NEW YORK (6/4/10)--Three members of Hudson Valley FCU who paid mortgage recording taxes (MRT) required under New York state law have filed a class action lawsuit against the credit union and title insurance companies in the U.S. District Court for the Southern District of New York, saying the taxes are unlawful under the Federal Credit Union Act (FCUA) and should not have been charged. Hudson Valley FCU is the $2.7 billion asset, Poughkeepsie, N.Y.-based credit union that previously filed a separate lawsuit in state court, in May 2009, against New York tax officials That lawsuit sought a declaratory judgment that the MRT cannot lawfully be charged to a federal credit union because of the FCUA's tax exemption. Last month, the judge in the declaratory judgment action ruled that federal credit unions and their members must continue to pay MRT and held that the FCUA tax exemption does not apply to that tax. Attorneys for the three plaintiffs in the class action lawsuit--Maria Milone and Thomas and Kelly Y. Morel, all of Poughkeepsie--filed the class action lawsuit on April 29. Despite the state court's decision that the FCUA tax exemption does not apply to MRT, the plaintiffs are essentially arguing that the credit union never should have required members to pay that tax. The lawsuit seeks class actions status for all members of Hudson Valley FCU who paid the MRT. Their class action complaint alleges violations of the federal Racketeer Influenced and Corrupt Organizations Act (RICO), as well as fraud and breach of contract claims. RICO usually applies to racketeering organizations such as the Mafia, and RICO lawsuits have not been successful against credit unions in the past. For example, two 1990s lawsuits involving the former Rhode Island Central CU, brought under Rhode Island's version of RICO, resulted in summary judgments in favor of the credit union parties. The factual basis for these RICO and other claims, according to the complaint, are that the credit union and title insurance companies allegedly represented that the amount charged constituted a valid tax but plaintiffs maintain that "no tax was legally due in connection with the mortgages from plaintiffs and class members because Hudson Valley and the other federal credit unions are exempt from the tax pursuant to the Federal Credit Union Act of 1934." An attorney for the credit union, however, says it must pay MRT according to state law until the matter is resolved. "As soon as Hudson Valley FCU was advised by my firm that we felt they had a strong basis to claim exemption from the tax, they authorized us to research the matter thoroughly, and then to engage K&L Gates as co-counsel and commence legal proceedings," said Dale J. Lois, a partner at the law firm Quartararo and Lois, one of the law firms, along with K&L Gates, representing the credit union. "They did so for the benefit of their members and others similarly situated, and have expended considerable efforts and resources in the process," Lois said. "Unless and until New York State changes its policy with respect to this matter, neither Hudson Valley nor any other federal credit union can avoid payment of the tax upon the recording of its mortgage."