Doe v. Norwest Bank Minnesota, NA, Civ. No. 3-94-1434.

• Decision Date: 28 September 1995
• Docket Number: Civ. No. 3-94-1434.
• Citation: 909 F. Supp. 668
• Parties: John DOE and John Roe, Plaintiffs, v. NORWEST BANK MINNESOTA, N.A., and Voyager Guaranty Insurance Company, Defendants.
• Court: U.S. District Court — District of Minnesota

909 F. Supp. 668

John DOE and John Roe, Plaintiffs, v. NORWEST BANK MINNESOTA, N.A., and Voyager Guaranty Insurance Company, Defendants.

Civ. No. 3-94-1434.

United States District Court, D. Minnesota, Third Division.

September 28, 1995.

Ronald Goldser, Zimmerman Reed, Minneapolis, MN, for Plaintiffs.

Bradley G. Clary, Oppenheimer, Wolff & Donnelly, St. Paul, MN, for Defendant Voyager Guaranty Insurance Company.

James Volling, Faegre & Benson, Minneapolis, MN, for Defendants Norwest Bank Minnesota, N.A.

ORDER

DAVIS, District Judge.

This matter is before the Honorable Michael J. Davis upon Plaintiffs John Doe's and John Roe's objections to United States Magistrate Judge Mason's Report and Recommendation and upon plaintiffs' appeal of Magistrate Judge Mason's Order denying plaintiffs' Motion to Amend dated August 24, 1995.

Pursuant to statute, the Court has conducted a de novo review of the record. 28 U.S.C. § 636(b)(1); Local Rule 72.1(c). Based on that review and all the arguments of the parties, the Court ADOPTS the Report and Recommendation.

The Court must also modify or set aside any portion of the Magistrate Judge's Order found to be clearly erroneous or contrary to law. See 28 U.S.C. § 636(b)(1)(A); Fed. R.Civ.P. 72(a); Local Rule 72.1(b)(2). Based on a review of the record and the submissions of parties, the Court concludes that the Magistrate Judge's Order is neither clearly erroneous nor contrary to law.

Accordingly, IT IS HEREBY ORDERED that:

1. Plaintiff's Complaint against Voyager Guaranty Insurance Company is dismissed.

2. Counts Three and Seven of the Complaint against Voyager Guaranty Insurance Company are dismissed with prejudice.

3. Count Six of the Complaint against Voyager Guaranty Insurance Company is dismissed without prejudice.

4. Plaintiff's Motion to Amend is denied.

ORDER AND REPORT AND RECOMMENDATION

MASON, United States Magistrate Judge.

This matter is before the Court upon Plaintiffs' Motion to Amend the Complaint and upon the Motion of Defendant Voyager Guaranty Insurance Company to dismiss pursuant to Rule 12(b)(1) and 12(b)(6). Ronald Goldser, Esq. of Zimmerman Reed appeared on behalf of Plaintiffs; Bradley G. Clary, Esq. of Oppenheimer, Wolff & Donnelly appeared on behalf of Defendant Voyager Guaranty Insurance Company. The Motion to Dismiss was referred to the undersigned by Judge Michael J. Davis for a Report and Recommendation pursuant to 28 U.S.C. § 636(b)(1)(B).

FINDINGS OF FACT/REPORT

The Complaint in this matter contains three counts alleging liability on the part of Defendant Voyager Guaranty Insurance Company: Count Three alleges a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq., Count Six alleges tortious interference with contractual relations between the Plaintiffs and Norwest, and Count Seven alleges a breach of a duty of good faith and fair dealing. Plaintiffs acknowledge that the allegations in Count Seven against Voyager should be dismissed. They propose to Amend their Complaint to add an additional claim alleging that Voyager was unjustly enriched.

There is not diversity between Plaintiffs and all Defendants. Jurisdiction of this Court with respect to the claims against Voyager is based upon 28 U.S.C. § 1331, as to the federal question presented by the provisions of RICO, and upon supplemental jurisdiction (28 U.S.C. § 1367) as to the other claims, including the claim proposed to be asserted in the Amended Complaint.

The Court concludes that Count Three of the Complaint against Voyager (the claim based upon RICO) must be dismissed because it is preempted by the provisions of the McCarran-Ferguson Act. 15 U.S.C. § 1011, et seq. Count Seven against Voyager should be dismissed because Plaintiffs do not oppose the Motion. Count Six should be dismissed because the Court should decline to exercise its discretion under 28 U.S.C. § 1367(c) to assume jurisdiction over those claims. The motion to amend the Complaint is denied, because if it states a claim, it is a claim as to which the Court should decline to exercise supplemental jurisdiction.

Rule 12(b)(6)

The standard for considering a motion to dismiss for failure to state a claim under Rule 12(b)(6) is as follows:

"In reviewing a motion to dismiss for failure to state a claim the Court presumes all factual allegations to be true and all reasonable inferences from those allegations are construed in favor of the non-moving party. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Stephens v. Associated Dry Goods Corp., 805 F.2d 812, 814 (8th Cir.1986). The appropriate inquiry is not whether plaintiff will ultimately prevail but whether he will be allowed to introduce evidence to support his claims. Scheuer, 416 U.S. at 236, 94 S.Ct. at 1686. Because dismissal on the pleadings is an extreme remedy it is not favored by the courts and is employed only when `it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.' Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957) (footnote omitted); see Robinson v. MFA Mutual Insurance Co., 629 F.2d 497, 500 (8th Cir.1980)."

TCF Banking and Savings, F.A. v. Arthur Young & Co., 706 F.Supp. 1408, 1410 (D.Minn.1988). Although Courts frequently state the requirement that a Complaint may not be dismissed unless plaintiff can prove "no set of facts in support" of the claim, the phrase is not applied literally, as is apparent from a review of the decisions granting motions to dismiss. It is clear, however, that the standard for dismissal under Rule 12(b)(6) is a very high one.

McCarran-Ferguson Preemption

Voyager seeks dismissal of the RICO claims in Count Three of the Complaint based upon the provisions of the McCarran-Ferguson Act, which provides at 15 U.S.C. § 1012(b):

"(b) 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 ..."

Voyager contends that the provisions of this Act, require that application of RICO to the activity which is challenged in this case would have the effect of invalidating, impairing or superseding Minnesota law, and thus that the action should be dismissed.

Since the parties agree that RICO does not "specifically relate to the business of insurance" the court must look to other tests to determine whether this action is preempted by the McCarran-Ferguson Act. Affirmative answers to all three of the following questions would require a determination that the action is preempted: Are the challenged activities of Voyager the "business of insurance?" Has Minnesota enacted laws regulating the activities of Voyager which are being challenged?" Would application of RICO "invalidate, impair or supersede" those Minnesota laws? It is not disputed that the State of Minnesota has enacted laws regulating the activities of Voyager which are being challenged. See Minnesota Statutes Annotated Chapters 59A through 72C, and in particular M.S.A. § 72A.17 et seq. We consider the other two issues below

There are no decisions in the Court of Appeals for the Eighth Circuit which directly bear on the questions presented. There are many District Court decisions. Plaintiffs rely principally upon the following decisions, in which the Court found that the allegations against the parties in those cases were not preempted by McCarran-Ferguson: Bermudez v. First of America Bank Champion, N.A., 860 F.Supp. 580 (N.D.Ill.1994); First National Bank v. Sedgwick James of Minnesota, 792 F.Supp. 409 (W.D.Pa.1992); and Thacker v. New York Life Insurance Company, 796 F.Supp. 1338 (E.D.Cal.1992). Voyager relies principally upon the following decisions, where the Court found that the claims were preempted: Wexco Inc. v. IMC, Inc., 820 F.Supp. 194 (M.D.Pa.1993); Gordon v. Ford Motor Credit Co., 868 F.Supp. 1191 (N.D.Cal.1992); Senich v. Transamerica Premier Ins. Co., 766 F.Supp. 339 (W.D.Pa. 1990); and American Int'l. Group, Inc. v. Superior Court, 234 Cal.App.3d 749, 285 Cal. Rptr. 765 (1991), cert. denied, 504 U.S. 911, 112 S.Ct. 1944, 118 L.Ed.2d 549 (1992). It also relies upon Forsyth v. Humana, Inc., 827 F.Supp. 1498, 1520 (D.Nev.1993) and LeDuc v. Kentucky Central Life Ins. Co., 814 F.Supp. 820, 827-28 (N.D.Cal.1992). The cases relied upon by the parties contain an extensive review of the applicable legal principles and standards, which need not be repeated in this Opinion.

The Business of Insurance

The Supreme Court has enunciated a three-part test to determine whether the challenged activities constitute the business of insurance, summarized as follows: Does the practice have the effect of transferring or spreading a policyholder's risk? Is the practice an integral part of the policy relationship between the insurer and the insured? Is the practice limited to entities within the insurance industry? See Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129, 102 S.Ct. 3002, 3009, 73 L.Ed.2d 647 (1982); Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 211-216, 99 S.Ct. 1067, 1073-1076, 59 L.Ed.2d 261 (1979).

The beginning point, of course, is to determine what activities are being challenged. The RICO allegations against Voyager are in paragraphs 55 through 61 of the Complaint. Plaintiffs assert that "the challenged practices are banking practices. They involve adding charges to borrowers' loan accounts that are not authorized under the terms of their loan agreements, and charging borrowers' accounts for costs of insurance that the bank does not incur." But this is what it is that the Plaintiffs allege that Defendant Norwest Bank is doing. Voyager's role, the Complaint alleges, was to provide the insurance to the customers of the Bank, in return for payment by the Bank, the cost of which the Bank passed along to...