American Fam. L. Assur. Co. v. Planned Mktg. Assoc., Inc., Civ. A. No. 74-0412-R.

• Decision Date: 05 December 1974
• Docket Number: Civ. A. No. 74-0412-R.
• Citation: 389 F. Supp. 1141
• Parties: AMERICAN FAMILY LIFE ASSURANCE COMPANY OF COLUMBUS v. PLANNED MARKETING ASSOCIATES, INC., et al.
• Court: U.S. District Court — Eastern District of Virginia

389 F. Supp. 1141

AMERICAN FAMILY LIFE ASSURANCE COMPANY OF COLUMBUS v. PLANNED MARKETING ASSOCIATES, INC., et al.

Civ. A. No. 74-0412-R.

United States District Court, E. D. Virginia, Richmond Division.

December 5, 1974.

Alexander H. Slaughter, Richmond, Va., Peter G. Williams, Columbus, Ga., for plaintiff.

Joseph M. Spivey, III, John H. Shenefield, Richmond, Va., for defendants.

MEMORANDUM

WARRINER, District Judge.

Plaintiff filed its complaint herein on 20 September 1974 stating a cause of action under § 1 of the Sherman Act, 15 U.S.C. § 1, and §§ 4 and 16 of the Clayton Act, 14 U.S.C. §§ 15, 26. Plaintiff also alleged diversity jurisdiction with respect to certain common law counts which were set forth in the complaint. Plaintiff sought a temporary restraining order, a preliminary injunction, and a permanent injunction.

Both plaintiff and defendants are engaged in the business of writing cancer insurance. Such insurance is usually sold by means of group policies. Plaintiff has been in the business for a good number of years and has an extensive agency organization. Defendants are relative newcomers to the field.

The factual basis upon which all of plaintiff's counts are derived centers around activities on the part of defendants directed toward inducing large numbers of plaintiff's agents to cease selling plaintiff's insurance and, instead, to sell defendants' policies; to utilize plaintiff's trade secrets in furtherance of defendants' business; to utilize plaintiff's customer lists in furtherance of defendants' business; to "switch" or "twist" plaintiff's policyholders to defendants' policies, and, in effect, to usurp plaintiff's agency organization to the detriment of plaintiff and for the benefit of defendants.

Plaintiff waived its motion for a temporary restraining order and the matter was set down for a hearing on its motion for a preliminary injunction on 30 September 1974. On 27 September plaintiff filed an extensive brief in support of its motion for a preliminary injunction. When the matter was called for hearing on 30 September, defendants filed an equally extensive brief in opposition to plaintiff's motion for a preliminary injunction, but this brief dealt primarily with the question of jurisdiction — a subject plaintiff had not considered in its brief.

Defendants having raised the question of jurisdiction, the Court heard counsel orally before receiving any evidence. The thrust of defendants' argument on jurisdiction was that the McCarran-Ferguson Act, 15 U.S.C. § 1012(b) excludes from federal jurisdiction the "business of insurance" to the extent that such business is regulated by State law. The Act reads in pertinent part as follows:

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, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That . . . the Sherman Act, and . . . the Clayton Act . . . shall be applicable to the business of insurance to the extent that such business is not regulated by State law.

Defendants cited the Virginia Insurance Unfair Trade Practices Act, Va. Code Ann. § 38.1-49 et seq., and the Virginia Antitrust Act, Title 59.1 of the Code of Virginia as showing that Virginia had, indeed, enacted legislation regulating the business of insurance so broadly that all the counts set forth in plaintiff's complaint were encompassed within the regulatory enactments of the Commonwealth.

With respect to the diversity jurisdiction alleged under counts sounding in common law, defendants showed that legislation enacted by the Commonwealth entrusted to the Bureau of Insurance of the State Corporation Commission administrative review and authority to issue cease and desist orders whenever it deemed a factual basis to exist and the public interest to require a remedy.

Defendants cited numerous cases in brief and at oral argument. Plaintiff, not having received a copy of defendants' brief until the commencement of the hearing, was not in a position to distinguish or discuss the cases cited. In responding to defendants' argument counsel for plaintiff observed that it was his recollection of the legislative history of the McCarran-Ferguson Act that it was intended to reserve to the States merely that aspect of the business of insurance having to do with the relationship between the insurance company and its policy holders.

The cases cited by defendants made such a legislative history highly unlikely since the cited cases construed "the business of insurance" to mean "business in which insurance companies are involved." See e. g. FTC v. National Casualty Company, 357 U.S. 560, 78 S.Ct. 1260, 2 L.Ed.2d 1540 (1958); Holly Springs Funeral Home, Inc. v. United Funeral Services Inc., 303 F.Supp. 128 (N.D.Miss.1969); Miley v. John Hancock Mutual Life Insurance Company, 148 F.Supp. 299 (D.Mass.1957), aff'd 242 F.2d 758 (1st Cir. 1957), cert. denied, 355 U.S. 828, 78 S.Ct. 38, 2 L.Ed.2d 41 (1957); Transnational Insurance Company v. Rosenlund, 261 F.Supp. 12 (D.Ore.1966); Ohio AFL-CIO v. Insurance Rating Board, 451 F.2d 1178 (6th Cir. 1971), cert. denied, 409 U.S. 917, 93 S.Ct. 215, 34 L.Ed.2d 180 (1972); Commander Leasing Company v. Trans-America Title Insurance Company, 477 F.2d 77 (10th Cir. 1973); California League of Independent Insurance Producers v. Aetna Casualty and Surety Company, 175 F.Supp. 857 (N. D.Cal.1958); Professional and Businessmen's Life Insurance Company v. Bankers Life Company, 163 F.Supp. 274 (D. Mont.1958).

The Court was persuaded upon oral argument that it did not have jurisdiction because of the exclusive language of the McCarran-Ferguson Act. Without doubt, the acts complained of came within the purview of the regulatory scheme set forth in the Virginia Unfair Trade Practices Act, supra, and the Virginia Antitrust Act, supra. With respect to the ancillary common law claims set forth by plaintiff, the Court declined to exercise jurisdiction because a more expert, effective and speedy remedy, so the Court observed, could be obtained from the Commonwealth under the provisions of the State regulatory acts above cited.

In accordance with the Court's opinion, an order was entered on 1 October 1974 dismissing the cause of action unless plaintiff filed an amended complaint in ten days bringing its action within the 15 U.S.C. § 1013(b) exception to the McCarran-Ferguson exclusion.

Within ten days plaintiff filed a motion under Fed.R.Civ.Proc. 59(e) and 60(b) requesting the Court to "vacate and set aside its order of 1 October 1974," on the ground that the Court's dismissal of plaintiff's complaint for lack of jurisdiction "was contrary to law." Plaintiff further requested the Court to stay its order of 1 October 1974 pending disposition of its motion to vacate and set aside said order. At the same time, plaintiff tendered an amended complaint setting forth all the matters contained in the original complaint and adding two additional counts based upon the substantive portions of the regulatory acts of the Commonwealth above mentioned.

An order was entered on 10 October 1974 staying the force and effect of the order of 1 October 1974 and the filing of briefs was accelerated. Within due time defendants filed their brief in opposition to plaintiff's motion to vacate and set aside the previous order of the Court, opposing plaintiff's right to file such a motion, and opposing plaintiff's right to file its amended complaint either without leave of Court or with leave of Court. Thus, before determining whether or not the Court should vacate and set aside its order of 1 October 1974 the Court must first determine whether it is empowered to consider plaintiff's motion so to do.

Defendants point out that plaintiff's motion to vacate and set aside the Court's previous order is, in reality, merely an appeal from that order. Defendants concede, however, that Rule 59(e) is available to a movant who seeks to have an order vacated. 11 Wright & Miller Fed. Practice & Procedure, § 2804 (1973); 6A Moore, Fed. Practice, para. 59.121 (1974).

Since Rule 59(e) admittedly is authority for a motion to vacate an order, the Court will docket and consider the motion under authority of Rule 59(e).

This, then brings us to the merits of the motion to vacate and set aside the previous order on the basis that the Court, through inadvertence or mistake, misapplied and misunderstood the exclusionary thrust of the McCarran-Ferguson Act. For the reasons hereinafter set forth, it is clear that the Court did, indeed, misunderstand and misapply the McCarran-Ferguson Act exclusion.

Defendants' argument that the words, "the business of insurance" as used in the McCarran Act have been construed by the courts to encompass virtually all activities engaged in by insurance companies is correct for decisions rendered prior to 1969. Thus, in ante-1969 cases, where a plaintiff brought an action against an insurance company based upon the Sherman Act, the Court properly inquired as to whether the State had entered the field (it invariably had), and whether the plaintiff had successfully pleaded himself into the "intimidation, coercion or boycott" exemption to the McCarran-Ferguson Act. The great bulk of the cases cited by defendants, supra, were decided during this period.

In 1969 the Supreme Court decided SEC v. National Securities, Inc., 393 U.S. 453, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969). In National Securities the court held that "the business of insurance" pertained to those activities peculiar to the insurance industry. Business activities of insurance companies not peculiar to the insurance industry were found to be subject to federal regulatory laws. The fact that a State has enacted legislation regulating the insurance industry is not material under the National Securities holding. State legislation proscribing the...