LOS ANGELES (3/20/12)--A federal judge has granted the National Credit Union Administration's (NCUA) motion to strike down certain defenses offered by officials of the now defunct Western Corporate FCU in NCUA's suit against them to recoup $6.8 million in investment portfolio losses from mortgage-backed securities.
It was the second decision within a week that supported some of NCUA's motions in the lawsuit, which alleges that senior WesCorp executives were negligent in monitoring the corporate's investments and that there was a breach of fiduciary duty and fraud related to the investments that caused WesCorp to collapse.
U.S. District Judge George H. Wu of the U.S. District Court for the Central California, Western Division in Los Angeles, in an order filed Thursday granted NCUA's motion to strike several affirmative defenses in the executives' amended answers to its complaint.
He struck "without leave to amend," defenses that claimed NCUA ratified, consented, approved, acquiesced or participated in the events; that the state's business judgment rule applied; that there was due diligence and reasonable investigation; that the decisions were made according to business custom and usage, candor and good faith.
Judge Wu also struck several other defenses "but only to the extent that they assert as affirmative defenses the alleged approval, acquiescence, consent, participation or ratification of NCUA examiners and supervisory personnel before the NCUA placed WesCorp into conservatorship in March 2009." In these defenses, several defendants maintained there was reliance on others' expertise, apportionment, and consent, approval, acquiescence, authorization and ratification. These are struck as they relate to NCUA personnel and examiners.
The court did not strike defenses that "assert approval, acquiescence, consent, participation or ratification by the WesCorp board of directors" or its committees. It said the same for directives or guidance given to the officer defendants by WesCorp's board or committees. It also said the same for statements from NCUA to the WesCorp board or committees that might have influenced any directives or guidance given to the officers by the WesCorp board, and for reliance by the defendants on people other than NCUA personnel such as professionals.
"By striking these affirmative defenses, the court does not preclude the officer defendants from offering evidence of the NCUA's statements and conduct to the extent that such evidence is relevant to the issue of whether the officer defendants breached their fiduciary duties, as alleged by NCUA."
He also struck--but gave the defendants the ability to amend these defenses--several statute of limitations defenses asserted by the WesCorp officials, and denied NCUA's motion to strike an estoppel defense made by Thomas Sidley, WesCorp's former chief risk officer. NCUA and Sidley entered into a settlement agreement earlier this month.
The other former WesCorp officials named as defendants are: CEO Bob Siravo, Chief Financial Officer Todd Lane, Chief Investment Officer Bob Burrell and Human Resources Director Thomas Swedburg.
Last week Judge Wu dismissed WesCorp officials' efforts to get NCUA to pay legal costs and indemnification but allowed the officials an opportunity to amend their indemnification claim based on state law before April 14.