First City Bank v. National Credit Union Admin. Bd.

• Decision Date: 16 June 1997
• Docket Number: No. 95-6543,95-6543
• Citation: 111 F.3d 433
• Parties: FIRST CITY BANK, Plaintiff-Appellant, Tennessee Bankers Association, Intervening Plaintiff-Appellant, v. NATIONAL CREDIT UNION ADMINISTRATION BOARD, Defendant-Appellee, AEDC Federal Credit Union, Tennessee Credit Union League, and Credit Union National Association, Inc., Intervening Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 433

111 F.3d 433

65 USLW 2694

FIRST CITY BANK, Plaintiff-Appellant, Tennessee Bankers Association, Intervening Plaintiff-Appellant, v. NATIONAL CREDIT UNION ADMINISTRATION BOARD, Defendant-Appellee,

AEDC Federal Credit Union, Tennessee Credit Union League,

and Credit Union National Association, Inc.,

Intervening Defendants-Appellees.

No. 95-6543.

United States Court of Appeals, Sixth Circuit.

Argued Oct. 15, 1996.

Decided April 14, 1997.

Rehearing Denied June 16, 1997.

Randall S. Mashburn (argued and briefed), Baker, Donelson, Bearman & Caldwell, Nashville, TN, Rodney M. Scott, Murfreesboro, TN, for Fiest City Bank, Tennessee Bankers Association.

Jacob M. Lewis (argued and briefed), Douglas N. Letter, Department of Justice, Appellate Staff, Civil Division, Washington, DC, Anne L. Weismann, Department of Justice, Washington, DC, for National Credit Union Administration Board.

William M. Leech, Jr., Michael R. Paslay, Waller, Lansden, Dortch & Davis, Nashville, TN, Teresa Burke (briefed), Paul J. Lambert, Bingham, Dana & Gould, Washington, DC, for Tennessee Credit Union League, Credit Union National Association, Inc.

Teresa Burke, (briefed), Paul J. Lambert, Bingham, Dana & Gould, Washington, DC, for AEDC Federal Credit Union.

Before: JONES, RYAN, and MOORE, Circuit Judges.

RYAN, J., delivered the opinion of the court, in which MOORE, J., joined. JONES, J. (pp. 439-42), delivered a separate dissenting opinion.

RYAN, Circuit Judge.

The plaintiff, First City Bank, filed this action under the Federal Credit Union Act (FCUA), 12 U.S.C. §§ 1751-1795k, the Administrative Procedure Act, 5 U.S.C. § 706, and the Declaratory Judgment Act, 28 U.S.C. §§ 2201-02, challenging the National Credit Union Administration's (NCUA) interpretation of the FCUA. The Tennessee Bankers Association subsequently intervened as a plaintiff, and the AEDC Federal Credit Union, the Tennessee Credit Union League, and the Credit Union National Association intervened as defendants. The district court granted summary judgment for the defendants and intervenor-defendants, and the plaintiffs appeal arguing that the district court erred in concluding that the NCUA reasonably interpreted the FCUA to allow multiple occupational groups, each of which independently shares a "common bond," to join a single credit union. As we shall explain, we agree that the district court erred, and will reverse.

I.

A.

First City is a Tennessee banking corporation, and a member of the Tennessee Bankers Association, the principal state trade association for commercial banks in Tennessee. Defendant NCUA is an executive branch government agency responsible for regulating federally insured credit unions. See generally 12 C.F.R. Ch. VII. It was established in 1970 to "prescrib[e] rules and regulations for the organization and operation of federal credit unions." NATIONAL CREDIT UNION ADMINISTRATION, OFFICE OF EXAMINATION AND INSURANCE, FEDERAL CREDIT UNION HANDBOOK 2 (1988). Defendant AEDC Federal Credit Union is a federally chartered credit union. Defendants Tennessee Credit Union League and Credit Union National Association are trade associations for credit unions in Tennessee and nationally, respectively.

Congress passed the FCUA, creating federal credit unions, in response to the failed banks, high interest rates, and diminished credit opportunities that were a hallmark of the Great Depression. See T I Federal Credit Union v. DelBonis, 72 F.3d 921, 931-32 (1st Cir.1995). The purpose of the FCUA was to "establish a Federal Credit Unions System, to establish a further market for securities of the United States and to make more available to people of small means credit for provident purposes through a national system of cooperative credit, thereby helping to stabilize the credit structure of the United States." 12 U.S.C. § 1751, reprinted in CREDIT UNION NATIONAL ASSOCIATION, INC., LEGISLATIVE HISTORY OF THE FEDERAL CREDIT UNION ACT: A STUDY OF THE HISTORICAL DEVELOPMENT FROM 1934 TO 1980 OF THE STATUTE GOVERNING FEDERAL CREDIT UNIONS, quoted in DelBonis, 72 F.3d at 931. Thus, "[i]n effect, the Federal Credit Union Act created a localized and liberalized system of federal credit services," and FCUs

enable the federal government to make credit available to millions of working class Americans. These organizations, often described 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," provide credit at reasonable rates to millions of individuals who--because they lack security or, as recent studies show, reside in low income areas or in communities primarily inhabited by racial minorities--would otherwise be unable to acquire it.

DelBonis, 72 F.3d at 931-32 (citation omitted). As DelBonis suggests, then, the purpose of the FCUA was "to encourage the proliferation of credit unions, which were expected to provide service to th[e] would-be customers that banks disdained." First Nat'l Bank & Trust Co. v. National Credit Union Admin., 988 F.2d 1272, 1275 (D.C.Cir.1993) ^{BT I} .

Under the FCUA, a federal credit union, or FCU, is owned and controlled by its members. 12 U.S.C. § 1757(6). An FCU can only make loans to and accept deposits from its own members and other credit unions. Id. § 1757(5).

Section 109 of the FCUA provides in pertinent part that

Federal credit union membership shall be limited to groups having a common bond of occupation or association, or to groups within a well-defined neighborhood, community, or rural district.

Id. § 1759 (emphasis added). The issue presented in this case involves only the "common bond" requirement for occupational credit unions, and does not involve associational or community credit unions.

One court has observed that

Congress assumed implicitly that a common bond amongst members would ensure both that those making lending decisions would know more about applicants and that borrowers would be more reluctant to default.... The common bond was seen as the cement that united credit union members in a cooperative venture, and was, therefore, thought important to credit unions' continued success.

FNBT I, 988 F.2d at 1276. Another court has described the purpose of the common bond provision somewhat differently, emphasizing the need of members to elect directors who will represent their interests:

The purpose of the common bond provision is evident from the nature of the institutions created by the Act. A credit union has been aptly described as "a democratically controlled, cooperative, nonprofit society organized for the purpose of encouraging thrift and self-reliance among its members.... [It] is fundamentally distinguishable from other financial institutions in that the customers may exercise effective control." The union's purposes are threatened by directors that are unmindful of members' funds or unresponsive to their collective interests. Thus Congress ensured that federal credit unions would retain their character as self-managed cooperatives by establishing democratic principles of decision and control. The common bond provision reinforces this aim by advancing the formation of credit unions among groups that may realistically operate with unity of purpose. It encourages the election of directors who possess a common interest or occupation with the membership they serve.

Branch Bank & Trust Co. v. National Credit Union Admin. Bd., 786 F.2d 621, 626 (4th Cir.1986) (citation omitted).

"From 1934 until 1982 the NCUA interpreted the common bond requirement to mean that the members of each occupational FCU ... must be drawn from a single occupational group, defined to mean the employees of a single employer." First Nat'l Bank & Trust Co. v. National Credit Union Admin., 90 F.3d 525, 526 (D.C.Cir.1996) ^{BT II} (citing 58 Fed.Reg. 40473 (July 28, 1993)), cert. granted, --- U.S. ----, 117 S.Ct. 1079, 137 L.Ed.2d 215 (1997). However, the NCUA had been tinkering with the common-bond requirement since 1967, gradually and consistently broadening the definition of the term. Finally, in 1982, the NCUA departed from its prior interpretation of the "common bond" language, and adopted a policy statement allowing multiple, or select, groups, each of which independently shared a common bond, to join together to form a credit union, so long as all the occupational groups "are located within a well defined area." Interpretative [sic] Ruling and Policy Statement (IRPS) 82-1, 47 Fed.Reg. 16775 (Apr. 20, 1982). The NCUA stated that its purpose for the change was to "clarify NCUA's policy on membership in Federal credit unions, ... and to ensure the continued availability of credit union service." Id. Other available information suggests that

[t]he 1982 change of interpretation was intended to enable each FCU to realize economies of scale and to facilitate occupational diversification within the ranks of its membership.... The new policy also made it possible for the employees of a company with fewer than 500 employees, the minimum for forming a new FCU, to join an existing FCU.

FNBT II, 90 F.3d at 526-27 (citing Letter from E.F. Callahan, Chairman of the NCUA, to Congressman Fernand J. St. Germain, Chairman of the House Committee on Banking, Finance and Urban Affairs 8-9 (Oct. 28, 1983); IRPS 89-1, 54 Fed.Reg. 31165, 31171 (July 27, 1989)). The NCUA has continued to reiterate this position on the common-bond requirement, doing so most recently in 1994. See IRPS 89-1, 54 Fed.Reg. 31165 (July 27, 1989).

B.

First City originally filed suit against the NCUA in April 1994, seeking an order that the NCUA cease and desist from its current interpretation of the common-bond requirement. A credit union and two credit union trade associations--the AEDC Federal Credit Union, the Tennessee Credit Union League, and the Credit Union National Association, respectively--moved to intervene as defendants, and the Tennessee Bankers...