LOS ANGELES (11/16/11)--The National Credit Union Administration (NCUA) Monday filed in a federal court in Los Angeles motions to dismiss counterclaims and affirmative defenses of several former officers of the now-defunct Western Corporate FCU. The officers are trying to get NCUA to pay their legal fees--some in advance--in its suit against them stemming from WesCorp's $6.8 billion investment portfolio losses and ultimate collapse.
The former WesCorp officials in the case are: Robert A. Siravo, CEO; Thomas E. Swedberg, head of human resources; Timothy T. Sidley, chief risk officer; Robert J. Burrell, chief investment officer; and Todd M. Lane, chief financial officer. Each filed amended counterclaims against NCUA, who is the liquidating agent for WesCorp, in the U.S. District Court for the Central District of California, Western Division in Los Angeles.
They allege that as former officers of WesCorp, they are entitled to indemnification; payment of defense costs, including advances of funds to pay the defense costs; and costs incurred to secure indemnity.
NCUA in court documents it filed Monday said the court lacks subject matter jurisdiction to order legal defense payments or to issue declaratory relief during the pendency of a lawsuit and that a federal credit union has discretion on whether to advance costs while a matter is pending.
The agency's motion also noted that "the regulations authorizing indemnification by financial institutions such as WesCorp apply only to solvent institutions. As a matter of law, corporate officers sued by the receiver or liquidator of a failed financial institution may not obtain indemnification from the estate of the failed institution, even if the officers ultimately defeat the claims against them."
NCUA also argued that the officers cannot obtain indemnification for actions brought by the NCUA "based upon their allegedly wrongful conduct." "First, the NCUA has brought this action in its capacity as the liquidating agency for a failed credit union, WesCorp. Second, the NCUA is suing the officer defendants for their wrongful conduct that directly led to the collapse of WesCorp. Allowing indemnification for the NCUA's lawsuit would lead to the 'absurd result' that the NCUA could succeed in its suit against the officer defendants, and then recover from itself."
The agency also noted that the Labor Code does not authorize an employee to seek indemnity from an employer; instead, the claims brought by the officers are governed by a specific statutory provision in the California Corporate Code.
Also, said NCUA, the claims for indemnification are "not ripe" because they have not prevailed on NCUA's claims against them.
In a separate motion, NCUA also attacked as "legally insufficient" three affirmative defenses brought by the officers in their amended answers to its lawsuit.
The agency moved to strike the assertion that "the pre-failure actions by NCUA as regulator excuses the otherwise culpable conduct of the officer defendants," adding that "these defenses fail because 'courts have uniformly held that claims or defenses based on pre-receivership actions of regulators are legally insufficient.'"
In a second affirmative defense, the WesCorp officers asserted a "business judgment rule bars liability," but NCUA said "the court has already held that the business judgment rule does not protect the officer defendants."
It also moved to strike "bare-bones assertions that a statute of limitations bars the NCUA's claims" because the claims did not identify a specific statute and therefore "do not provide the basic notice required."
Finally, NCUA moved to dismiss amended counterclaims by some of the officials due to lack of subject matter jurisdiction and failure to state a claim upon which relief may be granted.
The case is scheduled to be heard on Jan. 9 at 8:30 a.m. PT before U.S. District Court Judge George H. Wu.