Freeman v. Chicago Title & Trust Co.

• Decision Date: 06 November 1974
• Docket Number: No. 73-1619,73-1619
• Citation: Freeman v. Chicago Title & Trust Co., 505 F.2d 527 (7th Cir. 1974)
• Parties: 1974-2 Trade Cases 75,332 James FREEMAN et al., Plaintiffs-Appellants, v. CHICAGO TITLE & TRUST CO., a corporation, et al., Defendants-appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 527

505 F.2d 527

1974-2 Trade Cases 75,332

James FREEMAN et al., Plaintiffs-Appellants, v. CHICAGO TITLE & TRUST CO., a corporation, et al Defendants-appellees.

No. 73-1619.

United States Court of Appeals, Seventh Circuit.

Argued June 5, 1974.

Decided Nov. 6, 1974.

Kenart M. Rahn, Richard A. Kerwin, Chicago, Ill., for plaintiffs-appellants.

Joseph J. Jaros, Jerome P. Croke, Herman Smith, Arthur T. McGivern, John T. Loughlin and John C. Christie, Jr., Russell, Bridewell & Lapperre, Irwin I. Zatz, Chicago, Ill., for defendants-appellees.

Before CLARK, ^* Associate Justice, and FAIRCHILD and STEVENS, Circuit Judges.

PER CURIAM.

The issue presented by this appeal is whether 2(c) of the Clayton Act, as amended by the Robinson -Patman Act, 15 U.S.C. 13(c), prohibits a title insurance company from paying secret rebates to agents of property owners in connection with the sale of title insurance. In their treble damage complaint, plaintiffs alleged that they had authorized the defendant savings and loans and other agents ¹ (hereinafter Talman) to purchase title insurance ² for them. Talman obtained policies solely from defendants Chicago Title & Trust Co. and Chicago Title Insurance Co. (hereinafter CT&T); without plaintiffs' knowledge, Talman received from CT&T a payment equal to 10% Of the amount paid as premiums by plaintiffs. The district court dismissed the complaint on the ground that 2(c) has no applicability to payments made in connection with the sale of intangibles such as insurance. We affirm.

I.

The dispute in this case centers largely around the proper reading of 2(c) of the Clayton Act. The statute provides:

'(c) Payment or acceptance of commission, brokerage or other compensation.

It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.' Plaintiffs note that there is no comma between the words 'rendered' and 'in.' Thus, they contend that the statute expressly prohibits commissions paid to the other party or his agent in any transaction in commerce, without limitation to transactions involving tangibles, and that the statutory reference to 'in connection with the sale or purchase of goods, wares or merchandise . . .' limits the exception of 'services rendered' and is not a limitation of the broad prohibition itself. The district court, however, read the statute as if a comma had been inserted between the two words. Under its reading 2(c) has applicability only if 'goods, wares, or merchandise.' i.e., tangibles, ³ are involved.

Section 2(c) was enacted as part of the Robinson-Patman Amendments to the Clayton Act. See Act of June 19, 1936, Pub.L.No. 74-692, 2(c), 49 Stat. 1527. The courts have consistently interpreted the other provisions of the Robinson-Patman Act as being restricted to transations involving tangible products. ⁴ In Baum v. Investors Diversified Services, Inc., 406 F.2d 872, 875 (7th Cir. 1969), for example, this court held that 2(a) of the Clayton Act, 15 U.S.C. 13(a), was so restricted. As one scholar has observed, the result reached in these decisions 'comports with the Act's legislative history and textual structure.' F. Rowe, Price Discrimination Under the Robinson-Patman Act 61 (1962). Since we find no affirmative evidence that Congress intended 2(c) to be the only Robinson-Patman provision applicable to intangibles, ⁵ we are satisfied that the district court's interpretation of this section is the proper one. ⁶

Plaintiffs argue that this interpretation in effect requires judicial repunctuation of 2(c) and that such is improper. The Supreme Court, however, has stated:

'Punctuation marks are no part of an act. To determine the intent of the law, the court, in construing a statute, will disregard the punctuation, or will repunctuate, if that be necessary, in order to arrive at the natural meaning of the words employed.'

United States v. Shreveport Grain & Elevator Co., 287 U.S. 77, 82-83, 53 S.Ct. 42, 44, 77 L.Ed. 175 (citing cases). In our opinion, it is appropriate to read 2(c) as though it contained one more comma in order to effectuate apparent congressional intent. ⁷

II.

Insofar as title insurance bears the same qualities as any other insurance, it can properly be characterized as an intangible not subject to 2(c). ⁸ According to plaintiffs, however, the purchaser of a CT&T policy is not as interested in insurance as he is in the report on the presence or absence of title defects which accompanies every policy; the 'insurance aspect simply indemnifies the 'insured' against loss should the report as to the status of the title prove inaccurate.' Pl.Br. at 41. Plaintiffs thus contend that, even if 2(c) is limited to tangibles, it prohibits the alleged rebates because the report itself is a tangible physical document.

Assuming arguendo that plaintiffs' determination of the principal purpose of title insurance is correct, ⁹ we must nevertheless reject their contention. The transfer of any intangible can rarely be accomplished without the 'incidental involvement: of documents or other tangibles; consequently, it is the 'dominant nature' of such transactions which determines whether they are subject to 2(c). ¹⁰

CT&T does provide purchasers of title insurance with a tangible, physical document. More importantly, however, it provides them with a professional service, namely, the search of records which might reveal a defect in the title and the rendering of an opinion based upon this search; the reports, like legal memoranda, are merely the embodiment of that service. Clearly, it is the performance of this service and not the delivery of a physical document which constitutes the dominant nature of the transaction between CT&T and its customers. Compare Tri-State Broadcasting, supra note 10. Since services are intangible, see Baum, supra note 3, at 875, even plaintiffs' characterization of title insurance's principal purpose is insufficient to invoke 2(c).

III.

Section 2(b) of the McCarran-Ferguson Act, 15 U.S.C. 1012(b), contains the following proviso:

'After June 30, 1948 . . . the Act of October 15, 1914, as amended, known as the Clayton Act . . . shall be applicable to the business of insurance to the extent that such business is not regulated by State law.'

Plaintiffs contend that 2(b) is a substantive amendment to the Clayton Act which makes each of the provisions of this Act, including 2(c), applicable to the insurance industry-- regardless of whether the provision applies according to its terms.

The legislative history of the McCarran-Ferguson Act demonstrates that Congress intended no such amendment. In 1868 the Supreme Court determined that the business of insurance was a matter of purely state concern. See Paul v. Virginia, 75 U.S. (8 Wall.) 168, 19 L.Ed. 357. Some 75 years later, however, in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 the Court reversed itself; it held that the insurance business was commerce and, therefore, subject to the federal antitrust laws. As a result of this ruling, there arose great uncertainty over the constitutionality of state statutes regulating insurance. The McCarran Act was passed in response to this uncertainty. ¹¹

Congress' intent was to make certain that the states' power to regulate insurance should continue. This is apparent not only in the debates and legislative material accompanying the Act's passage, ¹² but in the language of the Act itself. ¹³ As Justice Rutledge, speaking for the Court in Prudential Insurance Co. v. Benjamin, 328 U.S. 408, 66 S.Ct. 1142, 90 L.Ed. 1342 noted:

'Obviously Congress' purpose was broadly to give support to the existing and future state systems for regulating and taxing the business of insurance. This was done in two ways. One was by removing obstructions which might be thought to flow from its own power, whether dormant or exercised, except as otherwise expressly provided in the Act itself or in future legislation. The other was by declaring expressly and affirmatively that continued state regulation and taxation of this business is in the public interest and that the business and all who engage in it 'shall be subject to' the laws of the several states in these respects.'

328 U.S. at 429-430, 66 S.Ct. at 1155.

While Congress' concern with ensuring the states' power is clear from the Act's legislative history, there is nothing in that history indicating any intent to expand federal power. The legislators correctly recognized that the Supreme Court, in South-Eastern, broadened the coverage of the federal antitrust laws. Thus, they were concerned only with making certain that, insofar as these laws already were applicable as a result of the South-Eastern decision, they should not be construed as invalidating or displacing state laws. ¹⁴

Plaintiffs note that, when the Senate initially passed what is now the McCarran-Ferguson Act, it provided in part that nothing in the Robinson-Patman Act 'shall apply to the business of insurance or to acts in the conduct of that business.' See 91 Cong.Rec. 488 (1945). The ultimate rejection of this provision is, according to plaintiffs, persuasive evidence of Congress' intent to make the Robinson-Patman Act, and therefore 2(c), applicable to insurance.

Congress' action does not, in our opinion, admit of that interpretation. Indeed, it is likely that some legislators withdrew support...