An Unclear Future Ahead for Butler Heritage FCU

After members of Butler Heritage Federal Credit Union unsuccessfully tried to get an Ohio county court judge to stop the Middletown-based financial cooperative from holding its annual meeting on April 18, they attended the gathering that turned out to be contentious and somewhat bizarre.

BHFCU members essentially took control of the meeting and elected five board members and three supervisory members, but the NCUA has not recognized them as the official governing body of the credit union. What’s more, sometime after the annual meeting, all five of the current BHFCU board members provided a notice to the NCUA that they would like to step down and allow a new board to take their place.

Last year, 15 BHFCU members won a court order that blocked and later canceled their credit union’s merger with MyUSA Credit Union, which was detailed in the first article of this three-part series. The members secured that court order because they showed the process used by BHFCU’s board and officers to conduct the membership vote seeking approval of the merger violated BHFCU’s charter bylaws, and federal regulations.

The credit union’s old and new charter and its bylaws are at the center of this merger controversy and other related issues regarding the appointment of new board members, the April annual meeting and other matters. How all of these issues may be finally resolved will most likely set the future direction of BHFCU.

Attorney Thomas G. Eagle of Lebanon, Ohio, who is representing the 15 credit union members, addressed these issues, from his clients’ perspective, in a 10-page letter sent to the NCUA’s Southern Region in Austin, Texas in May.

About a month before the annual meeting, Eagle said in this letter to the federal agency that he sent an email to BHFCU Attorney Jason Paskan of Cincinnati, detailing the problems with the new bylaws that were adopted by the credit union’s board on Dec. 8, 2023.

“This counsel also has asked at least three times for legally authenticated copies of what they were claiming were the amended (and claimed to be implemented) new Bylaws, but received nothing, except the alleged new but unsigned, unverified, and on its face unapproved bylaw document, hand-dated December 8, 2023, and a third party claiming they were adopted, but with no evidence they ever were, at least not according to how the preexisting Charter and Bylaws direct that amendments be done,” Eagle wrote in the letter. He also noted there is no evidence the claimed December 8, 2023, dated document has any legal or binding effect.

“As a result, we dispute the legality of even claiming the “new” document has any import, under Ohio law (governing these entities, and mandating compliance with pre-existing governing documents). If they were never validly adopted, under both Ohio and Federal law, the only valid bylaws are those that pre-existed,” he wrote.

Moreover, when the 15 BHFCU members filed a motion in Butler County Common Pleas court in an attempt to force the cancellation of the April 18 annual meeting, they brought up the issues of the old and new bylaws.

After comparing the BHFCU pre-existing bylaws to what the credit union board claimed are the new bylaws, Kathy Wright, one of the 15 BHFCU members who sued the credit union, said in an affidavit that she found 27 contradictions or violations, 15 that contradict the prior bylaws and 12 that contradict the alleged new bylaws, and all of them were related to the procedures the board proposed to take to conduct the annual meeting and elections.

When the annual meeting was about to get underway at 5:30 p.m. in the small lobby of the credit union branch, there were no chairs set up for the 28 members who attended, so they either had to sit on the floor or stand. Steven Snider, who attended the meeting and is one of the 15 BHFCU members who sued the credit union, said during previous annual meetings there have been chairs set up for members.

The lobby is also divided by a partition, and according to Eagle, Snider and Wright, the board members along with two lawyers isolated themselves behind the partition away from the membership, where they were not readily available to the members who were in attendance.

Board Chair John Terrill, however, did come out from behind the partition and started talking without first establishing a quorum and declared Vincent Lovejoy and Jim Hall were re-elected to the board “unopposed” with no voting, Eagle said.

At that moment, Wright stood up and stated she had a point of order and objected to the election results.

“He [Terrill] cut me off and said, ‘Under the advice of my attorneys, I’m not going to answer any questions,’” Wright said. When she persisted with her point of order, Terrill attempted to cut her off again, but she managed to speak on the controversy over the appointment of board member Roger Knabel who was appointed to the board after the death of former board member Robert Fraley last year.

In order for Knabel to continue as a board member, he was required to run for Fraley’s unexpired term at the annual meeting, according to the old and new Charter Bylaws. BHFCU’s election notice showed that Knabel was one of three directors who appointed themselves to the nominating committee, which failed to nominate Knabel. According to the new and old Charter Bylaws, Eagle noted, the failure to nominate Knable, which required nominations for all vacancies, allowed nominations from the floor.

But before members began to make their nominations for board members and supervisory committee members, Terrill adjourned the meeting and retreated behind the partition with the other board members and their lawyers.

Unfazed, Wright and other members began to make their nominations for the board and the supervisory committee. They elected five board members and three supervisory committee members.

“A quorum was established, in the order of business called for, nominations were made from the floor, ballots were distributed and including to the current directors (none of them voted, and they actually instructed employee tellers, who were also BHFCU members, not to vote, either),” Eagle wrote. “At no time did any of the current directors, or their attorneys object to the meeting or election moving forward, even though they were present through the entire meeting. In the presence of all, votes were cast and counted and sealed in an envelope with the sign in sheet (for obvious reasons).”

However, the NCUA said it will not recognize these board members or supervisory committee members.

Snider, who was elected to the supervisory committee, received a June 4 email from Southern Region NCUA Regional Director C. Keith Morton, who wrote that due to NCUA regulation, BHFCU is required to seek NCUA approval when proposing a change in a board member, committee member or senior executive officers.

“We will not process your application to be a supervisory committee member because Butler Heritage’s board did not appoint you,” Morton wrote.

In addition, Morton also wrote that the NCUA’s Office of General Counsel confirmed that when BHFCU’s board adopted standard bylaws by a two-thirds vote in December 2023, the NCUA’s approval was not necessary.

“Our review indicates the election, held as part of the annual meeting on April 18, 2024, was conducted in accordance with the bylaws the board adopted in December 2023. Accordingly, the board members elected under the new bylaws are the official representatives of the credit union,” he wrote.

But Morton’s assertion that the NCUA approval was not necessary because the BHFCU board adopted standard bylaws by a two-thirds vote in December 2023 is also being disputed by Eagle. He argued that BHFCU’s charter and pre-existing bylaws state that no amendment to the credit union’s bylaws or the charter shall become effective until approved in writing by the NCUA. He also said that Shameka L. Sutton, the NCUA Ombudsman, informed the 15 BHFCU members that the NCUA’s Office of Credit Union Resources and Expansion and the Office of General Counsel received no requests or subsequent approval of amendments to bylaws from BHFCU.

“These statements of fact from the Ombudsman in February 2024 confirm that no request was made or approvals were given for any non-permissible amendment of the bylaws,” Eagle wrote in his letter. “There are many non-permissible bylaw amendments pertaining to all aspects governing BHFCU, which require NCUA approval and that the current directors assert to be effective and are governing. Article IX Supervisory Committee is only one example of what the board has failed to submit or request of NCUA for approval, which are required for the nomination, election and annual meeting processes.”

He suggested that the disputes regarding the old and new charter bylaws should be decided by a state court, not the NCUA. The federal agency has acknowledged to the 15 BHFCU members that in general, credit union bylaws should be interpreted and enforced according to state law.

Eagle’s letter said that the current five-member BHFCU board of directors claims to have previously provided notice to the NCUA that the board would like to step down and allow a new board of directors to take their place.

“Although that may be the ultimate goal and negotiated or litigated result, while that is going on, the credit union members (those in the lawsuits, and those not) are entitled to and continue to exercise their rights under State and Federal law and their ‘contract’ (NCUA’s words) in the pre-existing Bylaws – a ‘contract’ that no one, including NCUA, can just void like they don’t exist – to conduct business,” Eagle wrote.

He also wrote that at least two current board members, Board Chair Terrill and Board Member Ernest Howard, whose terms are still effective, should not be allowed to resign because that could cause disarray. “If the entire board of directors exists at the same time, the direction and the operation of the business is harmed,” Eagle said.

According to Eagle, both he and BHFCU Attorney Paskan have agreed that protecting the rights of BHFCU members is paramount, and those “rights” include respect for self-determination, and the “contract” embodied in the pre-existing Charter and Bylaws.

Eagle also said that both sides agree that the NCUA’s involvement in the transition is essential, as long as there is full transparency, including any requested or provided approvals of amended bylaws, including providing those to the newly elected board of directors and supervisory committee members.

The NCUA has not responded to Eagle’s letter.

BHFCU Board Chair Terrill declined to comment.

READ MORE: Attorney Thomas Eagle’s Letter to the NCUA

Series Part One: Inside the Fight to Stop the Merger of Butler Heritage FCU

Series Part Two: Concerns, Complaints Raised With NCUA in Fight to Stop CU Merger