United States v. South-Eastern Underwriters Ass'n

• Decision Date: 05 August 1943
• Docket Number: Criminal Action No. 16920.
• Citation: 51 F. Supp. 712
• Parties: UNITED STATES v. SOUTH-EASTERN UNDERWRITERS ASS'N et al.
• Court: U.S. District Court — Northern District of Georgia

51 F. Supp. 712

UNITED STATES v. SOUTH-EASTERN UNDERWRITERS ASS'N et al.

Criminal Action No. 16920.

District Court, N. D. Georgia, Atlanta Division.

August 5, 1943.

Frank H. Elmore, Jr., Sp. Asst. to Atty. Gen., Manuel M. Gorman and H. Donald Leatherwood, Sp. Attys., both of Washington, D. C., Tom C. Clark, Asst. Atty. Gen., and M. Neil Andrews, U. S. Atty., and Ellis Mundy, Asst. U. S. Atty., both of Atlanta, Ga., for plaintiff.

Wright, Gordon, Zachry, Parlin & Cahill, of New York City, and MacDougald, Troutman & Arkwright, of Atlanta, Ga. (John T. Cahill, of New York City, Dan MacDougald, of Atlanta, Ga., and Thurlow M. Gordon and E. L. Williams, both of New York City, of counsel), for all defendants except Universal Ins. Co., and Kansas City Fire & Marine Ins. Co.

UNDERWOOD, District Judge.

On November 20, 1942, an indictment was returned by a Grand Jury of this Court against one hundred and ninety-eight corporations and twenty-seven individuals, charging such corporations and individuals with a conspiracy to fix and maintain arbitrary and non-competitive rates on fire insurance sold by them in the States of Alabama, Florida, Georgia, North Carolina, South Carolina, and Virginia, in violation of Section 1 of the Sherman Anti-Trust Act, 26 Stat. 209, 15 U.S.C.A. §§ 1-7, 15 note, and with a conspiracy to monopolize trade and commerce in fire insurance in said States in violation of Section 2 of the Act.

On January 13, 1943, defendants filed a demurrer challenging the sufficiency of the indictment upon the grounds that, it charges no offense against the United States; that the business of fire insurance is not commerce; that the interpretation of the Act insisted upon would be a violation of the Tenth, Fifth and Sixth Amendments to the Constitution; and that the Court is without jurisdiction of the subject matter of the indictment.

The case came on regularly to be heard on the demurrer and was argued orally and subsequently by briefs.

To constitute a violation of the Sherman Act, the restraint and monopoly denounced must be that of interstate trade or commerce, and, unless the restraint and monopoly charged in the indictment be restraint or monopoly of interstate trade or commerce, the indictment must fall.

It is not a question here of whether the defendants participated in some incidental way in interstate commerce or used in some instances the facilities of interstate commerce, but is rather whether the activities complained of as constituting the business of insurance would themselves constitute interstate trade or commerce, and whether defendants' method of conducting same amounted to restraint or monopoly of same. It is not a question as to whether or not Congress had power to regulate the insurance companies or some phases of their activities, but rather whether Congress did do so by the Sherman Act.

Persons may be engaged in interstate commerce, yet, if the restraint or monopoly complained of is not itself a restraint or monopoly of interstate trade or commerce, they may not be convicted of violation of the Sherman Act. The fact that they may use the mails and instrumentalities of interstate commerce and communication, and be subject to Federal regulations relating thereto, would not make applicable the Sherman Act to intrastate commerce or to activities which were not commerce at all.

The whole case, therefore, depends upon the question as to whether or not the business of insurance is interstate trade or commerce, and if so, whether the transactions alleged in the indictment constitute interstate commerce.

The Supreme Court has repeatedly held, during a period of seventy-five years, that the business of insurance is not commerce, either intrastate or interstate. They have done so unequivocally and unambiguously. Paul v. Virginia, 8 Wall. 168, 19 L.Ed. 357; Hooper v. California, 155 U.S. 648, 15 S.Ct. 207, 39 L.Ed. 297; Noble v. Mitchell, 164 U.S. 367, 17 S.Ct. 110, 41 L.Ed. 472; New York Life Insurance Co. v. Cravens, 178 U.S. 389, 20 S.Ct. 962, 44 L.Ed. 1116; New York Life Insurance Co. v. Deer Lodge County, 231 U.S. 495, 34 S.Ct. 167, 58 L.Ed. 332; Bothwell v. Buckbee-Mears Co., 275 U.S. 274, 48 S.Ct. 124, 72 L.Ed. 277; Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 253, 58 S.Ct. 546, 82 L.Ed. 823, 115 A.L.R. 944.

This is not denied by the Government, but it maintains that in some of the cases the ruling was obiter and in others based upon a misconception and failure to comprehend the sweeping scope of the fire insurance business. (Government's Brief, pages 8 & 9). Neither of these positions is sound. In all of the above cited cases, the ruling was essential to the case and the reasoning of the Court showed most careful analysis and full consideration of the questions now raised and did not merely follow "without reconsideration or reason, the fallacy established in the dictum of Paul v. Virginia." (Government's Brief, page 15).

This is especially true in the elaborately argued and thoroughly considered case of New York Life Insurance Co. v. Deer Lodge County, supra.

The Court could not be clearer in its announcement than in the expressions, "The business of insurance is not commerce. The contract of insurance is not an instrumentality of commerce." (Hooper v. California, 155 U.S. 648, 655, 15 S.Ct. 207, 210, 39 L.Ed. 297); and, "Contracts of insurance are not commerce at all, neither state nor interstate" (New York Life Insurance Co. v. Deer Lodge County, 231 U.S. 495, 510, 34 S.Ct. 167, 172, 58 L.Ed. 332).

The same reasoning applies to the word "trade" as used in Sections 1 and 2 of the Sherman Act. It has a different significance in Section 3, but this fact does not enlarge its meaning in Sections 1 and 2. "Section 1 having been passed under the specific power to regulate commerce, its meaning necessarily must be limited by the scope of that power; and...