Credit Unions Drop Lawsuit Over Called-Off Merger

An Illinois and Maine credit union agreed to dismiss a lawsuit over a contract dispute of a called-off merger following months of negotiations and due diligence.

The $1 billion Vibrant Credit Union in Moline, Ill., sued the $1.9 billion Infinity Credit Union in Westbrook, Maine, in March 2021, on a breach of contract claims for failing to pay its prorated share, or $121,247 of the $395,000 in costs of the proposed consolidation.

Although the dispute was expected to go before a jury in August 2023, both credit unions agreed to drop the lawsuit late last month, court records showed. The lawsuit was dismissed with prejudice, meaning the plaintiff (Vibrant CU) is prohibited from filing a lawsuit on the same issue. There was no award of fees or costs of any type, according to court documents.

The legal dispute was over a 2018 signed letter of intent that opened negotiations for a definitive agreement in which Vibrant said would encompass certain terms, including a “cost clause.” Vibrant agreed to cover the costs and expenses of the merger. However, the credit unions agreed to share the cost if the consolidation did not happen.

In September 2019, Elizabeth Hayes, who was then Infinity’s president/CEO, terminated negotiations for a definitive agreement because the credit unions were unable to agree on key aspects of the merger, including that it would not have allowed Infinity to maintain local control.

About a year after Hayes canceled the deal, she announced a consolidation agreement with Deere Employees Credit Union, also based in Moline, Ill., which was finalized in May 2021. At that time, Infinity managed assets of $336 million.

The merger was different in that it enabled the credit unions to retain local control, including allowing their respective names, identities, and branches to continue serving local communities while also leveraging their combined resources to grow and remain competitive.

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

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.