WASHINGTON (2/17/09)—The Supreme Court of Kentucky has agreed to review a field-of-membership (FOM) case that involves the state regulators’ authority to grant FOMs based on the state’s Area Development Districts (ADD). The case was brought by Home Federal Savings and Loan Association against the Kentucky Department of Financial Institutions (DFI) in May 2006. It is known as Home Fed. Sav. & Loan v. Kentucky. The bankers in the case argued that state law does not permit community-based FOMs for state-chartered credit unions. They argued that the ADD would equal a community charter. The Supreme Court decision to review revives credit union hope in the case after a blow on the appeals court level last November. That court sided with a lower court ruling backing the plaintiff. It ruled that the DFI exceeded its statutory authority when it approved geographic fields of membership for six state-chartered credit unions between 2000 and 2005. Wendell Lyons, president of the Kentucky CU League, said Monday that his group is encouraged that the high court granted Discretionary Review. He said he believes the league’s attorney made a compelling argument. Lyons said to agree with the lower court ruling, "one would have to accept that the Kentucky General Assembly, while modernizing the state (credit union) act in 1984 – took the illogical step of gutting the field of membership provisions of the act at the same time.” “We are glad that we are getting another day in court,” he added. The Credit Union National Association (CUNA) joined the case as a “friend of the court” last April. In an amicus brief, CUNA argued, in part, that the lower court incorrectly applied federal administrative law precedent, instead of Kentucky administrative law, to deny the DFI judicial deference. And the court further erred, CUNA argued, because, if correctly applied, the federal precedent would have compelled the court to back the state regulator under judicial deference. General Counsel Eric Richard said CUNA got involved in the case because the lawsuit was part of a pattern in which bankers have been challenging community charters in state courts around the country. In addition to Kentucky, Richard noted, multiple cases have been brought in Missouri, since resolved by state legislation, and in Pennsylvania. Michael Edwards, CUNA counsel for special projects, said he believes the state high court agreed to review the case because of the technical aspects involved. He said the court most likely wants to review the power of a state regulator, as well as what kind of administrative procedures would require that a regulator’s action be given judicial deference in a case. The six credit unions named in the bankers' original lawsuit were:
* Members Choice CU, a $101.7 million asset credit union based in Ashland; * $11.5 million asset C&O United CU, Edgewood; * $77.7 million asset Service One CU, Bowling Green; * $30.7 million asset Beacon Community CU, Louisville; * $57 million asset GTKY CU, Lexington; and * $43 million asset Kentucky Employees CU, Frankfort
It was Members Choice that sought the state Supreme Court’s review.