Judge Rules Letter of Intent for Credit Union Merger Is Not a Binding Contract

An Illinois federal judge ruled that a letter of intent for a proposed credit union merger is not a binding contract, but that did not end the legal dispute between the $1 billion Vibrant Credit Union in Moline, Ill., and the $336 million Infinity Federal Credit Union in Westbrook, Maine.

After the credit unions signed the letter of intent in 2018, they began negotiating a definitive agreement that Vibrant said would encompass certain terms, including a “cost clause” in which Vibrant agreed to cover the costs and expenses of the merger unless it did not take place or was cancelled. But the credit unions agreed to share the cost if the merger did not happen.

However, by September 2019, Elizabeth Hayes, Infinity’s president/CEO, wrote a letter to Matt McCombs, president/CEO of Vibrant, to terminate negotiations for a definitive agreement because of Infinity’s inability to reach an agreement with Vibrant on key aspects of the merger.

Vibrant is suing Infinity on a breach of contract claim for failing to pay its prorated share, or $121,247 of the $395,000 in costs of the called-off merger. The expenses were to be split based on the prorated percentage of each credit union’s assets at the end of their second quarter Call Reports in 2019.

Infinity asked Chief U.S. District Court Judge Sara Darrow in Rockland to dismiss the breach of contract claim arguing, in part, that the letter of intent provided that it is not a contract, that the credit unions did not regard the letter of intent as a contract, and that a potential definitive agreement would not have been substantially similar to the letter of intent.

Vibrant argued, in part, that Infinity failed to show that the credit unions did not intend to be bound by the terms of the letter of intent.

Infinity’s only support for its claim that the letter of intent is not an enforceable contract is Infinity’s decision not to reference the letter of intent in its termination letter, which shows Infinity, rather than both parties, did not intend to be bound by the letter of intent, Vibrant argued in court documents.

In her March 3 ruling that granted Infinity’s motion to dismiss Vibrant’s breach of contract claim, Judge Darrow found that the letter of intent was not binding because it was “unambiguous that the transaction,” (which included the cost clause) “was subject to a definitive binding contract being executed.”

However, Judge Darrow did not dismiss Vibrant’s “promissory estoppel” claim against Infinity. Promissory estoppel is the legal enforcement of a promise made by a promisor through words or conduct to the promisee without the consideration of the detriment it may cause, according to Black’s law dictionary.

Vibrant’s lawsuit argued even if the credit unions did not enter into a valid and binding contract after the letter of intent was signed, Infinity made a clear and unambiguous promise to Vibrant to share in the costs and expenses of the merger efforts in the event the consolidation did not take place or was otherwise cancelled.

Judge Darrow directed Infinity to file an answer to Vibrant’s promissory estoppel claim by March 23.

Read More: Judge’s ruling on Vibrant CU v. Infinity FCU.