Tennessee Judge’s Order Green Lights CU-Bank Acquisition
State AG office that opposed the proposed deal reviews the court ruling and considers next steps, including a possible appeal.
A Tennessee judge’s order that allows a federal credit union to buy a state-chartered bank was recently decided on the definition of one word – acquire.
Last November, Davidson County Chancery Court Judge Patricia Moskal issued an injunction, which temporarily blocked the pending acquisition after the Tennessee Department of Financial Institutions argued the proposed purchase of the $818 million Financial Federal Bank in Memphis, Tenn., by the $1 billion Orion Federal Credit Union, also in Memphis, is prohibited under state law. TDFI asked Judge Moskal to nix the deal.
However, lawyers for Orion and FFB asked the state judge to allow the deal to move forward. They argued in court documents that the proposed transaction is not prohibited because the term “acquire” or “acquire a bank” under Tennessee law is limited to the acquisition of a bank as a corporate entity by acquiring the bank’s stock or charter. They also argued the Tennessee regulator interpreted “acquire” too broadly, and that the term does not extend to Orion’s proposed purchase of all or substantially all of the assets and assumption of FFB’s liabilities, which the financial institutions alluded to in an undisclosed definitive agreement announced in August 2021.
“The Court construes the plain language of that term (acquire) (acquire a bank) as limited to the acquisition of a bank as a corporate entity and does not extend to the purchase of all or substantially all of the assets of a bank. Instead, the sale of bank’s assets … 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,” Judge Moskal wrote in the 16-page order. “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” … but the inclusion of specific definitions in other banking statutes, leads to the conclusion that a different definition was intended. Finally, while the Court has considered the Department’s interpretation of “acquire” or “acquire a bank”… 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.”
Judge Moskal also noted in her order, released last Friday afternoon, that the Tennessee regulator acknowledged that it has approved or did not object to other asset purchase transactions where either Tennessee state-chartered banks or out-of-state banks acquired all or substantially all of the assets of Tennessee state-chartered banks through a merger.
“In this case, FFB is a wholly-owned subsidiary of FedCorp and FedCorp – as the sole shareholder – has consented to the sale of all or substantially all of the assets of FFBank to Orion,” Judge Moskal wrote. “The legislature could have included a limitation on the types of entities permitted to purchase the assets of a state-chartered bank, but it did not do so.”
The Tennessee Attorney General’s office, which represents TDFI, said in a statement Wednesday that it is “reviewing the order and is considering next steps.”
Colin Barrett, president of the Tennessee Bankers Association, said the trade group is disappointed and surprised by the court’s decision as no one understands Tennessee banking laws as well as the Tennessee Department of Financial Institutions.
“However the ruling doesn’t change the fact that Orion should not be allowed to blatantly abandon its mission and exploit its taxpayer subsidized status in order to acquire a community bank,” he said. “If the deal goes through, it will harm the city of Memphis and result in a loss of $15 million in local, state and federal taxes over the next decade. All taxpayers and those responsible for Tennessee fiscal policy should be concerned.”
Lawyers representing the credit union as well as top executives of FFB and Orion did not respond to CU Times’ requests for comment by Wednesday’s deadline.
TDFI has until June 27 to file an appeal.
While the federal regulatory approvals remain pending, a review of the proposed credit union-bank acquisition agreement by the FDIC and NCUA has been suspended until this case has been resolved.