Credit Union Purchase of Tennessee Bank Temporarily Blocked by Judge
Regulator argues the proposed acquisition violates the state’s banking act.
A Tennessee judge granted a temporary injunction Wednesday that blocks Orion Federal Credit Union’s proposed acquisition of Financial Federal Bank.
On November 10, Tennessee Department of Financial Institutions (TDFI) Commissioner Greg Gonzales, asked Davidson County Chancery Court Judge Patricia Moskal to grant an injunction, which temporarily blocks the acquisition until a hearing is held.
TDFI argued that the proposed credit union bank acquisition is prohibited under the Tennessee Banking Act. In August, the $1 billion Orion Federal Credit Union in Memphis, said it inked a definitive agreement to buy the $792 million Financial Federal Bank, also based in Memphis, in an all-cash transaction.
According to the court documents, the central issue of this case involves the statutory interpretation under the Tennessee Banking Act as to whether the term “acquire,” as used under the state’s law, prohibits Orion’s purchase of all or substantially all of the assets and assumption of the liabilities of First Federal, and whether Orion, as a federally-chartered credit union, is authorized to acquire the state-chartered bank.
TDFI contends that Orion is not a bank holding company or other banking institution that is authorized to acquire a state-chartered bank, such as First Federal. Additionally, the state regulator argued that while Orion meets the Tennessee Banking Act’s broad definition of a “company,” it is not a “bank holding company” and cannot acquire, form or control a bank.
However, Orion and Financial Federal bank argued in court documents that the Tennessee Banking Act does not define the term “acquire,” and the meaning of “acquire” or “acquire a bank” should be derived from the plain and unambiguous language used in the statute. They argued that “acquire” means “to gain ownership of,” “come to have,” or “get as one’s own,” as defined by Black’s Law Dictionary.
The bank and credit union also contend that there are only two ways a company may acquire a bank—either by purchasing the bank’s charter or purchasing its stock.
According to court documents, Orion and Financial Federal’s legal argument primarily focused on the corporate world of mergers and acquisitions, including provisions of the Tennessee Corporation Act, to support their position that the purchase of all or substantially all of a bank’s assets is a purchase transaction, not an acquisition prohibited under Tennessee’s banking law.
After hearing both sides of the argument, Judge Moskal ruled that because of “the need to maintain the status quo during the pendency of this action so that a final judgment will not be rendered ineffectual and the public interest factor weigh heavily in favor of granting temporary injunctive relief, the Court concludes that Plaintiff’s Motion for Temporary Injunction should be granted and a speedy hearing on the merits of the declaratory judgment claim.”
Judge Moskal also order attorneys to submit a proposed scheduling order for that speedy trial.
Because of the pending litigation, Orion FCU declined to comment when reached Thursday.
Financial Federal did not respond to a CU Times request for comment.
Court documents indicated that approvals from the NCUA and the FDIC of the proposed CU-Bank buy transaction remained pending.