October 27, 1997
Steven R. Bisker, Esq.
616 South Washington Street
Alexandria, Virginia 22314
Dear Mr. Bisker:
You have asked whether a federal credit union's
(FCU's) supervisory committee has the authority to retain legal
counsel to assist it in performing its functions. You also have
asked whether the board of directors can set budget limits which,
in the opinion of the supervisory committee, interfere with the
work the attorney is expected to perform. Your second question
is really two questions: whether the board of directors can limit
the funding and what happens if there is a dispute between the
board of directors and the supervisory committee about the amount
of funds that should be available.
For purposes of addressing your questions,
we are assuming that there is no legal counsel already serving
the FCU or that there are reasons why the supervisory committee
either cannot or does not want to rely on the legal counsel who
generally serves the FCU. We want to note that, when an attorney
is compensated by a credit union, it is the credit union, not
the board of directors, who is the attorney's client. The attorney
owes a duty of loyalty to the client, the credit union, not to
any individual or group within the credit union. Thus, barring
some particular problem, the supervisory committee should be able
to consult with legal counsel who already serves the FCU.
There may be circumstances where it is appropriate
for the supervisory committee to retain its own legal counsel
to assist it in carrying out its responsibilities. We think that
whether it is appropriate for the supervisory committee to hire
its own counsel will depend on the facts in a particular case.
Assuming the circumstances are appropriate, the board of directors,
nevertheless, has the authority to set funding limits because
of its general responsibility for the financial management of
the FCU. If the board of directors and supervisory committee
disagree about the hiring of legal counsel or the amount of funding
to be made available, as discussed below, the supervisory committee
has various options it can consider.
Discussion
It is the duty of the supervisory committee
to make or cause to be made an annual audit and such supplementary
audits as it deems necessary. 12 U.S.C. �61(d). The supervisory
committee is responsible for ensuring that the credit union's
management practices and procedures are sufficient to safeguard
members' assets. 12 C.F.R. �1.12(b)(1)(ii). How the supervisory
committee meets this responsibility is left to its discretion,
but the FCU bylaws contemplate that the board will approve the
compensation to be paid to anyone assisting the supervisory committee.
Article X, Section 3 of FCU Bylaws. If the FCU's board of directors
has already approved the supervisory committee's budget and the
fee for legal counsel is within that budget, the supervisory committee
would be free to retain legal counsel to assist it in performing
its functions.
If the supervisory committee does not have an established budget for its operations but wishes to employ legal counsel, the supervisory committee should obtain authorization for payment before hiring legal counsel. First, it is the board of directors that is generally responsible for paying the FCU's bills. The Federal Credit Union Act provides that the board of directors is responsible for the financial management of an FCU. 12 U.S.C. �61(b). Also, we note that Article VIII, Section 5 of the FCU Bylaws provides that the board of directors, acting through the financial officer or management official it may appoint, has custody of the FCU's funds. Second, as a practical matter, because legal counsel might not undertake to provide services without some assurance of being paid, the supervisory committee should seek the approval of the board of directors. Assuming that the circumstances are appropriate for the supervisory committee to hire legal counsel, the board of directors should be reasonable in providing funding.
Given their roles and responsibilities, we
recognize that there may be a degree of tension between the supervisory
committee and the board of directors. For example, we note that,
although the board of directors appoints the supervisory committee
and establishes its budget, the supervisory committee has the
power to suspend members of the board and to conduct investigations
of the board of directors. 12 U.S.C. �61(a),(b); Federal
Credit Union Bylaws, Article X, Section 1, 5. Thus, there may
be circumstances where the supervisory committee wishes to obtain
its own legal counsel and the board of directors will be obligated
to provide reasonable funding even where the board, itself, or
one or more of its members are the object of the supervisory committee's
investigation.
If the supervisory committee and board of directors
are unable to resolve a dispute about funding, the supervisory
committee could consider calling for a special meeting of the
members under Article X, Section 6 of the FCU bylaws, assuming
the grounds for such a special meeting exist. The supervisory
committee could consider filing a lawsuit to obtain a judicial
determination of its right to hire its own legal counsel. To
do so, the supervisory committee would have to find legal counsel
willing to undertake the matter based on the contingency that
counsel would only be paid if the court found in favor of the
supervisory committee's right to hire its own counsel. Members
of the supervisory committee, themselves, could fund the litigation
with the expectation that they could be reimbursed if the court
found in favor of their right to hire counsel. If matters involve
a threat to the safety and soundness of the FCU or involve violations
of law or regulation, the supervisory committee could also consider
referring the matter to the NCUA.
As a general matter, it is our opinion that,
if any internal disputes over funding of this type arise, the
board of directors and the supervisory committee should use their
best efforts to resolve the matter among themselves keeping in
mind the best interests of the FCU.
Sincerely,
Sheila A. Allbin
Associate General Counsel
GC/MJMcK:bhs
SSIC 3501
97-0649