Opinion ID: 731288
Heading Depth: 3
Heading Rank: 2

Heading: Substantive resolution of the reasonableness question

Text: 52 We further hold that the district court was correct in its determination that, as a matter of law, the forfeiture provision was reasonable. The record reflects the undisputed fact that Mutual Guaranty faced an environment in which confidence in private insurance was eroding due to both an industry crisis and the threat of state legislation requiring credit unions to obtain federal insurance. In this context, an amendment increasing the amount forfeited from thirty percent 5 to one hundred percent was a reasonable means of slowing withdrawals which could have threatened Mutual Guaranty's founding purpose: to protect and guarantee share holdings and insured accounts and to advance the general welfare of its member credit unions. 53 We also note several other undisputed facts appearing in the record which constitute convincing evidence of the reasonableness of the bylaw. CKCU President Ron Ogle was a member of the board of directors of Mutual Guaranty in 1987 when the amended forfeiture provision was adopted; he was present at the meeting at which the amendment was adopted; and he voted in favor of the amendment. True, Mr. Ogle testified that, in playing the dual role of director of Mutual Guaranty and president of CKCU, he cast [his] vote in a fashion that was in the interest of [Mutual Guaranty], not in a fashion that was in the interest of [CKCU] or any other person and that, when he sat and served on the board of directors of [Mutual Guaranty, he] did not act as a representative of CKCU. Aplt's App. vol. II, at 395. However, this testimony does not raise a genuine issue as to a material fact in light of other undisputed evidence. 54 The amendment was subsequently discussed at a CKCU board of directors' meeting on October 15, 1987. The minutes of that meeting reflect no concerns by any CKCU director that Mutual Guaranty's recently adopted forfeiture provision was unreasonable. The relevant paragraph in the minutes is worth quoting because it indicates that the view of the amendment taken by CKCU directors at the time was generally positive: 55 Ron Ogle presented letters from Mutual Guaranty Corporation. The cost of private insurance is going up. They are setting a special assessment of one half of one percent, which in our case equals approximately $100,000. The Kansas Department of Credit Union Administrator has not ruled on the accounting for this special assessment. It could be an additional asset, or an expense. [Mutual Guaranty] has also set a locked door policy--there will be a 100% penalty to get out of this insurance. These two changes will make [Mutual Guaranty] the strongest insurer, in terms of risk/capital. 56 Aplt's App. vol. II, at 331 (emphasis added). This evidence strongly suggests that the amendment appeared reasonable to CKCU's directors as long as CKCU benefited from the added security the forfeiture provision gave to Mutual Guaranty. CKCU decided the amendment was unreasonable only after it withdrew from Mutual Guaranty and forfeited its own capital contribution. 57 CKCU complains that even if the forfeiture provision was not unreasonable on its face, it was unreasonable to enforce it against CKCU. It argues that its withdrawal was not a matter over which [CKCU] possessed control, because the action was compelled by the amendment to Kan.Stat.Ann. § 17-2246 requiring credit unions to obtain federal insurance. Aplt's Br. at 33. This characterization of the events leading to the amendment of § 17-2246 is misleading. Mutual Guaranty suggests that CKCU itself supported this change in Kansas law, claiming that [i]n 1991, the Kansas Credit Union League, in which CKCU was an active member, began lobbying for an amendment to K.S.A. 17-2246 that would require every Kansas credit union not then insured by [NCUSIF] to obtain insurance from that entity within 18 months. Aple's Br. at 7. Although Mutual Guaranty points to no support in the record for this claim, CKCU does not deny it. CKCU instead points to Mr. Ogle's testimony that CKCU did not instruct the League to lobby for the amendment and that the League's activities were not within the control of CKCU. See Aplt's App. vol. II, at 396. But as the district court pointed out, CKCU tellingly does not argue that it opposed the passage of the League's legislative initiative. In our view, CKCU's silence on this matter greatly weakens its claim that events beyond its control forced its withdrawal from Mutual Guaranty, and thereby undermines the argument that it was unreasonable to apply the forfeiture provision to CKCU. While CKCU's contemporaneous reaction to the bylaw amendment is not dispositive of the amendment's reasonableness, it is relevant that CKCU has presented no evidence that it considered the one hundred percent forfeiture provision to be unreasonable under the circumstances the parties were then facing. 58 CKCU also contends that the one hundred percent forfeiture provision was unprecedented. To the contrary, although such provisions are not common, they are not unprecedented. See United Employees Credit Union v. Massachusetts Credit Union Share Ins. Corp., 380 Mass. 398, 403 N.E.2d 408 (1980) (upholding a similar provision). Finally, we note that, according to an undisputed averment in the affidavit of Mutual Guaranty's president during the relevant period, the one hundred percent forfeiture provision was recommended to Mutual Guaranty by the Tennessee Commissioner of Financial Institutions. Aplt's App. vol. I, at 239. This evidence, which CKCU did not rebut, further precludes a determination that the bylaw amendment was an unreasonable measure. 59 Our review of the record taken as a whole, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (quoting First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289, 88 S.Ct. 1575, 1592-93, 20 L.Ed.2d 569 (1968)), compels the conclusion that the bylaw is reasonable and therefore enforceable. We therefore hold that the district court was correct in granting summary judgment to Mutual Guaranty as to this issue. See Kansas Teachers Credit Union, 1996 WL 109495, at  5-6 (granting summary judgment to Mutual Guaranty on the same issue); Arsenal Credit Union, 771 F.Supp. at 291-92 (same); Telephone Employees' Credit Union, No. 89 CV 871, slip op. at 12-14 (holding that Mutual Guaranty's 1987 bylaw amendment was reasonable as a matter of law). 60