UNITED STATES COURT OF APPEALS 

FOR THE SECOND CIRCUIT

--------

August Term, 2002

(Argued: May 1, 2003 Decided: August 21, 2003

 Errata filed: September 8, 2003) 

Docket No. 02-4413

-----------------------------------------------------------X

KATHARINA WAGNER GULLY, a/k/a Karin Gully,

 Petitioner,

- v. -

NATIONAL CREDIT UNION ADMINISTRATION BOARD,

 Respondent,

WATERSIDE FEDERAL CREDIT UNION,

Intervenor.

-----------------------------------------------------------X

Before: WALKER, Chief Judge, MINER and McLAUGHLIN, Circuit

Judges.

Petitioner Karin Gully appeals from a decision of the

National Credit Union Administration Board finding that she

satisfied the criteria for the entry of a prohibition order

against her pursuant to 12 U.S.C. § 1786(g). 

AFFIRMED.

JOHN M. MURDOCK, Epstein Becker &

Green, P.C., New York, NY (David J.

Clark, on the brief), for
2

Petitioner.

ERIC D. MILLER, United States

Department of Justice, Washington,

D.C. (Assistant Attorney General

Robert D. McCallum, Jr. and Jacob

M. Lewis, on the brief) for

Respondent.

ROBERT J. ANELLO, Morvillo,

Abramowitz, Grand, Iason &

Silberberg, P.C., New York, NY

(Catherine M. Foti, on the brief),

for Intervenor.

McLAUGHLIN, Circuit Judge:

Petitioner Karin Gully appeals from the determination of the

National Credit Union Administration Board (the “Board”) that she

engaged in unsafe and unsound practices and that she breached her

fiduciary duty as the manager of the Waterside Federal Credit

Union (“WFCU”), and is therefore unfit to be involved in the

affairs of a federally-insured credit union. See 12 U.S.C.

§ 1786(g)(1)(A)-(C). The Board based this finding on Gully’s

failure to prevent the misuse of a WFCU corporate credit card by

a WFCU board member and consultant -- to wit, her father. The

Board found that Gully satisfied the criteria to sustain an order

permanently barring her from participating in the affairs of an

insured credit union. Because of the unique circumstances of her

case, however, it did not actually issue the prohibition order. 

On appeal, Gully contends that the Board’s legal findings

were arbitrary and capricious principally because the Board
3

employed the wrong standard in finding that she engaged in

misconduct and was unfit. The Board counters that Gully lacks

standing to appeal its decision principally because it never

issued the prohibition order against her. The Board further

contends that, even if Gully has standing, its findings should be

affirmed. 

We conclude that Gully does have standing to challenge the

Board’s conclusions. We also find that the Board’s conclusions

were neither arbitrary nor capricious and were supported by

substantial evidence. We therefore affirm the Board’s decision.

BACKGROUND

The facts are not in dispute. The WFCU is a federallyinsured credit union based in Queens. It serves Con Edison

employees and has over $38 million in assets. Gully was the

assistant manager of the WFCU for ten years before taking over as

manager in 1992. Gully’s family has a longstanding relationship

with the WFCU. Her father, Reinhold Wagner, housed the WFCU in

the basement of their home for twenty years, and he was a WFCU

board member from the 1960s until 1998. Wagner also served as

manager of the WFCU after his retirement from Con Edison in 1987. 

Even after he resigned his official position at the WFCU in

1994, Wagner remained the dominant figure at the WFCU as a paid

consultant and board member. He set the agenda at the board

meetings, maintained the general ledger, and paid all the WFCU’s
4

bills. He was subject to virtually no oversight by any WFCU

employee. WFCU personnel forwarded unopened bills to Wagner and

he simply requested a check from a WFCU teller in a given amount. 

With rare exception, no WFCU employee actually saw the specific

charges on a bill.

Unbeknownst to the other WFCU board members, Wagner held a

corporate American Express card for the WFCU in his name. The

card, of course, was available to Wagner for business purposes

only. As with the other bills, the American Express statements

were addressed to Wagner and he was generally the only person to

see the detailed charges on the bill. Gully herself processed

the majority of the checks for the American Express bills.

In 1996, Wagner asked Gully to pay the WFCU American Express

bill because he was at his vacation home in Florida. When Gully

opened the bill, she noted what appeared to be personal charges

by her father. She nonetheless paid the bill. She later spoke

to her father about the charges and he explained that he had used

the WFCU card only because he did not have his personal card with

him. Wagner told Gully that he would reimburse the WFCU for his

personal charges on that bill. 

Gully did not report her father’s unauthorized use of the

American Express card to the WFCU board, nor did she follow up to

ensure that her father had reimbursed the WFCU. She did not

monitor her father’s subsequent use of the card to see if he
5

continued to make personal charges. Had she done so, she would

have discovered that Wagner never reimbursed the WFCU for any of

his personal charges. Worse still, Wagner continued to use the

WFCU card for his personal charges. Virtually every month,

Wagner charged his vacation expenses, restaurant meals, and

building supplies for his Florida home to the WFCU card.

A 1998 investigation by the National Credit Union

Administration (“NCUA”) revealed that in the preceding six years

Wagner had put over $31,000 in personal charges on the WFCU card. 

Wagner did not contest these charges and reimbursed the WFCU over

$31,000. He also consented to the entry of a prohibition order

against him, banning him from participating in the affairs of any

credit union. Gully herself resigned her position when Wagner’s

misconduct came to light. 

In 2000, the NCUA focused on Gully and served her with a

notice of charges stating that it would hold a hearing on whether

she too should be subject to a prohibition order. Gully denied

all charges. An Administrative Law Judge (“ALJ”) conducted an

evidentiary hearing and issued a decision recommending that no

prohibition order be entered against her. Not surprisingly, the

NCUA filed exceptions with the Board, contending that the ALJ’s

legal and factual findings were erroneous in part. Gully did not

file any exceptions with the Board. 

The Board concluded that during her stint as manager Gully
1 Although the Board’s decision is not officially reported, it is

available on the NCUA’s website. See In re Gully, No. 00-0701-I,

Final Dec. & Order (NCUA Bd. Jan. 30, 2002), available at

http://www.ncua.gov/administrative_orders/00-0701-I.htm.

6

had engaged in unsafe and unsound practices and had breached her

fiduciary duty to the WFCU. Accordingly, the Board found her

unfit to be involved in the affairs of an insured credit union

pursuant to 12 U.S.C. § 1786(g). Specifically, the Board held

that after becoming aware of her father’s misuse of the WFCU’s

credit card, Gully had an obligation to ensure that he reimbursed

the WFCU and that his personal use of the WFCU funds ceased. In 

the Board’s view, this duty included, at the very least,

reviewing future American Express bills. By failing to take any

of these steps, Gully “in effect, actively participated” in her

father’s misconduct. Despite finding the criteria for a

prohibition order satisfied, however, the Board decided not to

issue such an order because of “the unique circumstances” of

Gully’s case and the fact that she had eventually resigned from

her position as manager of the WFCU.1

Gully then filed a petition for review in this Court. The

credit union, WFCU, which had already successfully defended one

state court action (brought by Gully for indemnification of her

legal fees), intervened to protect its ongoing interest in

avoiding an indemnification action by Gully. See N.Y. Bus. Corp.

Law § 723(a) (“A person who has been successful, on the merits or
7

otherwise, in the defense of a civil . . . action . . . shall be

entitled to indemnification [by the corporation] as authorized

[by § 722].”). 

DISCUSSION

On appeal, the Board raises a threshold jurisdictional

question: whether Gully has standing to bring this action in

federal court. The Board contends that Gully does not have

standing to challenge its conclusions because it did not actually

issue a prohibition order against her.

I. Standing

Article III of the U.S. Constitution limits the jurisdiction

of federal courts to the resolution of “cases” and

“controversies.” U.S. Const. art. III, § 2. Standing is “an

essential and unchanging part” of Article III’s case-orcontroversy requirement. Lujan v. Defenders of Wildlife, 504

U.S. 555, 560 (1992). The “irreducible constitutional minimum”

of standing has three requirements. Id. First and foremost, the

party invoking federal jurisdiction must have suffered an “injury

in fact” -- an invasion of a legally protected interest that is

(a) concrete and particularized and (b) actual or imminent,

rather than conjectural or hypothetical. Id. Second, there must

be a causal connection between the injury and the challenged

conduct. Id. Third, “it must be likely, as opposed to merely

speculative, that the injury will be redressed by a favorable
8

decision.” Id. at 560-61 (internal quotations omitted). 

“The party invoking federal jurisdiction bears the burden of

establishing these elements.” Id. at 561. Standing cannot be

inferred, but “must affirmatively appear in the record.” Spencer

v. Kemna, 523 U.S. 1, 10-11 (1998) (internal quotations omitted).

The Administrative Procedure Act (“APA”) grants a person

“adversely affected or aggrieved by agency action” the right to

judicial review of that action. 5 U.S.C. § 702. The Supreme

Court has recognized that when a person challenges the legality

of government action and that person is himself the object of the

action at issue -- as is the case here -- “there is ordinarily

little question that the action . . . has caused him injury, and

that a judgment preventing or requiring the action will redress

it.” Lujan, 504 U.S. at 561-62.

A. Injury

The Board’s first contention is that Gully fails to satisfy

the injury requirement of standing. It argues that Gully

suffered no cognizable injury because it chose not to enter a

prohibition order against her. The Board also asserts that

Gully’s statutory basis for jurisdiction is lacking because its

decision cannot be characterized as an “order” under 12 U.S.C.

§ 1786(j)(2). Finally, despite acknowledging that reputational

injury is sufficient to establish standing in some cases, the

Board posits that Gully’s alleged reputational injury is too
9

vague to constitute an injury in fact. Each of these contentions

lacks merit.

As a threshold matter, the Board’s attempt to characterize

its decision as something other than an “order” is unpersuasive. 

Section 1786(j) provides that any party subject to a disciplinary

hearing under that section may obtain review of “any order”

issued by the Board. 12 U.S.C. § 1786(j)(2) (emphasis added). 

While “order” itself is not defined in the statute, § 1786(j)(1)

does require the Board to issue “an order or orders” after every

hearing. Therefore, despite the alleged lack of a document

formally denominated as an order, we conclude that a “decision”

of the Board is subject to judicial review by a party who, like

Gully, is the subject of a disciplinary hearing. 

Apart from the semantic quibble, there is in fact one

formally designated “order” in the record. The Board fashioned

its decision in Gully’s case as an order. Under the section of

its decision entitled “Conclusion and Order”, the Board stated:

it is Hereby ordered, that the conduct of Respondent

Katharina Wagner Gully, as manager of [WFCU], was

sufficient to sustain an order permanently prohibiting

her from participating in any manner in the conduct of

the affairs of any insured credit union.

The Board then proceeded to issue a second order, stating that it

would not issue a formal prohibition order against Gully. Given

the Board’s repeated references to its decision as an order, its

argument that the decision was not an appealable order is
10

rejected. 

Equally unavailing is the Board’s contention that Gully

suffered no cognizable injury because there is no prohibition

order against her. Contrary to the Board’s belief, a prohibition

order is not a sacred talisman that must always be present to

establish an injury. The Supreme Court has long recognized that

an injury to reputation will satisfy the injury element of

standing. See, e.g., Joint Anti-Fascist Refugee Comm. v.

McGrath, 341 U.S. 123, 139 (1951) (charitable organizations

designated as “Communist” by Attorney General had standing to

challenge their designations because of, inter alia, “damage [to]

the reputation of th[e] organizations in their respective

communities”); Meese v. Keene, 481 U.S. 465, 472-77 (1987)

(potential distributor of foreign films had standing to challenge

Justice Department's characterization of films as "political

propaganda" since it would affect “his personal, political, and

professional reputation” and impair his ability to practice his

profession); accord United States v. Accra Pac, Inc., 173 F.3d

630, 633 (7th Cir. 1999) (“being put on a blacklist . . . is

treated as immediately redressible harm because it diminishes (or

eliminates) the opportunity to practice one’s profession even if

the list . . . does not impose legal obligations”).

Several circuit courts have found reputational injury

sufficient to establish “injury in fact” in cases quite similar
11

to this case. For example, the D.C. Circuit held that a District

Judge had standing to challenge a public reprimand he received

from the Judicial Council of the Fifth Circuit for engaging “in a

pattern of abusive behavior.” McBryde v. Comm. to Review Circuit

Council Conduct and Disability Orders of the Judicial Conference

of the United States, 264 F.3d 52, 57 (D.C. Cir. 2001) (internal

quotations omitted), cert. denied, 537 U.S. 821 (2002). The

reprimand, which was published on the Fifth Circuit’s website,

had no legal effect on the judge, but was, of course, a blight on

his reputation. In concluding that the judge’s reputational

injury established a cognizable “injury in fact” under Meese v.

Keene, the D.C. Circuit relied solely on the serious effect of

the reprimand on the judge’s reputation. Id. at 57.

It is self-evident that Gully’s reputation will be blackened

by the Board’s finding of misconduct and unfitness. One need not

be a sage to recognize that the Board’s findings are a death

knell for Gully’s career in an industry dependent on security and

reliability. Cf. Southern Mut. Help Ass’n v. Califano, 574 F.2d

518, 524 (D.C. Cir. 1977) (“It is not difficult to imagine the

inhospitable reception that would be given to future applications

from an organization that has been accused of violating

departmental regulations, misusing grant funds, and engaging in

activities that create conflicts of interest.”).
12

B. Causation

The Board also challenges the second standing requirement of

Article III. It contends that any harm to Gully’s reputation was

caused, not by its legal conclusions of misconduct and unfitness,

but by her own failure to prevent her father’s continued misuse

of WFCU funds. This is simply too facile. It is the Board’s

determination, not Gully’s reprehensible conduct, that has

sullied her reputation in the credit union industry. Without the

Board’s decision, Gully would not have to shake the albatross of

an official finding that she engaged in misconduct and is unfit

to be involved in the affairs of a credit union. That is

sufficient causation.

C. Redressability

Finally, the Board maintains that any reputational injury to

Gully cannot be redressed by a favorable decision from this

Court. It is difficult to comprehend this argument. A finding

that Gully did not breach her fiduciary duty to the WFCU, did not

engage in unsafe and unsound practices, and is fit to participate

in the affairs of a credit union would remove the stain on

Gully’s professional record. This is sufficient to establish

redressability. Meese, 481 U.S. at 477.

In sum, Gully has satisfied all the standing requirements to

challenge the Board’s conclusions that she committed misconduct

and was unfit to serve. 
13

II. The NCUA Board’s Decision

Turning to the merits of Gully’s appeal, the crux of her

argument is that the Board failed to apply the correct legal

standard when it made its misconduct and unfitness

determinations. More specifically, Gully claims that scienter

and culpability are essential to a finding of misconduct and

unfitness under 12 U.S.C. § 1786(g)(1). In light of the plain

language of § 1786(g)(1), this contention is extravagant.

A. Standard of Review

Our review of the Board’s decisions is governed by the APA,

5 U.S.C. § 706. See 12 U.S.C. § 1786(j)(2). Under the APA, the

Board’s conclusions must be affirmed unless they are “arbitrary,

capricious, an abuse of discretion, or otherwise not in

accordance with law,” or “unsupported by substantial evidence.” 

5 U.S.C. § 706(2)(A), (E). Substantial evidence is “such

relevant evidence as a reasonable mind might accept as adequate

to support a conclusion.” Richardson v. Perales, 402 U.S. 389,

401 (1971) (internal quotations omitted). “The task of the

reviewing court under th[e arbitrary and capricious] standard is

to determine whether the agency has considered the pertinent

evidence, examined the relevant factors, and articulated a

satisfactory explanation for its action including whether there

is a rational connection between the facts found and the choice

made.” J. Andrew Lange, Inc. v. FAA, 208 F.3d 389, 391 (2d Cir.
14

2000) (internal quotations omitted). Our review under these

standards is narrow and “particularly deferential.” Erie-Niagara

Rail Sterring Comm. v. Surface Transp. Bd., 247 F.3d 437, 441 (2d

Cir. 2001).

B. Prohibition Orders Under the Federal Credit Union Act

Federal credit unions are governed by the Federal Credit

Union Act (“FCUA”), 12 U.S.C. §§ 1751-1795K, and administered by

a federal agency, the NCUA, id. § 1752a(a). The NCUA is managed

by the Board. Id. The FCUA authorizes the Board to issue orders

barring a credit union officer or employee from further

participation in the affairs of a federally insured credit union. 

Id. § 1786(g). A prohibition order must be buttressed by a

finding that a credit union official (1) is guilty of misconduct;

(2) that has an adverse effect on the credit union; and (3)

evinces personal dishonesty or unfitness. Id. (the “prohibition

test”).

! The misconduct element is satisfied when it is found that a

party has “engaged or participated in any unsafe or unsound

practice,” or “committed or engaged in any act, omission, or

practice which constitutes a breach of such party’s

fiduciary duty.” Id. § 1786(g)(1)(A)(ii),(iii).

! The adverse effect element is established when, as a result

of a party’s misconduct, a credit union “has suffered or

will probably suffer financial loss or other damage.” Id.
15

§ 1786(g)(1)(B)(i).

! The final element of the prohibition test requires a finding

that a party’s conduct “involves personal dishonesty” or

“demonstrates such party’s unfitness to serve as a director

or officer of, or to otherwise participate in the conduct of

the affairs of, an insured credit union.” Id.

§ 1786(g)(1)(C)(i),(ii).

Here, Gully concedes, as she must, that the second element

(adverse effect) was satisfied by the WFCU’s loss of over $31,000

during the course of her father’s misuse of the corporate credit

card. The Board, however, made no finding of personal dishonesty

on Gully’s part. Thus, the issue is distilled to whether Gully

was guilty of misconduct that rendered her unfit to serve as a

fiduciary in a credit union. 

C. § 1786(g)(1) Requires Neither Scienter Nor Culpability

Gully’s central argument on appeal is that 12 U.S.C.

§ 1786(g)(1) requires a finding of scienter and culpability. 

Gully does not cite a single case -- nor has this Court unearthed

one -- to support her novel hypothesis.

Gully relies on language from the legislative history of

§ 1786(g) for support. See H.R. Rep. 101-54(I), at 392 (1989),

reprinted in 1989 U.S.C.C.A.N. 86, 188 (noting, without further

explanation, that “a banking agency will have to prove some

scienter by the culpable individual”). Gully also attributes
16

great weight to case law interpreting the prohibition provision

of the Federal Deposit Insurance Act (“FDIA”), 12 U.S.C.

§ 1818(e)(1), which Gully insists is analogous to § 1786(g)(1)

and should therefore be interpreted “interchangeab[ly].” Petr.’s

Br. at 15 n.4. 

Gully’s thesis suffers from two fatal flaws. First, the

isolated statement in the House Report upon which Gully relies

cannot trump the text of § 1786(g)(1). See, e.g., Cmty. for

Creative Non-Violence v. Reid, 490 U.S. 730, 739 (1989) (“The

starting point for [the] interpretation of a statute is always

its language.”). The plain language of § 1786(g)(1) makes clear

that no finding of scienter or culpability is required to satisfy

any of the prohibition test elements. Given the plain,

unambiguous language of the text, it is well settled that we

cannot resort to legislative history to glean a statute’s

meaning. See, e.g., Conn. Nat’l Bank v. Germain, 503 U.S. 249,

254 (1992) (“When the words of a statute are unambiguous . . .

‘judicial inquiry is complete.’”). It is clear from the text

alone that neither scienter nor culpability is required to

satisfy § 1786(g)(1).

Second, Gully’s reliance on the prohibition provision of the

FDIA provides no support for her argument because it is

materially different from § 1786(g)(1). Unlike § 1786(g)(1)(C),

which, as described above, is satisfied by a finding of personal
17

dishonesty or unfitness, the FDIA requires that a party’s conduct

demonstrate “personal dishonesty” or “willful or continuing

disregard . . . for the safety or soundness of such insured

depository institution.” 12 U.S.C. § 1818(e)(1)(C)(i)-(ii)

(emphasis added). Not surprisingly, courts have concluded that

“willful or continuing disregard” requires a heightened showing

of scienter. See, e.g., Kim v. Office of Thrift Supervision, 40

F.3d 1050, 1054-55 (9th Cir. 1994) (collecting cases).

The FDIA decisions do not help Gully. Had Congress intended

a heightened showing of scienter to apply to the FCUA, it would

have drafted the prohibition provisions of the FDIA and FCUA

identically. Congress’s use of different standards for the

issuance of prohibition orders pursuant to the FDIA and FCUA is

quite telling. See Rodriguez v. United States, 480 U.S. 522, 525

(1987) (“[W]here Congress includes particular language in one

section of a statute but omits it in another section of the same

Act, it is generally presumed that Congress acts intentionally

and purposely in the disparate inclusion or exclusion.”)

(internal quotations omitted). Therefore, since § 1786(g)(1) and

§ 1818(e)(1) were created by the same Act -- the Financial

Institutions Reform, Recovery and Enforcement Act of 1989, Pub.

L. No. 101-73, 103 Stat. 183 -- the cases that Gully cites

interpreting the FDIA are inapposite.
18

D. Gully’s Liability Under § 1786(g)(1)

Gully’s final contention is that there is no reasonable

construction of the Board’s factual findings -- which she does

not contest -- from which it can be concluded that she was guilty

of misconduct or is unfit to be involved in the affairs of a

credit union. We disagree.

1. Misconduct

The Board found that Gully’s failure to follow up once she

became aware of her father’s misuse of the WFCU American Express

card constituted both an unsafe and unsound practice and a breach

of her fiduciary duty. The Board has traditionally interpreted

unsafe and unsound practice to mean “conduct deemed contrary to

accepted standards of banking operations which might result in

abnormal risk or loss to a banking institution or shareholder.” 

See Doolittle v. NCUA, 992 F.2d 1531, 1538 (11th Cir. 1993). The

Board here defined fiduciary duty as a “duty to act in the best

interest of the institution, its shareholders and its

depositors.” See In re Majette, Final Dec. & Order (NCUA Bd.

Mar. 18, 1999). 

The parties agree that New York law applies to Gully’s claim

of breach of fiduciary duty and that the WFCU is considered a

corporation for purposes of New York fiduciary law. Under New

York law, a director or officer of a corporation owes a fiduciary

duty to the corporation. See N.Y. Bus. Corp. Law § 715(h)
19

(corporate officer “shall perform his duties . . . in good faith

and with that degree of care which an ordinarily prudent person

in a like position would use under similar circumstances”). New

York courts have long held fiduciaries to a standard “stricter

than the morals of the market place. Not honesty alone, but the

punctilio of an honor the most sensitive, is . . . the standard

of behavior.” Meinhard v. Salmon, 249 N.Y. 458, 464 (1928)

(Cardozo, C.J.). A corporate officer’s fiduciary duty includes

discharging corporate responsibilities “in good faith and with

conscientious fairness, morality and honesty in purpose” and

displaying “good and prudent management of the corporation.” 

Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557, 569 (1984)

(internal quotations omitted). New York’s fiduciary law is

therefore consistent with the standard used by the Board in its

decision.

Applying these standards, we cannot say that the Board’s

conclusions that Gully breached her fiduciary duty to the WFCU

and engaged in unsafe and unsound practices were arbitrary and

capricious. On the contrary, the Board’s conclusions were

supported by substantial evidence in the record. Gully concedes

that, after becoming aware of her father’s improper charges on

the WFCU credit card and asking him to reimburse the WFCU, she

made no effort to ensure that his misconduct was corrected and

that it did not continue in the future. It is therefore
20

difficult to dispute the Board’s conclusion that by failing to

exercise reasonable diligence Gully “in effect, participated in

h[er father’s] scheme” by continuing to send the American Express

bills to him unopened and processing payment checks without ever

reviewing the bills. 

Indeed, a prudent person charged with protecting the assets

of an insured credit union would not, as Gully did, blithely

accept the promise of a consultant to repay the credit union and

to stop misusing the credit card after discovering his illegal

misuse of the credit card. Gully’s conduct was particularly

egregious in light of the complete lack of internal controls at

the WFCU to prevent her father’s continued misuse of his credit

card and the conflict of interest that Gully had in policing her

own father. In light of these facts, the Board’s conclusions

that Gully engaged in unsafe and unsound practices and breached

her fiduciary duty were indeed reasonable. 

Despite the substantial evidence supporting the Board’s

legal conclusions, Gully maintains that the Eleventh Circuit’s

decision in Doolittle v. NCUA, supra, calls into question the

Board’s decision. Her reliance on Doolittle, however, is

misplaced. 

In Doolittle, the Board entered a prohibition order against

the president of a credit union after finding that he breached

his fiduciary duties and engaged in unsafe and unsound practices
21

by failing to report certain unauthorized commercial loans made

by a loan supervisor to a credit union member. After learning of

the loans, Doolittle called a meeting with the supervisor, the

member, and other credit union personnel and informed the

supervisor not to make any more commercial loans to the member. 

The supervisor ignored Doolittle’s admonition and continued to

make loans to the member. The member eventually defaulted on

these loans, causing a loss to the credit union. Doolittle, 992

F.2d at 1535. 

In rejecting the Board’s findings that Doolittle breached

his fiduciary duty and engaged in unsafe and unsound practices,

the Eleventh Circuit noted that Doolittle “took steps that he

judged to be sufficient to prevent further escalation of the

situation” and “cannot be held to have breached his fiduciary

duty simply because his underlings failed to follow his orders.” 

Id. at 1537. The court also emphasized that “[t]his is not a

case where a fiduciary . . . stood idle and allowed damage to

increase.” Id. 

As the Board recognized in its decision, Doolittle was not

Gully. First and foremost, the underlying wrongdoing by

Doolittle did not involve any personal gain to him or a relative. 

Here, the underlying wrongdoing involved substantial personal

gain to Gully’s father. Second, the corrective action taken by

the credit union officer in Doolittle was far more extensive than
22

that taken by Gully. Doolittle called a meeting with all the

parties involved, including his subordinate personnel, in an

effort to end the wrongdoing. In contrast, Gully conducted no

investigation into her father’s past or future misuse of the

card. Her corrective action consisted solely of speaking to her

father about his wrongdoing. Considering her conflict of

interest and the complete lack of controls in the WFCU bill

processing department, Gully’s failure to inform any other WFCU

personnel of her father’s misconduct stands in stark contrast to

the conduct in Doolittle.

Third, the Eleventh Circuit found that Doolittle’s behavior

did not constitute conduct traditionally considered to be a

breach of fiduciary duty. Here, however, failing to monitor

another party’s actions has been considered a breach of fiduciary

duty. See, e.g., Hoye v. Meek, 795 F.2d 893, 895-96 (10th Cir.

1986) (bank director’s failure to monitor an agent -- his son --

held to be a breach of fiduciary duty); Ault v. Soutter, 611

N.Y.S.2d 187, 187 (1st Dep’t 1994) (corporate director breached

his fiduciary duty by “failing to do more than passively rubberstamp” the actions of a fellow corporate fiduciary).

Finally, unlike Doolittle, Gully indeed “stood idle and

allowed damage to increase.” After discovering her father’s

misuse of the WFCU credit card, Gully failed to follow through on

her obligation to protect the assets of the WFCU. The Board’s
23

finding that Gully’s conduct was more egregious than Doolittle’s

is reasonable and supported by substantial evidence.

2. Unfitness

Gully also contends that the Board’s finding that she was

unfit to serve a credit union was arbitrary and capricious

because the Board: (1) did not make a factual finding about her

ability; and (2) failed to make an unfitness determination that

is “of equal gravity” to a finding of personal dishonesty. 

Doolittle, 992 F.2d at 1538.

The Board defined unfitness as “unsuitable, incompetent, or

not qualified to participate in the conduct of the affairs of an

insured credit union.” In re Doolittle, Dec. & Order on Remand

(NCUA Bd., Jan. 19, 1995). This definition is entirely

consistent with the text of § 1786(g)(1)(C)(ii). The Board made

a reasonable determination that Gully’s failure to take adequate

corrective action to end her father’s unlawful use of WFCU funds

demonstrated her unfitness to fulfill her responsibilities as the

manager of a federal credit union. 

Gully faults the Board for failing to make any finding

regarding her ability. Gully’s only support for this contention

is an out-of-context factual finding by the Board. When

confronted with the ALJ’s factual determination that Gully was

“known as an honest person and capable manager,” the Board added

the following proviso: “The Board recognizes this as [the]
24

opinion of certain witnesses and makes no finding of fact as to

[Gully’s] honesty or ability.” This statement merely stressed

that the Board was not endorsing the testimony of the witnesses

who claimed that Gully was generally honest and able. Gully’s

argument also ignores that after this statement, the Board

proceeded to make detailed findings of fact that supported its

conclusion that Gully was unfit under § 1786(g)(1)(C).

Gully’s assertion that unfitness requires a finding of equal

gravity to personal dishonesty is likewise unpersuasive. Gully

relies again on the Eleventh Circuit’s decision in Doolittle,

supra, as authority for this proposition. She fails to

recognize, however, that there is no textual support for this

interpretation of the unfitness element. Furthermore, Gully

ignores that it is the Board, not federal courts, that has been

entrusted with the power to make determinations regarding the

gravity of misconduct by credit union officials. See 12 U.S.C.

§ 1786(g)(1).

In sum, the Board’s conclusions that Gully breached her

fiduciary duty to the WFCU, and that her conduct constituted an

unsafe and unsound practice and demonstrated her unfitness to

participate in the affairs of a credit union were neither

arbitrary nor capricious and were supported by substantial

evidence.
25

CONCLUSION

For the foregoing reasons, the Board’s decision is AFFIRMED.