The Delaware Court of Chancery last week refused to force Green Dot to buy Louisville, Kentucky-based Republic Bank’s tax-refund business, Republic reported in a filing Friday with the Securities and Exchange Commission (SEC).
The bank, however, will continue to seek damages and other relief from Green Dot through a breach-of-contract lawsuit, it said.
The court said the risk of regulatory action, including criminal and civil penalties, against Green Dot and its representatives — were the sale to proceed — outweighed the harm to Republic from Green Dot’s alleged breach of contract, according to the filing.
Green Dot in May announced plans to buy Republic’s tax refund processing unit in a $165 million cash deal. Green Dot CEO Dan Henry said during the company’s Aug. 3 earnings call that the Justice Department had approved the acquisition and that the deal could close in the third quarter.
However, the next day, Republic disclosed that Green Dot delayed the closing after its primary regulator requested more information on the deal, according to Friday’s SEC filing.
Green Dot pulled out of the transaction in October, saying it was unable to get the Federal Reserve’s approval or non-objection to the sale — an action that spurred Republic to sue.
The Green Dot-Republic deal would hardly be the only one this year to be stalled over regulator inaction. First Citizens Bank and CIT Group delayed until March 1 the timeline to complete their $2.2 billion merger when they hadn’t received the Fed’s blessing by the end of September.
VyStar Credit Union and Heritage Southeast Bank agreed in October to postpone — from Dec. 31 to Feb. 28 — the date by which they can terminate VyStar’s proposed acquisition of the bank. The transaction, at the time, was awaiting regulatory approvals from the Federal Deposit Insurance Corp. (FDIC), the National Credit Union Administration (NCUA), the Georgia Department of Banking and Finance and the Florida Office of Financial Regulation.
Blue Ridge Bank and FVCB last month stood ready to delay their proposed merger by at least three months after the Office of the Comptroller of the Currency (OCC) found "certain regulatory concerns" with the former.
And New York Community Bank in October said it didn't expect its $2.6 billion acquisition of Michigan-based Flagstar Bank to get state and federal regulators’ approval before the end of the year. CEO Thomas Cangemi said at the time he expects the transaction to be finalized next year.
The definition of 'acquire'
The Green Dot-Republic deal is not this year's first to be struck down or tied up in court. A county chancery court judge in Tennessee issued an injunction last month temporarily halting Memphis-based Orion Federal Credit Union’s proposed acquisition of Financial Federal Bank.
That case appears to hinge on the meaning of the word "acquire" as defined in the Tennessee Banking Act.
Commissioner Greg Gonzales of the Tennessee Department of Financial Institutions (TDFI) argued "acquire" should be "limited to the acquisition of a bank’s stock or charter." In that regard, he asserted, the law should be interpreted to prohibit the purchase of all or substantially all of the assets of state-chartered Financial Federal and the assumption of its liabilities by Orion, a federally chartered credit union.
Further, although Orion meets the state law’s broad definition of a "company," it is not a "bank holding company," Gonzales contended, and cannot acquire, form or control a bank.
Orion and Financial Federal, however, argued the Tennessee Banking Act does not define "acquire," adding that the meaning of "acquire" or "acquire a bank" should be derived from the law’s plain and unambiguous language, according to Credit Union Times. The financial institutions cite the Black’s Law Dictionary definition of "acquire" as "to gain ownership of," "come to have," or "get as one’s own."
Orion and Financial Federal point not to the Tennessee Banking Act but rather the Tennessee Corporation Act, which states the purchase of all or substantially all of a bank’s assets is a purchase transaction, not a prohibited acquisition.
In her ruling, Judge Patricia Moskal said the Tennessee Banking Act does not specifically define the term "acquire," but "it appears [the TDFI] has the statutory authority and duty to interpret, regulate and enforce the provisions of the Act."
Moskal ordered a "speedy hearing" to resolve legal and interpretive uncertainties but cited "the need to maintain the status quo during the pendency of this action."
The Tennessee Bankers Association has opposed the Orion deal from the start.
"We are reaching an inflection point in the debate about credit unions," Colin Barrett, the organization’s CEO, wrote in an August blog post, on the day Orion announced the proposed transaction. "This isn’t just about losing loans due to unfair competition. It is about losing the community banking model."
In comments Friday to American Banker, Barrett said "hopefully this leads to more states questioning the legality of these transactions."
The Colorado Banking Board, for one, denied Elevations Credit Union’s bid to purchase the assets of Cache Bank & Trust last year after that state’s banking lobby argued credit unions could not be "authorized purchasers" of banks under language used in several Colorado statutes.
Michael Bell, co-leader of the financial institutions practice group at Honigman, called Moskal’s ruling a "speed bump not a roadblock," according to American Banker. Bell advised Orion on the deal.
The NCUA and FDIC have yet to approve the Orion-Financial Federal tie-up, according to court documents.
And while the financial institutions and Tennessee’s regulator may not see eye to eye, Republic Bank and Green Dot — in the other case — agree on at least one basic tenet: Republic "does not expect the Sale Transaction to be consummated," the bank said of the Green Dot deal for the first time Friday in its filing.