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N.B.A CREDIT UNION, INC. v. HARGROVE

March 16, 1994

N.B.A CREDIT UNION, INC., Plaintiff,
v.
SARAH W. HARGROVE, et al., Defendants



The opinion of the court was delivered by: BY THE COURT; MARVIN KATZ

MEMORANDUM/ORDER

 AND NOW, this 16th day of March, 1994, upon consideration of the Motion for Summary Judgment of Defendant Secretary of Banking Hargrove, the Federal Defendant's Renewed Motion for Summary Judgment, and Plaintiff N.B.A. Credit Union's Opposition To Motion for Summary Judgment of Defendant Secretary of Banking Hargrove and Federal Defendant's Renewed Motion for Summary Judgment, and after a hearing, *fn1" it is hereby ORDERED that the defendants' respective motions for summary judgment are GRANTED as set forth below.

 I. Parties

 Plaintiff, N.B.A. Credit Union, Inc. ("Credit Union"), is a non-profit Pennsylvania corporation chartered and regulated by the Pennsylvania Department of Banking (the "Pennsylvania Department"). Credit Union's members are affiliated through membership in the National Business Association, Inc. ("NBA"), an association of private and public employers and employees that acts as Credit Union's sponsor. *fn2" Defendant Sarah W. Hargrove ("Hargrove") is the Secretary of Banking of the Commonwealth of Pennsylvania. Hargrove is responsible for administration of the Pennsylvania Department, including regulation of Pennsylvania-chartered credit unions. 17 Pa. C.S.A. §§ 101-1504.

 The National Credit Union Administration (the "NCUA") is an independent agency in the executive branch of the federal government. 12 U.S.C. § 1752a. Defendant Norman d'Amours ("Amours") is the appointed chairmen of the board of the NCUA. *fn3" Credit Union is a federally-insured credit union subject to examination, supervision and regulation by the NCUA. 12 U.S.C. §§ 1752(7), 1784, 1786. *fn4"

 II. Background

 This litigation concerns the defendants' regulation of Credit Union's field of membership. Credit Union claims that its geographic area of operation has been unjustly restricted. Credit Union claims that this action causes Credit Union to forego long-standing and valuable financial service relationships with members of NBA.

 Credit Union was chartered on February 3, 1972 as D.V.B.A. Credit Union. Plaintiff's Proposed Exhibits 1 (filed for the preliminary injunction hearing and hereinafter "Pl Ex."). Credit Union assumed its present name on October 31, 1986, reflecting a change in its sponsor. France Dec. P 3. At that time, Credit Union expanded its field of membership to include all members of NBA. Pl. Ex. 1-4; France Dec. P 3. In March 1990, Credit Union provided services to employee groups *fn5" in approximately forty (40) states. Pl. Ex. 29, p. 1; France Dec. P 11.

 In September 1990, Credit Union and the Pennsylvania Department realized that their respective views of Credit Union's authorized field of membership differed. Pl. Ex. 5, 30; France Dec. PP 8-12. *fn6" Specifically, Credit Union operated under the view that its field of membership was constrained solely by Article 8 of its Amended Articles of Incorporation. This article reads in its entirety:

 
The membership of the credit union will be limited to: Members of the National Business Association; associations of such persons; employees of the credit union; retired members who retain their membership in the credit union; and members of their immediate families.

 Pl. Ex. 4. In contrast, the Pennsylvania Department held the view that "Pennsylvania State Chartered Credit Unions are restricted in membership to common associational groups within well defined community or rural districts in Pennsylvania." Pl. Ex. 5; France Dec. PP 8-9; 17 Pa.C.S. § 17. The NCUA, the Pennsylvania Department and Credit Union held several discussions concerning this conflict over Credit Union's authorized field of membership. These discussions culminated in an April 18, 1991 meeting between the Credit Union's Board of Directors, the Deputy Chief Counsel for the Pennsylvania Department, Mary D. France, *fn7" a representative of the Pennsylvania Department Bureau of Supervision and Enforcement, Victor H. Seesholtz, and representatives of the NCUA. Pl Ex. 7; France Dec. PP 11-17.

 Order to Cease and Desist

 At the April 18th meeting, the Pennsylvania Department presented a draft cease and desist order to Credit Union. France Dec. PP 18-19; Pl. Ex. 6-8. The draft order commented negatively on Credit Union's operations, addressed the disagreement over Credit Union's authorized field of membership, and attempted to settle several issues prospectively. Id. Credit Union objected to portions of the draft order and the Pennsylvania Department agreed to some modifications. Id.; Pl. Ex 9.

 On April 29, 1991, the Pennsylvania Department mailed Credit Union two documents: (1) a copy of the draft order that memorialized the modifications agreed to at the April 18, 1991 meeting; and (2) a joint Stipulation and Consent to Entry of Order to Cease and Desist. Pl. Ex. 10. On May 21, 1991, the Pennsylvania Department received an executed copy of the stipulation making final the Order to Cease and Desist (the "Order"). Pl. Ex. 14; See Joint Stip. of Facts (titled "Stipulation" and submitted for preliminary injunction hearing, hereinafter referred to as "Stip.") Exs. A, B, C, D.

 The Order stated that Credit Union expanded its field of membership beyond the parameters established by the Pennsylvania Department. Stip. Exs. A, B, C. With regard to day to day operations, the Order concluded that Credit Union:

 
(1) Along with its sponsor, NBA, conducted the business of Credit Union in an unsafe and unsound manner; and
 
(2) Is experiencing difficulties in record keeping and other areas of administration which may jeopardize the financial integrity of the Credit Union.

 Stip. Ex. C. The Order also reported that "the Department has determined that the Board of Directors has not fulfilled its fiduciary duties or exercised reasonable care and due diligence in supervising operations of the Credit Union." Id.; see also, Kunyzka Dep. at 15-16.

 Finally, the Order provided a definition of Credit Union's authorized field of membership. The Order defined Credit Union's authorized field of membership as follows:

 
The Credit Union shall limit its field of membership to members of NBA in the following geographic locations:
 
(a) the counties of Bucks, Chester, Philadelphia, Delaware and Montgomery, or elsewhere in the Commonwealth of Pennsylvania if prior authorization is granted by the Department pursuant to the requirements of Section 701 (a) of the Code.
 
(b) the counties of Camden, Mercer, Gloucester and Burlington in the State of New Jersey, if prior authorization is obtained from the New Jersey Department of Banking; and
 
(c) the State of Delaware north of the Delaware Canal, if prior approval is obtained from [the appropriate state agency]. *fn8"
 
 
All individual members of the Credit Union and all business/employer members of the Credit Union enrolled as of May 1, 1991, not within the above described field of membership may remain members of the credit union [if not in violation of the law of the state in which the member is located.] *fn9" No new employee members employed by existing business/employer members located outside the Commonwealth of Pennsylvania may be admitted to membership after May 1, 1991. No new business/employer members outside the field of membership may be admitted to membership after April 18, 1991.

 Stip. Ex. C. *fn10" By stipulating to the Order, Credit Union waived its right to appeal the findings and determinations of the Order. Stip. Ex. C.

 As directed by the Order, Credit Union sought authorization to operate in New Jersey from the New Jersey Department of Banking (the "New Jersey Department"). Pl. Exs. in Op. 5, 9-10; Pl. Ex. 17. Credit Union received a letter on August 8, 1991 from the New Jersey Department forbidding Credit Union from taking on "any new employee groups from the State of New Jersey" and permitting Credit Union to "service existing employees throughout the State of New Jersey who are members of NBA, Inc. [including] adding new employees from the existing employee groups." Id. (emphasis added).

 Present Controversy

 The present controversy centers on the parties differing views of Credit Union's authorized field of membership in New Jersey following the entry of the Order.

 The Pennsylvania Department's position regarding New Jersey membership eligibility is that the Order authorizes Credit Union:

 
(1) To service existing employee groups within the four specified New Jersey counties (the "Four Counties") by retaining their depositors accounts and enrolling new depositors associated with existing employee groups; *fn11"
 
(2) To enroll new employee groups and their associated depositors from within the Four Counties; and
 
(3) To retain existing depositors from employee groups located outside the Four Counties (the "Grandfathered Employee Groups"), but not to enroll new depositors from the Grandfathered Employee Groups under any circumstance,

 France Dec. PP 20, 25-27; Pl. Ex. 25 (emphasis added). The Pennsylvania Department also asserts that Credit Union's authorized field of membership was further limited by the New Jersey Department's unilateral determination that Credit Union was not authorized to enroll new employee groups from anywhere in New Jersey, including the Four Counties. *fn12" Pl. Ex. 17.

 Thus, the present controversy over Credit Union's authorized field of membership centers on the eligibility of new depositors from the Grandfathered Employee Groups (the "New Depositors").

 A review of the transcript of the April 18, 1991 meeting and the parties' communications following the entry of the Order sheds light on why the parties reached different positions regarding the eligibility of the New Depositors and why the misunderstanding was not resolved expeditiously.

 During the April 18th meeting the following transcribed *fn13" colloquy occurred:

 Mr. Mitchell: *fn14" One other question, I think it's clear but ...


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