Removing a Director who is Currently Delinquent

LS/HMU:jrm

MEMORANDUM

FROM: Department of Legal Services

TO: [redacted]

SUBJ: [redacted]

DATE: June 24, 1985

REF: (a) P.E. Rauer Memo 2/JAR:jr, dated March 1, 1985, same subject (b) RD, Region II (Capital) Memo EI/ALC:lmd, dated March 13, 1985 same subject

ENCL: (1) Letter to Richard A. Zeller, GC/RPK/AJK:nmw, dated 8/6/79; subj: removal of director

1. This is in response to reference (b) concerning the ability of an FCU board of directors to remove a director who is currently delinquent on two loans (described in reference (a)).
2. The FCU Act and the Standard FCU bylaws authorize the removal of an FCU director (excluded from the list below is the authority granted to the NCUA Board pursuant to Section 206 of the Act) as follows:
   1. Section 115 of the FCU Act grants the supervisory committee the power to suspend a director by unanimous vote. The suspension must be acted upon by the members at a meeting not less then seven nor more than fourteen days after such suspension.
   2. Article X, Section 5 of the Bylaws implements Section 115 of the Act.
   3. Article X, Section 6 and Article XIX, Section 3 of the Bylaws authorize a special meeting of the members called for the purpose of removing a director upon the affirmative vote of a majority of the members present at the meeting
   4. Article VII, Section 7 of the bylaws authorizes the board of directors to remove a director (declare his/her position vacant) if the director fails to attend three consecutive meetings or otherwise fails to perform any of the duties devolving upon him/her as a director.
3. In the matter before us, the issue involves the removal of a director by an FCU's board of directors in reliance on the authority contained in Article VII, Section 7 (as described above in paragraph 2 (d)). The authority of a board of directors to remove one of its own has been narrowly construed by the courts. Generally, the courts have held that a director can be removed only by those that have placed him/her in that position, i.e., stockholder or in the case of FCU's, the members. At least one court has held that a bylaw provision empowering a board of directors, in addition to the stockholders, to remove a director, was invalid (See 19 CJS Corporations §738).
4. In light of the above, it is our opinion that the power granted to an FCU's board by Article VII, Section 7, should be interpreted narrowly by NCUA. With respect to what constitutes a failure to perform "any of the duties devolving upon him as a director." we have previously stated that loan delinquency is not sufficient reason for the board to remove a director. (See enclosure (1).) It is our opinion that delinquency in loan payments is a personal failure not related to "any of the duties devolving upon him/her as a director." Removal for this type of failure should be left to the body that elected the director (the membership). As noted in paragraph 2(a) above, the supervisory committee may suspend a director, but such suspension must be acted upon by the membership. An expansion of our present interpretation of Article VII, Section 7 to include a personal failure such as loan delinquency may be too broad resulting in a successful legal challenge to the authority provided to an FCU's board by this bylaw provision.
5. This opinion is advisory only and is based on the limited facts set out in references (a) and (b). The subject Credit Union may wish to consult outside counsel who is familiar with both Federal and state common law, the FCU Act, and FCU Bylaws.
6. If you have further questions, please contact Hattie Ulan of this Office.