American Bankers v. National Credit Union

• Citation: 513 F.Supp.2d 190
• Decision Date: 14 September 2007
• Docket Number: Civ. A. No. 1:05-CV-2247.
• Parties: AMERICAN BANKERS ASSOCIATION, et al., Plaintiffs, v. NATIONAL CREDIT UNION ADMINISTRATION, et al., Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

513 F.Supp.2d 190

AMERICAN BANKERS ASSOCIATION, et al., Plaintiffs, v. NATIONAL CREDIT UNION ADMINISTRATION, et al., Defendants.

Civ. A. No. 1:05-CV-2247.

United States District Court, M.D. Pennsylvania.

September 14, 2007.

COPYRIGHT MATERIAL OMITTED

Christopher R. Nestor, Raymond P. Pepe, Kirkpatrick & Lockhart Preston Gates Ellis LLP, David R. Overstreet, Kirkpatrick & Lockhart Nicholson Graham LLP, Harrisburg, PA, for Plaintiffs.

D. Brian Simpson, U.S. Attorney's Office; Harrisburg, PA, Eric R. Womack, Washington; DC, for Defendants.

Christopher J. Pippett, Michael A. Finio, Saul Ewing LLP, Wayne, PA, Kevin J. McKeon, Hawke McKeon Sniscak & Kennard LLP, Harrisburg, PA, Paul J. Lambert, William S. Cravens, Bingham McCutchen LLP, Washington, DC, Steven R. Bisker, Attorney at Law, Alexandria, VA, for Intervenor Defendants.

MEMORANDUM

YVETTE KANE, Chief Judge.

Before the Court is an action under the Administrative Procedures Act ("APA"), 5 U.S.C. § 551 et seq., challenging an administrative order of the National Credit Union Administration ("NCUA"). The, parties have extensively briefed two issues now before the Court for determination: (1) the standard of review the, Court should apply when considering the NCUA's decision;. and (2) the proper scope of discovery. For the reasons that follow, the Court finds that: (1) the challenged action of the NCUA must be reviewed on the merits under the "arbitrary and capricious" standard of § 706(2)(A) and for procedural errors under § 706(2)(D) of the APA; and that the agency's action must be evaluated based on the administrative record before the Court.

I. BACKGROUND

A. Statutory Framework

The Federal Credit Union Act ("FCUA"), 12 U.S.C. §§ 1751-1795k, provides for the chartering and regulation of federal credit unions, which the act defines as "cooperative association[s] organized ... for the purpose of promoting thrift among [their] members and creating a source of credit for provident or productive purposes." Id. § 1752(1). The National Credit Union Administration ("NCUA") is the independent federal agency responsible for the governance of federal credit unions under the FCUA. Id. § 1752a. The NCUA is supervised by the National Credit Union Administration Board ("Board"), which consists of "three members, who are broadly representative of the public interest, appointed by the President, by and with the advice and consent of the Senate." Id. § 1752a(b)(1).

Before a federal credit union may receive recognition by the NCUA, the credit union must prepare an "organization certificate," id. § 1753, which then must be approved by the Board, id. § 1754. Before the Board may approve an organization certificate, the NCUA must undertake "an appropriate investigation" to evaluate three criteria: "(1) whether the organization certificate conforms to the provisions of this chapter; (2) the general character and fitness of the subscribers thereto; and (3) the economic advisability of establishing the proposed Federal credit union." Id. § 1754. Once the organization certificate is approved, the federal credit union is chartered and entitled to certain statutory benefits, most notably, tax-exempt status. Id. § 1758.

The FCUA recognizes three categories of federal credit unions, distinguished by the credit union's membership: (1) single common-bond credit unions; (2) multiple common-bond credit unions; and (3) community credit unions. Id. § 1759(b). In 1998, Congress codified these categories (know"' as "fields of membership") in the Credit Union Membership Access Act ("CUMAA"), Pub.L. No. 105-219, after the United States Supreme Court invalidated the NCUA's interpretation of permissible fields of membership in National Credit Union Administration v. First National Bank & Trust Co., 522 U.S. 479, 118 S.Ct. 927, 140 L.Ed.2d 1 (1998).

As part of the CUMAA, Congress established the requirement that the service area of a community credit union must be limited to "a well-defined local community, neighborhood, or rural district." CUMAA § 101. The CUMAA also provided that the Board would be required to "prescribe regulations defining the term `well-defined local `community, neighborhood, or rural district' far purposes of ... (A) making any determination with regard to the field of membership of a [community] credit union; and (B) establishing the criteria applicable with respect to any such determination," id. § 103. Accordingly, the Board promulgated Interpretative Ruling and. Policy Statement 99-1 ("IRPS 99-1"), which reflects the NCUA's interpretation of acceptable fields of membership. 63 Fed.Reg. 71,998-72,089 (Dec. 30, 1998).

B. Factual Background

On February 16, 2006, the parties submitted to the Court the administrative record of the proceedings before the NCUA. (Doc. No. 26) (hereinafter "A.R. ___" In their briefs, both parties cite extensively to the record, and for the purpose of this memorandum opinion, the Court will accept the following "facts" from the record:

On October 2, 2001, Members 1st Federal Credit Union ("Members 1st")¹ submitted an application to convert its existing charter to a community-credit-union charter serving eight counties in central Pennsylvania "situated in the heart of southern Pennsylvania." A.R. 1175, 1210. As part of its application to the NCUA, Members 1st described the desired eight-county region as a "well-defined local community" with "[t]he hub of the Community [located in] the bustling State Capital, Harrisburg, which is home to the offices of Pennsylvania's government." A.R. 1210.

On October 17, 2001, the NCUA regional office denied the application after determining that Members 1st failed to demonstrate that the eight-county region "comprise[d] a single, local, well-defined community where residents interact or have common interest." A.R. 1157. Members 1st requested that the NCUA reconsider its decision, and the NCUA agreed. After reconsideration, however, the NCUA regional office again decided to deny the application because "there [was] insufficient evidence to establish that South Central Pennsylvania is a `local' community where residents interact or have common interests. ..." A.R. 1103.

In November 2002, Members 1st submitted a second application in the form of a "draft," which included a proposed community of six (as opposed to eight) counties² 2 and the Borough of Shippensburg including that portion of Shippensburg located within Franklin County. A.R. 884. Also, unlike the previous application, which defined the community as the "South Central Pennsylvania" region, the November 2002 draft application referred to the community as the "Capital Area Community." A.R. 88g.

The NCUA regional office reviewed the November 2002 draft application, and offered its comments. The regional, staff opined that Members 1st still would not meet the statutory requirement of a well-defined local community, but suggested if Members 1st refocused its application, Members 1st would substantially improve the chances for approval:

The requested area consists of two MSAs³, and one county. To tie the MSAs together, it must be demonstrated there is interaction or common interests among the two. A review of the draft application and research on the Internet suggests a good approach is to focus on the trade area formed by the [Interstate] 83 Corridor between Harrisburg and York. ... Given the information provided in the application indicating transportation corridors all lead to Harrisburg, if it can be demonstrated they all lead toward the Harrisburg-York corridor, the notion of community would be considerably strengthened;

A.R. 877 (emphasis in original). The review also identified a number of other areas where the draft application could be modified to support approval. A.R. 877-880.

In February 2003, Members 1st submitted a six-county community-charter application that included the region identified in the November 2002 draft application, but incorporated the core recommendations of the NCUA regional staff. A.R. Vols. II-III. On March 28, 2003, the acting regional director of the NCUA prepared a Board Action Memorandum for the Board recommending approval of the February 2003 application. A.R. 10-11. Additionally, the NCUA General Counsel's office and Examination and Insurance Office offered their endorsement. A.R. 243-44; A.R. 3-4. Finally, on April 24, 2003, the NCUA Board unanimously approved the February 2003 application, thereby granting Members 1st a community-credit-union charter. A.R. 1-9.

Subsequent to the Board's approval of the Members 1st application, two other federal credit unions — New Cumberland Federal Credit Union and AmeriChoice Federal Credit Union — filed community-charter applications with the NCUA, seeking to operate in the same region as Members 1st A.R. Vols. VI-VII. The NCUA approved the applications.

C. Procedural Background

On November 11, 2005, the American Bankers Association, the Credit Union Strategies Task Force of Pennsylvania, The Legacy Bank, Adams County National Bank, and Mid Penn Bank (hereinafter "the Banks") filed suit against the NCUA to challenge the approval of the community charters. (Doc. No. 1.) On February 6, 2006, the Banks filed an amended complaint (Doc. No. 10), and the NCUA filed an answer to the amended complaint (Doc No. 15). On February 8, 2006, the Court granted a motion filed pursuant to Federal Rule of Civil Procedure 24 allowing Members 1st, New Cumberland Federal Credit Union, and AmeriChoice Federal Credit Union ("the Credit Unions") to join as intervening Defendants. (Doc. No. 13.) On February 8, 2006, the Credit Unions answered the amended complaint. (Doc. No. 18).

The Court conducted a scheduling conference pursuant to Federal Rule of Civil Procedure 16(b) on April 12, 2006, at which the parties addressed the question of what standard of review applies to this action, and the question of whether the Court's review is limited to the agency record submitted or...