Dehoyos v. Allstate Corp., 02-50721.

• Decision Date: 03 September 2003
• Docket Number: No. 02-50721.,02-50721.
• Citation: 345 F.3d 290
• Parties: Jose C. Dehoyos; Eva Perez-Dehoyos; Georgia Harrison; Charles White; Sheryl H. Franks; Martel Shaw, Plaintiffs-Appellees, v. Allstate Corporation; Allstate Insurance Company; Allstate Texas Lloyd's; Allstate Indemnity Company, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

345 F.3d 290

Jose C. Dehoyos; Eva Perez-Dehoyos; Georgia Harrison; Charles White; Sheryl H. Franks; Martel Shaw, Plaintiffs-Appellees, v. Allstate Corporation; Allstate Insurance Company; Allstate Texas Lloyd's; Allstate Indemnity Company, Defendants-Appellants.

No. 02-50721.

United States Court of Appeals, Fifth Circuit.

September 3, 2003.

COPYRIGHT MATERIAL OMITTED

Sanford Svetcov (argued), Milberg, Weiss, Bershad, Hynes & Lerach, San

Francisco, CA, Joe R. Whatley, Jr., Whatley Drake, Birmingham, AL, Robert Q. Keith, Keith & Weber, Johnson City, TX, John J. Stoia, Jr., Andrew Winfield Hutton, Milberg, Weiss, Bershad, Hynes & Lerach, San Diego, CA, Christa L. Collins, Kendra C. Mancusi, James, Hoyer, Newcomer, Forizs & Smiljanich, Tampa, FL, Andrew S. Friedman, Bonnett, Fairbourn, Friedman & Balint, Phoenix, AZ, Herman Watson, Jr., Watson Jimmerson Givhan Martin & McKinney, Huntsville, AL, for Plaintiffs-Appellees.

Alan Edward Untereiner, Robbins, Russell, Englert, Orsek & Untereiner, Washington, DC, for Chamber of Commerce of U.S., Amicus Curiae.

Nancy L. Perkins, Arnold & Porter, Washington, DC, for Alliance of American Insurers, American Ins. Ass'n, National Ass'n of Independent Insurers, National Ass'n of Mut. Ins. Co. and Reinsurance Ass'n of America, Amici Curiae.

Tony P. Rosenstein, Maryanne Lyons, Karla A. Evans, Baker Botts, Houston, TX, Jeffrey Lennard (argued), Sonnenschein, Nath & Rosenthal, Chicago, IL, for Defendants-Appellants.

Cleo Fields, The Fields Law Firm, Baton Rouge, LA, for National Rainbow/Push Coalition, Amicus Curiae.

Luis Roberto Vera, Jr., The Law Offices of Luis Roberto Vera, Jr., San Antonio, TX, for League of United Latin American Citizens, Amicus Curiae.

Appeal from the United States District Court for the Western District of Texas.

Before DAVIS, JONES and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

This interlocutory appeal presents a preemption question. Six members of a proposed class of non-Caucasian insurance customers instigated this Civil Rights action against Appellants Allstate Insurance Corp. et alia (Appellants or Allstate), alleging that Allstate engages in racially discriminatory business practices in violation of 42 U.S.C. §§ 1981 and 1982 of the Civil Rights Act of 1866, and in violation of the Fair Housing Act (FHA), 42 U.S.C. § 3601 et seq. Appellants filed a Rule 12(b)(6) motion to dismiss, arguing that the anti-preemption provision of the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), precludes application of federal anti-discrimination laws to the controversy at bar. The district court denied the motion, finding that the application of the civil rights statutes was not precluded by the McCarran-Ferguson Act, but simultaneously granting leave for this interlocutory appeal. We find that the McCarran-Ferguson Act does not bar Appellees' claims, and consequently we affirm the ruling of the district court.

I.

Appellees are six non-Caucasian Allstate policyholders who instigated this action alleging racially discriminatory pricing practices on the part of Appellants Allstate, et al. in violation of 42 U.S.C. §§ 1981 and 1982 of the Civil Rights Act of 1866 and in violation of the FHA, 42 U.S.C. § 3601 et seq. Specifically, Appellees allege that Allstate uses a "credit-scoring system" to target non-Caucasian customers for the sale of more expensive insurance policies than those directed at Caucasian customers. Similarly, the credit-scoring system is allegedly used to "place" non-Caucasian applicants into more expensive policies than those polices into which Caucasian applicants are placed.¹

Appellees filed a three-count class action complaint. Appellants filed a motion to dismiss, arguing, inter alia, that Appellees' claims are preempted by the McCarran-Ferguson Act. The district court denied the motion to dismiss in all regards. However, at the conclusion of its memorandum opinion, the district court noted that the order involved "controlling questions of law as to which there are substantial grounds for difference of opinion." The district court went on to suggest, sua sponte, that it would "look favorably upon a properly and timely filed motion for leave to file an interlocutory appeal." Appellants so filed, and that interlocutory interrogatory is now before this Court. See 28 U.S.C.A. § 1292. The preemptive effect of the McCarran-Ferguson Act constitutes the sole point of appeal.

II.

Where, as here, a district court's ruling on a 12(b)(6) motion to dismiss is based entirely on conclusions of law, this Court reviews that determination de novo. See Malina v. Gonzales, 994 F.2d 1121, 1124 (5th Cir.1993). The sole issue before this Court is whether the McCarran-Ferguson Act precludes the application of §§ 1981 and 1982 of the Civil Rights Act of 1866 and the FHA to the insurance pricing schemes at issue here. The McCarran-Ferguson Act (MFA) provides in pertinent part:

No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance... unless such Act specifically relates to the business of insurance.²

15 U.S.C. § 1012(b).

A. Humana Inc. v. Forsyth

The Supreme Court outlined the framework in which MFA preemption questions are to be addressed in Humana Inc. v. Forsyth, 525 U.S. 299, 119 S.Ct. 710, 142 L.Ed.2d 753 (1999). In Humana, the Court reviewed whether the application of RICO in an insurance context was preempted by the MFA. In finding that RICO was not preempted by the MFA, the Court expressly rejected the view that the MFA authorized a state-supremacy "field preemption" approach to the application of federal law to the insurance industry. Instead, the Court emphasized that MFA preemption is to be examined within a "conflict preemption" rubric, and that, as such, the analysis will turn on one of two axes: (1) the existence of an express conflict with the letter of the state law; or (2) the frustration of an officially articulated state regulatory goal. Moreover, the Court rejected an implicit presumption against the application of federal law in insurance contexts, stating instead that federal law is to be applied in an insurance context where it can be applied in harmony with state law.

Additionally, the Humana Court found that RICO could be applied in harmony with the state law because, inter alia, the federal law did not proscribe conduct that the state insurance laws permit; the existence of different remedial regimes does not constitute an impairment of the state regulatory scheme; the federal law augmented and advanced state regulatory goals; and the federal law did not frustrate a particular and declared state regulatory policy.

In sum, in extremely clear and specific language the Court identified the following three MFA preemption threshold requirements: (1) the federal law in question must not be specifically directed at insurance regulation; (2) there must exist a particular state law (or declared regulatory policy) enacted for the purpose of regulating insurance; and (3) application of the federal law to the controversy in question must invalidate, impair or supercede that state law.³

We have not yet had occasion to pass upon the MFA preemption standard outlined by Humana within the context of applying § 1981, § 1982, or the FHA. However, this Court did recently consider MFA preemption in the context of the Federal Arbitration Act, 9 U.S.C. § 4(FAA). In American Heritage Life Insurance Co. v. Orr, 294 F.3d 702 (5th Cir.2002), we reviewed and rejected a challenge to the application of the FAA in an insurance context:

The test under McCarran-Ferguson is not whether a state has enacted statutes regulating the business of insurance, but whether such state statutes will be invalidated, impaired, or superseded by the application of federal law. Appellants fail to identify any statute that would be impaired, invalidated, or superseded by the application of the FAA. Instead, Appellants try to perpetrate a judicial end-run by asserting that an attorney general's opinion or insurance department's regulatory, administrative policy is the functional equivalent of a state law relating to insurance, thereby triggering the provisions of the Act. Appellants' arguments are without merit.

Id. at 708. (emphasis added)(internal citations and quotation marks omitted). Thus, in American Heritage this Court concluded that MFA preemption would not be found merely because the state has a mechanism in place for regulating insurance contracts, nor could the state's putative disfavor of arbitration in the insurance context serve as a sufficient ground upon which conflict with the FAA could germinate. We found instead that

[t]he party seeking to avail itself of the [McCarran-Ferguson] Act must demonstrate that application of the FAA would invalidate, impair, or supersede a particular state law that regulates the business of insurance.

Id. (emphasis in original).

Moreover, several of our sister circuits have passed squarely upon the question of MFA preemption with respect to § 1981, § 1982, or the FHA. Every circuit that has considered the question has determined that federal anti-discrimination laws may be applied in an insurance context, even where the state insurance agencies have mechanisms in place to regulate discriminatory practices. Specifically, the Eleventh, Seventh, Fourth, Sixth, and Ninth Circuits all have determined that the MFA does not prevent the application of federal anti-discrimination laws to the insurance industry.⁴

In Moore v. Liberty National Life Insurance Co., 267 F.3d 1209 (11th Cir.2001), the Eleventh Circuit considered a challenge to the application of §§ 1981 and 1982 to allegedly racially discriminatory "red-lining" insurance practices. The Eleventh Circuit upheld the application of the federal anti-discrimination laws despite the fact that Alabama law purportedly implicitly authorized racially discriminatory...