PORTLAND, Ore.-Lawyers for St. Helen's Community FCU urged a federal court here to dismiss a suit challenging last September's unsuccessful board ouster vote, claiming the federal court has no legal jurisdiction over federal credit union bylaws designed by NCUA.

"This court simply does not have subject matter jurisdiction over the claims alleged by the plaintiff because the claims arise under state law," said lawyers for the $160-million credit union in their motion to dismiss.

It remains to be seen whether NCUA, which passed a regulation in 2007 giving it the power to enforce federal credit union bylaws, will exercise that power.

The credit union's lawyers were responding to a suit brought last month by a member of a group that sought the recall of five of the seven directors. The group claimed the unsuccessful recall ouster vote was rigged by a majority of the board. Among other allegations, the members claim the credit union's bylaws, adopted from standard bylaws developed by NCUA, restrict voting on director recalls to only those members present at a special meeting and does not allow for mail-in ballots-as St. Helen's Community allowed.

After the special meeting the credit union said 1,413 members voted, even though only 175 members attended the special meeting. The credit union has never disclosed the voting results.

The lawyers for St. Helen's say that although federal regulations set out the bylaws a credit union may adopt, "disputes regarding adherence to the bylaws are a matter of state corporate law."

"This is a purely state law question that does not require a 'federal decision,'" the lawyers argued to the U.S. District Court for the District of Oregon.


Defense Used In Other Cases

The defense is similar to that used by several credit unions that fought members over their attempts to convert the credit unions to mutual savings banks. That is, that the enforcement of a credit union's bylaws-even for federal charters-is a matter for state courts to decide. In fact, the St. Helen's Community lawyers cite one of those cases: the conversion of DFCU Financial, a Michigan credit union giant whose members voted down a conversion to a bank, which entailed a legal challenge.

In this case, members of St. Helen's Community were upset with management and the board over the agreement to merge their credit union with Wauna FCU-which eventually was scotched. The dissident members succeeded in forcing out the CEO and helped defeat two of the seven directors in their reelection. But they failed to oust the other five or to seat allies in a majority of the seven board positions.

NCUA's bylaws rule was prompted by several instances in which courts refused to enforce credit union bylaws, enabling members to petition for a special meeting to recall directors who had sought to convert their credit union to mutual savings banks. In at least two cases, including that of DFCU, state courts refused to enforce bylaws allowing members to petition for a special meeting to replace the boards.

The 2007 rules allows NCUA to use administrative remedies, such as cease and desist orders, or in more severe case, removal of the board, to enforce violations of bylaws. NCUA previously was authorized to enforce bylaws but gave up the power in the 1980s during an overall de-regulatory move.

Subscribe Now

Authoritative analysis and perspective for every segment of the credit union industry

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.