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Independent Community Bankers of America v. National Credit Union Administration

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

January 24, 2017

INDEPENDENT COMMUNITY BANKERS OF AMERICA, Plaintiff,
v.
NATIONAL CREDIT UNION ADMINISTRATION, Defendant.

          MEMORANDUM OPINION

          James C. Cacheris UNITED STATES DISTRICT COURT JUDGE

         Plaintiff Independent Community Bankers of America, a trade association that represents community banks, brings suit challenging regulations adopted by Defendant National Credit Union Administration. Defendant has filed a Motion to Dismiss [Dkt. 18] contending, in relevant part, that Plaintiff's suit is time-barred and that Plaintiff lacks standing. The Court agrees. Accordingly, the Court will grant Defendant's Motion and dismiss Plaintiff's Complaint.

         I. Background

         Congress passed the Federal Credit Union Act, 12 U.S.C. § 1751, et seq., in the midst of the Great Depression. The Act authorizes the chartering of federal credit unions - member owned and democratically operated financial cooperatives that provide services similar to those offered by banks. Defendant is an administrative agency charged with overseeing federally chartered credit unions and “administering the [Federal Credit Union Act].” Nat'l Credit Union Admin. v. First Nat. Bank & Trust Co., 522 U.S. 479, 483 (1998). Defendant's authority also extends to state-chartered credit unions that elect to be insured by the National Credit Union Share Insurance Fund. See Credit Union Nat. Ass'n v. Nat'l Credit Union Admin., 57 F.Supp.2d 294, 296 (E.D. Va. 1995).

         This case concerns regulations Defendant adopted pursuant to 12 U.S.C § 1757a(a), a provision of the Act titled “Limitation on member business loans.” This portion of the statute provides that “no insured credit union may make any member business loan that would result in a total amount of such loans outstanding at that credit union” to exceed the lesser of “1.75 times the actual net worth of the credit union” or 12.25% of the credit union's assets. Id. The term “member business loan” is defined as “any loan, line of credit, or letter of credit, the proceeds of which will be used for a commercial, corporate, or other business investment or venture, or agricultural purpose.” Id. § 1757a(c)(1)(A). At issue here is whether and to what extent this limitation applies to interests in loans made to persons not members of a given credit union that are acquired, but not originated, by that credit union.[1]

         In 1999, Defendant issued its first rule interpreting and implementing these provisions of the Act. See 64 Fed. Reg. 28, 721 (May 27, 1999). The 1999 Rule provided that “[u]nless otherwise exempt, ” interests in loans acquired but not originated by a credit union “are to be counted against the aggregate loan limit for the participating credit union.” Id. at 28, 725. The Rule did not distinguish between interests in loans made to members and loans made to nonmembers.

         In 2003, Defendant issued a notice of proposed rulemaking stating that it had “reconsidered its position regarding the treatment of loan participations by purchasing credit unions and propose[d] to exclude participation interests from the calculation of the aggregate [member business loan] limit.” 68 Fed. Reg. 16, 450, 16, 451 (Apr. 4, 2003). The agency ultimately stopped short of excluding all loan interests acquired, but not originated, by a credit union from the statutory cap. Finding the statute's language “lends itself to several possible interpretations, ” Defendant adopted a rule distinguishing between interests in loans made to credit union members and interests in loans made to nonmembers. 68 Fed. Reg. 56, 537, 56, 539, 56, 543 (Oct. 1, 2003). While interests in loans made to members remained subject to the “Limitation on member business loans” cap, the agency found that “purchases of nonmember loans and participation interests . . . do not involve the provision of member loan services, and the acquired loan assets are not [member business loans].” Id. at 56, 544.

         The agency recognized that nonmember loans are “business loan asset[s] with all of the attendant risks, ” and noted that if abused, the new rule might provide a “loophole” for credit unions. Id. at 56, 544. Accordingly, Defendant required credit unions to seek approval from the agency's Regional Director before purchasing an interest in a nonmember business loan when, combined with the credit union's member business loans, doing so would cause the credit union to exceed the statutory cap. See id.

         Defendant undertook its most recent rulemaking in 2015. The agency primarily proposed to change the manner in which it regulates member business loans, moving away from “prescriptive underwriting criteria and waiver requirements in favor of a principles-based approach to regulating commercial loans.” 80 Fed. Reg. 37, 898, 37, 899 (July 1, 2015). As part of that process, the agency proposed to eliminate the requirement that credit unions seek approval before purchasing interests in nonmember loans when doing so would cause them to exceed the statutory cap. Id. at 37, 909-10. Instead, the purchase of such interests would be subject to the same overarching principles applicable to other commercial loans under the new regulations. See id. The notice of proposed rulemaking “emphasize[d] that a credit union's non-member commercial loans or participation interests in non-member commercial loans made by another lender continue to be excluded from the [member business loan] definition and are not counted . . . in calculating the statutory aggregate amount.” Id.

         In March of 2016, Defendant issued a final rule adopting its earlier proposal. 81 Fed. Reg. 13, 530 (Mar. 14, 2016). The agency responded to public comments criticizing its approach to loan participations, “emphasiz[ing] that [it]s current approach with respect to [member business] loan participations has been unchanged since 2003, ” and stating that, “[a]fter careful consideration of the public comments on this issue, the Board continues to subscribe to the views articulated in 2003 and has determined to adopt the proposed approach without change.” 81 Fed. Reg. at 13, 548-49. Accordingly, for purposes of the present suit, the only relevant change wrought by the 2016 Rule was the elimination of the permission-to-purchase requirement. See id. at 13, 549. The relevant portions of the 2016 Rule took effect on January 1, 2017.

         On September 7, 2016, Plaintiff filed the instant challenge to the 2016 Rule under the APA. Plaintiff contends that Defendant acted unlawfully in interpreting 12 U.S.C § 1757a to exclude interests in nonmember business loans acquired by credit unions from the statutory cap on member business loans. See Compl. [Dkt. 1] ¶ 90. On November 2, 2016, Defendant filed the instant Motion to Dismiss [Dkt. 18] pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).

         II. Legal Standard

         A motion filed pursuant to Rule 12(b)(1) challenges the Court's subject matter jurisdiction over the pending action. The burden of proving subject matter jurisdiction falls on the plaintiff. McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936); Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). Where, as here, “a Rule 12(b)(1) motion challenge is raised to the factual basis for subject matter jurisdiction . . . the district court is to regard the pleadings' allegations as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment.” Richmond, Fredericksburg & Potomac R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991).

         “The purpose of a Rule 12(b)(6) motion is to test the sufficiency of a complaint; importantly, [a Rule 12(b)(6) motion] does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” Edwards v. City of Goldsboro, 178 F.3d 231, 243-44 (4th Cir. 1999) (citation omitted). While the Court must accept well-pled allegations of fact as true when ruling on a Rule 12(b)(6) motion, the Court need not accept legal conclusions disguised as factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 679-81 (2009). Moreover, “[l]aws - including statutes and formal rules and regulations - are subject to judicial notice because they are matters of public record and common knowledge.” Ebersole v. Kline-Perry, No. 1:12-cv-26, 2012 WL 2673150, at *3 (E.D. Va. July 5, 2012).

         III. Analysis

         A. Timeliness

         The Court begins its analysis with Plaintiff's Complaint. Curiously, the Complaint makes little mention of the regulatory changes wrought by the 2016 Rule. Indeed, Plaintiff dedicates only seven of the Complaint's 90 paragraphs to the Rule Plaintiff ostensibly challenges. Instead, Plaintiff's Complaint is almost entirely addressed to Defendant's 2003 Rule. The relief Plaintiff requests is directed solely at overturning changes in Defendant's regulations traceable to the 2003 Rule, to wit, the agency's determination that “purchases of nonmember loans and participation interests . . . do not involve the provision of member loan services, and the acquired loan assets are not [member business loans].” 68 Fed. Reg. at 56, 544; see also Compl. [Dkt. 1] ¶ 90.[2] Plaintiff does not attack the elimination of the permission-to-purchase requirement in and of itself.

         This is significant because a six-year statute of limitations applies to lawsuits brought under the APA. See 28 U.S.C. § 2401(a); Jersey Heights Neighborhood Ass'n v. Glendening, 174 F.3d 180, 186 (4th Cir. 1999). Any challenge to the 2003 Rule should therefore have been filed - at the latest - by October 1, 2009, six years after Defendant published its 2003 Rule. Plaintiff's suit would, under normal circumstances, be time-barred to the extent it challenges Defendant's ...


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