More than 40 Missouri credit unions are suing a private Tennessee deposit insurance firm to reclaim $2.6 million.
The credit unions allege in two separate lawsuits that Mutual Guaranty Corp., a Chattanooga, Tenn.-based private insurer, is breaking Missouri law by not returning money they contributed to capitalize the insurance fund, but were forced to forfeit when they acquired federal insurance in 1991.
"They filed the suits because they want their money back," said Richard Lombardo, a Kansas City, Mo., attorney who represents the credit unions.
State Mandate
In 1991, the Missouri legislature required credit unions to acquire federal insurance. The law said private insurers were to return institutions' capital contributions.
Under Mutual Guaranty's bylaws, which were adopted in 1987, credit unions leaving the insurer must forfeit their capital contribution.
"Our response will be dealt with in the courtroom," said James Roberts, vice president of Mutual Guaranty.
More than 200 credit unions have left Mutual Guaranty since 1991, leaving behind about $14 million in capital contributions.
There are two suits, both filed on Oct. 29 in federal district court in Jefferson City. One involves 21 credit unions that claim they were "coerced" into signing waivers, agreeing to forfeit their funds if they converted to federal insurance, Mr. Lombardo said.
The credit unions want Mutual Guaranty to return about $800,000 in capital contributions they had to forfeit, Mr. Lombardo said.
"No one was ever told they could not leave if they didn't sign a waiver -- never," Mr. Roberts said. "That is categorically untrue." Mr. Roberts said some credit unions asked for, and were granted, mutual releases that would waive bylaw requirements, such as timely notices, in order to expedite their withdrawal.
The other suit involves 22 credit unions that did not sign such waivers, but still forfeited their contribution. They are seeking the recovery of $1.8 million.
In May, a federal judge in St. Louis ruled for Educational Employees Credit Union in its attempt to reclaim a $1.9 million deposit. Mutual Guaranty asked the judge to reconsider his decision, which is still pending.
"Most credit unions [that forfeited their deposits] were under the impression it was a losing battle to get them back," said Sterling Redfern, president of St. Louis-based Educational Employees, which has $200 million in assets. "We didn't think so, so we pursued it."
Mutual Guaranty is expected to appeal if the judge upholds his decision, Mr. Redfern said.
Mr. Lombardo said the St. Louis decision strengthens the hand of the plaintiffs who didn't sign the so-called waiver.
