SAN DIEGO–San Diego County Credit Union has told a court it must dismiss an injunction being sought by Cal Coast Credit Union, which is seeking to enforce a merger agreement between the two CUs in a combination that has since gone sour and SDCCU has sought to cancel.
The two credit unions had initially announced plans to combine and create a $13.6-billion institution before the $3.3-billion California Coast Credit Union sued the $9.2-billion San Diego County Credit Union in California Superior Court, alleging SDCCU improperly terminated an agreement to merge the two San Diego-based cooperatives.
As the CU Daily reported earlier, San Diego County CU has responded by saying it has sought to end its proposed merger with California Coast Credit Union after NCUA raised concerns about the combination and after determining that compliance risks and cultural deficiencies at Cal Coast posed unacceptable threats to members, according to an 18-page sworn declaration filed Feb. 5 in San Diego Superior Court.
Cal Coast then filed its motion before Judge Carolyn M. Caietti seeking the injunction to force SDCCU to proceed.
In its response, San Diego County said in a filing reviewed by the CU Daily that there are five primary reasons the court should quash the injunction request, including:
- Specific performance not available means no preliminary injunction. “Specific performance is an extraordinary remedy; never before granted in California to force a merger. Parties excluded specific performance as a remedy from their contract for good reason.
- Preliminary injunction would be mandatory relief
- Balance of equities weighs against injunction
- Cal Coast’s non-compliance should be fatal. The filing alleges Cal Coast violated regulations and the violations were and are material.
- Cal Coast’s Non-Compliance flows from the top.
‘Speaks Volumes’
SDDCU said the “omission of specific performance clause speaks volumes,” and cites three precedents it says supports its position it can cancel the merger contract. It further argues the absence of specific performance follows commercial logic and common sense, and that 619,000 members are being “forced into a flawed combined institution.” Moreover, it alleged that moving forward would lead to “scores” of resignations or employee terminations, and irreversible data processing integration as well las compliance liabilities.
“Specific performance would permanently infect San Diego’s largest credit union,” SDCCU alleged in its statement to the court. When it comes to a combined board, it would also “…force incompatible (& feuding) parties to live together as one.”
A host of other integration issues was also cited.
“Forcing a merger would be improvident exercise of equitable authority,” SDCCU said, adding. The “court should decline invitation to micromanage a disputed and complex merger.”
‘Clean Hands’
SDCCU cited precedent in stating that “Cal Coast must prove it comes with clean hands,” and said instead that a preliminary injunction would be mandatory relief. Without it, SDCCU said Cal Coast’s proposed injunction forces it to affirmatively seek permission before operating, and said it would need Cal Coast’s and/or court permission to hire anyone earning more than $150,000 annually, incurring unplanned expenses over $500,000, changing insurance, and adjusting operational policies.
If the preliminary injunction is granted, SDCCU said it will face “irreparable harm,” including:
- Loss of operational autonomy
- Unworkable arrangement with adversary
- Commercial advantage to business competitor
- Impaired member service
- Stakeholder uncertainty
SDCCU further alleged that Cal Coast’s ‘non-compliance should be fatal,” and it goes on to list where such noncompliance has allegedly occurred, including:
- Student loans illegally marketed and unreported
- Discretionary certificate rate negotiation
- Discretionary and unreported loan modifications
- Selective offering of Spanish language
- Discretionary indirect auto lending at unfair rates.
Additional Allegations
Additional allegations in the statement to the court include:
- Cal Coast disregards its own board-designated rate caps: “Cal Coast’s own estimate is that it exceeded ‘low’ tolerance for compliance risk by over five times its board-set limit.”
- “Cal Coast treats like customers differently pursuant to unbounded discretion,” and that “negotiating individualized certificate rates” virtually guarantees “unequal treatment.”
- Cal Coast covers up and fails to correct identified non-compliance
- Cal Coast CEO Todd Lane is a “self-proclaimed dictator.” The document submitted to the court quotes from alleged notes taken during a meeting in which Lane allegedly states, “I run a dictatorship and I am a dictator. I do not care what you say or what you think. I do not care what anyone says or what anyone thinks. I am a dictator.”
Ultimately, SDCCU said, “any one of these grounds requires denial of preliminary injunction,” and that the court “need accept only one of these arguments:
- No likelihood of success
- Unclean hands
- Balance of equities
- No NCUA approval.
