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MONARCH LIFE INS. CO. v. LOYAL PROTECTIVE LIFE INS

May 8, 1963

MONARCH LIFE INSURANCE COMPANY, Plaintiff,
v.
LOYAL PROTECTIVE LIFE INSURANCE COMPANY, Defendant



The opinion of the court was delivered by: LEVET

The defendant, Loyal Protective Life Insurance Company (Loyal), moves pursuant to Rule 12(b), Fed.R.Civ.P., to dismiss this action for lack of jurisdiction of the subject matter.

The complaint seeks treble damages from the defendant for the latter's violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. It alleges that both the plaintiff and the defendant are Massachusetts insurance companies licensed to and doing business in the State of New York; that both are in competition in the sale of accident and health insurance in interstate commerce throughout the United States; and that the defendant and a former general agent of the plaintiff conspired to illegally eliminate, restrain and boycott the plaintiff. Jurisdiction is alleged on the existence of a federal question and the amount in controversy, 28 U.S.C. § 1331 and 1337; Section 4 of the Clayton Act, 15 U.S.C. § 15, and Section 3(b) of the McCarran Ferguson Act, 15 U.S.C. § 1013(b).

A brief history of the statutory background is necessary to give a setting to the jurisdictional question posed. As part of the original Sherman Act, Congress enacted in 1890 Section 7 (26 Stat. 210), which provided jurisdiction and venue for private treble damage actions for violations of the Sherman Act. Thereafter, in 1914, Congress enacted the Clayton Act (38 Stat. 730) 'to supplement existing laws against unlawful restraints and monopolies, and for other purposes.' Section 4 of that Act (38 Stat. 731) provided 'that any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee.'

 Prior to 1944, the Supreme Court had held that the issuance of an insurance policy was not commerce (Paul v. Virginia, 8 Wall. 168, 19 L. Ed. 357 (1868); Hooper v. People of State of California, 155 U.S. 648, 654-655, 15 S. Ct. 207, 39 L. Ed. 297 (1895); New York Life Ins. Co. v. Deer Lodge County, 231 U.S. 495, 503-504, 34 S. Ct. 167, 58 L. Ed. 332 (1913)), and the several states retained the sole authority to regulate the insurance industry (see Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 414-416, 66 S. Ct. 1142, 90 L. Ed. 1342 (1946)).

 However, in 1944, the Supreme Court in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440, decided that a fire insurance company which conducted a substantial part of its business across state lines is engaged in 'commerce among the several states' and subject to regulations by Congress under the Commerce Clause (id. at 539, 64 S. Ct. at 1166) and that Congress did not intend that the business of insurance should be exempt from the operation of the Sherman Act (id. at 553, 560, 64 S. Ct. at 1173, 1177).

 In response to that decision, Congress in 1945 passed an Act, 'to express the intent of the Congress with reference to the regulation of the business of insurance.' (59 Stat. 33 (1945), 15 U.S.C. §§ 1011-1015, hereinafter the 'McCarran Act'), which provided in part:

 '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)

 'Sec. 2. (a) 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) 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 January 1, 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)

 'Sec. 3. (a) Until January 1, 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, and the Act of June 19, 1936, known as the Robinson-Patman Anti-discrimination Act, shall not apply to the business of insurance or to acts in the conduct thereof.

 '(b) Nothing contained in this Act shall render the said Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation. (15 U.S.C. § 1013)

 'Sec. 4. Nothing contained in this Act shall be construed to affect in any manner the application to the business of insurance of the Act of July 5, 1935, as amended, known as the National Labor Relations Act, or the Act of June 25, 1938, as amended, known as the Fair Labor Standards Act of 1938, or the Act of June 5, 1920, known as the Merchant Marine Act, 1920. (15 U.S.C. § 1014)' *fn1"

 Under Section 2(b) of the McCarran Act Congress specifically provided that the Sherman Act, the Clayton Act and the Federal Trade Commission Act shall not be applicable to the business of insurance in states where that business is regulated by state law. There was, however, a retention of federal jurisdiction in Section 3(b) to the effect that nothing in the McCarran Act shall prevent the applicability of the Sherman Act to any act or agreement of boycott, coercion or intimidation.

 There is no question but that the State of New York regulates the business of insurance. See N.Y.Insurance Law, McK.Consol.Laws, c. 28 and N.Y. General Business Law, § 340, McK.Consol.Laws, c. 20. Consequently, the pro tanto repeal of the Sherman, Clayton and Federal Trade Commission Acts provided for in Section 2(b) is effective in New York and applicable to this case, subject only to the exceptions specified in Section 3(b) of the Act.

 On July 7, 1955, Congress repealed Section 7 of the Sherman Act which, prior to that time, had provided for private treble damage actions for violations of the Sherman Act (69 Stat. 283 (1955)).

 DEFENDANT'S CONTENTIONS

 Loyal contends '(1) that Section 2(b) of the McCarran Act repeals the Sherman and Clayton Acts with respect to the insurance industry to the extent that this industry had been regulated by State law; (2) that Section 3(b) of the McCarran Act makes only the Sherman Act applicable to cases involving boycott, coercion, or intimidation, despite the repeal effected by Section 2(b); (3) that Section 4 of the Clayton Act, which provides a private treble damage remedy, is not made applicable to boycott violations of the Sherman Act by Section 3(b) of the McCarran Act; (4) that Congress in repealing in 1955 Section 7 of the Sherman Act, which also provides a private treble damage remedy for Sherman Act violations, intended to confine suits under Section 3(b) of the McCarran Act to suits brought by the government, and to deprive private plaintiffs of the treble damage remedy and other civil remedies; and (5) that consequently since 1955 there has been no statutory basis for this court to award treble damages under Section 4 of the Clayton Act in actions based on Section 3(b) of the McCarran Act brought by private plaintiffs.'

 The apparent conflict between the lack of any jurisdictional basis in the Sherman Act for private treble damage actions alleging boycott in the insurance industry since the repeal of Section 7 and the continued applicability of the Sherman Act by virtue of Section 3(b) of the McCarran Act poses the jurisdictional issue in this case. The issue may be presented in three questions:

 1. Does this court have jurisdiction under Section 3(b) of the McCarran Act?

 2. Does Section 4 of the Clayton Act provide jurisdiction in spite of the Clayton Act's express inapplicability by the terms of Section 2(b) of the McCarran Act?

 3. Absent jurisdiction under the specific provisions of the Sherman, Clayton and McCarran Acts, does this court have jurisdiction under 28 U.S.C. § 1331 and 1337?

 I.

 JURISDICTION UNDER SECTION 3(b) OF THE ...


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