TUSCALOOSA, Ala. — Alabama One Credit Union has filed a federal lawsuit against various senior state officials alleging conspiracy and abuse of power in connection with a scheme to "coerce tens of millions of dollars in legal settlements from the credit union [even] after it received clean bills of health" from state and federal regulators.
The suit, filed in federal court in Tuscaloosa on behalf of the $613 million CU and its CEO, John Dee Carruth, seeks unspecified monetary damages for alleged due process violations, defamation, conspiracy, and other claims.
The other defendants in the case include David Byrne, the chief legal advisor to Bentley, State Sen. Gerald Allen, and various other Alabama officials and local attorneys.
Alabama One specifically claimed that defendants, including the current and former administrators of the Alabama Credit Union Administration (ACUA), conspired to improperly influence state officials and also "grossly abused" their power and positions "solely to enrich" a political and personal friend, Tuscaloosa attorney Justice D. "Jay" Smyth III.
It was Smith, Alabama One contends, who allegedly "orchestrated the scheme to pressure and coerce" Alabama One into settling five "frivolous" lawsuits that he and cohorts had filed against the credit union.
The credit union further claimed that Bentley and the other defendants conspired to engage in "years of unprecedented regulatory overreach and abuse" as the final phase of a "pre-planned scheme" to pressure and coerce Alabama One into paying money to Smyth.
This abuse of power, the plaintiffs assert, has now placed Alabama One on the brink of conservatorship.
Moreover, the credit union claimed that investigations and threatened sanctions that the ACUA had brought against Alabama One "have nothing to do with the public interest or any legitimate government function," but are rather the "result of a regulatory system captive to and manipulated by the personal interests of a politically-connected lawyer, Smyth, his partners and co-counsel, Bentley, Byrne, and Allen."
Smyth, Alabama One further alleges, even held "secret meetings" at the state capitol with Bentley, Byrne and Allen to discuss Alabama One as well as Smyth's clients' lawsuits against the credit union.
In a press call with media, Carruth said the credit union decided to file the lawsuit after much serious consideration. "We had no choice but to seek to redress these wrongs and seek compensation," he said. "The regulatory scrutiny we have been under for the past 18 months has been unparalleled."
These charges in the lawsuit involve "serious wrongdoing" by "very powerful people," Carruth added, a particularly egregious scenario, given that Alabama One had received three letters of commendation from state and federal regulators "congratulating" it for complying with and satisfying many regulatory concerns.
In a related matter, Alabama One said it believes that another defendant, Sarah Moore, whom Bentley installed as administrator of ACUA last year following the sudden resignation of Larry Morgan, lacked the experience, expertise, or background for such a powerful position. However, as Bentley's long-time friend, Alabama One insists, Moore would follow her benefactor's instructions to move against the credit union through a flurry of "over-reaching" regulatory enforcement actions.
As previously reported by Credit Union Journal, the roots of the conflict between Alabama One and the state regulator date back to a check-kiting case of local businessman Danny Ray Butler - a scheme that cost the credit union $1.3 million in losses.
Butler is currently serving a federal prison sentence.
According to Monday's filing, in 2009, Alabama One was informed by both state and federal regulators of problems regarding loans made to Butler, a long-time member of Alabama One who had made a substantial amount of money brokering used cars bought at auction to car dealers.
Alabama One had made various member business loans (MBL) to Butler — the last of which occurred in 2009,while Alabama One was transitioning from a federal charter to a state charter.
"Over the course of these MBLs to Butler, Alabama One inadvertently exceeded the regulatory cap on the percentage of loans that a credit union can make to one member or an associated group of members," the filing states. "These MBLs were all made by Alabama One in good faith and with a mistaken, but honest, belief that the Butler MBLs complied with all applicable regulations. "
But both the NCUA and the ACUA determined Alabama One was in violation of the regulatory cap and requested the credit union take necessary steps to resolve the issue, which Alabama One claims it did.
However, between July 2013 and March 2015, Smyth filed a number of lawsuits against Alabama One on behalf of past business associates of Butler and sought tens of millions of dollars of damages from Alabama One.
"These lawsuits alleged that Alabama One was somehow to blame for each of these individuals doing business with Butler in connection with working out the Butler MBLs," the filing noted. "The fact is that all of these individuals were previously acquainted with Butler and/or had previously done business with Butler in no way connected to the workout of the Butler MBLs."
Spokespersons at ACUA and Allen's office said they had no comment on the filing of the lawsuit.