Lawsuit continues over blocked Minnesota CU-bank deal

The Minnesota Department of Commerce exchanged court filings with a group of credit unions in a lawsuit filed over a blocked 2021 deal between a Wisconsin credit union and a Minnesota bank.

The lawsuit was filed last September in Ramsey County District Court by Royal Credit Union, Eau Claire, Wis.; Magnifi Financial Credit Union, Melrose, Minn.; Wings Financial Credit Union, Apple Valley, Minn.; and the Minnesota Credit Union Network, St. Paul. In late January, the Department of Commerce requested the case be dismissed, with the credit unions detailing their opposition last month in a 24-page filing.   

The lawsuit stemmed from Royal’s proposed acquisition of Lindstrom-based Lake Area Bank, announced in August 2021. On Dec. 14, 2021, the FDIC blocked the proposed acquisition, one month after Department of Commerce Deputy Commissioner Max Zappia sent a letter to the agency objecting to the deal because a state law blocks the sale of Minnesota-chartered banks to credit unions.

 The FDIC refused to grant approval until the Department of Commerce dropped its objection, according to the lawsuit. Royal Credit Union and Lake Area Bank eventually called the deal off. In March, the groups announced that Royal would acquire the bank’s mortgage division and three of five Twin Cities-area branches. That modified deal closed in August. The remaining offices were bought by a different Minnesota bank last year. 

The Commerce Department requested the case be dismissed in late January, with the credit union groups requesting the case continue last month. A settlement hearing is slated for Oct. 30, and a court trial is expected to start early next year, if a resolution has not been reached by then. A judge has not ruled on the request. 

 “Their claims are either moot because their past transactions have been voluntarily restructured or not ripe for judicial review because the transactions do not yet exist,” the Department of Commerce Department wrote in a Jan. 30 filing “Plaintiffs’ claims are properly directed to the FDIC, not the department, and therefore should be dismissed for want of an actual case in controversy between adverse parties.” 

 According to the credit unions, the restructuring of the deal was not voluntary and was only done to ensure its approval. The group claimed that the department’s perspective state-chartered bank sales to credit unions had shifted in the last five years, having a “chilling impact” on such mergers. In 2016, Commerce found that a state bank could sell “substantially all of its assets to a credit union,” according to the group’s February court filing, while declaring the opposite in blocking the Royal-Lake Area deal in 2021.

The Commerce Department maintains that the original merger plans should have been rejected “because it effectively constituted a liquidation and consolidation.”

 The credit union groups disagree. “Through this lawsuit, plaintiff credit unions and their statewide trade association seek judicial clarification that state law includes no blanket prohibition on a state-chartered bank’s right to sell its assets — whether some or all — to a credit union,” the groups said in a filing last month.