A merger that would join two of San Diego\u2019s oldest banking institutions to create an almost 630,000-member, $13.5 billion credit union is now being litigated in San Diego Superior Court after months of conflict between the two institutions.<\/p>\n
In court filings, San Diego County Credit Union said it discovered what it called an alleged \u201cworrisome lack of controls and outright non-compliance\u201d by California Coast Credit Union and filed documents to end the merger, which was announced last year. Cal Coast then filed a lawsuit accusing SDCCU of intentionally derailing the merger without a valid cause. It asked the court to order the merger to go forward and for SDCCU to pay Cal Coast damages and legal costs.<\/p>\n
When reached Thursday, Nathan Schmidt, a spokesman for SDCCU, said, \u201cThis matter is in litigation and SDCCU\u2019s positions are set out in its court filings.\u201d<\/p>\n
Cal Coast spokesman Robert Scheid said the credit union has been in full compliance with its obligations under the merger agreement.<\/p>\n
\u201cTo ensure clarity in the merger review process and uphold the terms of the merger agreement, Cal Coast has taken legal action that protects the interests of our members, employees, and community partners,\u201d he said Thursday. \u201cWhat remains unchanged is our steadfast commitment to serving our members and advancing financial well-being across the region.\u201d<\/p>\n
According to SDCCU\u2019s December court filing, the parties decided to merge \u201cwith limited due diligence\u201d because they were aligned in their missions and presupposed that they were \u201cboth engaged in the lawful activities of a credit union.\u201d<\/p>\n
SDCCU said in its filing that after the merger agreement was signed, as the entities were being merged, SDCCU learned of several troubling areas regarding how Cal Coast managed certain loans and performed some marketing and other practices.<\/p>\n
The complaint also includes a broad allegation of \u201cdeficient policies\u201d that SDCCU claimed violated \u201cdozens of federal and state laws, rules, and regulations.\u201d<\/p>\n
In November, SDCCU filed a notice to end the merger for cause.<\/p>\n
\u201cCal Coast has substantially and materially breached its representations and warranties contained in the agreement, which breach is not able to be cured,\u201d the notice cited in a court filing read, in part.<\/p>\n
Cal Coast, in return, sued SDCCU and alleged a \u201cdeliberate campaign to derail the closing of a merger of two credit unions.\u201d<\/p>\n
In its complaint, Cal Coast said SDCCU wanted out of the deal and \u201crelies on nothing more than manufactured excuses in an effort to re-trade fundamental terms it accepted during the parties\u2019 negotiations.\u201d But \u201ca deal is a deal.\u201d Part of Cal Coast\u2019s complaint is redacted.<\/p>\n
Rather than non-compliance, Cal Coast said SDCCU\u2019s concerns were about \u201ccontrol\u201d: which CEO would lead the combined credit union and how many board seats each would be granted.<\/p>\n
Cal Coast said there was a due diligence period of several months before the financial institutions agreed on the merger, but soon, \u201cSDCCU got cold feet about the control it had bargained away.\u201d SDCCU wanted to put its president and CEO as the new entity\u2019s head, whereas Cal Coast\u2019s leader had been named in the merger agreement, the complaint alleges.<\/p>\n
Cal Coast said SDCCU hired two accounting firms that performed due diligence ahead of the merger. \u201cThese diligence results were consistent with Cal Coast\u2019s stellar supervisory history of excellent regulatory outcomes,\u201d its lawsuit said.<\/p>\n
Cal Coast also said an outside consultant drafted recommendations that focused on risk mitigation, and not legal noncompliance. Regarding loan practices, Cal Coast\u2019s complaint said these were reviewed by a third party, which \u201cfound no material adverse credit issues.\u201d<\/p>\n
Cal Coast agreed to adopt some recommendations made by the consultant. That was not an admission that it had done something wrong, the complaint said.<\/p>\n
Its suit asks the judge to require SDCCU to complete the merger.<\/p>\n
The merger, announced in April, would join two of California\u2019s oldest financial institutions and their almost 630,000 members. The newly merged credit union would rank fourth in the state, with almost $13.5 billion in assets and more than 1,400 employees.<\/p>\n
At the time of the announcement, the two credit unions touted their community focus.<\/p>\n
\u201cThis merger will unite two financially sound and community-focused credit unions. Our joint strengths position us to better serve our members and expand our community impact,\u201d they said.<\/p>\n
A merger that devolves into disputes and a court case is not typical, but it is not \u201ccompletely out of the ordinary,\u201d either, said Matt Douglas, a corporate attorney with Seltzer Caplan McMahon Vitek who specializes in mergers and acquisitions.<\/p>\n
\u201cYou certainly hope that this isn\u2019t going to happen and usually this won\u2019t happen, but \u2026 it does happen from time to time,\u201d Douglas said.<\/p>\n
Often, he added, \u201cit\u2019ll settle along the way.\u201d It could also get thrown out by the court or go to trial, as Cal Coast Credit Union asked in its lawsuit.<\/p>\n
For customers of companies in a contentious merger, a legal dispute itself is a concern, Douglas added.<\/p>\n
\u201cIf these credit unions are engaged in litigation \u2014 we cannot speak to specifics, but in general, when a merger between two companies starts to go this route, it can indefinitely throw their operations into uncertainty,\u201d he added. \u201cThey have to throw resources at their litigation rather than their regular operations. So we will, for their customers\u2019 sake, hope for a quick and beneficial resolution. It\u2019s never good for operations for any business to have this kind of uncertainty.\u201d<\/p>\n
Both credit unions\u2019 branches and online services remain open to customers.<\/p>\n","protected":false},"excerpt":{"rendered":"A merger that would join two of San Diego\u2019s oldest banking institutions to create an almost 630,000-member, $13.5…\n","protected":false},"author":2,"featured_media":126338,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28],"tags":[387,74,76,75,1696],"class_list":["post-126337","post","type-post","status-publish","format-standard","has-post-thumbnail","category-san-diego","tag-business","tag-san-diego","tag-san-diego-headlines","tag-san-diego-news","tag-top-stories-sdut"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts\/126337","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/comments?post=126337"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/posts\/126337\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/media\/126338"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/media?parent=126337"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/categories?post=126337"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ca\/wp-json\/wp\/v2\/tags?post=126337"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}