A U.S. district judge upheld a decision to let a St. Louis credit union reclaim $2 million it forfeited to a Tennessee private insurer after it converted to federal insurance in 1991.

U.S. district Judge Stephen N. Limbaugh for the Eastern District of Missouri denied a request by Chattanooga-based Mutual Guaranty Corp. to amend an earlier decision ordering the insurer to return the deposit to Educational Employees Credit Union.

Tom Mottern, president of Mutual Guaranty, said the insurer will appeal the decision. Under Mutual Guaranty's bylaws, credit unions were required to place 1% of their deposits with Mutual. If they left the insurer, those funds were forfeited.

The decision "doesn't give us undue concern," he said.

But Thomas Buchanan, an attorney representing 47 credit unions that have sued the insurer to reclaim $2.6 million in capital contributions, said the judge's decision strengthens the case of some of his clients.

Mr. Buchanan is representing two groups of credit unions that have sued Mutual. In one suit, 23 credit unions are contending they were coerced into signing waivers, agreeing to forfeit their funds if they converted to federal insurance.

Another 24 credit unions are suing because they forfeited their capital contributions, but did not sign any waivers. Their case will be strengthened by the Educational Employees ruling, Mr. Buchanan said.

More than 200 credit unions have left Mutual Guaranty since 1991, giving up about $14 million in capital contributions, which represented 1% of their insured deposits. Mutual insures just 31 credit unions in Tennessee, and they are seeking federal insurance as the insurer prepares to liquidate its operations.

No More Suits Expected

Mottern said he did not expect any other credit unions to sue to recover about $14 million placed with Mutual as a condition of insurance.

After a Rhode Island private insurer collapsed in 1991, the Missouri legislature required credit unions to acquire federal insurance. The law said private insurers were to return the institutions' capital contributions.

Ruling in the Educational Employees lawsuit, the judge said the insurer offered no new arguments for its case.

"The Court is sympathetic to MGC's economic worries," the ruling said, but "there are no manifest errors of law or fact which compel a change in the court's prior disposition of this matter."

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