By Ray Birch
MEMPHIS, Tenn. — The $1.1-billion Orion FCU’s deal to acquire $751-million Financial Federal Bank is on again, following a legal challenge by the Tennessee Department of Financial Institutions that temporarily blocked the sale. The DFI’s challenge was dismissed late last week.
Michael Bell, the pioneer of credit union purchases of banks, believes the decision could slow down bankers’ efforts to block these sales.
As CUToday.info reported, a Tennessee court late last year issued a temporary injunction blocking the sale of Memphis-based Financial Federal Bank to Orion Federal Credit Union, which is also headquartered in Memphis. This is not the first time a credit union acquisition of a community bank has been challenged in court. As CUToday.info has reported, such sales have previously been blocked in Iowa and Colorado.
The Tennessee Department of Financial Institutions (TDFI) challenged the Orion acquisition, claiming it is prohibited under the Tennessee Banking Act.
Michael Bell
Defining ‘Acquire’
In the complaint, TDFI said that the definition of “acquire” should be “limited to the acquisition of a bank’s stock or charter,” and accordingly prohibits Orion’s purchase of all or substantially all of the assets and assumption of the liabilities of state-chartered Financial Federal Bank.
According to court documents in the Orion FCU case, Tennessee’s 12th Judicial District Court determined there is no “genuine issue of disputed material facts, and, as a matter of law, the proposed asset purchase transaction is not a prohibited transaction under Tenn. Code Ann. §45-‘2-107(a). Accordingly, Department’s motion for summary judgment should be denied, and Defendants’ respective motion for summary judgment should be granted.”
The ‘Same Argument’
Bell, partner and co-chair of the Financial Institutions Practice Group at Honigman, LLP, which represents Orion FCU in the transaction but not the lawsuit, pointed out that all the legal challenges purchases by credit unions of banks have focused on a bank’s legal right to sell to a credit union.
“It is generally the same argument by bankers—essentially they argue that the bank doesn't have the power to sell to a credit union,” said Bell, who has been involved in well over 45 whole-bank agreements, plus additional bank branch purchases.
In its ruling the court stated the “statutory construction to be given the term ‘acquire’ or ‘acquire a bank’ for purposes of § 45-2-107(a) is a question of law. The Court construes the plain language of that term…does not extend to the purchase of all or substantially all of the assets of a bank. Instead, the sale of bank’s assets is otherwise provided for in § 45-2-609, which permits a bank to sell all or substantially all of its assets without limitation as to the acquiring entity, subject only to the rights of dissenting shareholders.”
The court continued, “To the extent the term ‘acquire’ or ‘acquire a bank’ is deemed ambiguous, the Court relies on sound principles of statutory construction that the exclusion of any definition of ‘acquire’ or ‘acquire a bank’ for purposes of § 45-2-107(a), but the inclusion of specific definitions in other banking statutes, leads to the conclusion that a different definition was intended in § 45-2—107(a). Finally, while the Court has considered the Department’s interpretation of ‘acquire’ or ‘acquire a bank’ for purposes of § 45-2-107(a), that interpretation is not controlling and the statutory construction issue remains a question of law. Accordingly, the Court concludes that the proposed asset purchase transaction is not a prohibited transaction.”
‘Synergies Gained’
Following the ruling, Orion FCU CEO Daniel Weickenand told CUToday.info, “Orion is excited to have the litigation behind us and is eager to move forward with the transaction. The synergies gained from this transaction will enable Orion to continue with its core mission to better serve the community and expand banking access to the under-banked regions of our city.”
Bell told CUToday.info that U.S courts are “supposed to act as a check-and-balance to politics, and in this case they did.”
Bell also forecast the decision in Tennessee will establish a national precedent that will have a positive effect on future CU/bank deals.
A ‘Big Deal’
“I think this decision is a big deal,” said Bell. “Overall, it speaks to the banking lobby and hopefully calms them down a little bit and moves them on to a different fight.”
Bell believes other courts with similar cases on their dockets have been watching the Tennessee case.
“Again, they are not impacted by a decision in Tennessee, as they defer to their own state’s laws, but courts may see this ruling here as instructive,” suggested Bell. “I think it's important if you're a state court and look across the country at what other states allow.”
Other Cases Pending
Meanwhile, as CUToday.info has also reported, Premier Bank is asking the District Court of Lancaster County in Nebraska to overturn the decision by the Nebraska Department of Banking and Finance that blocked its sale to the $7.8-billion GreenState Credit Union, based in North Liberty, Iowa.
Bell said he believes a ruling in the Nebraska case could be handed down in the next 60-90 days.
“I believe courts will do the same in Nebraska and in Minnesota and any in other state where politics enters to hinder the free market,” stated Bell. “With this latest decision, banks and credit unions win.”