A U.S. Appeals Court has upheld a lower court ruling that allows a former employee of the Mortgage Guaranty Insurance Corp. to jump ship to a rival mortgage insurer in Arkansas, a move that could have ramifications on employee no compete clauses that some mortgage insurance firms require.

The case, Mortgage Guaranty Insurance Corp. vs Republic Mortgage Insurance Corp.; Terry W. Landrum, Docket No. 94-2106, was appealed Aug. 5 and MGIC had sought an injunction to prevent Terry W. Landrum, formerly an account executive for the Milwaukee, Wis.-based insurer, from continuing his employment with Republic Mortgage Insurance Co., a Winston-Salem, N.C.-based firm operating in Arkansas and Oklahoma.

For MGIC, however, it was the second disappointing setback since April 20 when Judge Susan Webber Wright issued a judgment for the defendant in an unusual ruling from a preliminary injunction hearing.

Wright, a judge for the 8th Circuit Court of Appeals in St. Louis, said she believed that under Arkansas law the competition MGIC is facing was not unfair. She added that Landrums actions would not have MGICs mortgage lending customers abandon it, but rather they would merely add Republic to the list of companies from whom they purchase insurance.

Wright criticized Landrums tactics, noting during the hearing that the ruling was made more difficult because rather than developing a new customer base, Landrum chose first to solicit customers he was doing business with at MGIC. Wright said she ruled for Republic and Landrum because she did not believe the Arkansas Supreme Court would find the MGIC-employee covenant unenforceable.

In its complaint, MGIC argued that Landrum, who worked for MGIC for 17 years prior to his Jan. 10, 1994, resignation, had agreed not to render services to any competitor for one year after termination of employment in an agreement signed prior to his employment at MGIC, then known as Wisconsin Mortgage Assurance Corp.

However, two months after resigning, Landrum took a sales position at Republic and began soliciting business from customers under contract with MGIC in Arkansas and Oklahomathe territories he worked in the five-year period prior to his termination.

MGIC claimed that Landrums actions were in direct violation of the employment agreement he signed in 1977, as well as the Arkansas Trade Secrets Act. Landrum also purchased shares of MGICs publicly traded stock through its employee stock option plan, which MGIC claims had similar no compete requirements that Landrum was allegedly violating.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.