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NCUA seeks dismissal of Corp. Central CU suit
WASHINGTON (1/21/10)--The National Credit Union Administration (NCUA) has filed a motion to dismiss Corporate Central CU's lawsuit seeking a refund of $6 million in capital shares from U.S. Central FCU. The NCUA motion, which was filed in federal court last week, states that Corporate Central lacks the authority to bring a suit against U.S. Central and the NCUA because the Agency assumed the powers of both its management and its members when it took over U.S. Central in early 2009. The NCUA motion also seeks to dismiss Corporate Central's claim that NCUA's actions as conservator violated the equal protection clause of the U.S. Constitution. The case, which is currently in the United States District Court for the Eastern District of Wisconsin, was previously stayed by the NCUA in November of 2009, soon after Corporate Central filed its complaint in October of that year. According to the NCUA’s filings, its authority as conservator of U.S. Central "includes Plaintiff's right as a member of U.S. Central to sue the NCUA as conservator of U.S. Central or U.S. Central for damages arising from Plaintiff's investment in U.S. Central.” "The NCUA's filing to dismiss the Corporate Central lawsuit is similar to its motion to intervene as a substitute plaintiff in the litigation against former and current directors and officers of WesCorp, which it filed in Los Angeles Superior Court last month," said Credit Union National Association Counsel for Special Projects Michael Edwards. "In both cases, the NCUA has asserted that the Federal Credit Union Act gives the agency the rights and privileges of a conserved credit union’s members, including the right to sue the conserved credit union, or its management, under most circumstances." The Corporate Central suit claims that U.S. Central owes corporate credit unions up to $100 million in Membership Capital Shares (MCS) that had usually been returned to members when a member's investments in and loans from U.S. Central decreased. U.S. Central owes over $6 million to Corporate Central itself, according to the complaint, and Corporate Central alleges that U.S. Central improperly changed its bylaws in late 2008 to retain these funds as a reaction to its deteriorating financial condition. U.S. Central’s bylaw change centered on policies that governed the recalculation of required MCS balances. This recalculation created an "adjustment refusal policy" that would prohibit MCS refunds to U.S. Central members, even in the event that a member would have been entitled to a MCS refund under the previous policy based on the member corporate's investment and loan levels. U.S. Central's previous policy required member credit unions to maintain MCS and other capital equal to at least 5% of their total investments in U.S. Central and associated loans from U.S. Central. This percentage was recalculated every six months, and members could reportedly receive refunds of excess MCS if their total investments and loans with U.S. Central had decreased. Corporate credit unions, including Corporate Central, were notified of the policy change shortly before U.S. Central announced substantial losses for the 2008 fiscal year. Corporate Central, which held over $1.3 billion in direct and indirect investments in U.S. Central as of Dec. 31, 2008, has alleged that the bylaw change was invalid based on the theory that some U.S. Central board members should have recused themselves from voting on the bylaw change.


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