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WesCorp judge renders temporary decision favoring directors
LOS ANGELES (12/28/10)--A U.S. District judge in Los Angeles has rendered a tentative decision in favor of former board members of Western Corporate FCU in a lawsuit by the National Credit Union Administration (NCUA) related to WesCorp's failure. However, the court has permitted the lawsuit against WesCorp's former officers to proceed. The decision to dismiss NCUA's complaints of breach of fiduciary duty and gross negligence against the directors is not final. Instead, Judge George Wu of the U.S. District Court for the Central District of California is allowing NCUA's attorneys one more chance to amend their complaint and proffer what they would argue, if they were given the chance to do so. NCUA will get until Jan. 10 to amend its arguments, with defendant directors/officers responding by Jan. 24. A hearing on Jan. 31 will determine whether the tentative ruling stands as a final rule. In essence Judge Wu divided the ruling into several areas of complaint--breach of fiduciary duty claims, gross negligence claims, statute of limitations, and claims related to WesCorp's Supplemental Executive Retirement Plans (SERP). The case also was separated in terms of whether defendants were directors or officers. The breach of fiduciary duties complaint, which hinged on the interpretation of California's Business Judgment Rule, was dismissed against former directors Bill Cheney (now president/CEO of the Credit Union National Association), Gordon Dames, Robert Harvey, James Jordan, Timothy Kramer, Robin Lentz, John Merlo, Warren Nakamura, Brian Osberg, David Rhamey and Sharon Updike. In the decision, the court said the directors fall under the business judgment rule in decisions that do not involve fraud or breach of trust. The rule provides directors "broad discretion in making corporate decisions and [allows] these decisions to be made without judicial second-guessing in hindsight." However, although the court dismissed the breach of fiduciary duties issue against Robert Burrell, WesCorp's former executive vice president/chief information officer, it is allowing NCUA to amend the complaint against Burrell and noted that it has not dismissed the breach of fiduciary duties against management/officers of WesCorp. The gross negligence charges have been dismissed for everyone because there is no cause of action against gross negligence under California law, said Judge Wu. The court also indicated it was ready to grant director Cheney a clean bill on a statute of limitations argument as it applies to the gross negligence claim. However, it did not reach a conclusion about Rhamy and Updike because of a dispute about whether the statute of limitations was two years or three. Since the gross negligence claim was invalid, Wu did not have to decide which limit to use. A two-year limit would favor all three directors, while a three-year limit would apply only to Cheney because of the dates of departure from the board. The court did not dismiss claims related to WesCorp's SERP policies against Robert A. Siravo (WesCorp's former president/CEO), Todd M. Lane (former chief financial officer) and Thomas E. Swedberg. Those claims allege Siravo and Swedberg manipulated the SERP to increase pay-outs and that Lane was "enriched" by executing an early payout agreement in exchange for his SERP rights.


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