Nonstandard Bylaw Amendment

GC/MRS:sg
SSIC 3701
90-0318

[redacted]

FROM: Hattie M. Ulan, Associate General Counsel

SUBJ: Proposed Nonstandard Bylaw Amendment, [redacted]
(Your February 28, 1990, Memorandum)

DATE: April 19, 1990

You asked that we review the above-referenced FCU's request for a nonstandard bylaw amendment to Article XIX, Section 8(c) of the Bylaws which would add the words "or is serving as internal legal counsel" at the end of said section. You indicated that the FCU's board wishes to extend indemnity coverage to its internal legal counsel, who serves in a voluntary capacity but is neither an employee of the credit union nor an official as defined by the standard bylaw amendment. We do not have any legal objection to the proposed amendment.

Section 701.33(c) of the NCUA Rules and Regulations (12 C.F.R. §701.33(c)) authorizes federal credit unions to indemnify their officials and current and former employees "for expenses reasonably incurred in connection with judicial or administrative proceedings to which they are or may become parties by reason of the performance of their official duties." Article XIX, Section 8 of the Standard FCU Bylaw Amendments and Guidelines sets forth a standard amendment for those federal credit unions wishing to provide indemnification pursuant to Section 701.33.

The nonstandard bylaw amendment proposed by the Bank-Fund Staff FCU differs from the standard amendment in only one respect, specifically, the expansion of the definition of the term "official" to include one serving as internal legal counsel. Such an amendment appears to be in keeping with the intent of Section 701.33.

The preamble to Section 701 .33 (53 Fed. Reg. 29640, 8/8/88) discusses the purposes of the section. The NCUA Board noted in the preamble that Section 701-33(c) was "designed to encourage voluntary service," and that commenters on the proposed section "agreed that indemnification protection would enhance the ability of an FCU to attract volunteers." In an earlier draft of Section 701.33', the term "official" (Section 701.33 (a)) had encompassed only those volunteers serving on FCU credit or supervisory committees; certain commenters suggested expansion of the term "official" to include all volunteers serving on FCU committees. The NCUA Board agreed to the suggested expansion, on the grounds that the provision's primary purpose was to encourage voluntarism.

Based on the foregoing, it seems that the definition of "official" in Section 701.33(a) of the NCUA Rules and Regulations and Article XIX, Section 8(c) of the Standard Bylaw Amendments was not intended to be exclusive, but rather was meant to permit indemnification by credit unions of a broad range of volunteers. Therefore, we see no conflict between the proposed bylaw amendment and the NCUA Rules and Regulations.

We do, however, wish to caution the [redacted] board with regard to the following.

1. The board should check with its bonding company for permission to include internal legal counsel among those to be indemnified.
2. The proposed amendment should be revised slightly to make clear that the persons serving as internal legal counsel are doing so in a voluntary capacity, and that the expanded definition of "official" to include internal legal counsel applies only for purposes of indemnity
3. The board should consult with its local attorney to ascertain that the proposed change is appropriate under the Model Business Corporation Act.