In many cases, the specific and oftentimes taken-for-granted language contained in forms used by credit unions for everyday business dealings can dictate the outcome of costly and time-consuming lawsuits. Below are two litigation examples — one unfavorable and the other favorable — whose outcomes were determined by the language used in the respective business forms.
Case #1 — An Inadequate Redemption Notice Bars A Credit Union From Recovering A Vehicle Loan Deficiency
Adam Noel’s vehicle was repossessed and sold by Credit Union A in Vermont. The credit union later filed an action against Noel for a deficiency in the amount of $11,443.54. Noel, in response to that lawsuit, filed affirmative defenses and counterclaims alleging that the credit union violated Vermont’s Uniform Commercial Code (UCC) by failing to provide adequate notices before and after his vehicle was sold. The Vermont UCC, in the relevant portion, states that “the debtor is entitled to an accounting of the unpaid indebtedness” and a statement of “the charge, if any, for an accounting.” Noel primarily contended that the redemption notification that was sent to him was inadequate, because it did not include an accounting.
The Superior Court of Vermont concluded that the credit union’s notice, which merely included a recitation of the amount of the delinquency, did not qualify as a statutorily required accounting. Therefore, the cooperative failed to comply with the Vermont UCC. The court then addressed the consequences of such noncompliance. It applied the absolute-bar rule and held that the credit union was prevented from obtaining a deficiency judgment from Noel. The court further held that Noel was entitled to recover statutory damages from this institution.
Case #2 — A Credit Union Is Found Not Liable For One Account Holder On A Joint Account Removing The Other And Withdrawing All Funds.
Christine Bush formed a limited liability company, naming herself as a member and her boyfriend as the manager. The pair then opened a business checking account and a savings account with Credit Union B in Arizona. Both signed a certification of identity and authority. A year later, the boyfriend removed Bush’s name from both accounts and withdrew the $107,000 balance. Bush then sued the credit union for breach of contract and breach of the implied covenant of good faith and fair dealing. The trial court dismissed the suit and Bush appealed.
The Court of Appeals of Arizona noted that the certification of identity and authority authorized Bush and her boyfriend individually, without the other, to transact business with the credit union. Nothing in the certification required the credit union to first check with one member if another member tried to modify the account. The account master application also allowed Bush’s boyfriend to remove her unilaterally. Therefore, the cooperative did not breach its contract with Bush. For the same reasons, there was no basis to claim that the credit union breached any implied covenant. Accordingly, the appellate court upheld the trial court’s decision to dismiss the lawsuit.
Worth Watching: Recently Filed Lawsuits And Hot Topics
In addition to litigation over legal language, credit unions should also stay on top of these recent developments and hot button issues in the legal space.
Executive Compensation— In Texas, a recent case determined whether federal law preempts a lawsuit asserting state law claims for the termination of an executive’s deferred compensation plan.
A Recall Vote— In Oregon, a recent case determined the legality of an election to recall members of a board of directors who were challenged for counting ineligible votes.
ATM Patent Violation Litigation — Automated Transactions LLC has filed suit against numerous credit unions and banks alleging that their ATMs violate its patents.
Class Action Waivers vs. Arbitration Agreements — Recently, the United States Supreme Court held that a contractual waiver of class action in arbitration clauses in contracts is enforceable.
Marc Darnell is a member of the Kaufman & Canoles Credit Union Team and can be reached at (757) 873.6320 or firstname.lastname@example.org.
Brian Dolan is a member of the Kaufman & Canoles Credit Union Team and can be reached at (757) 873.6311 or email@example.com.
Given their structure and governance, credit unions have very specific legal needs. Kaufman & Canoles’ Credit Union Team understands the credit union difference – member owned, not-for profit financial institutions that are governed by volunteer boards. Our attorneys are familiar with all the state and federal statutes and regulations that must be followed in order to run a successful credit union. We use our knowledge and detail-oriented approach not only to help credit unions with commercial litigation and real estate transactions, but also with daily operations, regulatory compliance issues and human resources assistance. We not only understand a credit unions unique needs, we anticipate them.