State v. Marsh and McLennan Companies, Inc.

• Decision Date: 15 April 2008
• Docket Number: No. 17861.,17861.
• Citation: 286 Conn. 454,944 A.2d 315
• Court: Connecticut Supreme Court
• Parties: STATE of Connecticut v. MARSH AND McLENNAN COMPANIES, INC., et al.

944 A.2d 315

286 Conn. 454

STATE of Connecticut v. MARSH AND McLENNAN COMPANIES, INC., et al.

No. 17861.

Supreme Court of Connecticut.

Argued January 4, 2008.

Decided April 15, 2008.

Matthew J. Budzik, assistant attorney general, with whom were Arnold B. Feigin, assistant attorney general, and, on the brief, Richard Blumenthal, attorney general, and Michael E. Cole, assistant attorney general, for the appellant (state).

Michael P. Shea, with whom were Thomas J. Groark, Jr., and, on the brief, Mitchell R. Harris, Hartford, and Howard Fetner, New Haven, for the appellees (defendants).

NORCOTT, KATZ, PALMER, VERTEFEUILLE and SCHALLER, Js.

NORCOTT, J.

The sole issue in this interlocutory public interest appeal is whether General Statutes § 35-32(c)(2)¹ gives the plaintiff, the state of Connecticut (state), standing to pursue a parens patriae claim for damages to its general economy caused by violations of the Connecticut Antitrust Act (antitrust act), General Statutes § 35-24 et seq. The state appeals, upon the grant of its application filed pursuant to General Statutes § 52-265a,² from the order of the trial court dismissing its claim for damages to the state's general economy against the defendants, the Marsh and McLennan Companies, Inc., and its numerous subsidiary and operating units,³ alleging, inter alia, that they had violated the antitrust act by conspiring to rig bids for the sale of excess casualty insurance. We conclude that the state has standing to pursue a parens patriae antitrust claim for damages to its general economy pursuant to § 35-32(c)(2). Accordingly, we reverse the decision of the trial court.

The record reveals the following relevant factual allegations and procedural history.⁴ The defendants, who together constitute the world's largest provider of insurance brokerage and consulting services, have gained considerable market power because of mergers by other key firms in their industry. The defendants' clients rely on their expertise in choosing their insurance coverage and in deciding the appropriate costs for that coverage.

The defendants, like most brokers, are compensated either by flat fees or by contingency fees based on percentages of the premiums that their clients pay to their insurers. Unbeknownst to their clients, the defendants entered into separate agreements with their insurers, known interchangeably as "placement service agreements," "market service agreements" or "overrides" (agreements). These agreements resulted in the insurers paying percentage based bonuses to the defendants in exchange for their steering a certain percentage of their clients to the insurers, either for new policies or renewals. The state alleges that the agreements were "pure profit" and became a "significant source of [the defendants'] income"; specifically, more than one half of their 2003 net income. The state alleges that the agreements created a conflict of interest between the defendants and their clients, as they had the purpose and effect of elevating prices in the market for excess casualty insurance.

In the late 1990s, the defendants created their Global Broking Unit (unit), which required insurance companies that desired to serve their clients to negotiate with one centralized national entity, rather than with regional brokers whose decisions affected insurance placements only in their individual markets. Any insurer desiring access to the defendants' clients was required to negotiate through the unit, which meant that insurers who refused to enter into agreements with the defendants, or to participate in price fixing or false quotes,⁵ were denied access to the defendants' clients nationwide, rather than just in discrete geographic areas. Thus, the insurers typically consented to pay the agreements, and subsequently increased those payments to attract even more business from the defendants and their clients. Those payments resulted in increased premium prices, which ultimately were paid by the defendants' clients.⁶ Indeed, the agreements led one insurer to maintain a separate schedule of prices for insurance placed with the defendants' clients. The defendants' clients received no benefit in exchange for these increased premiums, as the brokers would place their clients with insurers that would pay them the highest commission regardless of the appropriateness or quality of the insurance coverage.

The state alleges that the defendants' bid rigging and price fixing scheme resulted in artificially increased premium rates, which were set by them rather than determined by the competitive market. Because of the defendants' dominant market position and the widespread nature of the scheme, this resulted in increased prices even for those consumers who purchased their coverage from other insurers that did not cooperate with the defendants' demands. The state alleges that the defendants' actions caused prices in the market for excess casualty insurance to increase by 15 to 20 percent.

The defendants' clients that allegedly were harmed by this scheme include some of Connecticut's largest corporations, universities, hospitals and municipalities. Indeed, the state asserts that even the state government itself was harmed by a secret kickback that an insurer had paid to the defendants and rolled into the premium price, despite the existence of an agreement that the defendants' commission would be paid only by the state, in an attempt to procure the best possible insurance service and terms for the state.

The state brought this action against the defendants, alleging that their actions violated the antitrust act and the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq., and also constituted breach of contract, breach of fiduciary duty, and negligent misrepresentation. With respect to the antitrust claims, the state seeks injunctive relief, damages for injury to its general economy pursuant to § 35-32(c)(2), and civil penalties of $250,000 for each violation of the antitrust act pursuant to General Statutes § 35-38.⁷ With respect to its CUTPA claims, the state seeks injunctive relief, an order for an accounting, civil penalties of $5000 for each violation, an order of restitution, an order of disgorgement and attorney's fees. The state seeks compensatory damages with respect to its common-law counts.

The defendants subsequently moved to strike, inter alia, the state's second and third prayers for relief on its antitrust act claim, namely, those counts seeking injunctive relief and damages to the state's general economy pursuant to § 35-32(c)(2). The trial court, sua sponte, raised the issue of its subject matter jurisdiction, namely, whether the state had standing to seek damages to its general economy under § 35-32(c)(2). Specifically, the trial court noted that the state's authority to pursue general economic damages under § 35-32(c)(2) is not altogether clear when that statute is read in conjunction with General Statutes § 35-44b,⁸ which provides that "the courts of this state shall be guided by interpretations given by the federal courts to federal antitrust statutes" when construing the antitrust act. The trial court determined that § 35-44b and our decision in Vacco v. Microsoft Corp., 260 Conn. 59, 793 A.2d 1048 (2002), require that the antitrust act be considered in light of the United States Supreme Court's conclusion that states may not pursue parens patriae actions for damages to their general economies under the federal Clayton Act, 15 U.S.C. § 12 et seq. See Hawaii v. Standard Oil Co. of California, 405 U.S. 251, 264, 92 S.Ct. 885, 31 L.Ed.2d 184 (1972). The trial court concluded that, because Standard Oil Co. of California would preclude the state from pursuing parens patriae actions in federal court under § 35-32(d)(1) and (2), except on behalf of individuals and direct purchasers, by extension it also would preclude the state from making similar claims in state court under § 35-32(c)(2).⁹ Accordingly, the trial court concluded that the state lacked "standing to assert a claim as parens patriae for damages to the general economy," and dismissed that claim. The trial court then considered the remaining claims in the defendants' motion to strike and denied that motion.¹⁰ This certified interlocutory appeal followed. See footnote 2 of this opinion.

On appeal, the state contends that the trial court improperly concluded that it lacks standing under § 35-32(c)(2) to pursue a parens patriae claim for damages to its general economy. Specifically, the state argues that the trial court misinterpreted § 35-44b as requiring the complete incorporation of federal law into the state antitrust law. The state relies on our decision in Miller's Pond Co., LLC v. New London, 273 Conn. 786, 873 A.2d 965 (2005), and contends that § 35-44b makes federal case law merely persuasive authority in the present case as the relevant state and federal statutes are fundamentally different, because, unlike § 35-32(c)(2), the Clayton Act, 15 U.S.C. § 15c, does not expressly provide for the availability of general economic damages. The state also contends that it will be able to prove that the damages to its general economy are not duplicative of the defendants' overcharges to their clients, and reasonably may be estimated under the economic principle known as the "multiplier effect."

In response, the defendants contend that the statutory bar against duplicative recovery is consistent with the concerns expressed by the United States Supreme Court in Hawaii v. Standard Oil Co. of California, supra, 405 U.S. at 251, 92 S.Ct. 885, and operates to preclude the state's claim for damages to its general economy because any such damages would be duplicative of those recoverable under subsection (c)(1) of § 35-32. Specifically, the defendants argue that the general economic damages claimed by the state, namely, a diminution of the funds available to circulate throughout the state's...