Letter to Richard A. Zeller, GC/RPK/AJK - removal of director

3700
8/6/79

Richard A. Zeller, Esq.
Kiley, Feldmann, Whalen, Devine, Zeller and Patane, P.C.
Oneida Savings Bank Building
Oneida, NY 13421

Dear: Zeller

This responds to your letter of May 31, 1979, concerning the general scope of Article VII, Section 7 of the Federal Credit Union Bylaws and its application to three situations occurring at [redacted] AFB Federal Credit Union.

Article VII, Section 7 of the Bylaws allows the board of directors to declare a position on the board or credit committee vacant when the occupant of that position fails "... to attend regular meetings of the board or credit committee, respectively, for three consecutive months, or otherwise fails to perform any of the duties devolving upon him as a director or credit committee member. ..." This is the single avenue of removal available to board and it is quite limited when compared to the more broad and numerous avenues for such removal available to the membership in Article X, Sections 5 and 6 of the Bylaws, and Article XIX, Section 3 of the Bylaws.

The limited removal powers that are vested in a credit union board are in accord with the general rule of corporate law that any removal powers of a board of directors be exceptional and limited. This is so because the ultimate power and responsibility in the corporate structure for selection and removal of officials lies with the voting stockholder, in this case, the credit union membership. See, 19 C.J.S. Corporations 1738 (1974). Any construction of Article VII, Section 7 that allowed the board to accomplish removals except under the most extreme situations would tend to diminish the voice of the membership. Hence, Article VII, Section 7 must be construed quite narrowly.

Applying such a construction to Article VII, Section 7, removal for failure to attend meetings for three consecutive months is clear on its face. The clause "... or otherwise fails to perform any of the duties devolving upon him as a director or credit committee member," poses more questions. In order for the board to use its Article VII, Section 7 removal powers it must have evidence not that the director or credit committee member is simply not performing well but that he has, in fact, failed to perform his duties at all, that is, nonfeasance. This does not mean that a failure to perform perfunctory duties like ordering new carpeting for the board room, for instance, could result in removal. Failure to perform a substantive duty, such as failure to invest credit union funds, must be shown in order to invoke the board's removal powers. While the facts of a given case are important, the thrust of the bylaw involves an abandonment of duty and not generalized unhappiness with performance.

Applying the above interpretation to the examples you present, Article VII, Section 7 could not be employed by the board to remove a credit committee member delinquent in his loan payments or a director who has overdrawn his share draft account. these are personal failures which bear no relationship whatsoever to "any of the duties devolving upon him as a director or credit committee member." To allow the board to remove a director because he is "just not performing his duties appropriately" also falls short of the standard necessary to invoke Article VII, Section 7. The types of activity that you have described might form a basis for removal initiated by the membership, but to allow the board to accomplish such removals might tend to subject individual board or credit committee members to political squabbles resulting in removals for simple differences in style, philosophy, or methods.

It therefore appears that general corporate law, which places the ultimate removal decisions in the general membership, dictates that Article VII, Section 7 be construed narrowly. Hence, the situation you describe at [redacted] AFB Federal Credit Union does not warrant the use of Article VII, Section 7. I hope that this response adequately answers all of your questions.

Sincerely,

JOHN L. OSTBY
General Counsel

By: JAMES J. ENGEL
Assistant General Counsel

cc: Regional Director
Region I (Boston)

Last modified on
02/08/21