Petition for Writ of Certiorari — Board of Directors v. National Credit Union Administration

INDEX.

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JURISDICTION 2.2... cece cece cece cece rere erence eee

QUESTIONS Pansenven wok Revi... . .. «<<< <eecsescescs

STATUTORY PROVISIONS INVOLVED .............20cccceees

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Reasons ror GRANTING THE WRIT ..............2<c022---

1.

The Decision of the United States Court of Appeals

for the Tenth Circuit Involves an Important Question

of Federal Law Directly Affecting a Substantial Num-

ber of Federally Chartered Credit Unions; a Question

Which Should Be Finally Settled by This Court, i.e.,

Does Section 109 of the Federal Credit Union Act

Which Provides That Federal Credit Union Member-

ship 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 Require the Imposition of a Geographical Limi-

tation Upon Fields of Membership Based Solely on the

Common Bond of Occupation or Association? ......

The Decision of the United States Court of Appeals

for the Tenth Circuit Has Resulted in a Radical De-

parture From Long-Existing Decisional Law Which

Precludes a Sovereign From Unilaterally and Arbi-

trarily Altering a Provision of an Existing Charter.

Such Action Which Has Been Consistently Proscribed

Since the Decision of This Court in Dartmouth Col-

lege v. Woodward, 17 U. S. (4 Wheat.) 518 (1819)

Results in Uncertainty in the Law of Contracts and

Specifically Abrogates the Binding Effect of Unam-

biguous Charter Provisions Upon the Administration.

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INDEX (Continued).

3. The Decision of the United States Court of Appeals for

the Tenth Circuit Involves an Important Question oi

Federal Law, Affecting a Substantial Number of Fed-

erally Chartered Credit Unions; a Question Which

Should Be Settled by This Court, ie, May the Na-

tional Credit Union Administration Unilaterally Amend

the Lawful Charter of a Credit Union by Means of

an “Interpretation”, Even Though Section 104 of

the Federal Credit Union Act (as Well as Regula-

tions Promulgated Thereunder) Provides the Exclusive

Procedure for Effecting Charter Amendments? ....

4. The Decision of the United States Court of Appeals

for the Tenth Circuit Involves an Important Question

of Federal Law Directly Affecting the Nation’s Regula-

tory Structure, i.e., Can an Administrative Agency and

Specifically, the National Credit Union Administra-

tion, Impose Substantive Conditions and Restrictions

by Means of an Informal “Bulletin”, Contrary to the

Rule-Making Process Expressly Mandated by Con-

gress in the Administrative Procedure Act, as well as

Section 120 of the Federal Credit Union Act? ......

a CETISMNEET ee oo AO Re inte e eale oats

APPENDIX A:

Opinion of the United States Court of Appeals for the

CE epee ake nencdessudeeans sa0staneeers

Letter From Clerk’s Office Giving Notice of Judgment

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AppeENDIX B—Final Decision and Order of the National Credit

i eS Seve ea a Chen kae ee

AppenpIxX C—Recommended Decision of the Trial Examiner

of the National Credit Union Administration ..........

Page

20

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TABLE OF CASES CITED.

Page

Dartmouth College v. Woodward, 17 U. S. (4 Wheat.) 518

“ss Wigs Bayea ts EDs Ape oiep eta land Bey MPR NCCP See Uc nen Re 10, 13

STATUTES AND AUTHORITIES CITED.

Page

Administrative Procedure Act:

Sectans Sora. SU. S.C. SS0-Sae won. 5c cee ccnne 19

Federal Credit Union Act:

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OE Ws 0 a ee a Be ok So sceenecees 2, 4, 10, 14, 16

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Section 120(0), 12 U.S. C. 1766(a) ........5.056 2,5, 11, 18

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Section 206(i) (2), 12 U. SC. 1786(i)(2) ............. 9

Judicial Code :

Section 1254(1), 26 U. S. C. 12548) .. 20.0. ceeccs. 2

ar gah ea Lee ween aad aes 16

73 Congressional Record 7260 (1934) .............00.000- 15

RESTATEMENT OF CONTRACTS § 235(a) ............000005s 13

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IN THE

Supreme Court of the United States

ns

Octoser Term, 1973.

No.

BOARD OF DIRECTORS AND OFFICERS, FORBES

FEDERAL CREDIT UNION, CHARTER NO. 11258,

FORBES AIR FORCE BASE, TOPEKA, KANSAS,

Petitioners,

v.

NATIONAL CREDIT UNION ADMINISTRATION,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT.

Petitioners pray that a writ of certiorari issue to re-

view the judgment of the United States Court of Appeals

for the Tenth Cireuit entered in the above-entitled case on

April 26, 1973.

CITATIONS TO OPINIONS BELOW.

The Opinion of the United States Court of Appeals for

the Tenth Cireuit, docket number 72-1351, dated and filed

April 26, 1973, reproduced in Appendix A hereto, is as yet

unreported.

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3 Petition for Writ of Certiorari

JURISDICTION.

The judgment of the United States Conrt of Appeals

for the Tenth Circuit was dated and entered on April 26,

1973. Jurisdiction to review the judgment in question is

conferred on this Court by Section 1254(1) of the Judicial

Code of 1948, 63 Stat. 928, 28 U. S. C. 1254(1).

QUESTIONS PRESENTED FOR REVIEW.

1. Is not an agency of the executive branch precluded

from unilaterally and substantially changing the provisions

of a federal credit union’s charter, contrary to the pro-

cedure for amendment as set forth by Congress in Section

104 of the Federal Credit Union Act, 12 U. S. C. § 1754!

2. In view of the statutory provision authorizing the

chartering of federal credit unions in which the member.

ship ‘‘may consist of groups having a common bond of

occupation or association’’, is not the National Credit

Union Administration as the administrative supervisory

agency, precluded from imposing an interpretation of said

statute, inconsistent with and contrary to the express pro-

visions contained therein?

3. Having twice approved a specific provision of a

federal charter expressly delineating the field of member.

ship, is not the National Credit Union Administration, a

grantor of the charter, precluded from effectively changing

same without the consent of the grantee credit union?

4. Is not the National Credit Union Administration as

an administrative agency precluded from imposing sub-

stantive conditions and restrictions upon a federal credit

union by way of an informal ‘‘bulletin’’, contrary to the

regulatory process expressly contemplated by Congress,

as set forth in Section 120(a) of the Federal Credit Union

Act, 12 U. S. C. § 1766(a)?

Petition for Writ of Certiorari

ee)

Meg ELE AES —

STATUTORY PROVISIONS INVOLVED.

Federal Credit Union Act.

12 U. S. C. 1753.

Federal credit union organization—Any seven or more

natural persons who desire to form a Federal credit union

shall subscribe before some officer competent to administer

oaths an organization certificate in duplicate which shall

specifically state—

(1) the name of the association;

(2) the location of the proposed Federal credit

union and the territory in which it will operate;

(3) the names and addresses of the subscribers to

the certificate and the number of shares subscribed by

each;

(4) the par value of the shares which shall be $5

each;

(5) the proposed field of membership, specified in

detail ;

(6) the term of the existence of the corporation

which may be perpetual; and

(7) the fact that the certificate is made to enable

such persons to avail themselves of the advantages of

this Act.

Such organization certificate may also contain any provi-

sions approved by the Administrator for the management

of the business of the association and for the conduct of its

affairs and relative to the powers of its directors, officers,

or stockholders.

een EF LTE UR TES EES IER

4 Petition for Writ of Certiorari

12 U. S. C. 1754.

Approval of organization certificate—The organization

certificate shall be presented to the Administrator for ap-

proval. Before any organization certificate is approved, an

appropriate investigation shall be made for the purpose of

determining (1) whether the organization certificate con-

forms 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. Upon approval of such organization certifi-

eate by the Administrator it shall be the charter of the

corporation, and one of the originals thereof shall be de-

livered to the corporation after the payment of the fee

required therefor. Upon such approval the Federal credit

union shall be a body corporate and as such, subject to the

limitations herein contained, shall be vested with all the

powers and charged with all of the liabilities conferred and

imposed by this chapter upon corporations organized

hereunder.

12 U. 8. C. 1759.

Membership—Federal credit union membership shall

consist of the incorporators and such other persons and

incorporated and unincorporated organizations, to the ex-

tent permitted by rules and regulations prescribed by the

Administrator, as may be elected to membership and a-

such shall each, subscribe to at least one share of its stock

and pay the initial installment thereon and the entrance

fee; except 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 neighbor-

hood, community, or rural district. Shares may be issued

in joint tenancy with right of survivorship with any per-

sons designated by the credit union member, but no joint

Petition for Writ of Certiorari 5)

tenant shall be permitted to vote, obtain loans, or hold

office, unless he is within the field of membership and is a

qualified member.

12 U. S. C. 1766(a).

Certain powers of the Administrator—(a) The Admin-

istrator may prescribe rules and regulations for the admin-

istration of this chapter (including, but not by way of

limitation, the merger, consolidation, and dissolution of

corporations organized under this chapter).

12 U. S. C. 1769(b).

(b) The right to alter, amend, or repeal this chapter

or any part thereof, or any charter issued pursuant to the

provisions of this chapter, is expressly reserved.

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6 Petition for Writ of Certiorari

STATEMENT OF THE CASE.'

This is an appeal from the United States Court

of Appeals for the Tenth Circuit’s judgment affirming

the Administrator of the National Credit Union Ad.

ministration, directing petitioner first, to cease and desist

from interpreting or construing the field of membership

provision in Petitioner’s charter, contrary to the ‘‘inter-

pretation’’ of the Administrator, and secondly, to cease

and desist from enrolling members that are not within the

field of membership so ‘‘interpreted’’ by the Administrator.

The Forbes Federal Credit Union (Forbes), located

at Forbes Air Force Base at Topeka, Kansas is organized

under the Federal Credit Union Act and was supervised

by the Bureau of Federal Credit Unions’ successor agency,

the National Credit Union Administration, respondent.

As a result of the desire by Forbes to expand its field

of membership, the Bureau of Federal Credit Unions, by

letter dated April 24, 1967, agreed to permit an amendment

to Forbes’ charter to include ‘‘members of the U. S. Armed

Forces, active or retired, or their dependents or dependent

survivors who are eligible by law or regulations to receive

benefits or services from the above military installations.”

(Tab 37, Ex: G-5, G-6). This charter amendment was ae-

ceptable to Forbes; the final certificate of approval was

duly executed by the Bureau of Federal Credit Unions

on May 5, 1967 (Tab 37, Ex. G-7, G-8).

In November 1969, petitioner requested the Bureau

to approve another charter amendment (unrelated to the

issues here), further expanding its field of membership

(Tab 37, Ex. G-2, p. 4). The Bureau again approved the

1. Footnote references are to the certified record which consists

of 37 “Tabs.” All Exhibits admitted into evidence which are col-

lected in Tab 37 are further classified as “G” or “R.” References

will therefore be made by giving the Tab number and the Exhibit

number. For example: (Tab 37, Ex. G-5).

Pin M0 ws 1 ESTERS ODL 2H = ms erat

Petition for Wrii of Certiorari 7

request. However, the revised field of membership provi-

sion which it sent to petitioner in December 1969, con-

tained not only the requested amendment but also the words

‘. . . and are receiving’ added to the charter provisions

in dispute so that the proposed charter amendment read

in pertinent part as follows: ‘*. . . Members of the U. S.

Armed Forces, active or retired, or their dependents or

dependent survivors, who are eligible by law or regulation

to receive and are receiving benefits’? from Forbes Air

Force Base (emphasis supplied) (Tab 37, Ex. R-6).

Forbes promptly returned this statement of its field of

membership to the Bureau’s Regional Office, requesting

that the amendment be retyped, omitting the limiting pro-

vision ‘‘. . . and are receiving’’ (Tab 37, R-7). In Janu-

ary 1970, the Administration agreed, and returned the

charter amendment to petitioner with the words ‘‘. . . and

are receiving’’ deleted (Tab 37, R-8). Subsequently, the

amendment to the field of membership charter provision

was finally signed by the Bureau of Federal Credit Unions

in Washington, D. C., by J. Deane Gannon, Director, with

the words ‘‘. . . and are receiving’’ expressly and deliber-

ately omitted (Tab 37, R-8).

Thus, on not one but two separate occasions, the re-

spondent Administrator expressly agreed to charter amend-

ments with the words ‘‘and are receiving’’ omitted from

the field of membership provision.

This fact notwithstanding, the National Credit Union

Administration rather arbitrarily contended that Forbes’

field of membership charter provision should be interpreted

as if the words ‘‘. . . and are receiving’’ were inserted as

illustrated below:

‘‘Members of the U. S. Armed Forces active or retired,

or their dependents or dependent survivors who are

eligible by law or regulations to receive and are re-

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A Me RTI ARR SRN UO EOIN IS PICS UREA PO aa DT ar rinind pees oa hagas

8 Petition for Writ of Certiorari

ceiving benefits or services from the above military

installation’’.

As previously stated, petitioner had never amended its

charter in this manner.

Forbes has consistently contended that its charter as

amended is a contract and should be interpreted by the

usual or ordinary meaning of its provisions, and that the

addition of the words ‘‘. . . and are receiving”’ by inter-

pretive fiat, is not only unreasonable but is also merely

an illegal attempt by the Administrator to unilaterally

amend the charter, contrary to the substantive and proce-

dural provisions of the Federal Credit Union Act, as well

as the procedure provided in the Act and even the regula-

tions of the Administration itself governing the amend-

ment of charters.

The Administrator issued a ‘‘Notice of Charges”’ on

July 13, 1971, contending that Forbes violated its charter

by serving persons who were outside its field of member-

ship (Tab 1).

In his Notice of Charges, the Administrator stated

that Forbes sent a representative to Seward Air Force

Base in Tennessee who accepted into its membership per-

sons who possessed no real or projected ‘‘relationship”

with Forbes Air Force Base. The persons that were ac-

cepted, however, all were eligible under the law to receive

benefits and services from Forbes Air Force Base and as

fellow U.S. Air Force personnel (both military or civilian)

had, of course, a common bond of occupation or associa-

tion as contemplated by the Act.

A hearing was held on August 24, 1971 before a Hear-

ing Examiner appointed by the Administrator, who ree-

ommended finding against the Forbes Federal Credit

Union (Appendix C, fra, p. A18). His recommendation

SO ne a 8 APE LET DAE OP DEE DINE oe eS NE ine

Petition for Writ of Certiorari 9

was adopted by the Administrator in his Final Decision

and Order, which rather boldly stated that Forbes’ field of

membership charter provision

[S]hall henceforth be interpreted to mean those mem-

bers of the United States Armed Forces, active or

retired, or their dependent survivors who are eligible

by law or regulations to receive and are receiving

benefits or services from the above military installa-

tion (emphasis supplied). (Appendix B, infra, p. A16-

Al7)

Upon petition for review, the U. S. Court of Appeals

for the Tenth Circuit, its jurisdiction established by Section

206(i)(2) of the Federal Credit Union Act, 12 U.S. C. See.

1786(i)(2), heard argument and ultimately affirmed the

Order of the Administrator. Judgment in accordance with

the Opinion by the Honorable Robert H. McWilliams, Cir-

cuit Judge, was entered on April 26, 1973.

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10 Petition for Writ of Certiorari

REASONS FOR GRANTING THE WRIT.

Stated summarily, the reasons for granting the writ are

as follows:

1. The decision of the United States Court of Appeals

for the Tenth Circuit involves an important question of

Federal law directly affecting a substantial number of

Federally chartered credit unions; a question which should

be finally settled by this Court, i.e., does Section 109 of

the Federal Credit Union Act which provides 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 require the imposition of a geographical limita-

tion upon fields of membership based solely on the common

bond of occupation or association?

2. The decision of the United States Court of Appeals

for the Tenth Circuit has resulted in a radical departure

from long-existing decisional law which precludes a sover-

eign from unilaterally and arbitrarily altering a provision

of an existing charter. Such action which has been con-

sistently proscribed since the decision of this Court in

Dartmouth College v. Woodward, 17 U. S. (4 Wheat.) 518

(1819) results in uncertainty in the law of contracts and

specifically abrogates the binding effect of unambiguous

charter provisions upon the Administration.

3. The decision of the United States Court of Appeals

for the Tenth Circuit involves an important question of

Federal law, affecting a substantial number of Federally

chartered credit unions; a question which should be settled

by this Court, i.e., may the National Credit Union Admin

istration unilaterally amend the lawful charter of a credit

union by means of an ‘‘interpretation’’, even though Sec-

tion 104 of the Federal Credit Union Act (as well as

ene ess Selassie

Te RE

Petition for Writ of Certiorart 11

regulations promulgated thereunder) provides the exclu-

sive procedure for effecting charter amendmeits?

4. The decision of the United States Court of Appeals

for the Tenth Circuit involves an important question of

Federal law directly affecting the nation’s regulatory struc-

ture, i.e., can an administrative agency and specifically,

the National Credit Union Administration, impose substan-

tive conditions and restrictions by means of an informal

‘‘bulletin’’, contrary to the rule-making process expressly

mandated by Congress in the Administrative Procedure

Act, as well as Section 120 of the Federal Credit Union Act?

A detailed discussion of the reasons for granting the

writ follows.

1. The Decision of the United States Court of Appeals for

the Tenth Circuit Involves an Important Question of

Federal Law Directly Affecting a Substantial Number

of Federally Chartered Credit Unions; a Question

Which Should Be Finally Settled by This Court, i.e.,

Does Section 109 of the Federal Credit Union Act

Which Provides That Federal Credit Union Member-

ship 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 Require the Imposition of a Geographical

Limitation Upon Fields of Membership Based Solely

on the Common Bond of Occupation or Association?

As of the beginning of this year, over twelve thousand

seven hundred Federally chartered credit unions existed

in the United States, serving over thirteen million mem-

bers. These same credit unions enjoyed assets of over

$12.3 billion *—all are potentially affected by the rather

2. Source: N.C. U. Al. Quarterly, January 1973, at 53-54.

MOR LI OPA ARP!

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12 Petition for Writ of Certiorari

unique contentions of the Administrator regarding con-

struction of the ‘‘common bond”’ as set forth in the Act.

The provision of the Act recited above essentially

states that Federal credit union membership is limited to

groups having a common bond of occupation or association,

or to groups which are determined by some form of geo-

graphical parameter. Thus, by its very terms, Congress

has posited two separate and distinct categories in which

a ‘‘common bond’’ can exist—the first relates to profes-

sions or associations; members of the military for whom

Forbes provided services fall into this category. By the

express language of the statute, no geographical limitation

on the profession or association has been imposed.

By way of direct contrast, however, Congress did

impose a geographical limitation upon the latter category;

separated by the disjunctive or, Congress recognized that

the common bond may also be established by a well-defined

neighborhood, community or rural district, all of which

are simply geographical boundaries.

This clear statutory scheme notwithstanding, the Court

of Appeals failed to recognize this rather evident distinc-

tion in its analysis of the statute. Instead, it simply

emulated the strained, imprecise and improper Opinion of

the hearing examiner who in turn, merely adopted the

assertions of the administrative agency as to what ‘‘com-

mon bond’’ encompasses.

In summary, the Court of Appeals never attempted to

ascertain whether the interpretation of ‘‘common bond”’ as

expounded by the Administrator was compatible with the

statute. To the contrary, the Court of Appeals rather

simplistically adopted the position of the Administrator:

In our view, such [petitioner’s assertion] would violate

the statutory provision that a federal credit union

shall have a ‘‘common bond’’ one with the other as

Petition for Writ of Certiorari 13

| a

that has been consistently interpreted by the Adminis-

trator. (Appendix A, infra, p. A13)

As a consequence, a geographical limitation has been

imposed by the Court of Appeals upon the professional

and associational ‘‘common bond’’, contrary to both the in-

tent and mandate of Congress as manifested in Section 109

of the Act, 17 U.S. C. 1759.

2. The Decision of the United States Court of Appeals for

the Tenth Circuit Has Resulted in a Radical Departure

From Long-Existing Decisional Law Which Precludes

a Sovereign From Unilaterally and Arbitrarily Alter-

ing a Provision of an Existing Charter. Such Action,

Which Has Been Consistently Proscribed Since the

Decision of This Court in Dartmouth College v. Wood-

ward, 17 U. S. (4 Wheat.) 518 (1819), Results in Un-

certainty in the Law of Contracts and Specifically

Abrogates the Binding Effect of Unambiguous Charter

Provisions Upon the Administration.

It is fundamental law that a charter of a corporation is

a contract; the general rules of contract law apply to the

granting, amending or repealing of such charters. Dart-

mouth College v. Woodward, 17 U. S. (4 Wheat.) 518

(1819). It is equally fundamental that in interpreting a

contract ‘‘[t]he ordinary meaning of language throughout

the country is given to words unless circumstances show

that a different meaning is applicable.’’ RestaTEMENT oF

Contracts § 235(a) (1932). The Comment to this section

explains that ‘‘the ordinary sense of words both singly and

in collocation is adhered to unless doing so would lead to

some absurdity, or repugnance or inconsistency with the

rest of the instrument. In such cases, so far as is necessary

to avoid that absurdity or inconsistency but no further, the

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14 Petition for Writ of Cerliorari

ordinary sense of words may be modified and rules of

grammar modified.’’

There is no question as to the meaning of the language

in the Forbes Federal Credit Union charter. The words

are clear. Under the Forbes charter all military personnel

‘‘eligible by law or regulations to receive benefits or serv-

ices’? from Forbes Air Force Base are eligible for member-

ship in the Forbes Federal Credit Union (Tab 37, G-6).

It was the erroneous opinion of the Court of Appeals

that the literal meaning of the provision should not be

given effect, because the Administrator has no authority

to grant a charter provision which does not comply with the

law, and here the law in the form of the Administrator's

interpretation of ‘‘common bond’’, requires that the words

‘‘and are receiving’’ be written into the Forbes charter

provision.

Thus, by means of rather circuitous reasoning, the

Court of Appeals essentially held that the words ‘‘and are

receiving’’ should be read into the charter, because the

Administrator has so stated. The Court also said that a

literal reading of the words was contrary to the meaning

that Congress intended the amendment to have. However,

once again the court concluded that since the Administrator

has no power to grant charter provisions that are ‘‘con-

trary to law’’ then this charter must be read as if the

words ‘‘and are receiving’’ are included, not because Con-

gress has so stated, but because the Administrator now

interprets ‘‘common bond”’ so as to prohibit any other con-

clusion. The real effect of this rather imprecise reasoning

is that having granted a charter (after preliminarily deter-

mining whether the charter or charter amendment complies

with the applicable law as required by Section 104 of the

Federal Credit Union Act, 12 U.S. C. 1754), the Adiinis-

trator may ‘‘interpret’’ in such a way as to make unlawful

the clear and unambiguous meaning of the provisions in

EIT BN Lie WOES AY ONE ALO aha ‘ “ Mh adeno yn

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Petition for Wit of Certiorari 15

the charter. Specifically, the Administrator ordered

Forbes to cease and desist from interpreting or construing

the field of membership . . . in any manner other than as

said field of membership is interpreted by the National

Credit Union Administration to wit: . . . [the operative

provision, which includes the words ‘‘and are receiving’

then follows] (Appendix B, infra, p. A16). Unquestion-

ably, such a method of ‘‘interpretation’’ is a radical de-

parture from the law of contracts, and presents a precedent

of questionable validity for the Administrator or any ad-

ministrative agency to capriciously and illegally alter the

clear and unambiguous meaning of federal charters.

A review of the legislative history of the Federal

Credit Union Act as well as the Act itself fails to reveal

any intent on the part of Congress to prohibit a field of

membership provision that is large or broad. To the con-

trary, the Congressional Record for the year 1934 for

April 25, at page 7260, shows a statement of a field of

membership considered by Congress as adequate to meet

the definition of ‘‘a common bond of occupation or asso-

ciation.”? One example there given is ‘‘. . . Municipal

Credit Union of the City of New York (composed of city

employees) has loaned $19,112,104 to 83,690 borrowers.’’

Surely if this group has a ‘‘common bond”? in the eyes of

Congress, then ‘‘members of the U. S. Armed Forces,

active or retired, or their dependents or dependent sur-

vivors who are eligible by law or regulations to receive

benefits . . .’’ from the Forbes Air Force Base in Topeka,

Kansas similarly defines a group with a ‘‘common bond’’.

Thus, the charter provision was not contrary to the

law, the approval of the provision was within the power

of the Administrator, and the Court of Appeals for the

Tenth Cireuit has seriously disturbed the heretofore settled

law on the sanctity of charters.

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16 Petition for Writ of Certiorari

3. The Decision of the United States Court of Appeals for

the Tenth Circuit Involves an Important Question of

Federal Law, Affecting a Substantial Number of Fed.

erally Chartered Credit Unions; a Question Which

Should Be Settled by This Court, i.e., May the National

Credit Union Administration Unilaterally Amend the

Lawful Charter of a Credit Union by Means of an

“Interpretation”, Even Though Section 104 of the

Federal Credit Union Act (as Well as Regulations

Promulgated Thereunder) Provides the Exclusive Pro.

cedure for Effecting Charter Amendments?

The regulatory procedure pertaining to Federal credit

union charter approval, including any subsequent amend-

ments thereto, essentially provides for the preparation of

an ‘‘organization certificate’? which, when submitted and

approved by the Administrator, becomes the charter of the

credit union; 12 U. S. C. § 1754. However, before ap-

proval, the Administrator is expressly charged with the

duty of ascertaining ‘‘whether the organization certificate

[charter] conforms to the provisions of the Act’’; 12

U.S. C. § 1754.

Further, by its very own regulations, the Administra-

tion requires that proposed charter amendments be first

adopted by the credit union, but then:

‘*No amendment of the by-laws or the charter shall

become effective however, until approved in writing by

the Administrator.’’ 12 CFR § 701.4.

This regulatory provision has been implemented by

Forbes in its by-laws by expressly providing that no amend-

ment to the charter shall be effective until approved in

writing by the Administrator.

This is the only procedure authorized by statute and

regulation for effecting a charter amendment, a fact which

7. +s nemo

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£5 Ca eae

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Petition for Writ of Certiorari 17

the Administrator’s Regional Director precisely corrob-

orated during oral testimony at the administrative hearing

below (Tab 36, p. 268).

On two separate occasions, charter amendments were

sought and obtained from the Administrator, following the

above procedure. Although the Administrator had ample

opportunity (and indeed the statutory duty) to review the

proposed field of membership to assure compatibility with

the law, at no time did he assert that insertion of the phrase

“. . . and are receiving’’ was essential for the charter

amendment to pass legal muster.

In fact, this was expressly rejected in the second pro-

posed amendment, when the Administrator attempted to

unilaterally insert the phrase ‘‘. . . and are receiving’’.

When informed by Forbes that this phrase did not appear

in the proposed amendment, as submitted for approval, the

Administrator promptly deleted it and proceeded to ap-

prove the charter amendment, without the phrase.

Thus, by now insisting upon an ‘‘interpretation’’ of

the charter provision which includes the phrase ‘‘. . . and

are receiving’’ (Tab 1), the Administrator is essentially

attempting to involuntarily impose a de facto charter

amendment upon Forbes.

The regulatory power of the Administrator was clearly

intended by Congress to provide for a preliminary deter-

mination of legal sufficiency. There is little point in sub-

mitting charters for approval, if, after they are in force,

the Administrator can effect modification by ‘‘interpreta-

tion’’ by adding provisions that are different from the clear

language of the charter as originally approved.

As the record clearly demonstrates, the Administrator

has inconsistently insisted that the phrase ‘*. . . and are

receiving’? be included in the proposed charter amendment,

while contemporaneously approving others without this

phrase (Tab 37, p. 175).

7 REO IEE OES BE CEL AGI BOLD RMN IES OT NO ONL ER

a oe

ELSE

ee Seo

ee ee ee

18 Petition for Writ of Certiorart

This question is of national importance ; if the decision

of the Court of Appeals for the Tenth Circuit is permitted

to stand as the only existing precedent, it will be construed

as authority for the Administrator to unilaterally amend

charters of Federal credit unions without restriction, in

direct contravention of the provisions of the Act, as well as

his own administrative regulations. Section 123(b) of the

Federal Credit Union Act, 12 U. S. C. § 1769(b) reserves to

the Congress, the exclusive power to amend or alter any

charter issued pursuant to the Federal Credit Union Act.

To permit the Administrator to effectively accomplish the

same result is clearly a usurpation by the executive branch

of powers expressly reserved to the Congress.

4. The Decision of the United States Court of Appeals for

the Tenth Circuit Involves an Important Question of

Federal Law Directly Affecting the Nation’s Regu.

latory Structure, ie., Can an Administrative Agency

and Specifically, the National Credit Union Adminis-

tration Impose Substantive Conditions and Restrictions

by Means of an Informal “Bulletin”, Contrary to the

Rule-Making Process Expressly Mandated by Congress

in the Administrative Procedure Act, as Well as

Section 120 of the Federal Credit Union Act?

Section 120(a) of the Federal Credit Union Act, 12

U. S. C. §1766(a) provides that: ‘‘[T]he Administrator

may prescribe rules and regulations for the administration

of this chapter . . .’’ This is the sole source of his general

rule-making power.

At no time. relevant to this action, did the Adminis-

trator promulgate any rules or regulations relating to the

field of membership construction of the common bond.

Instead, reliance has been placed on an informal pub-

lication entitled ‘‘Bulletin of the Federal Credit Union”

Petition for Writ of Certiorari 19

(Tab 37, Ex. G-9). This ‘‘bulletin’’ which typically covers

items such as the Edwards A. F. B. Women’s Bowling

Team (January 1973 edition); or a feature entitled

‘“‘Tanzanians and Guatamalans Study Federal Credit Union

Program’’ (October 1970 edition), can hardly be realis-

tically regarded as a legally sufficient publication wherein

binding requirements can be imposed upon Federal credit

unions.

This fact notwithstanding, the Administrator has ap-

parently contended that a relatively obscure article in the

‘“‘Bulletin’’ setting forth his opinion as to the construction

of the common bond—the very essence of the credit union

movement—is somehow binding upon the credit unions

under his supervision.

None of the traditional safeguards against arbitrary

regulatory action, such as notice of proposed rule-making,

opportunity to submit comments, ete., as set forth in the

Administrative Procedure Act, 5 U. S. C. §§ 551-559, have

been provided.

As a matter of fact, not even the Agency itself has re-

quired a geographical limitation for associational or profes-

sional credit unions as would seem to be indicated in the

“‘bulletin’’. For example, the membership provision of

the charter of the Pentagon Federal Credit Union, the

fourth largest credit union in the United States with assets

of more than $76 million,’ includes a clause making eligible

for membership ‘‘commissioned and warrant officers of the

United States Army and United States Air Force’’ regard-

less of their duty station (Tab 37, R-1). Similarly, ‘«Com-

missioned and Warrant Officers of the U. S. Navy and

Marine Corps on active duty except active duty for train-

ing’’ are eligible for membership in the Navy Federal

Credit Union (Tab 37, R-2) again without any geographical

3. Source: N.C. U. A. Quarterly, January 1973, at 17.

Grrr ERR CENA R ORY ATE TUPLE TRL Ne TRIP NTS ae re

20 Petition for Writ of Certiorari

limitation whatsoever (Tab 36, p. 95). The Navy Federal

Credit Union is the largest credit union in the United

States with assets of more than $216.5 million.‘ It is

further noted that virtually simultaneously with the deci-

sion of the court below, the respondent rather inconsistently

granted a charter to the United Mine Workers, for a

Federal credit union to serve some 200,000 UMWA mem-

bers and their families throughout the United States; the

Administrator expressly found that the requirements of

the common bond were fulfilled, notwithstanding the na-

tional scope of its field of membership.°

CONCLUSION.

For the foregoing reasons, this petition for a writ of

certiorari should be granted.

Respectfully submitted,

Epwarp C. Toote, Jr.,

Fioyp W. Tompkins,

Cuark, LapNer, Fortensaven & Youne,

Counsel for Petitioners.

4. Source: N. C. U. A. Quarterly, January 1973, at 17.

5. Source: The Credit Union Magazine, July 1973, at 20.

Sete, » 2) She NAROSRE WEEDS 7S Ok Se

APPENDIX A.

Opinion of the United States Court of Appeals

for the Tenth Circuit.

(Filed April 26, 1973)

UNITED STATES COURT OF APPEALS

TentuH Circuit

Marcu Term—1973

NO. 72-1351

BOARD OF DIRECTORS AND OFFICERS,

FORBES FEDERAL CREDIT UNION,

CHARTER NO. 11258, FORBES AIR

FORCE BASE, TOPEKA, KANSAS,

Petitioners,

v.

NATIONAL CREDIT UNION ADMINISTRATION,

Respondent.

Petition ror Review or OrRpER oF

NationaL Crevir Union ADMINISTRATION

Gerald W. Hyland (Dale W. Bruce and Robert L. Davis, of

Davis, Bruce, Davis & Cather, on the brief), for Petitioners.

Edwin E. Huddleson, III, Attorney, Department of Justice

(Harlington Wood, Jr., Assistant Attorney General, and

Robert E. Kopp, Attorney, Department of Justice, on the

brief), for Respondent.

Before Hitt, McWituiams, and Barrett, Circuit J udges

(Al)

a lf

P20 A RNC RY PI ARLE MANN

NOT

BSCE DI Biber HC eh SS

A2 Court of Appeals Opinion

McWiuiams, Circuit Judge.

This is a dispute between the officers and directors of

the Forbes Federal Credit Union of Topeka, Kansas, and

the National Credit Union Administration over the mean-

ing of a 1967 amendment to the charter of the Forbes Fed-

eral Credit Union. The amendment in question relates to

the eligibility requirements for membership in the Forbes

credit union.

The matter was first heard by a Hearing Examiner

designated by the Administrator of the National Credit

Union Administration to conduct a hearing. After an ex-

tended evidentiary hearing, the examiner made elaborate

findings and conclusions, and filed a ‘‘Recommended Deci-

sion,”’ all of which was then adopted by the Administrator

as his ‘Final Decision and Order.’’ The officers and di-

rectors of the Forbes Federal Credit Union thereafter filed

a petition in this court seeking direct judicial review by us

of the Administrator’s order, asking in connection there-

with that we invalidate the order. 12 U.S.C. § 1786(i). Back-

ground facts will have to be developed if the narrow issue

is to be seen in context.

A federal credit union is defined by statute as a ‘‘co-

operative association organized * * * for the purpose of pro-

moting thrift among its members and creating a source of

credit for provident and productive purposes.’’ 12 U.S.C.

§ 1752(1). The initial Act of Congress permitting the for-

mation of such credit unions occurred in 1954.

In 1956, Forbes Federal Credit Union, hereinafter re-

ferred to simply as Forbes, was organized under the Federal

Credit Union Act and was granted a charter by the Bureau

of Federal Credit Unions, the predecessor agency to the Na-

tional Credit Union Administration. 12 U.S.C. §§ 1771-1790.

By its terms this charter permitted Forbes to serve military

personnel permanently assigned to the Forbes Air Force

Base in Topeka, Kansas, and civilian personnel employed

thereat.

OD, CEES OE ask ILL POG TE SE RL a a

Court of Appeals Opinion A3

In April 1967, Forbes was advised by the Bureau that it

could apply for an amendment to Section 5 of its charter

which would permit it to extend its credit union services to

a somewhat larger field of membership. Application for

such charter amendment was made by Forbes, and the ap-

plication therefor was approved by the Bureau on May 5,

1967. Section 5 of Forbes’ charter, as thus amended by the

so-called 1967 amendment, reads as foliows:

‘*The field of membership shall be limited to those

having the following common bond: Civilian employees

and military personnel of the Department of the Air

Force who work at and are permanently assigned to the

Forbes Air Force Base in Topeka, Kansas; members of

of the U. S. Armed Forces, active or retired, or their

dependents or dependent survivors who are eligible by

law or regulation to receive benefits or services from the

above military installation; members of this credit union

who are stationed at military bases overseas and retain

their membership in this credit union ; employees of this

credit union; members of their immediate families; and

organizations of such persons.’’ (Emphasis added.)

The underlined portion in the foregoing constitutes the

so-called 1967 charter amendment and the present contro-

versy concerns the meaning of that particular language.

By way of additional background, this particular char-

ter change came about as the result of a request from the

Department of Defense to the Bureau that eligibility re-

quirements be altered so as to permit membership in a local

federal credit union by military personnel who were ‘‘geo-

graphically separated’’ from their parent organization and

were receiving normal services such as, for example, com-

missary and exchange services, from the nearest military

base providing such services. More particularly, in this re-

gard the Department of Defense wrote as follows:

SITPRO

CPt TD i abs ERE |

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ee

Ad Court of Appeals Opinion

‘** * * In order to correct this situation, [we] re-

quest your consideration of an amendment to BFCU

regulations which would permit a member of the armed

services, either active or retired or his legal survivors,

to become a member of a credit union located on the mil-

itary installation which provides other services to that

member or survivor. * * *’’

As a result of that request, the Bureau authorized

amendments to the charters of several local federal credit

unions of the same type granted Forbes. Inquiry was soon

made to the Bureau as to whether such amendment permit-

ted local credit unions to enroll as members any and all mil-

itary personnel who were eligible to receive services at their

particular military installation, regardless of whether they

had actually received any benefits or services from the mili-

tary base where the particular credit union was located. In

this regard, apparently all military personnel, wherever lo-

cated geographically, are ‘‘eligible’’ to receive benefits and

services from any military base, even though they may never

do so. In response to these inquiries, the Bureau issued a

memorandum to all of its regional representatives and ex-

aminers in June 1967, interpreting the 1967 Amendment as

follows:

‘‘The Bureau interprets the [1967 Amendment] as

applying only to those persons who are so situated that

they can and in fact do utilize the benefits or services

provided by the named installation. This is necessary

to assure that the person is a part of the military com-

munity of the installation.’’

The foregoing ‘‘interpretation’’ of the so-called 1967

Amendment was generally announced to the federal credit

union industry and in October 1967 the Bureau’s bulletin

specifically advised all Department of Defense affiliated

: | anaes

Court of Appeals Opinion A5

credit unions, including Forbes, of its interpretation in the

following language:

‘*To avoid any misunderstanding as to who would

be eligible for membership by the adoption of the

amendment, the following interpretation should be used

as a guide:

‘Those people who are so situated that they can and

in fact do, make fairly regular use of the benefits

and services provided by the named installation.’

‘‘This is necessary to assure that the person is a

part of the military community of the installation.”

In 1968, the Bureau amended the 1967 Amendment to

the end that charter amendments approved thereafter read

as follows:

‘‘{MJembers of the U. S. Armed Forces, active or re-

tired, or their dependents or dependent survivors who

are eligible by law or regulations to receive and are re-

ceiving benefits or services from the above military in-

stallation.’’

The italicized portion of the foregoing was added in

1968 to the wording of the 1967 Amendment, which addition

was in line with the Bureau’s prior ‘‘interpretation’’ of the

1967 Amendment. However, prior to the 1968 change, many

local federal credit unions, including Forbes, had their char-

ters amended in language of the 1967 Amendment, which

did not include the words ‘‘and are recieving.’’ And Forbes,

at least, does not agree with the Bureau’s interpretation of

the 1967 Amendment.

Forbes’ position, in a nutshell, is that the 1967 Amend-

ment should be interpreted just as it reads, and that under

the 1967 Amendment, Forbes is entitled to enroll as mem-

4

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A6 Court of Appeals Opinion

bers any and all military personnel who are ‘‘cligible’’ to

receive benefits and services from Forbes Air Force Base,

regardless of whether the military personnel have ever in

fact received any benefit or service at Forbes Air Force

Base. Under such interpretation, as we understand it,

Forbes could enroll as a member in its credit union military

personnel located anywhere around the world, since all are

‘‘eligible’’ to receive benefits and services at Forbes Air

Force Base, regardless of whether the individual sought to

be enrolled has ever in fact received any benefit or service

at Forbes Air Force Base. And, conversely, we assume that

other credit unions with a similar charter amendment could

invade Forbes Air Force Base and enroll military personnel

attached to that installation.

These differing interpretations by Forbes and the Bu-

reau of the former’s 1967 charter amendment were known

and recognized by each of the parties, but apparently did

not come to a head till May 1969. In April 1969, the presi-

dent of Forbes advised the Bureau that in his view the 1967

Amendment authorized Forbes to enroll as members any

person in the military service, notwithstanding the Bureau’s

narrower interpretation. Despite a warning from the Bu-

reau, Forbes, in May 1969, set up a so-called ‘* branch office”’

at Sewart Air Force Base in Tennessee. More specifically,

in May 1969 Forbes sent a representative to Sewart who

conducted extensive business with military personne! on

that base until March 1970, accepting, for example, some

1150 new members. There is some suggestion that Sewart

Air Force Base was at the time in the process of being de-

activated. In any event, some of the newly enrolled mem-

bers were eventually transferred to Forbes Air Force Base

in Topeka. However, other newly enrolled members were

never transferred to Forbes Air Force Base and in fact

were eventually transferred to other military installations.

Court of Appeals Opinion AZ

In November 1970, the National Credit Union Admin-

istration, that agency having succeeded by Act of Congress

to the powers and duties of the old Bureau, formally re-

quested Forbes to abide by its interpretation of the 1967

Amendment. Forbes refused, and as a result of such refusal

the Administrator on July 13, 1971, issued a Notice of

Charges to Forbes and its Board of Directors, charging

them with improperly expanding its membership, The mat-

ter was then referred to a Hearing Examiner to determine

if a cease and desist order should issue to compel Forbes

to follow the Administration’s interpretation of the 1967

Amendment. As indicated, after hearing the Hearing Ex-

aminer made detailed findings and conclusions and recom-

mended the issuance of such a cease and desist order. The

ruling applied only prospectively, incidentally, and did not

affect new members enrolled by Forbes up to that time. The

recommended action of the Hearing Examiner was approved

and adopted by the Administrator, whereupon Forbes initi-

ated this action in this court, seeking a review of that order

and asking that we invalidate it.

As indicated, it was Forbes’ position before the Hear-

ing Examiner, as it is here, that under a literal reading of

the 1967 charter amendment it had the right to enroll as

members in its credit union all military personnel ‘‘eligible

by law or regulations to receive benefits or services’’ from

Forbes Air Force Base, whether they did so in fact or not.

In line with this interpretation, Forbes denies that it was in

anywise violating its charter in going to Sewart Air Base

in Tennessee and enrolling military personnel at that instal-

lation, even though many such enrollees were not trans-

ferred to Forbes Air Force Base and never received any

services or benefits from that base. In thus contending,

Forbes argues that the words used in the 1967 charter

amendment are clear, plain and unambiguous and should be

3

:

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4

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PLY BAAD ORME. ' i nen

A8 Court of Appeals Opinion

given their normal, natural meaning. Forbes places con-

siderable emphasis on the reasoning contained in landmark

case of Dartmouth College v. Woodward, 17 U.S. 518 (1819),

concerning the sanctity of a charter, and the fact that a

charter, once granted, cannot thereafter be unilaterally

changed.

It was the position of the Administration before the

Hearing Examiner, as it is here, that the interpretation

sought by Forbes of the 1967 charter amendment is at odds

with the Federal Credit Union Act, the rules and regulations

of the Administrator of the National Credit Union Admin-

istration, and the contemporaneous interpretation given

both the statute and the charter amendment by the admin-

istrative agency charged with administering and enforcing

the Act. As indicated, the Hearing Examiner agreed with

the position of the National Credit Union Administration, as

did the Administrator. We do too. Let us first examine

further the Federal Credit Union Act itself.

Section 1753, 12 U.S.C., provides, in part, as follows:

‘*Mederal Credit Union Organization-—

‘* Any seven or more natural persons who desire to

form a Federal credit union shall subscribe before some

officer competent to administer oaths an organization

certificate in duplicate which shall specifically state—

e @ e e * .

‘*(2) the location of the proposed Federal eredit

union and the territory in which it shall operate;

‘¢(5) the proposed field of membership, specified

in detail.’’

The requirement of subsection 2 that the organization

certificate shall ‘‘specifically state * * * the territory in

Court of Appeals Opinion AQ ;

which it [the federal credit union] shall operate’’ is deemed .

to be of some significance. It indicates to us that Congress :

intended that a federal credit unit would operate within a f°

described geographical territory and not round-the-world. 4

Concerning membership in a federal credit union, 12 e

U.S.C. § 1759 provides as follows:

persis

‘*Federal credit union membership shall consist of

the incorporators and such other persons and incorpo-

rated and unincorporated organizations, to the extent

permitted by rules and regulations prescribed by the

Administrator, as may be elected to membership and as ;

such shall each, subscribe to at least one share of its |

stock and pay the initial installment thereon and the

entrance fee; except that Federal credit union member-

ship shall be limited to groups having a common bond

of occupation or association, or to groups within a }

well defined neighborhood, community, or rural dis-

waa, * 2

From the foregoing statutory provision we learn that

it was the intent of Congress that members in a particular

federal credit union should have a ‘‘ecommon bond’’ with ;

each other, More about this ‘‘eommon bond’? requirement

later, but we do note here that the ‘‘common bond’’ require-

ment has been deemed something more than simply the bond

of mutually serving in the military. Also, it is apparent that

Congress empowered the Administrator of the National

Credit Union Administration to promulgate rules and regu-

lations regarding those eligible to become members of a

local federal credit union.

Concerning the powers of the Administrator, 12 U.S.C.

‘ 1766 provides, in part, as follows:

‘*(a) The Administrator may prescribe rules and

regulations for the administration of this chapter (in-

Al0 Court of Appeals Opinion

cluding, but not by way of limitation, the merger, con-

solidation, and dissolution of corporations organized

under this chapter).

**(b) (1) The Administrator may suspend or re-

voke the charter of any Federal credit union, or place

the same in involuntary liquidation and appoint a liqui-

dating agent therefor, upon his finding that the organi-

zation is bankrupt or insolvent, or has violated any of

the provisions of its charter, its bylaws, this chapter, or

any regulations issued thereunder.’’

Subsection (a) thus grants the Director, now the Ad-

ministrator, the broad power to prescribe rules and regula-

tions for the administration of the entire chapter and sub-

section (b) specifically grants him the power to suspend or

revoke the charter of any federal credit union upon a finding

that the local credit union has violated either the provisions

of its own charter or bylaws, or has violated any provision

of the chapter or any administrative regulation issued pur-

suant thereto.

Concerning the statutory requirement of a ‘‘common

bond” referred to above, the Administrator under his statu-

tory rule-making authority has long construed the ‘‘com-

mon bond’’ concept to restrict membership of credit unions

located at military installations to persons who in fact re-

ceive at least some benefits and services from the installa-

tion where the credit union is itself located. As evidence of

this, the following excerpt from an official publication of the

Administration is pertinent:

‘‘Common Bonp

‘‘The Bureau of Federal Credit Unions defines and ex-

plains common bond, as applied to Federal credit union

chartering, as follows:

t .

——

Court of Appeals Opinion All

‘Common bond is that pre-existing condition which

causes the members of a group to associate to-

gether, to know each other, to have common inter-

ests and purposes, and to be able and willing to

work together to accomplish group objectives. A

group has a common bond when it is composed of

people who have the same employer, or are other-

wise associated through some common interest or

enterprise, and are so situated in relation to each

other as a consequence of that community of em-

ployment or association that they could be expected

to operate effectively as a cooperative organization

for credit union purposes.

‘A group, to qualify for a Federal credit union

charter, should provide opportunities for the mem-

bers to associate together, and, as a result of such

association, to develop common loyalties and mu-

tual interests. Furthermore, in an associational

group, the members must receive substantial bene-

fit from membership in the association. * * *’ ”’

The Hearing Examiner advanced two alternative bases

upon which he determined that the interpretation given the

1967 charter amendment by the Administration was the

proper one, and that the interpretation argued for by Forbes

was improper. One such ground was that the interpretation

contended for by Forbes was at variance with Congressional

intent as expressed in the Act itself, as well as being at odds

with the various rules and regulations of the Administra-

tion. He reasoned, in effect, then that the charter amend-

ment should be interpreted in a manner that would square

with the applicable statutes and rules and regulations. We

agree with this conclusion.

As indicated earlier, 12 U.S.C. § 1786(i) provides for

judicial review of an order of the Administrator of the Fed-

Al2 Court of Appeals Opinion

eral Credit Union Administration. And that statute states

that our review shall be as provided in the Administrative

Procedure Act. Section 706, 5 U.S.C., spells out the scope

of our review of the order of the Administrator. Illustra-

tive of the fact that in the instant case our review of the de-

cision of the Administrator is not wide-ranging in scope, we

note, for example, that administrative action has been held

to be conclusive on review unless such action is not in ae-

cordance with law or is unsupported by competent, material

and substantial evidence, or is arbitrary or capricious. Re-

construction Finance Corp. v. Lightsey, 185 F.2d 167 (4th

Cir. 1950). With this in mind, then, let us examine the prin-

ciples which in our view govern this controversy.

In the first place, no administrative body may contract

with a corporate body which it regulates in a manner con-

trary to the statute which it is charged with administering,

nor in a manner which would not give full effect to the intent

of Congress. Peoples Bank v. Eccles, 161 F.2d 636 (D.C.Cir.

1947), rev’d on other grounds, 333 U.S. 426 (1947). In de-

termining the intent of Congress, administrative interpreta-

tion, practice and usage are accorded great weight by a

reviewing court where a particular statute is susceptible of

different reading. Lindberg v. Brenner, 399 F.2d 990

(D.C.Cir. 1968); Garvey v. Freeman, 397 F.2d 600 (10th

Cir. 1968) ; and H. B. Zachry Co. v. United States, 344 F.2d

352 (Ct.Claims 1965). So, it has been held that a court

should not overturn an administrative interpretation of a

statute which it is charged with administering unless it can

be said that the interpretation is plainly erroneous. Jno.

McCall Coal Co. v. Unted States, 374 F.2d 689 (4th Cir.

1967). Similarly, it has been stated that an administrative

agency’s interpretation of its own regulations is to be ac-

corded great deference and is controlling as long as it is

one of several reasonable interpretations, and even though

SS A Ae ee er nen Oe 2 7

pignice —_ ~y

.

Court of Appeals Opinion A138

it may not appear quite as reasonable as some other. Roy

Bryant Cattle Co. v. United States, 463 F.2d 418 (5th Cir.

1972). Finally, it is a well settled principle that where a

contract is susceptible of two interpretations, preference

will be given to the interpretation which does not violate the

law. Great Northern Railway Co. v. Delmar Co., 283 U.S.

686 (1931).

Application of the foregoing principles to the instant

controversy leads us to conclude that the order of the Admin-

istrator approving and adopting the findings, conclusions

and recommendation of the Hearing Examiner is proper

and correct. To approve, in effect, the earlier action of

Forbes in going from Kansas to Tennessee to enroll new

members simply because they were technically eligible to

receive benefits and services at Forbes Air Force Base,

though in fact they did not, would mean that in the future

Forbes in its efforts to increase its membership could create

a branch office at virtually any military installation, wher-

ever located. In our view, such would violate the statutory

provision that a federal credit union shall serve a described

territory and that its members shall have a ‘‘common bond,”’

one with the other, as that phrase has been consistently in-

terpreted by the Administrator.

In sum, then, the order complained of is not plainly er-

roneous ; and, on the contrary, in our view the Administrator

has given the 1967 charter amendment a reasonable inter-

pretation consonant with the Congressional mandate and the

Congressional mandate and the regulations promulgated

pursuant thereto.

Order affirmed.

FLOPS YM VIET ATTEN

ore,

wr:

MK,

Al4 Court of Appeals Judgment

UNITED STATES COURT OF APPEALS

Tentu Circuit

OFFICE OF THE CLERK

Denver, Cotorapo 80202

April 26, 1973

Gerald W. Hyland, Esquire

Attorney at Law

1730 Rhode Island Avenue, N. W.

Washington, D. C. 20036

Dale W. Bruce, Esquire and

Robert L. Davis, Esquire

Attorneys at Law

1022 Union Center Building

Wichita, Kansas 67202

Re: No. 72-1351, Board of Directors and Officers,

Forbes Federal Credit Union,

ete. v. National Credit Union

Administration

Gentlemen:

Enclosed is a copy of the opinion of the Court in the

above case. Judgment in accordance with that opinion has

been entered today.

Sincerely yours,

Howarp K. Puruirs, Clerk.

By: Lavon M. IRLBEcK,

Lavon M. Irlbeck,

lu Deputy Clerk.

Enclosure

ec: Harlington Wood, Jr., Esquire, Assistant Attorney

General; Edwin E. Huddleson, III and Robert E.

Kopp, Esquires, Department of Justice, Washing-

ton, D. C. 20530

Finan hee

NCUA Decision and Order Ald

APPENDIX B.

Final Decision and Order of the National

Credit Union Administration.

April 13, 1972

BEFORE THE NATIONAL CREDIT UNION

ADMINISTRATION

In the Matter of

NATIONAL CREDIT UNION ADMINISTRATION

vs.

BOARD OF DIRECTORS AND OFFICERS

FORBES FEDERAL CREDIT UNION

CHARTER #11258

FORBES AIR FORCE BASE

TOPEKA, KANSAS

FINAL DECISION AND ORDER

Upon consideration of the entire record in the above

captioned proceedings, including the attached Recommended

Decision and Order of the Trial Examiner, the exceptions

thereto filed by the Attorney for the Respondents, and the

parties’ briefs and replies thereto, the Administrator hereby

adopts the attached Findings and Conclusions of the Trial

Examiner.

Vise iiik tiie Kia etea eso ae At

A16 NCUA Decision and Order

Wuereas, the exceptions by respondents raise no new

or material matters of fact or law not adequately considered

and properly disposed of by the Trial Examiner in his ree-

ommended decision, and

Wuereas, each and every exception of the respondent is

contrary to the facts and the law as properly and correctly

found by the Trial Examiner in his recommended decision,

Tue ApMInistraTor F1nps, after thoroughly considering

and weighing each individual exception, the evidence con-

sidered in light of these exceptions does not warrant a re-

sult different from that reached by the Trial Examiner.

Wnuenrerore, and good cause appearing therefor, the Ad-

minstrator finds that the attached Statement of Facts, the

Conclusions and Findings of the Trial Examiner, being

proper and correct in all material respects, should be, and

they are hereby, affirmed and adopted as my own.

Accordingly, the Forbes Federal Credit Union, Charter

No. 11258, its Directors, Officers, Committee Members, Em-

ployees, and Agents are hereby OrpERED

(1) To cease and desist from interpreting or construing

the field of membership as set forth in the charter of the

Forbes Federal Credit Union in any manner other than as

said field of membership is interpreted by the National

Credit Union Administration, to wit: The words ‘‘ Members

of the Armed Forces, active or retired, or their dependent

survivors who are eligible by law or regulations to receive

benefits or services from the above military installation’’

shall henceforth be interpreted to mean those members of

the United States Armed Forces, active or retired, or their

dependent survivors who are eligible by law or regulations

SER

NCUA Decision and Order Al7

to receive and are receiving benefits or services from the

above military installation.

(2) To cease and desist from enrolling members, and

accepting deposits from or making loans to persons, who are

not within the field of membership of said credit union as

interpreted by the National Credit Union Administration in

paragraph (1) of this Order.

HerMAN NICKERSON, JR.

Administrator

National Credit Union Administration

Date: 13 April 1972

Me WE COM SOR WSS UBER BU —

A18 Trial Examiner’s Recommended Decision

APPENDIX C.

Recommended Decision of the Trial Examiner

of the National Credit Union Administration.

NATIONAL CREDIT UNION ADMINISTRATION

January 10, 1972

IN THE MATTER OF

NATIONAL CREDIT UNION ADMINISTRATION

vs.

BOARD OF DIRECTORS AND OFFICERS

FORBES FEDERAL CREDIT UNION

CHARTER NUMBER 11258

FORBES AIR FORCE BASE

TOPEKA, KANSAS

RECOMMENDED DECISION

Appearances:

Brian H. Rhatigan

Assistant General Counsel

National Credit Union Administration

Washington, D.C. 20456

for the National Credit Union Administration

Davis, Bruce & Davis

by Dale W. Bruce, Esq.

Suite 712, Union Center Building

First and Main Streets

Wichita, Kansas 67202

for the Board of Directors and Officers and

the Forbes Federal Credit Union

i Dh DORAL SI OE dan ES PAS

x

a

Trial Examiner’s Recommended Decision A19

ASAE SY GAD EL

STaTEMENT

This matter commenced on July 18, 1971, when Herman

Nickerson, Jr., Administrator of the National Credit Union

Administration, (hereinafter the Administrator and Admin-

istration respectively), pursuant to the provisions of See-

tion 206(e)(1) of the Federal Credit Union Act, 12 U.S.C.

1786(e)(1), (12 U.S.C. 1751-1790, hereinafter the Act),

issued a Notice of Charges to the Board of Directors and

Officers of and to the Forbes Federal Credit Union, Charter

Number 11258, located at the Forbes Air Force Base, To-

peka, Kansas.

This Notice alleges that the Board of Directors and Offi-

cers of the Forbes Federal Credit Union have not effectively

controlled the affairs of the Forbes Credit Union (herein-

after this Credit Union) as such affairs relate to the amend-

ment of this Credit Union’s charter as approved by the

Bureau of Federal Credit Unions (hereinafter the Bureau)!

on May 5, 1967. This failure to exercise effective control,

it is alleged, is not consistent with the responsibilities and

duties of the said Board of Directors and Officers as set

forth in this Credit Union’s By-laws and in the Act; is con-

trary to the best interests of the members of this Credit

Union, and is the result of the Board of Directors’ and Offi-

cers’ non-compliance with the understanding and intent com-

mensurate with the approval of the May 5, 1967, amendment,

1. The administration of the Federal Credit Union Act since its

passage on June 26, 1934, has been vested in various authorities begin-

ning with the Farm Credit Administration (48 Stat. 1216). There-

after there was legislatively created the Bureau of Federal Credit

Unions headed by a Director within the Department of Health, Educa-

tion and Welfare (73 Stat. 628). On March 10, 1970, Congress estab-

lished the National Credit Union Administration, headed by an Admin-

istrator as an independent agency in the Executive Branch of the

Government. (Pub. L. 91-206; 84 Stat. 49; 12 U.S.C. 1752a). All

functions, property, records and personnel of the Bureau of Federal

Credit Unions were transferred to the National Credit Union Admin-

istration by Pub. L. 91-206.

A20 Trial Examiner’s Recommended Decision

such understanding and intent being known to the said

Board of Directors and Officers at the time of such approval.

This Notice then sets forth in detail the facts upon

which the foregoing allegations are based. It then set this

matter down for a hearing on August 24, 1971, at the U.S.

Courthouse, Topeka, Kansas, before the undersigned to de-

termine whether an order to cease and desist from the afore-

mentioned practices should be issued to this Credit Union.

[See Notice of Charges—Docket File].

By letter dated July 13, 1971, from the Administrator,

the undersigned was designated as the Hearing Examiner

to conduct this hearing. [See Ex. H-1, TR. 5]

On August 9, 1971, the Respondent through its counsel,

filed its answer to the Administrator’s Notice of Charges,

which included a motion to dismiss this action. This motion

was denied by the Administrator in his letter to Respond-

ent’s counsel dated August 16, 1971.

The hearing as scheduled was held at the designated

place on August 24, 1971, pursuant to the provisions of Sec-

tion 206(e) (1) of the Act, (12 U.S.C. 1786(e) (1), the Admin-

istrative Procedure Act, (5 U.S.C. 500 et seq.) and Part 747

of the Rules of Practice and Procedure of the Administra-

tion, (12 CFR 747.1-747.50).

The Administrator appeared and participated at this

hearing through his counsel, Brian H. Rhatigan, Assistant

General Counsel, National Credit Union Administration,

Washington, D. C., and this Credit Union appeared and par-

ticipated through its counsel, Davis, Bruce & Davis, Wichita,

Kansas, by Dale W. Bruce, Esquire.

2. Abbreviations hereinafter have the following meanings :

TR.5 —page 5 of the transcript of the hearing.

Ex. G-1—Government’s exhibit number 1 in evidence.

Ex. R-1—Respondent’s exhibit number 1 in evidence.

Ex. H-1—Hearing Examiner’s exhibit number 1 in evidence.

Sh cA EWAN SAARI EG AS ad

Trial Examiner’s Recommended Decision A21

At the commencement of this hearing, Respondent’s

counsel filed a Motion for Summary Judgment, which upon

referral to the Administrator was denied by him in his letter

to counsel dated August 30, 1971.

After receipt of the transcript of the hearing proceed-

ings, briefs, proposed findings of fact, conclusions of law

and proposed orders, as well as reply briefs, were filed by

both parties.

After full consideration of this record in its entirety, in-

cluding all papers and and documents contained in the

docket file herein, the transcript of the testimony and argu-

ments, the exhibits and all briefs, proposed findings of fact

and conclusions of law, it is concluded that the reliable, pro-

bative and substantial evidence of this record establishes the

following facts:

Finpincs or Fact

1. The Forbes Credit Union (this Credit Union) located

at the Forbes at the Forbes Air Force Base, Topeka, was

originally granted a charter, numbered 11258 in 1956. [TR.

30].

2. The Department of Defense, through its then As-

sistant Secretary for Manpower, Thomas D. Morris, by a

letter dated January 28, 1967, asked the Bureau of Federal

Credit Unions (predecessor of the National Credit Admin-

istration, see footnote 1) to consider permitting Depart-

ment of Defense affiliated credit unions, (hereinafter DOD

credit unions) to amend their charters with respect to their

fields of membership, i.e., a deseription contained in each

credit union charter describing those individuals who are

eligible for membership therein, to allow certain ineligible

individuals to join DOD credit unions. Among other matters,

this letter contains the following statements:

LMP Nat |

STRELA LI

A22 Trial Examiner's Recommended Decision

‘‘Departmental directives encourage commanders to

establish convenient credit union facilities as coopera-

tive organizations to stimulate systematic savings and

create a source of credit for both provident and produc-

tive purposes.

Because of certain geographical problems and organiza-

tional peculiarities, a large number of military person-

nel are not able to avail themselves of credit union

privileges even though most military installations offer

this service. These same geographical and organiza-

tional problems prevent other personnel from member-

ship in the most convenient eredit union. Military per-

sonnel who find themselves geographically separated

from their parent organization (ie., Recruiting Per-

sonnel, ROTC assignments, duty with civil agencies),

are furnished normal services such as commissary

and exchange privileges, and dispensary and hospital

‘are from the nearest military activity providing such

services.

Current BFCU regulations covering fields of member-

ship for credit unions on military installations, are, we

believe, not sufficiently flexible to meet the peculiar

geographical and organizational problems which are

uniquely faced by many military members. In order to

correct this situation, request your consideration of an

amendment to BFCU regulations which would permit

a member of the armed services, either active or re-

tired or his legal survivors, to become a member of a

credit union located on the military installation which

provides other services to that member or survivor.

Such an amendment would permit virtually all person-

Trial Examiner’s Recommended Decision A23

nel of the Department of Defense located within the

continental limits of the United States to actively par-

ticipate in a military credit union.’’ (Italics sup-

plied). [Ex. G-3; TR. 30-31].

3. By letter dated February 10, 1967, the then Director

of the Bureau, J. Deane Gannon, informed Mr. Morris that

DOD credit unions would be allowed to include in their fields

of membership, the following:

‘*Members of the U.S. Armed Forces, active or retired,

or their dependent survivors who are eligible by law

or regulations to receive benefits or services from the

above military installation.’’ [Ex. G-4; TR. 34-35].

It is this amendment, hereinafter referred to as ‘‘the 1967

Amendment,’’? which forms the basis for the present con-

troversy.

4. The availability and rationale in support of this 1967

Amendment, was made known to the credit union industry,

including all DOD credit unions, through the publication and

dissemination by U. S. Mail to such credit unions of the

Bureau of Federal Credit Unions Bulletin, Vol. 7, No. 2

dated April, 1967. At page 8 of this Bulletin, under the see-

tion entitled, **Charter Amendments Available,’’ the follow-

ing statements appear:

‘*A combination of all these amendments results in a

long and complicated field of membership description

and still may not include many people in the military

community .of a given base who should be eligible for

credit union service. Among these are families of over-

seas military personnel in the vicinity of the base from

which the servicemen left for overseas duty before be-

A24+ Trial Examiner’s Recommended Decision

coming credit union members, recruiting officers, ROTC

personnel and other scattered military personnel.

Military personnel and their dependents who regularly

use the services and facilities of an installation become

a part of the military community of that base and have

a common bond with the basic group that forms the field

of membership of the credit union at that location.”

(Italies supplied).

There is then set out the wording of the available 1967

Amendment as it appears in Finding of Fact number 3

supra. [Ex. G-9, p. 8; TR. 44, 45, 50].

5. On April 21, 1967, representatives of the Forbes Fed-

eral Credit Union met with the then Regional Representa-

tive of the Bureau in Kansas City, and requested a revision

of this Credit Union’s field of membership to include the

1967 Amendment. On April 24, 1967, this Regional Repre-

sentative forwarded the necessary documents to Mr. John B_

Rucker, Jr., President of this Credit Union. By his let-

ter dated May 5, 1967, the Regional Representative notified

Mr. Rucker that its requested charter amendment had been

approved and was effective on that date. This amendment

to this Credit Union’s charter number 11258, was in the lan-

guage set forth in Finding of Fact number 3, supra. [Ex,

G-1, G-5, G-6, G-7, G-8; TR. 37-40].

6. Subsequent to April, 1967, and prior to June, 1967,

some confusion as to the intent and construction of the 1967

Amendment arose within the credit union industry. This

confusion was evidenced by letters from some of the Bu-

reau’s regional offices, directed to the Bureau's headquarter

office asking whether or not this amendment would allow a

given credit union to serve any and all military personnel,

Trial Examiner’s Re-ommended Decision A25

regardless of whether or not such personnel received other

benefits or services from the military base at which the DOD

credit union was located. [TR. 115].

7. In order to clarify this confusion and to avoid any

further misinterpretation of the 1967 Amendment, the

Bureau on June 29, 1967 sent a memorandum to all of its

Regional Representatives, Associate Regional Representa-

tives and Examiners, setting forth its interpretation of this

amendment in the following language :

‘*The Bureau interprets the subject clause as applying

only to those persons who are so situated that they ean

and in fact do utilize the benefits or services provided

by the named installation. This is necessary to assure

that the person is a part of the military community of

the installation.”’ [Ex. G-10; TR. 52-54}.

In addition, the April 1967 edition of the Bureau's Guide to

Standard Amendments of Federal Credit Union Charter and

By-laws was revised in July, 1967, setting forth the Bu-

reau’s interpretation of the 1967 Amendment in the exact

words set forth in the memorandum quoted above. [Ex.

Gi-11, p. 7; TR. 51, 52, 55-57).

8. The credit union industry was advised of the Bu-

rean’s interpretation of the 1967 Amendment by publication

and dissemination through the U.S. Mail to all Federal

Credit Unions, ineluding all DOD eredit unions. of its Oc-

tober, 1967, Bureau of Federal Credit Unions Bulletin, Vol.

7, No. 4. At page 11 of this Bulletin the following appears:

** INTERPRETATIONS

The April issue of the Bulletin contained information

on acharter amendment available to credit unions serv-

I ——e

a

q

MAI LT, FOR

A26

The

Trial Examiner’s Recommended Decision

ing military personnel, which would inelude, in the field

of membership, military personnel and their dependents

who regularly use the services and facilities of an in-

stallation. The Amendment contained the following

wording:

. . .

(Then appeared the 1967 Amendment as set forth in

Finding of Fact number 3, supra).

Many Federal credit unions subsequently obtained the

amendment and are now providing needed credit union

services,

To avoid any misunderstanding as to who would be

eligible for membership by the adoption of the amend-

ment, the following interpretation should be used as a

guide:

‘Those people who are so situated that they can,

and in fact do, make fairly regular use of the bene-

fits and services provided by the named installa-

tion.’

This is necessary to assure that the person is a part of

the military community of the installation."* [Ex. G-12,

p. 11; TR. 56-57).

Respondent herein, the Forbes Federal Credit Union,

by stipulation, has acknowledged receipt of this October,

1967

, Bureau Bulletin. [Ex. G-1, p. 3, para. 14; TR. 57].

9. The August, 1968, edition of the Burean’s Guide of

Federal Credit Union Standard Amendments set forth the

Burean’s interpretation of the 1967 Amendment by adding

three words—‘‘and are receiving’’ to the original Amend-

ment. so that this Amendment read as follows:

Trial Examiner "s Re “om mended Decision A27

‘*members of the U.S. Armed Forces, active or retired,

or their dependents or dependent survivors who are

eligible by law or regulations to receive and are re-

ceiving benefits or services from the above military in-

stallation.’’

This was followed by a repetition of the Burean’s interpre-

tation and reasons therefore as set forth in the third and

fourth quoted paragraph in Finding of Fact number 8,

supra. [Ex. G-13, p. 7; TR. 58-60]

10. The eurrent edition of the Bureau’s Standard

Amendments and Guidelines, issued in August, 1969, sets

forth the 1967 Amendment with the words, ‘‘and are receiv-

ing’’ included therein, and is thus identical to the word

quoted in the preceding Finding of Fact. Also included is

the Bureau’s interpretation and reasons therefore as set

forth in the third and fourth quoted paragraph in Finding

of Fact number 8, supra. [Ex. G-14, pp. 25, 26: TR. 58-60].

11. In April, 1969, Mr. Buford B. Lankford, the Re-

gional Director of the National Credit Union Administra-

tion for the Austin Region, which services Topeka, Kansas,

attended a meeting of the Kansas Credit Union League at

Wichita, Kansas. During this meeting he talked with Mr.

Rucker, the President of the Respondent Credit Union, and

during this conversation, Mr. Rucker advised that his credit

union disagreed with the Bureau’s interpretation of the 1967

Amendment. Furthermore, in May, 1969, Mr. Lankford was

telephoned by Mr. Rucker, during which conversation Mr.

Reeker advised that his credit union was going to Sewart

Air Foree Base in Tennessee, which base was closing, to

purchase Sewart Credit Union accounts and take new mem-

bers into the Forbes Credit Union. Mr. Lankford advised

Mr. Rucker that such activity was not in accord with the

LL LOTS GON IEEE EP He EE

RE Be a ie Ta

A28 Trial Examiner’s Recommended Decision

Bureau’s interpretation of Forbes 1967 charter amendment.

Mr. Rucker then asked if his credit union’s field of member-

ship could be further amended to include Sewart, and was

advised by Mr. Lankford that he doubted that such an

amendment was possible. These conversations constitute

clear and convincing evidence of the actual knowledge of the

Bureau’s interpretation of this 1967 Amendment by the Re-

spondent herein. [TR. 122-125].

12. At a special meeting of the Board of Directors of

the Respondent Credit Union on May 12, 1969, and at the

regular Board of Directors meeting on June 16, 1969, the

respondent resolved to ‘‘. . . extend services to all eligible

personnel at Sewart Air Force Base, Tennessee.’’

The Respondent purportedly adopted this resolution as

consistent with the literal wording of the 1967 Amendment

to its charter. The Respondent insists that its construction

of the 1967 amendment is proper. This construction is that

any and all members of the U. S. Armed Forces, active or

retired, or their dependents or dependent survivors are eli-

gible by law or regulation to receive benefits or services

from the Forbes Air Force Base, irrespective of whether or

not any such individual actually is receiving or will receive

such service or benefit, and thus such individuals are prop-

erly within its field of membership.

Pursuant to its construction, the Respondent, with the

permission of the Base Commander, opened a sub-office in

the same building which housed the Sewart Federal Credit

Union, at the Sewart Air Force Base. On May 26, 1969, the

Respondent hired an individual to represent it at Sewart,

and from that date until this sub-office was closed on March

31, 1970, it accepted persons at Sewart into its membership

without regard to any real or projected relationship with

Forbes Air Foree Base. The Respondent purchased 197

loans, amounting to $208,694.21 from the Sewart Federal

NR a ACU Fin thal 7

>

é

Trial Examiner's Recommended Decision A29Y

Credit Union, and accepted 1150 members with $440,600 in :

shares and granted 1,300 loans to these persons in excess |

of $1,600,000. ;

Some of these new members were ultimately trans-

ferred to Forbes Air Force Base and others were trans-

ferred elsewhere. [Ex. G-1, para. 3, Memorandum of

Stipulation; Ex. G-2, Notice of Charges, para. 5i].

It is these transactions at Sewart that the Government

alleges were improper, i.e., accepting as members and grant-

ing loans to individuals who were not and were not to

become part of the Forbes Air Force Base military com-

munity.

13. By a letter dated November 28, 1969, the Respond-

ent requested the Regional Representative of the Bureau for

an alteration in its field of membership in a particular not

pertinent to this case. In the process of effecting this re-

quested change, the Regional office of the Bureau sent to the

Respondent a retyped field of membership, which included

the requested alteration. In addition, the words ‘‘and are

receiving’’ had been inserted into this field of membership

following the word ‘‘receive’’, so that the altered field of

membership, as it related to the 1967 Amendment, appeared

in the language as set forth in the 1968 edition of the Bu-

reau’s Guide of Standard Amendments. (See Findings of

Fact No. 9, supra). The Respondent returned this field of

membership to the Regional Office of the Bureau with its

letter of December 17, 1969, asking that it be retyped delet-

ing the words ‘‘and are receiving’’. The Bureau’s Regional

office thereafter returned this field of membership, approved

as of January 26, 1970, with the words ‘‘and are receiving’’

deleted.

Respondent relies upon this incident as proof that the

1967 Amendment, as it applied to its field of membership,

A3U Trial Examiner's Recommended Decision

was not restricted by the Bureau’s interpretation. [Ex. G-1,

pp. 4, 5, paras. 18-21; Ex. R-6, R-7, R-8; TR 163-171].

14. During October, 1970, a Supervisory Examination

was made of the Respondent Credit Union by a Federal

Credit Union Examiner, covering the period from January,

1969, to September, 1970. The results of this examination

were discussed with officials of the Respondent and further

communicated to the Respondent by mailing a copy of the

Examiner's report to this Credit Union with a cover letter

dated November 4, 1970. Among other things, the following

areas of concern and requested corrective action are set

forth in this report:

‘*FreELp oF MEMBERSHIP:

1. Reeord in the board minutes a clear cut statement

of policy to the effect that the credit union will

operate within the field of membership as inter-

preted by the National Credit Union Administra-

tion.

te

H

Notify the Regional office of the National Credit

Union Administration of the above action promptly

and determine that the credit union follows the

established policy.’’ [Ex. G-16, G-17].

15. By letter dated December 10, 1970, the Respondent

through its President, Mr. Rucker, advised the Regional Di-

rector of the Administration that it intended to serve its

members, ‘*... within the field of membership as interpreted

by the ordinary meaning of the words. No other interpre-

tation will be accepted.’’ Attached to this letter was a copy

of a letter to the Kansas Credit Union League, dated De-

cember 2, 1970, from Dale W. Bruce, General Counsel, Re-

spondent’s counsel herein, setting forth Mr. Bruce’s legal

Trial Examiner’s Recommended Decision AS1

arguments and cited authorities in support of the Respond-

ent’s stated position.

Respondent’s letter of December 10, 1970, constituted

its continued refusal to accept the Administration’s con-

struction of the 1967 Amendment and to implement the cor-

rective action requested in the Supervisory Examination

Report. (See Finding of Fact No. 14, supra). [Ex. R-4].

16. By his letter dated January 25, 1971, addressed to

the Respondent, the Regional Director of the Administra-

tion advised that the Respondent's letter of December 10,

1970 and the opinion of Mr. Bruce attached thereto, had

‘*been carefully considered”* both in the Regional and head-

quarter’s office of the Administration, and that the Re-

spondent’s position was not acceptable. The Administra-

tion further advised that it expected compliance with its

interpretation of the 1967 Amendment, as set forth in the

Gctober, 1967, edition of the Bureau’s Bulletin, and re-

quested a reply on or before March 15, that the Respond-

ent’s board of directors had accepted and would operate

within the limitations set forth in this interpretation. [Ex.

R-d].

17. The record of this matter (see Ex. G-1, para. A,

Conditional Stipulations) further reflects that the Adminis-

trator on April 7, 1971, issued a Notice of Intention to Re-

voke Approval of Charter Amendment approved May 5,

1967, (the 1967 Amendment) to the Respondent herein.

This Notice also directed the Respondent to ‘*. . . immedi-

ately cease accepting for membership in the credit union

those persons who are not specifically defined as eligible for

membership under the terminology and intent of the charter

amendment approved on May 5, 1967."’ (See p. 3—Notice

of Intention).

AAS TSAR

A32 Trial Examiner’s Recommended Decision

On April 21, 1971, the Respondent filed a Civil Action

(No. T-4918) in the United States District Court for the

District of Kansas, seeking, among other things, an order

which would enjoin the Administrator from issuing any

cease and desist orders without affording the Respondent a

hearing as provided in the Act and a declaration that the

April 7, 1971, Notice was a nullity.

Thereafter, the April 7, 1971, Notice was withdrawn by

the Administrator, by his letter dated June 18, 1971, and the

Respondent advised that a Notice of Charges pursuant to

206(e)(1) of the Act would be forthcoming. Upon the Re-

spondent’s motion, and based upon the above withdrawal

of the April 7, 1971, Notice, Civil Action (No. T-4918) was

ordered dismissed by United States District Judge Templar

on June 24, 1971. [Ex. G-1 and documents attached thereto].

On July 13, 1971, the Administrator issued his Notice of

Charges upon which the hearing herein has been held. [See

Notice of Charges—Docket File].

Parties’ CONTENTIONS

It is the Government’s position herein that the 1967

Amendment to the Forbes Federal Credit Union charter’s

field of membership, in the words set forth in Finding of

Fact number 3, supra, incorporates by operation of law, the

provisions of the Act, including the requirement of common

bond (12 U.S.C. 1759). This amendment, therefore, to be

within the statutory limits set out in the Act, must be in-

terpreted to be restricted to those otherwise qualified indi-

viduals who are so situated that they can, and in fact do,

make fairly regular use of the benefits and services pro-

vided by the named military installation. Further, that this

necessary interpretation was known, or should have been

known by the Respondent, prior to its transactions at the

Sewart Air Force Base, beginning in May, 1969, that the

Trial Examiner’s Recommended Decision ABS

Respondent was and is bound by the Administration’s in-

terpretation and thus the specified activity at Sewart con-

stituted a failure on the part of this Credit Union and its

Board of Directors and Officers to exercise effective control

of the affairs of this Credit Union.

Therefore, the Administrator should issue an Order to

the Respondent to cease and desist, in the future from non-

compliance with the Administration’s interpretation of the

1967 Amendment. (See Government briefs).

The Respondent contends that the Administration ‘*...

is bound by the usual and ordinary meaning of the words,”’

of the 1967 Amendment as set out in Finding of Fact num-

ber 3, that the Administrator may not limit the Respond-

ent’s field of membership by its interpretation which in

effect is a further amendment to the 1967 Amendment not

permitted by law, that the Administrator has failed to show

any standard by which fields of membership are established

for credit unions and that the Administrator, by naming the

Board of Directors and Officers, together with the Credit

Union in his Notice of Charges, rather than the Credit

Union only, is proceeding improperly under the cited Sec-

tion 206(e)(1) of the Act (12 U.S.C. 1786(e)(1)).

As a consequence of Respondent’s first contention, it

believes that it may admit to membership in its credit union,

any otherwise qualified person regardless of whether they

are so situated that they can, and in fact do, make fairly

regular use of the benefits and services provided by Forbes

Air Foree Base at Topeka, Kansas. Under the Respond-

ent’s literal interpretation of their 1967 Amendment, they

believe that their activity at Sewart Air Foree Base in

Tennessee were within their field of membership and con-

sequently, the Administrator’s proposed order to cease and

desist from said activity, in the future, and to adopt and

implement the Administrator’s interpretation, are legally

A34 Trial Examiner’s Recommended Decision

improper and no such order should issue. (See Respond-

ent’s briefs).

OPINION

The controlling question to be decided here is whether

the Administrator’s interpretation of the 1967 Amendment

is within his authority or whether his actions constitute a

further amendment to the 1967 Amendment and beyond his

authority.

Congress has defined those individuals who may be ac-

cepted as members in a Federal Credit Union in Section 109

of the Federal Credit Union Act; as follows:

‘*Membership

Federal credit union membership shall consist of the

incorporators and such other persons and incorporated

and unincorporated organizations, fo the extent per-

mitted by rules and regulations prescribed by the Ad-

minestrator, as may be elected to membership and as

such shall each subscribe to at least one share of its

stock and pay the initial installment thereon and the

entrance fee; except that Federal credit unton member-

ship 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.

*** >? (12 U.S.C. 1759). (Italics supplied).

Congress specifically named the incorporators of a Fed-

eral credit union as necessary members and then vested in

the Administrator authority to further delineated member-

ship by rules and regulations, subject however, to the re-

quirement that any individual or group, to be eligible for

membership, must possess a ‘‘common bond”’ of occupation

or association or be within a well defined neighborhood,

community or rural district.

Trial Examiner’s Recommended Decision ASS

In May, 1967, the Director of the Burean of Federal

Credit Unions, the predecessor of the present Administrator

of the National Credit Union Administration (see footnote

1 supra) republished the current edition of a pamphlet en-

titled ‘Organizing a Federal Credit Union.’’ The purpose

of this pamphlet, as stated in its Forward, was to assist

those involved with or interested in Federal credit unions

in knowing the procedures involved in organizing and con-

ducting a Federal credit union. At page 3 of this pamphlet,

the following explanation of the statutorily required ‘‘com-

mon bond’’ appears as follows:

‘*Common Bonp

The Bureau of Federal Credit Unions defines and ex-

plains common bond, as applied to Federal credit union

chartering, as follows:

‘Common bond is that pre-existing condition which

causes the members of a group to associate to-

gether, to know each other, to have common inter-

ests and purposes, and to be able and willing to

work together to accomplish group objectives. <A

group has a common bond when it is composed of

people who have the same employer, or are other-

wise associated through some common interest or

enterprise, and are so situated in relation to each

other as a consequence of that community of em

ployment or association that they could be expected

to operate effectively as a cooperative organization

for credit union purposes.

‘A group, to qualify for a Federal credit union

charier, should provide opportunities for the mem-

bers to associate together, and, as a result of such

association, to develop common loyalties and mu-

A56 Trial Examiner’s Recommended Decision

tual interests. Furthermore, in an associational

group, the members must receive substantial beie-

fit from membership in the association. * * *’””

At page 5 of this pamphlet, under Section IIT, the fol-

lowing appears:

‘Groups Exviciste For A Freperau

Crepit Unton CHARTER

Each application for a Federal credit union charter is

considered on its own merits. From experience gained

in granting thousands of charters, however, it has been

possible to arrive at certain general principles. These

principles will be discussed separately for occupational,

associational and residential groups.

OccuPATIONAL Groups

Snecessful credit union operation is greatly influenced

by convenience to the members. An easily accessible

location with office hours set to meet the needs of the

members encourages them to come in often 2 id use the

credit unions’ services and stimulates them to save

regularly. In this way, the members, officers, and em-

ployees get to know each other and to feel that the credit

union really belongs to them. The feeling of personal-

ized, helpful service tends to become lost when a eredit

union’s field of membership is too large or widespread.

Loss of this personalized service may out-weigh any

advantage mere size ean provide in credit unions with

large potential fields of membership.’’

At pages 8 and 9 of this pamphlet, within the Section

covering Occupational Groups, appears a sub-group desig-

Trial Examiner’s Recommended Decision A37

nated; ‘4. Groups at Military Installations.’’ Among

others, the following statements appear :

* * *

‘*A credit union usually will serve all civilian and mili-

tary personnel who work or are stationed at a given

base.

* * »

Some individuals or units are merely ‘attached’ to an

installation, as for example, personnel attached for ad-

ministrative purposes and support functions such as

housing quarters, messing, payroll, supplies, and other

services. These individuals or units may not be under

the jurisdiction of the commanding officer of the basie

group. * * *

Examples of ‘attached’ individuals or groups are: re-

cruiters, ROTC instructors stationed at colleges, and

personnel at radar stations. * * *”

(There then follows two paragraphs directed to naval

personnel afloat and Department of Defense personnel

outside the United States or aboard U.S. Navy ships.)

‘Tf the credit union is located at a Department of De-

fense installation, it may also serve retired members of

the Armed Forces of the United States Government who

regularly utilize the facilities of the particular installa-

tion involved.

A credit union at a military base may inelude retired

military members and dependent survivors of active or

retired military personnel who are eligible by law or

regulations to receive benefits or services from the mili-

tary installation. Such broad coverage eliminates the

need for specifically including some more limited groups

that might otherwise be named.*’ [Ex. G-15; TR. 66-

68].

ASS Trial Examiner's Recommended Decision

In the absence of judicial precedent to the contrary, and

the writer has been referred to none, the foregoing state-

ments and pamphlet (Ex. G-75), issued by the Director of

the Bureau charged by Congress to administer the Federal!

Credit Union Act, which has been adopted by the present

Administration (TR. 66), represent the authoritative ex-

planation of the intention of Congress in restricting Federal

Credit Union membership to those possessing a **common

bond.** Throughout this pamphlet, and particularly the

sections quoted, runs the ceniral theme of the delivery of

services to individuals who are closely associated with each

other, from a location which is readily available, conven-

iently close and in one or more ways connected with the

lives of the members.

It is clear, therefore, from a reading of Section 109 of

the Act, (12 U.S.C. 1759) as properly interpreted, construed

and applied to factual situations by the Administrator as

evidenced by Exhibit G-15, that the Administrator has been

given authority by Congress to approve for membership in

a Federal credit union, only those individuals or organiza-

tions possessed of a pre-existing ‘*common bond.’’ Any ap-

proval for membership in a Federal credit union of indi-

viduals who do not have this pre-existing ‘‘common bond”’

would be a nullity, as beyond the delegated authority of the

Administrator.

As this case and the facts herein clearly establish, the

1967 Amendment (see Finding of Fact number 3, supra)

granted to the Respondent in May, 1967, is susceptible of

at least two interpretations, that made by the Administra-

tor, and that insisted upon by this Respondent. As Govern-

ment counsel points out, a charter of a corporation has long

been held to be a contract and the general rules of contract

law apply to the granting, amending or repealing of such

charters. See Dartmouth College v. Woodword, 4 U.S. 518,

(1819).

Ee RS OE Hate Se

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Trial Examine:'s Recommended Decision A3Y

Of almost equal antiquity, is the principle that laws

which exist at the time and place of the making of a contract

enter into and form a part of that contract as fully as if

they were expressly incorporated therein. See U.S. ex rel

Von Hoffman v. The City of Quincy, 71 U.S. 535 (1867);

Home Building and Loan Association v. Blaisdell, 290 U.S.

3986 (1934); Wood v. Lovett, 313 U.S. 362 (1941).

Under these well established principles, the 1967 Amend-

ment to Respondent’s charter incorporated and was subject

to all of the provisions of the Federal Credit Union Act, in-

cluding the requirement of ‘‘common bond.** The record

herein clearly establishes that the Administrator intended

this 1967 Amendment to be restricted to those otherwise

qualified individuals who did have the common bond of being

both eligible to receive services and benefits from the named

installation, but also to those who regularly used such serv-

ices and facilities of the installation and thereby became

part of the military community of the base at which the

credit union was located. This was precisely what the De-

partment of Defense requested in its January 28, 1967, letter

to the Bureau, (see Finding of Fact No. 2, supra), and it was

with this understanding and intent that the Bureau granted

the 1967 Amendment to this Respondent.

As was consistently stated and repeated by the Bureau,

from the initial notice to the credit union industry of the

availability of this amendment in April, 1967, (see Finding

of Fact No. +) down to its most recent and currently effee-

tive publication of August, 1969, (see Finding of Fact num-

ber 4+ through 10, supra), in order to avoid confusion and

any misunderstanding relating to this amendment:

‘the Bureau interprets the subject clause as applying

only to those persons who are so situated that they can

and in fact do utilize the benefits or <ervices provided

by the named installation. This is necessary to assure

DT GON AOL OOD i EOIN ES a

A440 Trial Examnier’s Recommended Decision

that the person is a part of the military community of

the installation.’’ [Ex. G-11, p. 7].

This interpretation was not only within the Adminis-

trator’s authority, but was required under the ‘‘common

bond”’ restriction of Section 109 of the Act (12 U.S.C. 1759).

Thus, the 1967 Amendment, as interpreted and construed by

the Administrator, conforms to the requirements of the Na-

tional Credit Union Act.

Conversely, if the interpretation advanced by the Re-

spondent is adopted, namely that all members of the Armed

Forces, active or retired or survivors, are eligible for mem-

bership in its credit union, even though they are so situated

that they do not and physicially cannot utilize the benefits

und services of the Forbes Air Force Base, and thus are not

part of that military community, the statutory requirement

of ‘‘common bond”’ is not met. Such an interpretation,

therefore, makes this 1967 charter Amendment a nullity, as

the Administrator does not have authority to grant, nor the

Respondent to accept, any field of membership that is not

consistent with the ‘‘common bond’ requirement of Section

109 of the Act, (12 U.S.C. 1759).

It is therefore held that the interpretation of the 1967

Charter Amendment issued by the Administrator is not only

within the Administrator’s delegated authority, but is a

necessary restrictive interpretation of the literal words of

this amendment to bring it within the statutory requirement

of ‘‘common bond’’ decreed by Congress in the Federal

Credit Union Act. Respondent’s contention that this inter-

pretation is in fact a restrictive amendment to its charter,

to which it has not agreed, is not supported by the facts of

this record nor the law.

Thus, the one issue to which both parties have stipu-

lated is presented by this case, (see Ex. G-1, Memorandum

eke wee

Trial Examiner’s Recommended Decision A41

of Stipulation, pp. 4, 5), under the foregoing rationale, is

answered as follows:

The Respondent may not properly interpret the words

of the 1967 Charter Amendment (see Finding of Fact No.3)

by the literal, ordinary and usual meaning of these words,

because such an interpretation results in voidi ng this amend-

ment. In order for the Respondent’s 1967 Charter Amend-

ment to be legally viable, it must be interpreted consistent

with the Administrator’s interpretation. If the Respondent

desires to operate its Federal Credit Union, it must do so

within the limitations dietated by the Federal Credit Union

Act, as properly interpreted and applied by the Adminis.

trator, who has been charged by Congress to administer this

Act.

The remaining portions of Respondent*s contentions

are readily answerable from the facts of this record.

In the Memorandum of Stipulation, (Ex. G-1, p. 5), Re-

spondent’s counsel contends that the Administrator is at-

tempting to restrict the Respondent’s field of membership,

by his interpretation of the 1967 Charter Amendment, which

have heen communieated to the Respondent without “. .

standards consistent throughout the entire credit union es-

tablishment and especially consistent with the deseription

of the field of membership of other defense credit unions.””

In support of this argument, the Respondent relies upon

the field of membership of the Pentagon Federal Credit

Union (Ex. R-1) and the Navy Federal Credit Union (Ex.

R-2 for identification).

The facts do not support this -ontention. The Adminis-

trator’s interpretation of the 1967 Charter Amendment was

mailed to all Federal Credit Unions, including all DOD

Credit Unions, in the April, 1967, edition of the Bureau of

Federal Credit Unions Bulletin, Vol. 7, No. 2 (see Finding

of Fact number 4, supra). The Administrator’s interpre-

mand

OYE LEM LIP OG ALPEN RII MER POI RIE

pewuanion*

A42 Trial Examiner’s Recommended Decision

tation, which has been consistent from the beginning, was

again communicated to the credit union industry, both in-

ternally (see Finding of Fact number 7) and externally (sce

Finding of Fact number 8) in June and October, 1967. This

interpretation was again distributed and made available to

the industry in August, 1968, (see Finding of Fact number

9) and to this day is available to the industry, (see Finding

of Fact number 10).

The standards governing the Administrator’s actions

under the Act, and his interpretations of this law, are set

forth not only in the Act itself, (12 U.S.C. 1751 et esq.), but

in the publication ‘Organizing a Federal Credit Union”

(Ex. G-15) which has been readily available for many years

from both the Administration or the U.S. Government

Printing Office. (TR. 66-68).

The Administrator’s application of his interpretation

of the 1967 Charter Amendment has been consistent through-

out the DOD credit union industry. As testified to by Mr.

Gannon, from 1953 to 1970, the Director of the Bureau of

Federal Credit Unions, and since 1970, the Deputy Adminis-

trator of the Administration, some DOD credit unions, have

the 1967 Charter Amendment as worded in Finding of Fact

number 3, but the majority adopted this Amendment as

worded in Finding of Fact number 9, (with the words, ‘‘and

are receiving”? added after the word ‘“‘receive’’). The Ad-

ministration has taken the position that the wording of

either field of membership conveys the same authority, the

same field of membership, neither is either broader or more

restricted than the other. No evidence was presented to the

contrary. Furthermore, approximately 60 DOD Federal

Credit Unions adopted this 1967 Amendment as originally

worded, i.e., without the words ‘‘and are receiving’’ added

thereto. The Administration has experienced nor is it

aware of any resistence by these credit unions to accept the

Administrators interpretation. [TR. 27, 28, 60-62, 115, 275].

Ae ERT RS DOE Data AINE HF 1S

| gay Rasen noe

Trial Examiner’s Recommended Decision A438

Respondent's reliance on the fields of membership of

the Pentagon and Navy Credit Unions is ill founded.

An examination of the Act and regulations promulgated

thereunder fails to reveal any legal requirement that the

fields of membership of DOD credit unions be identical.

The record does contain the statements of counsel that there

is no such legal requirement and the writer has been re- i

ferred to none. To the contrary, the expressed position of

the Administration is that, ‘‘Each application for a Federal

Credit Union charter is considered on its own merits.’’

| Ex. G-15, p. 5]. As the record herein clearly reveals, the

fact situations surrounding different DOD credit wiions are

different and consequently, within the limits of the Act, the

fiells of membership of these credit unions differ. (See

fields of memberships attached to Exhibits R-9 and R-10).

As to the fields of membership for the Pentagon (Ex.

R-1) and Navy (Ex. R-2 for identification) Federal Credit

Unions, an examination of these documents reveals that the

statutory requirement of ‘‘common bond” has heen adhered

to by way of restricting membership to those who work in the

Pentagon Building, to those who work in specified, nearby

geographical locations, i.e., Distriet of Columbia, Arling-

ton or Fairfax County, Virginia, or Alexandria, Virginia,

and excepts those located geographically nearby, (i.e., at

Bolling Air Foree Base, Gravelly Point, Forts Meyer, Bel-

voir, MeNair) and served by other credit nmions, ete. The

Navy Federal Credit Union’s field of membership is simi-

larly in conformity with the statutory ‘‘common bond” re-

quirement by extensive and detailed descriptions of eligible

and ineligible persons and groups. It is true, that each of

these fields of membership contain some broad provisions,

i.e, ‘Commissioned and Warrant Officers of the United

States Army and United States Air Foree;'* (Ex. R-1),

‘*Commissioned and Warrant Officers of the U.S. Navy and

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A44 Trial Examiner’s Recommended Decision

Marine Corps. on active duty except active duty for train-

ing;’’ (Ex. R-2 for identification), ete. The explanation

for such broad provisions, as testified to by Mr. Gannon, for

the purposes of this case are entirely adequate. He stated

that both of these credit unions predate most all DOD credit

unions, and in the early days were the only ones serving the

military. Thus, these broad fields of membership were con-

sidered both necessary and in conformity with the oceupa-

tional ‘‘common bond’’ requirement of the Act. [TR. 102-

104].

The Respondent in this case relies upon the incident

set forth in Finding of Fact number 13 as proof that it is not

bound by the Administrator’s interpretation of its 1967

Charter Amendment, and as proof of the Administration’s

acquiescence in its own interpretation. The record herein

does not support this contention.

Mr. Lankford testified that his authority in counter.

signing fields of membership extended only to approval of

previously issued fields of membership, and that he does

not have authority to alter the wording of a previously ap-

proved charter amendment without the consent of the credit

union involved. Thus, in acceding to the Respondent’s re-

quest to delete the words ‘‘and are receiving’’ from the up-

dated and retyped amendment, he intended and had author-

ity only to approve the Respondent’s previously issued and

approved field of membership. Therefore, this re-issued

field of membership, to conform to the legal requirements

of ‘‘common bond”’ was as subject to the Administrator’s

interpretation during this occurrence in late 1969 and carly

1970 as it had been from its initial approval in May, 1967.

[ TR. 249-262].

In the light of all of the circumstances of this case, as

reflected in this record, Respondent’s reliance upon this

occurrence, which took place after most of Respondent’s ac-

tivities at Sewart had been completed, is ill founded.

}

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Trial Examiner's Recommended Decision A4d

During the hearing in this matter, the Respondent in-

troduced into evidence exhibits R-9 and 9-10. Exhibit R-9

is a list of 82 DOD Federal credit unions, with copies of

their fields of memberships attached, which fields of mem-

bership do not contain the words ‘“‘and are receiving.”’

These charter amendments bear dates ranging from April,

1967 through November 4, 1970. Exhibit R-10 is a similar

list of 26 DOD credit unions, with similar attachments,

which fields of membership do contain the words ‘‘and are

These amendments bear dates ranging from

February, 1969 through November, 1970.

The Respondent contends that these two exhibits prove

the significance of the words ‘tand are receiving”’ in fields

of membership, i.e., that charters with these words are dif-

erent from and more restricted than those charters which

do not have these words. Thus, there are two different

types of fields of membership existent in the DOD eredit

union industry. Additionally, because these lists do not

show any point of time or beginning date when these words

were ‘*‘added”* or cut-off date for the issuance of charters

without these words, or the **deletion’’ of these words from

charters previously containing them, this is further evidence

of the inconsistent administration of the Act by the Admin-

istrator. (Respondent’s Brief, p. 4).

On their face, these exhibits would appear to support

some of the Respondent's contentions. However, when ex-

amined together with testimony of Mr. Lankford, the Ad-

ministration’s Regional Director, these exhibits do not sup-

port any of the Respondent’s contentions.

After the receipt of, and pursuant to guidelines and

directives from the Washington headquarters office in June

or July, 1967, all fields of membership for DOD eredit unions

issued by the Regional offices of the administration as they

relate to the military personnel amendment pertinent here,

receiving.

ALAR LLCS SINT

| a

A46 Trial Examiner's Recommended Decision

have included the words ‘‘and are receiving.’’ Any such

fields of membership issued prior to that time did not in-

clude these words.

The Regional directors do not have authority to uni-

laterally alter previously issued and approved fields of

membership unless agreed to by any given credit union.

The 32 credit unions listed in Exhibit R-9 are those

DOD credit unions who originally obtained the 1967 charter

amendment prior to June or July, 1967, and, therefore, these

amendments do not contain the words ‘tand are receiving.”’

The dates listed in Exhibit R-9, next to each such credit

union, do not represent the date when this 1967 charter

amendment was initially issued or approved for each such

credit union, but rather, dates when the fields of member-

ship of these organizations were changed in some other

respect not connected to the military personnel amendment

which is the subject of this controversy.

Similarly, the 26 DOD credit unions listed in Exhibit

R-10 are those who were issued the 1967 Charter Amend-

ment after June or July, 1967, and thus these amendments

do contain the words, ‘‘and are receiving,’’ not as words

‘‘added’’ to a previously issued amendment, but contained

in their amendment as initially issued. The dates listed in

this exhibit, may be the dates of the initial issuance of this

military personnel amendment, or may be dates when other

charter amendments were issued covering subject matters

not connected with this 1967 Amendment. [TR. 263-269].

When this testimony is coupled with that of Deputy

Administrator Gannon, to the effect that the Administra-

tion considers all fields of membership of DOD credit unions

to be equal in scope in this regard, whether they contain the

words ‘‘and are receiving’’ or not, and under the Adminis-

tration’s interpretation of this amendment, herein held to

be necessary to bring this amendment into conformity with

ian ft

Trial Examiner’s Recommended Decision A47

the requirements of the Act, it becomes clear that Exhibits

R-9 and R-10 do not establish two different types of fields of

membership, uor any inconsistent administration of the

Act.

The Respondent in their answer to the Notice of

Charges (see docket file) contend that they neither had

notice of nor could they be charged with notice of the Ad-

ministrator’s interpretation of the 1967 Amendment to

their charter, unless such interpretation was published in

the Federal Register.

Neither the law nor facts of this record support this

coutention.

The record herein clearly establishes that this Respond-

ent had actual notice of the Administration’s interpretation

prior to its activities at Sewart Air Foree Base which began

in the latter part of May, 1969. (Ex. G-2).

The April, 1967, edition of the Bureau of Federal Credit

Lnion’s Bulletin, which was mailed to all DOD Federal

Credit Unions, contained this interpretation and the rea-

sous for it. (See Finding of Fact number 4, supra).

The October, 1967, edition of this Bulletin, also econtain-

ing the Administrator’s interpretation, was likewise mailed

to all DOD credit unions, and the Respondent’s have stipu-

lated to its receipt. (See Finding of Fact number 8).

On two occasions in April and May of 1969, the Ke-

spondent’s President talked with Mr. Lankford, the Re-

gional Director. These conversations clearly establish that

Respondent knew of the Administration’s interpretations.

(Sce Finding of Fact number 11, supra).

The factual record therefore, which is unrebutted by

any reliable evidence, conclusively establishes that Re-

spondent had actual notice of the Administrator’s interpre-

tation of its 1967 Charter Amendment. Actual notice of a

policy or interpretation is binding upon a party having

Ne

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FLOB

TOPLINE RPA LRE

Ads Trial Examiner's Recommended Decision

such notice, notwithstanding failure to publish in the Fed-

eral Register. See: 5 U.S.C. 552(a) (1) (1); U.S. v. Aarons,

310 F.2d 341 (CA 2, 1962); Kessler v. F.C.C., 326 F.2d 673,

(CA D.C., 1963); Wyman-Gordon Company vo. NLRB, 397

Id 394 (CA 1, 1968).

Respondent contends in its brief, page 2, item no. 6,

that no evidence was submitted to show that Exhibit G-3

Was signed by any person who had authority to speak for

the Department of Defense.

This contention is fallacious on its face, Respondent’s

counsel, in signing the memorandum of stipulation, which

Was admitted into evidence as Exhibit G-1 (TR 12), agreed

to the truth and correctness of this document (as exhibit 1

attached to this memorandum), see Ex, G-1, p. 8. At page 31

of the transcript, this counsel stated that he did not ques-

tion the validity or correctness of this exhibit.

The purpose of Respondent’s citation of a Department

of Defense policy set forth at 32 CFR 230.7 is not clear.

(See Respondent's brief, p. 3 item No. 13).

This policy statement is not determinative here as the

Act clearly lodges the responsibility for regulating Federal

Credit Unions, including DOD Federal Credit Unions with

the National Credit Union Administration, (12 U.S.C. 1751-

1790).

Respondent contends at pages 15 and 16 of its brief that

the Administrator, in citing and relying upon Section (206)

(e)(1) of the Act, 12 U.S.C. 1786(e)(1) in issuing his No-

tice of Charges, has proceeded improperly because he has

named, in the caption of this case, not only the Forbes Fed-

eral Credit Union, but also its Board of Directors and Offi-

cers, and further, that because he has not cited Section 206

(g)(1), of the Act, 12 U.S.C. 1786(g)(1) and not produced

any evidence of misconduct by the Board or Officers de-

clared by this action to be improper and grounds for re-

ke SE ON st ON NBDE ET

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Trial Examiner’s Risommended Decision A49

moval from office, ‘‘. . . the proceedings herein cannot be

sustained since the proper party is not involved in the

hearing.’’

This contention is not supported by this record.

The Administrator has issued his Notice of Charges

pursuant to and in conformity with Section 206(c) (1) of the

Act (2 U.S.C, 1786(e)(1). He has named the corporate

entity, the credit union, and has given a‘... statement of

facts constituting the alleged unsafe or unsound practice or

practices.’? He fixed a time and place of hearing, which

has been held pursuant to his duly promulgated regulations,

Exhibit G-1 clearly shows that the Notice of Charges

ure not to be construed as any alleged violation of Section

206(¢)(1) of the Act nor as any criticism of the Board of

Directors and Officers of this Credit Union other than as

their actions relate to their refusal to accept the Adminis-

trator’s interpretation of their field of membership. (See

Memorandum of Stipulation, Ex, G-1, paras. numbered 1

and 2).

If the naming of the Board of Directors and Officers of

the Respondent Credit Union in the eaption of this case is

in error, and if ‘s not held here that if is in error in view of

the fact that ti corporate entity, like a!! others, has acted

and ean aet only by and through such officials, and it has

heen the refusal of these individuals to adhere to the Ad-

ministrator’s proper directions which has given rise to this

case, it is certainly a non-fatal, non-prejudicial error of

form, not of substance, and does not divest the Administra-

tor of authority to take this action pursuant to Section

206(¢)(1) of the Act.

Respondent, at page 16 of its brief, item number 6, ap-

pears to argue that the Administration is bound by the

signatures of its duly authorized agents and it should not

he allowed to repudiate any such signatures.

nial

A50 Trial Examiner's Recommended Decision

The record herein is totally devoid of any evidence

showing any attempt by the Administrator or anyone else

attempting to repudiate the signature of any duly author-

ized agent. In fact, the record herein establishes the con-

trary, (see the testimony of the Regional Director, Mr.

Lankford (TR. 249-252) ).

One last point should be briefly touched upon. In some

of Respondent’s contentions and arguments, it is argued

that the Administrator’s actions herein are improper be-

cause they constitute a retroactive application of his inter.

pretation of the 1967 Charter Amendmen. The record

herein clearly establishes that the Administrator’s actions

here are to have an exclusive prospective effect. The Dep

uty Administrator testified; (TR, 116-118), as did the Re-

gional Director (TR. 275), and their counsel has stipulated

(Ex, G-1, para. 2), that it is not the intention of the Ad-

ministration in this action to revoke the membership of

those persons previously accepted as members as a result

of Respondent’s interpretation of the 1967 Charter Amend.

ment. The Administrator only wishes adherence to his

interpretation in the future which would prevent a repeti-

tion of actions such as Respondent engaged in at Sewart

Air Force Base.

Concuusions oF Law

1. The National Credit Union Administration has jur

isdiction of the subject matter of this controversy under

the provisions of the National Credit Union Act, 12 U.S.C.

1751-1790.

2. The Notice of Charges, issued by the Administrator,

National Credit Union Administration on July 138, 1971,

directed to the Respondent herein, was properly issued con-

sistent with the provisions of Section 206(e)(1) of the Na-

tional Credit Union Act, 12 U.S.C. 1786(e) (1).

Trial Examiner’s Recommended Decision AS1

3. That the amendment to the Respondent’s charter

no. 11258, approved by the Bureau of Federal Credit Unions

on May 5, 1967, containing the following language,

‘*Members of the U.S. Armed Forces, active or retired,

or their dependent survivors who are eligible by law

or regulations to receive benefits or services from the

above military installation,”

has been and is subject to and restricted by the Bureau of

ederal Credit Unions and the National Credit Union Ad-

ministration ’s necessary and proper interpretation thereof,

to persons otherwise qualified for membership who not only

are eligible by law or regulations to receive, but who are

receiving benefits or services from the Forbes Air Foree

Base, Topeka, Kansas.

4. The Respondent herein had actual notice of the tore

going interpretation prior to May, 1969, and lias been bound

by this interpretation since April, 1967 at the latest and

continues to be bound thereby.

». The Respondent Credit Union and its Board of Di-

rectors and Officers have not effectively controlled the af-

fairs of this Credit Union as such affairs relate to the

amendment to its charter as set forth in Conelusion number

o, Supra,

6. This failure to exercise effective control is not con-

sistent with the responsibilities and duties of said Board of

Directors and Officers as set forth in the Federal Credit

Union Act and the By-laws of the Respondent Credit Union

and is contrary to the best interests of the membership of

the Respondent Credit Union.

é

;

A881 ON —

A52 Trial Examiner’s Recommended Decision

7. This failure to exercise effective control of the af

fairs of the Respondent Credit Union has been caused by

the good faith but erroneous interpretation by the Board of

Directors and Officers of the said credit union of the amend-

ment to its charter approved on May 5, 1967, and further

by the refusal of the Respondent, its Board of Directors and

Officers to accept the necessary and proper interpretation

of this Charter Amendment as issued by the Bureau of Fed-

eral Credit Unions and the National Credit Union Adminis-

tration, and to control the affairs of said Credit Union

consistent therewith.

8. That the activities of the Respondent at Sewart Air

Force Base, Tennessee, as alleged in the Notice of Charges,

and as said activities resulted in accepting as members and

granting loans to persons who were not then and who did

not become members of the military community of Forbes

Air Force Base, Topeka, Kansas, were outside of the field

of membership of this Respondent Credit Union and such

activities were not within the provisions of the National

Credit Union Act.

9% Consistent with paragraph 2 of the Memorandum of

Stipulation entered herein as Exhibit G-1, the membership

of those persons previously accepted by the Respondent as

a result of Respondent’s erroneous interpretation of their

field of membership, as it relates to military personnel and

survivors thereof, not be revoked.

10. In order for the Respondent to conduct its affairs

within the limitations set forth in the National Credit

Union Act, it is necessary for the said Respondent to cease

and desist from interpreting the amendment to its charter

as approved on May 5, 1967, in any manner inconsistent

Trial’ Examiner's Recommended Decision Ad3

with that interpretation of said amendment issued by the

Bureau of Federal Credit Unions and the National Credit

Union Administration.

Dated: January 10, 1972

Rockville, Maryland

William E. Brennan

Hearing Examiner

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