants in some aspects, that representation is inadequate when interests are “sufficiently different that the representative cannot give the applicant’s interest proper attention.” The intervenors added, “The D.C. Circuit has noted that there is a `relatively large class of cases in this circuit recognizing the inadequacy of governmental representation of the interests of private parties in certain circumstances.’ ” Additionally, in the more than two years between NCUA’s approval for Members 1st and ABA’s filing, the credit union had added new branches, installed new office systems, added manpower, incurred various related expenses, and began serving the new members, “ all in reliance on NCUA’s order allowing Members 1st to expand its field of membership.” Though NCUA may raise the laches argument as well due to the ABA’s slow response, the prejudice it would suffer is very different from that of the institutions, the brief argued. CUNA declined to speculate on whether Judge Yvette Kane would dismiss the case at this point. NAFCU Director of Regulatory Affairs Carrie Hunt commented, “We intervened on the side of NCUA. We obviously do not agree NCUA acted arbitrarily and capriciously in making its decision.” A Feb. 16 scheduling conference is slated for the case but both sides had requested a two-week extension on that conference at press time. -