Several credit unions and a trade association recently sued the Minnesota Department of Commerce over a blocked 2021 deal between Royal Credit Union and Lake Area Bank. The group says the state has misinterpreted the law and applied it inconsistently.
The lawsuit was filed Sept. 20 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.
Royal Credit Union announced in August 2021 that it had entered into a definitive agreement to buy state-chartered Lake Area Bank. On Dec. 14, 2021, the FDIC blocked the proposed acquisition, one month after Department of Commerce Deputy Commissioner Max Zappia reportedly 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.
In blocking that acquisition, the Commerce Department has applied the law inconsistently, the complaint alleges, citing the department’s approval of a 2016 deal between Royal Credit Union and the state-chartered Capital Bank.
According to the groups, the Commerce Department misstated key elements of the Royal Credit Union-Lake Area Bank deal, including that the bank was liquidating its assets. “Lake Area Bank had not entered into voluntary liquidation under the purchase and assumption agreement,” the lawsuit states. “Pursuant to the [agreement], Lake Area Bank was not to begin the process of voluntary liquidation until after the consummation of the transaction and wound up its business and surrendered its banking charter.”
In the lawsuit, the three credit unions say they are still interested in acquiring state-chartered banks. “The inconsistent and incorrect interpretation of Minnesota banking laws has had a chilling effect on the prospect of similar asset purchase transactions between state-chartered banks and credit unions,” the lawsuit states. “The department’s draft guidance and recent administration of the laws has circulated through the industry and has chilled such transactions.”
The Commerce Department filed a motion to dismiss the lawsuit on Oct. 7, saying the court “lacks subject-matter jurisdiction over this matter and the complaint fails to state a claim upon which relief can be granted.”
The case’s next hearing is scheduled for Feb. 27.