Judge's ruling is likely to scuttle San Diego credit union merger

• Key insight: A judge's ruling seems likely to lead to the end of a merger between San Diego County Credit Union and Cal Coast Credit Union.
  
• What's at stake: The two institutions have been fighting since late last year, when SDCCU notified Cal Coast that it wanted to change the deal's terms. Cal Coast has been seeking to preserve the original deal, which would have put its CEO atop the combined institution.
  
• Forward look: Lawyers told the judge Friday that they now want a two-week adjournment, with the hope that the parties can resolve the entire case, according to two sources familiar with the matter.
  

A San Diego credit union that got cold feet over its deal to merge with a local competitor has won a court ruling that seemingly puts the transaction on ice.

San Diego County Superior Court Judge Carolyn Caietti ruled Thursday in favor of San Diego County Credit Union, denying a motion by California Coast Credit Union that would have kindled the possibility that the 13-month-old merger deal could still be completed.

A lawyer representing San Diego County Credit Union indicated that the merger is now likely to be called off, while also praising the judge's decision.

"It affirms SDCCU's decision to terminate the merger agreement with Cal Coast and we believe signals the end of any merger between the two institutions," Michael Carlinsky, an attorney at Quinn Emanuel Urquhart & Sullivan who represents SDCCU, said in a written statement. "We hope that the court's decision will persuade Cal Coast to drop its baseless litigation so that the parties can move on with their respective businesses."

SDCCU sought late last year to change the deal's terms, including by replacing Cal Coast's CEO with SDCCU's CEO atop the combined institution. That move prompted Cal Coast to file suit, alleging breach of contract. During the litigation, SDCCU alleged that Cal Coast disregarded regulatory compliance obligations.

The messy legal saga aired dirty laundry from both sides, illustrating the hefty costs when merger deals go sideways.

San Diego-based Cal Coast had asked the judge to issue a preliminary injunction that would have required SDCCU to proceed with the merger, and to get Cal Coast's prior approval before it took various actions. Even if Cal Coast had gotten the injunction, the deal still would have needed approval from the National Credit Union Administration.

Robert Scheid, a Cal Coast spokesperson, said the credit union is "disappointed" with the court's decision.

"We respect the Court and remain confident in the merits of our case. As we evaluate the ruling, our top priority continues to be serving our members and maintaining full compliance with all applicable laws and regulations," Scheid said in a written statement.

During a Friday morning conference call that included attorneys for both credit unions, lawyers told the judge that they now want a two-week adjournment, with the hope that the parties can resolve the entire case, two sources familiar with the matter told American Banker.

In the judge's decision, she wrote that it would be "arguably impractical" to force two adversarial parties to go through with a merger. She also wrote that she found "persuasive" SDCCU's argument that there is an "overall lack of compliance" at Cal Coast. 

"The overall evaluation of the evidence supports the conclusion that there were widespread institutional compliance issues and that Cal Coast failed to implement systems preventing discriminatory practices," she wrote.

During the litigation, SDCCU alleged that Cal Coast's underwriters disregarded low credit scores on certain auto loans, and marketed certain products in Spanish but didn't offer disclosures and contracts in the language, among other compliance missteps.

SDCCU also pointed to a Cal Coast loan designed to enable San Diego State University students to pay for laptops. Cal Coast logged the debt as technology loans, but outside counsel hired by SDCCU said the loans should be accounted for as student loans, and that Cal Coast's classification likely violated disclosure regulations.

Cal Coast CEO Todd Lane told American Banker in March that the idea that there is a "lax compliance culture" at Cal Coast "couldn't be further from the truth, and it couldn't be further from what's been tested and what's been confirmed."

When the merger deal was announced in April 2025, the two credit unions expected it to close in early 2026. The deal would have created a $13 billion-asset institution, making it the 16th-largest credit union in the United States.

Under the deal's original terms, Lane would have become CEO of the combined institution, even though SDCCU had more than twice as many total assets as Cal Coast. SDCCU's CEO, Teresa Campbell, later said in a court filing that the timing of her decision to explore a merger was driven by her plan to retire.