Gilchrist v. State Farm Mut. Auto. Ins. Co., No. 03-10799.

• Decision Date: 18 November 2004
• Docket Number: No. 03-10799.
• Citation: 390 F.3d 1327
• Parties: Linda GILCHRIST, on behalf of themselves and all others similarly situated, Joanne Zipperer, Jackie Valentine, Plaintiffs-Appellees, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois corporation, Allstate Insurance Company, an Illinois corporation, Nationwide Mutual Fire Insurance Company, an Ohio corporation, Government Employees Insurance Company, a Maryland corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1327

390 F.3d 1327

Linda GILCHRIST, on behalf of themselves and all others similarly situated, Joanne Zipperer, Jackie Valentine, Plaintiffs-Appellees, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois corporation, Allstate Insurance Company, an Illinois corporation, Nationwide Mutual Fire Insurance Company, an Ohio corporation, Government Employees Insurance Company, a Maryland corporation, Defendants-Appellants.

No. 03-10799.

United States Court of Appeals, Eleventh Circuit.

November 18, 2004.

Nancy Leeds Perkins, Arnold & Porter, Washington, DC, Richard L. Fenton, Sanford M. Pastroff, Sonnenschein, Nath & Rosenthal, Chicago, IL, Robert T. Horst, Michael R. Nelson, Craig A. Cohen, Matthew Stool, Nelson, Levine, DeLuca & Horst, Blue Bell, PA, Sheila Carmody, Dan W. Goldfine, Snell & Wilmer, LLP, Phoenix, AZ, Chris S. Coutroulis, R. Benjamine Reid, D. Matthew Allen, Carlton Fields, P.A., Tampa, FL, John A. Chandler, John W. Bonds, Jr., Carey P. DeDeyn, Teresa Wynn Roseborough, Kristin B. Wilhelm, Sutherland, Asbill & Brennan, Atlanta, GA, for Defendants-Appellants.

Gregory Baruch, R. Stephen Berry, J. Daniel Leftwich, Berry & Leftwich, Washington, DC, Charles M. Jones, Jones, Osteen & Jones, Hinesville, GA, Mark Alexander Avera, Avera & Avera, PA, Gainesville, FL, for Plaintiffs-Appellees.

Ross S. Myers, Nat. Ass'n of Ins. Com'rs, Kansas City, MO, John H. Beisner, O'Melveny & Myers, Kathryn S. Zecca, Robbins, Russell, Englart, Orseck & Untereiner, LLP, Richard A. Samp, Washington Legal Foundation, Lutz Alexander Prager, D.C. Office of Corp. Counsel, Washington, DC, Kara W. Ong, Cingular Wireless, LLC, Carrie K. Dawson, Adam Jeremy Biegel, Michael P. Kenny, Richard B. Holcomb, Alston & Bird, LLP, Richard K. Hines, V, Richard B. North, Jr., Nelson, Mullins, Riley & Scarborough, LLP, G. Lee Garrett, Jr., Jones & Day, Atlanta, GA, William M. Hannay, Schiff Hardin & Waite, Chicago, IL, Alena K. Hacopian, Steven H. Weinstein, Barger & Wolen, LLP, Los Angeles, CA, Aaron Nisenson, Arlington, VA, Dennis Silverman, FLorida Office of Ins. Reg., Tallahassee, FL, Suzanne Sahakian, Dykema Gossett, PLLC, Detroit, MI, Dwight J. Davis, King & Spalding, New York City, Lori M. Silsbury, Sykema Gossett, PLLC, Lansing, MI, for Amici Curiae.

Appeals from the United States District Court for the Northern District of Florida.

Before TJOFLAT and HILL, Circuit Judges, and MILLS^*, District Judge.

HILL, Circuit Judge:

This is an appeal under Rule 23(f), Fed.R.Civ.P., from the district court's order certifying a national class of approximately 70 million automobile insurance policyholders. Plaintiffs' complaint seeks treble damages under the federal antitrust laws for alleged premium overcharges. For the following reasons, we have determined that we have no jurisdiction in this matter and shall dismiss the appeal.

I.

Linda Gilchrist, Joanne Zipperer and Jackie Valentine (referred to collectively as "Gilchrist") filed this action seeking to represent a group of individual policy holders who purchased automobile insurance from various insurance companies, including State Farm, Allstate, Nationwide, and GEICO ("Insurers"). Gilchrist alleges that defendants conspired in violation of federal antitrust laws to limit insurance coverage for certain external auto body repairs to the cost of less expensive parts not made by an original equipment manufacturer ("OEM").

Insurers moved to dismiss the complaint on the basis that the McCarran-Ferguson Act, 15 U.S.C. § 1012 (1999), (the "Act") bars plaintiffs' claim because it concerns the "business of insurance," which, under the Act, is not subject to the federal antitrust laws. In November of 2000, the district court denied the motion, holding that the Act does not bar Gilchrist's claim because her claim merely challenges the way in which the Insurers perform their policies, which is not the "business of insurance."

Gilchrist then moved for class certification and the district court held an evidentiary hearing. In November of 2002, the court certified a class consisting of some 70 million of Insurers' policyholders.¹ Pursuant to Rule 23(f), Fed.R.Civ.P., Insurers petitioned for leave to appeal this order, which we granted.

After oral argument of this appeal, we became concerned that McCarran-Ferguson might indeed exclude Gilchrist's claim from federal antitrust jurisdiction. Since we are powerless to enter a judgment in a matter over which we have no jurisdiction, University of South Alabama v. American Tobacco Co., 168 F.3d 405, 409-10 (11th Cir.1999), we are required, even sua sponte, to initiate an inquiry into our subject-matter jurisdiction whenever we become concerned that it may not exist. Arthur v. Haley, 248 F.3d 1302, 1303 n. 1 (11th Cir.2001); Rembert v. Apfel, 213 F.3d 1331, 1333-34 (11th Cir.2000). Accordingly, we notified the parties that they could file additional authority on this issue and that we would resolve it prior to any decision on the merits of the appeal. It is to this issue we now turn.

II.

In 1945, Congress passed the McCarran-Ferguson Act to allow insurers to share information relating to risk underwriting and loss experience without exposure to federal antitrust liability and to preserve for the states the power to regulate the insurance industry. 15 U.S.C. §§ 1012-1013(1999); Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 133, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982). The Act expressly exempts insurer activities from the reach of the Sherman Act when three elements are met: (1) the challenged activity is part of the "business of insurance"; (2) the challenged activity is regulated by state law; and (3) the challenged activity does not constitute a boycott of unrelated transactions. Uniforce Temporary Personnel, Inc. v. National Council on Compensation Ins., Inc., 87 F.3d 1296, 1299 (11th Cir.1996).² If the Act applies to Gilchrist's claim, we have no jurisdiction over it.

A. The Business of Insurance

Gilchrist argues that the Act does not apply to her claim, relying on two Supreme Court cases holding that, while the Act exempts the business of insurance, it does not exempt the business of insurers. Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979); Pireno, 458 U.S. at 129, 102 S.Ct. 3002. She contends that her claim implicates the latter, rather than the former. She characterizes her claim as an attack on Insurers' cost-cutting arrangements with third parties, which, she alleges, require the use of non-OEM parts in the repair of its policyholders' vehicles. This practice, she argues, is "a means of using cheaper repair parts to satisfy the insurer's existing policy obligations." (Response to Motion to Dismiss, p. 20). Furthermore, Gilchrist claims that Insurers created and financed the Certified Auto Parts Association ("CAPA") to promote inferior crash parts as acceptable substitutes for OEM parts, thereby advancing the anticompetitive conspiracy. Finally, she contends that Insurers have benefitted from the conspiracy by reducing their repair costs and raising their profits above what they would experience in a competitive market. In sum, Gilchrist contends that she is attacking the way in which Insurers conduct their business.

Insurers, on the other hand, characterize Gilchrist's claim as an attack on both their rate-making and the performance of their insurance contracts — activities at the heart of the business of insurance.

An activity is part of the business of insurance if it has "the effect of transferring or spreading a policyholder's risk," is "an integral part of the policy relationship between the insurer and the insured," and is limited to entities within the insurance industry. Pireno, 458 U.S. at 129, 102 S.Ct. 3002. Under this test, the Supreme Court has held conclusively that both rate-making and the performance of an insurance contract — including the adjustment of claims — constitute the business of insurance. Royal Drug, 440 U.S. at 224, 99 S.Ct. 1067 ("the fixing of insurance rates is the `business of insurance'"); United States Dept. of Treasury v. Fabe, 508 U.S. 491, 503, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993) ("There can be no doubt that the actual performance of an insurance contract falls within the `business of insurance' as we understood that phrase in Pireno and Royal Drug") (citing Pireno, 458 U.S. at 134 n. 8, 102 S.Ct. 3002).

Rate-making, of course, is the paradigmatic example of the conduct that Congress intended to protect by the McCarran-Ferguson Act. Royal Drug, 440 U.S. at 221, 99 S.Ct. 1067 ("Because of the widespread view that it is very difficult to underwrite risks in an informed and responsible way without intra-industry cooperation, the primary concern of both representatives of the insurance industry and the Congress was the cooperative ratemaking efforts be exempt from the antitrust laws"). Similarly, the Court has rejected the argument that performance of Insurers' contractual duties does not constitute the business of insurance. Fabe, 508 U.S. at 503, 113 S.Ct. 2202. The Court reasoned:

Without performance of the terms of the insurance policy, there is no risk transfer at all. Moreover, performance of an insurance contract also satisfies the remaining prongs of the Pireno test: It is central to the policy relationship between insurer and insured and is confined entirely to entities within the insurance industry.

Id. at 504, 113 S.Ct. 2202.³

Rate-making and the performance of contractual obligations are fundamental to the business of insurance because they focus on the relationship between the insurance company and its policyholders. The Supreme Court has made clear that:

[t]he relationship between insurer and insured, the type of policy which could be issued, its reliability, interpretation, and enforcement — these were the core of the "business of insurance."

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