Herbert v. National Credit Union Admin. Bd.

• Decision Date: 29 June 1987
• Docket Number: No. 86-689C(1),86-691C(1),and 86-692C(1).,86-689C(1)
• Citation: 663 F. Supp. 833
• Parties: Jeffery HERBERT, as Trustee for Savannah Securities, Inc., d/b/a Hillcrest Abbey and Mausoleum, a corporation, Plaintiff, v. NATIONAL CREDIT UNION ADMINISTRATION BOARD, managing body for the National Credit Union Administration, an agency of the United States, Defendant. Jeffery HERBERT, as Trustee for Magnolia Memorial Gardens, Inc., Plaintiff, v. NATIONAL CREDIT UNION ADMINISTRATION BOARD, managing body for the National Credit Union Administration, an agency of the United States, Defendant. Jeffery HERBERT, as Trustee for Hillcrest Abbey West, Inc., a corporation, Plaintiff, v. NATIONAL CREDIT UNION ADMINISTRATION BOARD, managing body for the National Credit Union Administration, an agency of the United States, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

663 F. Supp. 833

Jeffery HERBERT, as Trustee for Savannah Securities, Inc., d/b/a Hillcrest Abbey and Mausoleum, a corporation, Plaintiff, v. NATIONAL CREDIT UNION ADMINISTRATION BOARD, managing body for the National Credit Union Administration, an agency of the United States, Defendant.

Jeffery HERBERT, as Trustee for Magnolia Memorial Gardens, Inc., Plaintiff, v. NATIONAL CREDIT UNION ADMINISTRATION BOARD, managing body for the National Credit Union Administration, an agency of the United States, Defendant.

Jeffery HERBERT, as Trustee for Hillcrest Abbey West, Inc., a corporation, Plaintiff, v. NATIONAL CREDIT UNION ADMINISTRATION BOARD, managing body for the National Credit Union Administration, an agency of the United States, Defendant.

Nos. 86-689C(1), 86-691C(1), and 86-692C(1).

United States District Court, E.D. Missouri.

June 29, 1987.

Joseph G. Wright III, Anderson, S.C., Mark T. Keaney, St. Louis, Mo., for plaintiff.

James D. McCoy, Asst. U.S. Atty., Greenville, S.C., Wesley D. Wedemeyer, Asst. U.S. Atty., St. Louis, Mo., for defendant.

MEMORANDUM

NANGLE, Chief Judge.

Introduction

Consolidated cases Numbers 86-689C(1), 86-691C(1), and 86-692C(1)¹ are now before the Court on the three identical motions for summary judgment of defendant National Credit Union Administration Board (NCUAB). In these three cases, plaintiff Jeffery Herbert, as the Trustee for certain trusts,² brought suit against the NCUAB because the NCUAB determined that three accounts which plaintiff established at the now-defunct Zionic Federal Credit Union (Zionic)³ were not "member accounts," and, thus, that there was no insurance coverage for these accounts under the Federal Credit Union Act from the National Credit Union Share Insurance Fund (NCUISF). By these three cases, plaintiff seeks a determination that these three accounts were "member accounts" and, thus, were insured under the Federal Credit Union Act.⁴ The NCUAB filed the instant three identical motions for summary judgment contending that the NCUAB acted within its statutory discretion in denying insurance payout to plaintiff. The Court finds that, as a matter of law, the NCUAB properly denied insurance payout to plaintiff. Accordingly, the NCUAB's motions for summary judgment are granted. Numbers 86-689C(1), 86-691C(1), and 86-692C(1) are dismissed.

Zionic Federal Credit Union

On February 15, 1979, the NCUAB approved Zionic's organization certificate; Zionic was chartered as a Federal Credit Union. Zionic's charter field of membership was "limited to those persons and entities having the following common bond:"

Members of the Reorganized Church of Jesus Christ of Latter Day Saints who are church participants within the geographic boundaries, as of the date of this charter, of the East Central States Region; unremarried spouses of persons who died while within the field of membership of this credit union; employees of this credit union; members of their immediate families; and organizations of such persons.

Defendant's Exhibit 1; Plaintiff's Exhibit II. With the prior approval of the NCUAB to the amendment, on March 17, 1979, the Board of Directors of Zionic adopted the following amendment to Article III of Zionic's by-laws:

SECTION 6. Shares may be issued in a revocable or irrevocable trust, subject to the following:

(a) When shares are issued in a revocable trust, the settlor must be a member of this credit union in his/her own right, and the name of the beneficiary must be stated.

(b) When shares are issued in an irrevocable trust, the settlor or the beneficiary must be a member of this credit union in his/her own right, and the name of the beneficiary must be stated. For purposes of this section, shares issued pursuant to a pension plan authorized by the rules and regulations shall be treated as an irrevocable trust unless otherwise indicated in the rules and regulations.

(c) Trust accounts established prior to the effective date of this section shall not be affected. Trusts may be established pursuant to this section, provided such trusts, their terms and conditions are in accordance with the laws of this jurisdiction.

Defendant's Exhibit 11. Thereafter, Zionic applied for and, on February 13, 1983, the NCUAB approved, a charter amendment to Zionic's field of membership. Zionic's amended field of membership was "limited to those persons and entities having the following common bond:"

1. Members of the Reorganized Church of Jesus Christ of Latter Day Saints who are church participants within the geographic boundaries as of the date of this charter of the East Central States Region;⁵

2. Members, employees, and associates of the National Family Institute, Inc. NFI, National Youth Development Foundation, Inc. NYDF, Missouri Inheritance, Inc. MI, or Camp Personality, Inc. CP, and their affiliated associations, trusts, and organizations;

3. Spouses of persons who died while within the field of membership of this credit union;

4. Employees of this credit union;

5. Members of their immediate families; and

6. Organizations of such persons.

Defendant's Exhibit 3; Plaintiff's Exhibit EE. The amendment added the underlined portion and eliminated the requirement that spouses of persons who died while within the field of membership still be unremarried.

On January 7, 1983, plaintiff Jeffery Herbert, in his individual capacity, opened account number 536 at Zionic. (Plaintiff's Exhibit G).⁶

In March, 1983, the NCUAB learned that Zionic had accepted as members certain entities or organizations which did not qualify for membership in Zionic under Zionic's approved field of membership. Thereafter, on May 18, 1983, Zionic and the NCUAB entered into a "MEMORANDUM OF AGREEMENT" which stated that Zionic's field of membership:

is exclusively limited to natural persons and organizations of natural persons otherwise eligible for membership. Specifically, it is understood that membership in Zionic is not available to organizations solely on the basis that they make donations to, do business with, provide services to, or otherwise deal with NFI, NYDF, MI, or CP, although said organization may nevertheless qualify for membership if composed entirely of natural persons otherwise eligible for membership.

(Defendant's Exhibit 5; Plaintiff's Exhibit JJ). The MEMORANDUM OF AGREEMENT acknowledges that Zionic had in fact accepted as members certain entities and organizations which did not qualify for membership. Thus, Zionic agreed (1) to cease accepting as members non-qualifying entities and organizations, and (2) to inform non-qualifying entities and organizations that their accounts were uninsured.

By letter dated June 20, 1983, through its attorney, Zionic, inter alia, requested that National Heritage Corporation (NHC) be considered for inclusion in Zionic's field of membership. (Defendant's Exhibit 7, ¶ 1). By letter dated July 21, 1983, the NCUAB informed Zionic's attorney that the NCUAB would consider an expansion of Zionic's field of membership to include NHC only after Zionic had fully complied with all the conditions contained in the parties MEMORANDUM OF AGREEMENT and after Zionic had corrected certain other problems.⁷ That letter further informed Zionic's attorney that the NCUAB would advise Zionic regarding the requirements for valid trust accounts. (Defendant's Exhibit 8). Zionic's attorney by letter dated August 15, 1983, responded by stating that Zionic would not engage in any questionable trust accounts. (Defendant's Exhibit 9). By letter dated September 26, 1983, the NCUAB informed Zionic's attorney that, pursuant to Section 119 of the Federal Credit Union Act, 12 U.S.C. § 1765, Zionic could "issue shares in trust subject to the conditions prescribed in" Zionic's by-laws. The NCUAB noted the existence of Article III, Section 6, of Zionic's by-laws. The NCUAB described the effect of 12 U.S.C. § 1765 and of Article III, Section 6, as follows: Zionic could issue shares for revocable trust accounts only if all the settlors were members of Zionic; Zionic could issue shares for irrevocable trust accounts only if either all the settlors or all the beneficiaries were members of Zionic. (Defendant's Exhibit 10).

On September 28, 1983, plaintiff Jeffery Herbert, acting as a Trustee, established account numbers 701, 702, and 703 at Zionic respectively for "HILLCREST ABBEY WEST, INC.," "SAVANNAH SECURITIES, INC., d/b/a Hillcrest Abbey and Mausoleum," and "MAGNOLIA MEMORIAL GARDENS, INC." (the "cemetery companies"). (Plaintiff's Exhibit F).

On June 6, 1984, the NCUAB placed Zionic into involuntary liquidation pursuant to its authority under 12 U.S.C. §§ 1766(b), 1786(h)(4)(B), and 1787(a)(1). (Defendant's Exhibit 12). On June 28, 1985, by letter the NCUAB informed plaintiff, through plaintiff's attorney, that the three cemetery companies were not within Zionic's amended field of membership and, thus, that the three accounts were not entitled to insurance. (Defendant's Exhibit 13).

On November 1, 1985, plaintiff filed the five now-consolidated cases in the United States District Court for the District of South Carolina, Anderson Division. On March 21, 1986, Judge Anderson ordered the five cases transferred to the United States District Court for the Eastern District of Missouri, Eastern Division. On May 15, 1986, this Court consolidated the five cases for discovery. On October 27, 1986, the National Credit Union Administration Board filed the instant motions for summary judgment.

Federal Credit Unions

A Federal credit union is "a cooperative association organized in accordance with the provisions of the Federal Credit Union Act for the purposes of promoting thrift among its members and creating a source of credit for provident or productive purposes." 12 U.S.C. § 1752(1). Seven or more natural persons together may apply to form a Federal credit union by filing an "organization certificate" with the NCUAB. 12 U.S.C. §§ 1753 & 1754. The NCUAB is charged with the...