SAN DIEGO — Additional details have become available related to the lawsuit between California Coast Credit Union and San Diego County Credit Union, which were pursuing a merger before Cal Coast sued SDCCU and accused it of improperly backing out of the deal amid a dispute over governance and regulatory compliance.
As the CU Daily initially reported here, California Coast Credit Union has sued San Diego County Credit Union in California Superior Court, alleging SDCCU improperly terminated an agreement to merge the two San Diego-based cooperatives in a deal that would have created a combined institution with about $13.5 billion in assets.
According to the San Diego Business Journal, the lawsuit, filed less than a year after the two institutions announced plans to merge, alleges that SDCCU sought to terminate the agreement after making what Cal Coast called unreasonable demands, including control of more than 90% of seats on the combined credit union’s board and changes in executive leadership.
In the complaint, Cal Coast requested ex parte relief and said SDCCU attempted to abandon the transaction after the parties began post-announcement operational reviews, the publication reported.
‘Protecting Interests of Members’
“California Coast Credit Union reaffirms our commitment to the previously announced merger with San Diego County Credit Union,” Cal Coast spokesperson Bob Scheid told the Business Journal in a statement. “To 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.”
In a court filing responding to the lawsuit, the Business Journal reported SDCCU said it withdrew from the agreement after discovering what it described as significant regulatory and compliance concerns at Cal Coast that were not disclosed prior to the merger announcement.
‘Unnecessary Risk’
“SDCCU alleged that Cal Coast assumed unnecessary credit and loan default risk and failed to properly comply with certain state and federal financial regulations,” the Business Journal reported. “The credit union said those issues surfaced during an operational review conducted after the merger was announced.”
Citing SDCCU’s filing, the Business Journal reported Cal Coast acknowledged some of the compliance concerns raised by SDCCU executives and outside legal counsel retained to assess the risks, but proposed remedies that SDCCU described as inadequate.
“SDCCU also alleged that Cal Coast CEO Todd Lane insisted on retaining control of the combined organization despite the concerns,” the report states, citing the lawsuit. “As a result, SDCCU proposed that its outgoing president and CEO, Teresa Campbell, lead the combined credit union and that the board be structured with a nine-to-two majority in favor of SDCCU leadership.
“With Lane remaining in charge, SDCCU argued, the merged institution would face heightened regulatory risk that could affect members and employees,” the Business Journal stated. “Cal Coast rejected those claims.”
‘Full Compliance’
“Cal Coast has been in full compliance with its obligations under the merger agreement,” Scheid told the Business Journal. “What remains unchanged is our steadfast commitment to serving our members and advancing financial well-being across the region.”
The merger remains subject to regulatory approval by the National Credit Union Administration and the California Department of Financial Protection and Innovation, as well as a vote of Cal Coast’s membership, the report added, noting both credit unions have said they remain interested in completing the transaction despite the litigation.
