Autry v. Northwest Premium Services, Inc.

• Citation: 1998 WL 237426,144 F.3d 1037
• Decision Date: 13 May 1998
• Docket Number: No. 97-3035,97-3035
• Parties: Kimberly AUTRY, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. NORTHWEST PREMIUM SERVICES, INC., Northwest Insurance Network, Inc., and Martin Joseph, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1037

144 F.3d 1037

Kimberly AUTRY, on behalf of herself and all others

similarly situated, Plaintiff-Appellant, v. NORTHWEST PREMIUM SERVICES, INC., Northwest Insurance

Network, Inc., and Martin Joseph, Defendants-Appellees.

No. 97-3035.

United States Court of Appeals,

Seventh Circuit.

Argued Jan. 12, 1998.

Decided May 13, 1998. ^*

Daniel A. Edelman (argued), Edelman & Combs, Chicago, IL, for Plaintiff-Appellant.

Cary S. Fleischer (argued), Chuhak & Tecson, Chicago, IL, for Defendants-Appellees.

Before BAUER, COFFEY, and KANNE, Circuit Judges.

KANNE, Circuit Judge.

In April 1997, Kimberly Autry filed a class action complaint in the United States District Court for the Northern District of Illinois. Count I of her complaint alleged that the disclosures contained in her Premium Financing Agreement ("Agreement") violated the Truth In Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. Autry also alleged that the disclosures violated the Illinois Consumer Fraud and Deceptive Business Practices Act ("Illinois CFA"), 815 Ill. Comp. Stat. 505/1 et seq. The district court granted the defendants' motion to dismiss Count I of the complaint on the ground that the McCarran-Ferguson Act ("McCarran Act"), 15 U.S.C. § 1012(b), barred application of TILA to the Agreement. The district court then declined to exercise its supplemental jurisdiction authority over Autry's state law claims. Because we find that the McCarran Act does not bar application of TILA to the Agreement, we reverse the dismissal of Autry's complaint and remand for further proceedings consistent with this opinion.

I. HISTORY

In June 1996, Autry financed the purchase of an insurance policy on her automobile by signing a Premium Finance Agreement and Disclosure Statement. Autry claims that the disclosures in the Agreement misstate the amount financed, the finance charge, and the total amount of payments in violation of TILA and the Illinois CFA. Autry sued both Northwest Premium Services, Inc. and Northwest Insurance Network, Inc. because she contends that the Agreement refers to both parties and the identity of the party that actually extended the credit is unclear.

The defendants filed a motion to dismiss in June 1997, asking that the district court dismiss the TILA count as barred by the McCarran Act. The district court granted defendants' motion, finding that under our precedent in Lowe v. Aarco-American, Inc. 536 F.2d 1160, 1162 (7th Cir.1976), ¹ the financing of insurance premiums was part of the "business of insurance" under the McCarran Act, that application of TILA would impede Illinois law, and therefore premium financing activities were beyond the reach of TILA and instead governed solely by state law. The district court dismissed Autry's TILA claim with prejudice and dismissed her state law claims without prejudice.

On appeal, Autry asks us to reevaluate whether premium financing is part of the "business of insurance." Autry argues that several Supreme Court cases decided after Lowe suggest that Lowe was incorrectly decided and we should now overrule it. In addition, Autry notes the circuit split on the issue between our Circuit and the Fifth as a reason to reconsider Lowe. In the alternative, Autry argues that even if premium financing is the "business of insurance," TILA does not impair, invalidate, or supersede the Illinois law on premium financing agreements, and therefore TILA may still be applied.

The defendants respond that Lowe was correctly decided and that the intervening Supreme Court cases only serve to reinforce Lowe. They urge us to renew our holding in Lowe that premium financing constitutes the "business of insurance." Defendants also argue that application of TILA would impede the state law in the area, and thus TILA may not be applied. They ask that we find that the McCarran Act bars Autry's TILA claim. ²

II. ANALYSIS

A. Standard of Review

A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint for failure to state a claim upon which relief may be granted. See Fed.R.Civ.P. 12(b)(6). Whether a district court correctly dismissed a complaint is a question of law that we review de novo. See Moss v. HealthCare Compare Corp., 75 F.3d 276, 279 (7th Cir.1996). In reviewing a motion to dismiss, we review all facts alleged in the complaint and any inferences reasonably drawn therefrom in the light most favorable to the plaintiff. See Caldwell v. City of Elwood, 959 F.2d 670, 671 (7th Cir.1992). Dismissal is warranted only if the plaintiff can prove no set of facts in support of her claims that would entitle her to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

B. The McCarran-Ferguson Act

1. History

Congress enacted the McCarran Act in response to the Supreme Court's decision in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). See United States Dept. of the Treasury v. Fabe, 508 U.S. 491, 499, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993). Prior to South-Eastern Underwriters, courts had determined that issuing an insurance policy was not a transaction in commerce and therefore not subject to federal regulation. See id. (citing Paul v. Virginia, 75 U.S. (8 Wall.) 168, 183, 19 L.Ed. 357 (1868)). Thus " 'States enjoyed a virtually exclusive domain over the insurance industry.' " Id. (quoting St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 539, 98 S.Ct. 2923, 57 L.Ed.2d 932 (1978)).

This situation was soon to change. In light of "[t]he emergence of an interconnected and interdependent national economy," id., courts expanded their conception of interstate commerce. This expanded conception led the Supreme Court to hold that an insurance company that conducted business across state lines was engaged in interstate commerce and thus subject to federal antitrust laws. See South-Eastern Underwriters, 322 U.S. at 533, 64 S.Ct. 1162. This development caused states to be concerned about their power to tax and regulate the insurance industry. See Fabe, 508 U.S. at 499, 113 S.Ct. 2202. Specifically, South- Eastern Underwriters "threatened the continued supremacy of the States," SEC v. National Sec., Inc., 393 U.S. 453, 459, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969), "in regulating the dealings between insurers and their policy holders," id. Congress responded by passing the McCarran Act.

Congress expressed the purpose of the McCarran Act in its first section:

Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.

15 U.S.C. § 1011. As this section demonstrates, Congress intended the McCarran Act to allow the states to regulate the business of insurance "free from inadvertent preemption by federal statutes of general applicability." Merchants Home Delivery Serv., Inc. v. Frank B. Hall & Co., 50 F.3d 1486, 1488-89 (9th Cir.1995). To this end, Congress reversed the standard rules for preemption, creating a "clear-statement rule ... that state laws enacted 'for the purpose of regulating the business of insurance' do not yield to conflicting federal statutes unless a federal statute specifically requires otherwise." Fabe, 508 U.S. at 507, 113 S.Ct. 2202.

2. The Language of the McCarran Act

" '[T]he starting point in a case involving construction of the McCarran-Ferguson Act, like the starting point in any case involving the meaning of a statute, is the language of the statute itself.' " Fabe, 508 U.S. at 500, 113 S.Ct. 2202 (quoting Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 210, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979)). The specific statutory provision at issue in this case is § 2(b) of the Act, which provides 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 after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State Law.

15 U.S.C. § 1012(b).

Section 2(b) contains two clauses, separated by the colon. The first clause may be broken down into two phrases: The first establishes that state law "enacted ... for the purpose of regulating the business of insurance" preempts federal law of general applicability to the extent the federal law invalidates, impairs, or supersedes the state law. The second phrase creates an exception to this preemption--if the federal law specifically relates to the business of insurance, the federal law may be applied even if it would invalidate, impair, or supersede a state law. The second clause, known as the "antitrust exemption," provides that federal antitrust law will control the business of insurance unless that business is regulated by state law. The Supreme Court recently elaborated on the purposes behind the clauses:

[T]he first clause of § 2(b) was intended to further Congress' primary objective of granting the States broad regulatory authority over the business of insurance. The second clause accomplishes Congress' secondary goal, which was to carve out only a narrow exemption for "the business of insurance" from the federal antitrust laws.

Fabe, 508 U.S. at 505, 113 S.Ct. 2202.

C. The Appropriate Inquiry for Cases Involving the First Clause of the McCarran Act

This case turns on the application of the first clause of § 2(b). The question before us is whether the first clause of the...