Legal Alert: Discounting of Capital Credits of Deceased Members Upheld in North Carolina


On August 8, 2012, the North Carolina Business Court held that electric cooperatives may lawfully discount capital credits of deceased members when they are retired early. The court also held that electric cooperatives do not owe a fiduciary duty to those members with respect to the timing and procedures for retiring capital credits. The court did not address whether the individual applications of certain estates were handled correctly.

These rulings were made in Lockerman v. South River Electric Membership Corp. (11 CVS 152, Sampson County, NC), a class action case filed in February 2011. In the complaint, the plaintiffs challenged South River Electric Membership Corporation’s (SREMC) decision to amend its bylaws in 2001 to allow for discounting of early retirement of capital credits upon the death of a member. Under this procedure, the estate of a deceased member is allowed to request that accrued capital credits be paid out without waiting for the scheduled retirement date. If the request is granted, SREMC reduces the amount of the capital credit to reflect the time value of money. Plaintiffs alleged that this was done in order to benefit SREMC by converting to permanent equity the difference between an estate’s total capital credits and the amount refunded after discounting.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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