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Brandon v. Nat'l Credit Union Ass'n

United States District Court, E.D. Virginia, Alexandria Division

July 10, 2015

TOYRI T. BRANDON, Petitioner,
v.
NATIONAL CREDIT UNION ASSOCIATION, et al., Respondents

For Toyri T. Brandon, Petitioner: Christopher E. Brown, LEAD ATTORNEY, The Brown Firm, Alexandria, VA.

For National Credit Union Association, National Credit Union Administration Board, Respondents: Antonia Konkoly, LEAD ATTORNEY, U.S. Attorney's Office (Alexandria-NA), Alexandria, VA; Lauren A. Wetzler, LEAD ATTORNEY, United States Attorney Office, Alexandria, VA.

For Debbie Matz, Chairwoman, NCUA Board, Respondent: Antonia Konkoly, LEAD ATTORNEY, U.S. Attorney's Office (Alexandria-NA), Alexandria, VA.

Page 679

MEMORANDUM OPINION

T.S. Ellis, III, United States District Judge.

Petitioner, a former member and shareholder of the now-defunct Shiloh of Alexandria Federal Credit Union (" Shiloh" ), brings this action pursuant to 12 U.S.C. § 1787(d)(3) seeking judicial review of the National Credit Union Administration's (" NCUA" )[1] denial of petitioner's request for share insurance. Following revelations that Shiloh's manager had been defrauding Shiloh, the NCUA placed Shiloh in receivership, and after determining that Shiloh's internal records were unreliable due to the manager's fraud and manipulation, undertook the task of reconstructing members' share accounts to determine what amounts

Page 680

each member should receive from the National Credit Union Share Insurance Fund (" NCUSIF" ). The NCUA's reconstruction of petitioner's share account revealed a negative final account balance of $75,041.96. The NCUA accordingly denied petitioner's claim for share insurance. Petitioner contends that NCUA's reconstruction is inaccurate and that an accurate reconstruction would show that she is owed $19,432.58 in share insurance, the amount shown on her Shiloh account statement as of the date of liquidation. At issue on respondents' motion for summary judgment, therefore, is whether the administrative record shows that the NCUA's decision is not arbitrary, capricious, or otherwise not in accordance with law and is supported by substantial evidence. 5 U.S.C. § 706(2)(A).

I.[2]

The NCUA is tasked with (i) chartering and regulating federal credit unions and administering the NCUSIF and (ii) serving as the conservator or liquidating agent for federal credit unions that become insolvent. 12 U.S.C. § 1751 el seq. The NCUA Board is the managing body of the NCUA, consisting of three members appointed by the President. Id. § 1752a. When a federal credit union is liquidated, the Federal Credit Union Act (" the Act" ) requires the NCUA Board to pay insured deposits " as soon as possible" but grants the NCUA Board discretion in resolving insurance claims, including discretion to " require proof of claims to be filed." Id. § 1787(d). Where there is a dispute with respect to a share insurance claim, the NCUA Board " may resolve such disputed claim in accordance with regulations prescribed by the Board." Id. § 1787(d)(3)(A). Petitioner, a resident of Virginia and a former Shiloh shareholder, has such a disputed share insurance claim.

The now-defunct Shiloh was chartered in 1993 and served members of the Shiloh Baptist Church and other persons living, working, worshipping, or attending school within a designated area in Alexandria, Virginia. AR 13. Shiloh was not a particularly sophisticated institution. It operated out of a church building and was only open during limited hours on Saturdays and Sundays. AR 14. Further, Shiloh did not maintain its own cash vault but instead banked with an independent financial institution, BB& T bank. AR 576. When a member wished to make a withdrawal from her account, she would request a check which was drawn from the Shiloh BB& T account. Id. Conversely, a member's deposits into her Shiloh account were deposited into Shiloh's BB& T account, with a notation on the deposit ticket noting to which member account the deposit was to be credited. Id.

Since at least 2009, Shiloh was managed by John Dupree, Jr. (" Dupree" ). AR 13. Although the board of directors for a credit union is charged with the general direction and control of the credit union's affairs, the Chairman of Shiloh's Board stated that Dupree was actually the only person who in fact could operate Shiloh.

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AR 14. Dupree kept two Shiloh computers at his personal residence., including one on which Shiloh's financial database, Fed Comp.

On March 27, 2013, Dupree contacted an NCUA district examiner and stated that the December 31, 2012 Call Report he had submitted to the NCUA on Shiloh's behalf incorrectly stated the total of non-member share deposits held by Shiloh.[3] AR 13. In response, the NCUA assigned an examiner to visit Shiloh to determine whether this purported recordkeeping error was correct and to review Shiloh's books and records. Id. The examiner was never able to meet with Dupree, however, because Dupree committed suicide on April 4, 2013, leaving a suicide note on a Shiloh computer confessing that he had defrauded the credit union. AR 15; 574 n.1. An ensuing investigation revealed that Dupree accepted millions of dollars in unrecorded non-member share deposits, embezzling millions of dollars for his own use and diverting other funds " to those in need." AR 14-16, 571 & n.1, 584. Dupree hid his fraud by manipulating members' account balances with fictitious deposits in order to balance the credit union's books and records. AR 14, 477-78.[4] Besides his intentional manipulation, Dupree was often inaccurate and untimely in posting member transactions to their accounts. AR 14, 477-78. The NCUA eventually determined that Dupree's fraud had cost the credit union more than $9.7 million. Answer ¶ 2.

On April 12, 2013, the NCUA Board found Shiloh to be insolvent. AR 9-11. Accordingly, pursuant to 12 U.S.C. § § 1766(b)(1) and 1787(a)(1)(A), the NCUA Board placed Shiloh into involuntary liquidation, revoked its charter, and appointed itself as Shiloh's Liquidating Agent. Id. The NCUA Board further appointed agents of the liquidating agent (" ALA" ), who informed Shiloh members of the insolvency and liquidation by mailing letters informing account holders that if their account balances were over $500, they were required to complete and return an enclosed " Member Confirmation and Affidavit" form in order to claim any remaining balance. AR 35-36. This letter enclosed a statement, drawn from Shiloh's internal records, showing the member's account balance as it stood on the date of liquidation. Petitioner's statement reported that she had a balance of $19,432.58. AR 45. The statement also showed that petitioner had purchased a $10,000 share deposit (which is analogous to a Certificate of Deposit or " CD" ) in November 2008 and that this share deposit was transferred upon its maturity to petitioner's share account in November 2009.[5] The account

Page 682

statement also reflected two outstanding loan balances of $2,753.27 and $29,792.66.[6]

On May 1, 2013, petitioner returned her " Member Confirmation and Affidavit" stating that she did not agree with the statement of her share or loan balances at liquidation. AR 49-56. Petitioner's letter stated that the member account statement she received did not accurately reflect $200 weekly deposits made automatically from her paycheck and did not reflect her purchase of a $10,000 share deposit. AR 51. Petitioner did not provide her own representation of what her account balance should have been, but simply challenged the number provided in the share account statement provided by the ALA. Id. ; AR 584.

After further examination of Shiloh's records, the NCUA determined that the account summaries that were mailed to members in April 2013 were inaccurate as they were based on Shiloh records made unreliable by Dupree's manipulation of Shiloh's accounts. AR 478. Because the NCUA could not reconcile Shiloh's accounts based on Shiloh's own internal records, the NCUA subpoenaed Shiloh's BB& T account statements and cancelled checks in order to attempt to verify independently the members' deposits and withdrawals. AR 58-70. As this review began, on July 23, 2013, Elizabeth Martin, a fraud specialist with the Asset Management and Assistance Center (" AMAC" ) of the NCUA, sent a letter informing petitioner that the AMAC had performed a preliminary review of petitioner's account, but was awaiting additional bank records from outside Shiloh. Id. The letter further requested that petitioner send Ms. Martin at the NCUA any further records that would substantiate petitioner's share account balance at liquidation. Id. In response, petitioner provided Ms. Martin with her payroll records from the time that she opened her Shiloh account. AR 175-473.

To reconstruct petitioner's account, Ms. Martin, the fraud specialist, compared Shiloh's records of petitioner's account activity with Shiloh's BB& T banking records. See 486-501. Ms. Martin also consulted petitioner's pay stubs to substantiate petitioner's direct payroll deposits into petitioner's Shiloh account.[7] AR 577; see AR 174-473. Ms. Martin's review of these independent banking and payroll records substantiated a large portion of the account activity listed on petitioner's Shiloh member account statement, but also showed the following significant errors:

o The BB& T records showed approximately $17,600 in withdrawals that were not accounted for on petitioner's Shiloh member account statement but for which a check, payable to petitioner or her husband, Troy Brandon, had been issued and cashed. Accordingly, ...

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