Battle v. Liberty National Life Insurance Company

• Decision Date: 25 April 1974
• Docket Number: No. 72-3673.,72-3673.
• Parties: Edgar H. BATTLE, d/b/a Edgar H. Battle Funeral Home, et al., Plaintiffs-Appellants-Cross-Appellees, v. LIBERTY NATIONAL LIFE INSURANCE COMPANY et al., Defendants-Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

493 F.2d 39 (1974)

Edgar H. BATTLE, d/b/a Edgar H. Battle Funeral Home, et al., Plaintiffs-Appellants-Cross-Appellees, v. LIBERTY NATIONAL LIFE INSURANCE COMPANY et al., Defendants-Appellants, Cross-Appellees.

No. 72-3673.

United States Court of Appeals, Fifth Circuit.

April 25, 1974.

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George R. Stuart, III, Edward L. Hardin, Jr., Claude McCain Moncus, Birmingham, Ala., C. Neal Pope, Phenix City, Ala., for plaintiffs-appellants.

Ira L. Burleson, Ralph B. Tate, Birmingham, Ala., for defendants-appellees.

Before WISDOM and INGRAHAM, Circuit Judges, and CHRISTENBERRY, District Judge.

INGRAHAM, Circuit Judge:

The plaintiffs in this class action are funeral homes and directors of funeral homes who allege that the defendants, Liberty National Life Insurance Company and Brown-Service Funeral Homes Company, Inc., are liable to them for violating the anti-trust laws, particularly §§ 1¹ and 2² of the Sherman Act and § 3³ of the Clayton Act. The district court granted defendants' motion to dismiss under Rule 12(b)(6) for "failure to state a claim upon which relief can be granted." Because we believe the district court had insufficient facts upon which to conclude that the complaint failed to state a claim, we reverse and remand for factual development.

The relationships among the parties to this action can be briefly described as follows. Defendant Liberty National Insurance Company issues several different types of insurance, including burial insurance coverage of various policy values. Burial insurance apparently is much desired because, as alleged in the complaint, about 70% of all white persons who died in Alabama in 1970 had coverage under Liberty National's policies. About 50% of all persons, without regard to race, who died that year had such coverage with Liberty National. Currently, Liberty National has 2,800,000 outstanding, valid insurance contracts for the provision of funeral services and merchandise.

Defendant Brown-Service Funeral Homes Company, Inc., a separate corporate entity and wholly owned subsidiary of Liberty National, has contracted with Liberty National to furnish the merchandise and services required by the burial insurance policies issued by Liberty National. In addition to Liberty's paying Brown-Service large sums of money for furnishing these services, Liberty has made at least one large loan to its subsidiary, purportedly for the acquisition of buildings for funeral homes.

Brown-Service in turn has entered into contractual arrangements with many independent funeral homes and directors located in Alabama, ostensibly to perform its obligations under the contract with Liberty National. When the funeral home director signs a contract with Brown-Service, his funeral home becomes an "authorized" home for servicing and furnishing merchandise to Liberty National burial insurance policy-holders. Those, of course, who do not sign a contract are considered "unauthorized" homes. The named plaintiffs in this case consist of five authorized and five unauthorized funeral homes and directors. Importantly, the services provided under the policy differ significantly, depending on whether an insured uses an authorized or unauthorized funeral home for performance of the contract. If the insured goes to an authorized home, he is entitled to a casket, burial clothing, embalming, use of the funeral parlor, assistance in the performance of any services, transportation to the cemetery or church, and rail transportation to any place within the continental United States. But if a policyholder takes his business to an unauthorized funeral home, the benefits conferred under the policy include only a casket or, depending on the policy, a cash settlement.

The district court, without supporting analysis, granted the motion to dismiss for essentially three reasons. First, the court held that the plaintiffs have no standing to assert a private cause of action seeking treble damages under § 4 of the Clayton Act.⁴ Second, a consent decree entered into between the United States and Liberty National in 1954 was thought to immunize the defendants from suits asserting violations of the anti-trust laws. Third, the court reasoned that the McCarran-Ferguson Act,⁵ while it did not exempt Brown-Service, exempted Liberty National from liability under the anti-trust laws. At this stage of the proceedings, we cannot agree with the district court's conclusions or with the defendants' additional contentions raised on appeal.

I.

At the outset, it is important to note that the scope of appellate review of a motion to dismiss for failure to state a claim is narrow. For the motion to have been properly granted, it must be plain 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, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Sarter v. Mays, 491 F.2d 675 (5th Cir., 1974); Brett v. First Federal Sav. & Loan Ass'n, 461 F.2d 1155, 1157 (5th Cir., 1972); see Dailey v. Quality School Plan, Inc., 380 F.2d 484, 486 (5th Cir., 1967). "All the Rules require is `a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Conley v. Gibson, supra, 355 U.S. at 47. The facts as alleged in the complaint must be presumed to be true, Brett v. First Federal Sav. & Loan Ass'n, supra, 461 F.2d at 1157, and only when "some insuperable bar to relief" is obvious from the face of the complaint is dismissal proper. C. Wright, Law of Federal Courts, § 68, at 285 (1970).

With these principles in mind, we turn to the issue whether the complaint sufficiently stated a claim for relief. In an organized fashion the complaint sets forth three bases for relief. The plaintiffs first alleged that "the defendants have engaged in an unlawful combination and conspiracy in unreasonable restraint of . . . interstate trade and commerce," violating § 1 of the Sherman Act. 15 U.S.C. § 1. It is well established that a corporation can combine and conspire with its wholly owned subsidiary in violation of § 1 of the Sherman Act. E. g. Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598, 71 S.Ct. 971, 95 L.Ed. 1199 (1951); Cliff Food Stores, Inc. v. Kroger, Inc., 417 F.2d 203, 205 (5th Cir., 1969). Defendants argue, however, that because Liberty National and Brown-Service are one organization or business unit and not competitors, they are unable to form a combination or conspiracy within the meaning of § 1. We cannot agree.

Even though Liberty National and Brown-Service are not competitors, because Liberty National is in the insurance business while Brown-Service provides funeral services and merchandise, the alleged facts tend to establish that they are operationally two separate organizations entirely capable of combining or conspiring to restrain trade. That the defendants do not compete with each other in no way precludes them from combining or conspiring to suppress competition, the ultimate result of which would inure to their mutual benefit. While the existence of competition between two organizations would tend to establish their separateness and thus fulfill the requirement that it takes more than one party to create a combination or conspiracy, the absence of such competition does not preclude the existence of two separate organizations. See Beckman v. Walter Kidde & Co., 316 F.Supp. 1321 (E.D.N.Y., 1970), aff'd, 451 F.2d 593 (2nd Cir., 1970).

Additionally, the plaintiffs' factual averments, if established, would tend to support a finding of unreasonable restraint of trade. It appears that, since the insurance contract confers far more benefits upon the policyholder if he uses an authorized funeral home rather than an unauthorized home, the policyholder is subtly coerced into dealing only with the authorized home. The imposition of this restraint would effectively foreclose the unauthorized funeral director's access to a substantial portion of the market. These facts sufficiently apprise the defendants of the nature of plaintiffs' claims, might furnish a basis for relief under § 1 of the Act, and are certainly sufficient to withstand a motion to dismiss for failure to state a claim.

The second basis for relief set out in the complaint is that defendants "unlawfully did monopolize, attempt to monopolize, and did combine and conspire . . . to monopolize a part of the trade and commerce in furnishing funeral services and selling funeral supplies . . . in violation of § 2 of the Sherman Act. . . ." 15 U.S.C. § 2. The Supreme Court in United States v. Grinnell Corp., 384 U.S. 563, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966), outlined two essential criteria for determining when § 2 has been violated as follows: "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." Id. at 570-571; see Woods Exploration & Prod. Co., Inc. v. Aluminum Co. of America, 438 F.2d 1286, 1304 (5th Cir., 1971).⁶

Measured against these criteria, a claim for relief under § 2 is adequately stated to resist defendants' motion to dismiss. With regard to the possession of monopoly power, frequently defined as "the power to raise prices or exclude competition," United States v. E. I. DuPont deNemours & Co., 351 U.S. 377, 391-392, 76 S.Ct. 994, 1005, 100 L.Ed. 1264 (1956), the complaint alleges that Brown-Service currently maintains contractual relationships with one hundred and ninety-two of a total of two hundred and twenty-four funeral homes in Alabama. Of the funeral homes catering particularly to the white community, only seven homes have managed to fend off the control of Brown-Service. All seven of these homes, six of which are controlled by one man, sell their own burial...