Corporate CU sues U.S. Central over 'excess capital'

WASHINGTON (10/21/09)--In legal documents filed late last week, Wisconsin-based Corporate Central CU is seeking the reimbursement of $6 million in excess investments from U.S. Central FCU.

In the court complaint, which was filed in U.S. District Court for the Eastern District of Wisconsin, Corporate Central claims that a late 2008 change in U.S. Central's bylaws prevented Corporate Central from receiving $6 million in funds via a Membership Capital Share (MCS) refund.

This change involved an alteration to policies governing the recalculation of required MCS balances to create an "adjustment refusal policy" that would prohibit MCS refunds to U.S. Central members, even in the event that a member was entitled to a MCS refund based on its 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.

The complaint alleges that the bylaw change was invalid because some U.S. Central board members, who are not specifically named in the complaint, should have allegedly recused themselves from voting on the bylaw change.

According to the complaint, the voted on policy represented "a pecuniary benefit" to some U.S. Central board members whose institutions would not have received a refund of MCS at that time because it "eliminated or reduced the amount of capital they would have been required to contribute in the absence of the Adjustment-Refusal Policy."

Additionally, Corporate Central has alleged that the National Credit Union Administration violated equal protection of rights under the U.S. Constitution by allowing the adjustment refusal policy adopted by U.S. Central to continue once the NCUA became U.S. Central's conservator.

U.S. Central did not notify Corporate Central of the policy change until Dec. 22, 2008, according to the complaint. Corporate Central held just over $1.3 billion in both direct and indirect investments in U.S. Central as of Dec. 31, 2008.

The causes of action named in the complaint are conversion, breach of contract, violation of bylaws, violation of equal protection of rights, and declaration of rights.

NCUA Director of Public and Congressional Affairs John McKechnie said that the agency is reviewing the complaint and does not comment on pending litigation.

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