Court Filings Detail Compliance Issues at Center of $12.6B Credit Union Merger Fight

"I run a dictatorship and I am the dictator. I do not care what you say or what you think," Lane allegedly said. "I do not care what anyone says or what anyone thinks." 

Cal Coast is seeking a motion for a temporary restraining order (TRO) and preliminary injunction to prevent SDCCU from "improperly terminating a merger agreement based on manufactured excuses in an attempt to re-trade fundamental terms for which the parties bargained and in violation of multiple express covenants." 

Although a hearing on that motion was scheduled in San Diego Superior Court for Jan. 15, it was canceled by Cal Coast. That could mean the credit unions may attempt to resolve this case through the court's dispute resolution process, but there have been no court filings to indicate negotiations are underway as of Wednesday.  

The proposed merger began in mid-2024, when SDCCU approached California Coast with a plan that would see Lane as CEO of the combined institution following SDCCU President/CEO Teresa Campbell's planned retirement. The board was to be equally split, with five directors from each credit union. 

Following a letter of intent, both credit unions engaged separate accounting firms, which reportedly found no substantive issues that would block the merger. By March 2025, a definitive merger agreement was signed and announced publicly. 

Joint teams began aligning financial and operational systems, but SDCCU said it soon discovered what it described as California Coast's "worrisome lack of control and outright noncompliance." 

"During the integration planning, SDCCU learned that Cal Coast omitted material information from regulatory filings, issued financial products in violation of regulators, engaged in unfair lending practices, failed to disclose compliance irregularities, and materially misrepresented multiple aspects of its operations," SDCCU alleged in its court filing in opposition to the Cal Coast TRO.  

In this court filing, SDCCU said it became concerned about the "worrisome lack of controls and outright non-compliance" regarding Cal Coast's technology, auto and QCash loans and alleged the credit union has "deficient policies for unfair, deceptive or abusive acts or practices." 
SDCCU said it offered to undertake the "daunting challenge of remediating Cal Coast's noncompliance" and conforming its culture to SDCCU's policies, as envisioned in the merger agreement. 

Despite acknowledging and allegedly downplaying the existence of risk, legal noncompliance and legal violations, along with the need to advance regulatory readiness, Cal Coast labeled these shortcomings as distractions, SDCCU claimed.  

By Nov. 14, SDCCU served a demand for corrective action/termination notice, providing Cal Coast 30 days to "cure" its alleged violations of the merger agreement. SDCCU argued Cal Coast "materially breached (the merger agreement) through nondisclosures and false representations" giving SDCCU the right to terminate the agreement. 

Cal Coast countered that the claims are entirely meritless. 

"SDCCU's consultants found no material findings that would have a negative impact upon the merger and that substantive risk areas were compliant, effective or satisfactory," Cal Coast asserted its TRO court filing. "Yet SDCCU now belatedly claims that during the course of integration planning, it has discovered certain irregularities and omissions in Cal Coast's operations. All of these generic allegations are untethered to any actual violations of law that might give rise to a claim of termination for cause under the merger agreement." 

Cal Coast also argued that SDCCU has no basis to terminate the merger agreement because it has not complied with its own obligations under the merger agreement when SDCCU unilaterally paused work on the merger integration process and refused to pay professional fees.  

"Critically, the merger agreement does not permit SDCCU to cease (or pause) its efforts towards closing unless certain conditions have not been met by the merger date, which is still months away, and the contract has been properly terminated," Cal Coast said. 

What's more, Cal Coast alleged SDCCU revealed its true intention in the termination notice by demanding a wholesale reallocation of the agreed control structure, including a 9-2 SDCCU board majority and the installation of Teresa Campbell as CEO of the combined credit union. 

"SDCCU stated that it will not resume word unless and until Cal Coast agreed to its control demand," Cal Coast said. "All of those actions violated, among others, sections ... of the merger agreement." 

Absent immediate court intervention, Cal Coast argued it will suffer irreparable injury. The credit union asserted that SDCCU stands to lose nothing if a TRO is granted and allow the merger process to continue under the agreement's terms.  

But SDCCU countered that a TRO would force SDCCU, its officers and its staff to ignore compliance problems they have found to be gravely concerning.  

"Compelling SDCCU to proceed despite these concerns would create exposure for SDCCU and threaten lasting harm to its own compliance practices and culture, along with morale," the credit union said. 

READ MORE: Cal Coast's Temporary Restraining Order (TRO) Motion – Partially Redacted and the Unredacted San Diego County CU's Opposition Motion to Cal Coast's TRO. 

Peter Strozniak can be reached at peter.strozniak@arc-network.com.