Sabo v. Metropolitan Life Ins. Co., AFL-CI
| Decision Date | 23 February 1998 |
| Docket Number | No. 96-3663,CLC,AFL-CI,96-3663 |
| Citation | 137 F.3d 185 |
| Parties | RICO Bus.Disp.Guide 9440 Richard SABO, Appellant v. METROPOLITAN LIFE INSURANCE COMPANY; Gary Antonino; Joel Sherman; Ronald Schram; United Food and Commercial Workers International Union, |
| Court | U.S. Court of Appeals — Third Circuit |
Stanley M. Stein (Argued), Michelle S. Katz, Jeffrey B. Yao, Feldstein, Grinberg, Stein & McKee, Pittsburgh, PA, for Appellant Richard Sabo.
Frederick N. Egler, Jr. (Argued), J. Stephen Purcupile, Egler, Garrett & Egler, Pittsburgh, PA, for Appellee Metropolitan Life Insurance Company.
Kim M. Watterson, Richard M. Smith, Katarincic & Salmon, Pittsburgh, PA, for Appellee Gary Antonino.
Before: STAPLETON, ALITO, and SEITZ, Circuit Judges.
This appeal primarily presents an issue that divides sister Courts of Appeals and is of first impression in our court--namely, whether the McCarran Ferguson Act, 15 U.S.C. §§ 1011-1015 (1994) ("The Act"), precludes a cause of action under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. SS 1961-1968 (1994), where the challenged predicate acts arise out of the defendant's insurance business. The district court exercised jurisdiction over plaintiff's federal claims pursuant to 28 U.S.C. § 1331 and over supplemental state tort claims under 28 U.S.C. § 1367. Our appellate jurisdiction arises under 28 U.S.C. § 1291 to review the district court's final orders.
The Metropolitan Life Insurance Company ("MetLife") terminated the employment of Richard Sabo as an insurance sales agent in alleged retaliation for his refusal to participate in illegal trading activity. Mr. Sabo ("Plaintiff ") then sued MetLife and several MetLife employees ("Antonino", "Sherman", and "Schram") in the district court, alleging causes of action under RICO as well as a claim based on the common law tort of defamation. In particular, the complaint recited the existence of three predicate acts under RICO: (1) a "churning" scheme, whereby MetLife encouraged and coerced agents to fraudulently trade insurance policies in order to accumulate commissions and decrease the value of outstanding policies; (2) a "50/50" insurance plan that MetLife fraudulently advertised as a retirement savings plan; and (3) an organized policy of intimidation and harassment by MetLife management directed toward its insurance agents to participate in these fraudulent activities.
The district court first granted a motion by all defendants to dismiss the RICO claims on the ground that the McCarran-Ferguson Act precluded such claims where the causes of action arose from MetLife's insurance business. At the close of discovery, the district court, under a summary judgment standard, dismissed the remaining defamation action on the ground that the alleged defamatory statements were not sufficiently directed toward the plaintiff so that a jury could reasonably conclude that they referred to him. Plaintiff now appeals these two orders.
Because the central issue in plaintiff's RICO claims implicates an application of the McCarran-Ferguson Act, we turn first to that Act. Our standard of reviewing the district court's grant of a motion to dismiss is plenary. Chester County Intermediate Unit v. Pennsylvania Blue Shield, 896 F.2d 808, 810-811 (3d Cir.1990).
Section 2 of the Act, codified at 15 U.S.C. § 1012, reads as follows:
Regulation by State law; Federal law relating specifically to insurance; applicability of certain Federal laws after June 30, 1948
(a) State regulation. The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.
(b) Federal regulation. 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.
The stated purposes of the Act, as expressed in section 1, are to leave regulation and taxation of the insurance business to the states and to ensure 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.
In considering the defendants' motion to dismiss the RICO claims, the district court adopted a four-part test announced in Wexco Inc. v. IMC, Inc., 820 F.Supp. 194, 198 (M.D.Pa.1993) which provides that the McCarran-Ferguson Act precludes federal litigation if:
(1) the federal statute under which the allegedly precluded action is brought ... does not specifically relate to the "business of insurance"; (2) the complained-of activities constitute the "business of insurance"; (3) the relevant state has enacted laws for the purpose of regulating these complained-of activities; and (4) the application of the federal statute would, "invalidate, impair[,] or supersede" such laws.
Applying this test, the district court held that RICO does not specifically relate to the business of insurance, thus satisfying the first element of preclusion. As to the second element, the district court found that the plaintiff's complained-of activities did indeed constitute activity within the "business of insurance." Although plaintiff's complaint alleged fraud and coercion under RICO, the district court reasoned that the defendants' "underlying activity" involves the "promotion and sale of insurance policies to MetLife customers," which is central to the insurance business. Next, the district court found that Pennsylvania had enacted a comprehensive system of insurance regulation so that the third element of the preclusion analysis was met. Finally, the district court held that the application of RICO in an insurance context would "invalidate, impair, or supersede" Pennsylvania's insurance laws. The court arrived at this conclusion by comparing the remedial provisions of civil RICO () with Pennsylvania's insurance laws primarily providing for administrative remedies. It thus reasoned that all the elements of preclusion under the McCarran-Ferguson Act were satisfied which mandated a dismissal of the plaintiff's RICO claims.
The parties to this appeal focus their arguments on two rulings of the district court. First, they disagree as to the scope of the "insurance business" covered by the statute, and whether it applies to the conduct alleged in the complaint. Plaintiff emphasizes that the alleged predicate acts of racketeering activity stem from systematic behavior of "coercive and intimidating tactics" and thus cannot be construed to embrace the business of insurance. Defendants, on the other hand, assert that plaintiff's complaint necessarily relates to the insurance business because it attacks the heart of the insurance industry--specifically, how MetLife manages the licensing of its agents, the agents' authority to solicit insurance, and how agents receive commissions.
Second, both sides contest the proper construction of the "invalidate, impair, or supersede" phrase in 15 U.S.C. § 1012(b) quoted above. Plaintiff urges this court to adopt a "direct conflict" test, in which a federal statute would not "invalidate, impair, or supersede" a state law unless the federal legislation directly conflicts with substantive duties governed by state insurance law. Conversely, the defendants argue that any analysis of the Act's impairment should not focus on substantive conflict but instead should compare the plaintiff's broad federal RICO remedies with the exclusively administrative scheme adopted under Pennsylvania insurance laws. We will address these two arguments in turn.
As with any other issue of statutory construction, the starting point in the Act's interpretation is the language of the statute itself. Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 210, 99 S.Ct. 1067, 1072-73, 59 L.Ed.2d 261 (1979). Section 2(a) of the statute, by its terms, affirmatively subjects the business of insurance to state regulation. 15 U.S.C. § 1012(a). The statute then takes the further step of proscribing unintended federal interference of state insurance laws by a general mandate that no federal law "shall ... invalidate, impair, or supersede" any state law enacted "for the purpose of regulating the business of insurance." 15 U.S.C. § 1012(b). This preclusionary mandate does not apply when the federal statute in question "specifically relates to the business of insurance," in which case normal supremacy rules control and the federal statute trumps conflicting state law. 1
The Supreme Court has extensively reviewed the Act's legislative history, see, e.g., United States Dept. of the Treasury v. Fabe, 508 U.S. 491, 499-500, 113 S.Ct. 2202, 2206-08, 124 L.Ed.2d 449 (1993), Securities and Exchange Com'n v. National Securities, Inc., 393 U.S. 453, 458-59, 89 S.Ct. 564, 567-68, 21 L.Ed.2d 668 (1969), and has fully explained the legislative intent behind the statute's preclusionary approach to federal intrusion on state insurance laws:
[C]ongress' 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...
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