Petition — General Adjustment Bureau, Inc. v. Mac Adjustment, Inc.

@ U,

FILED

AUG 27 1979

MIGHABL RODAK, JR.. CLERK

Inthe Supreme Court of the Wnited Sites

OcTOBER TERM, 1979

No. .--§- 9-3 1 1

GENERAL ADJUSTMENT BUREAU, INC. and

PROPERTY LOSS RESEARCH BUREAU,

Petitioners,

VERSUS

MAC ADJUSTMENT, INC., and B. J. GOSTING,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CXRCUIT

D. Kent Meyers

Jim K. Goodman

John J. Love

CROWE, DUNLEVY, THWEATT,

SWINFORD, JOHNSON & BURDICK

1700 Liberty Tower

Oklahoma City, Oklahoma 73102

and

Clarence W. Olmstead, Jr.

SHEARMAN & STERLING

53 Wall Street

New York, New York 10005

Counsel for Petstioner,

General Adjustment Bureau, lic.

Burck Bailey

Terry W. Tippens

Margaret McMorrow Love

FELLERS, SNIDER, BLANKENSHIP,

BAILEY & TIPPENS

2700 First National Center

Oklahoma City, Oklahoma 73102

Counsel for Petstioner,

August, 27, 1979 Property Loss Research Bureau

-—e— error rr wr wrwr

UTTERBACK TYPESETTING CO. — PHONE 235-0090 — 3740 S. HOLLIDAY AVE. — OKLA. CITY, OKLA. 73115

TABLE OF CONTENTS

I cytes acdeorieeryoein-nccns—neremvenonieanionanise

aeons tahciincanintebonntorions

QUmstme Fm cee

STATUTORY PROVISIONS INVOLVED __

Siamese Ge aeee CARS

REASONS FOR GRANTING THE WRIT __...

I. The Opinion Below, Permitting an Antitrust

Plaintiff to Defeat Summary Judgment Which

Challenges the Jurisdictional Predicate of the

Action By Failure to Submit Any Evidence to

Show the Existence of the Required Nexus

With Interstate Commerce, Will Create Seri-

ous Problems in the Orderly Administration of

the Federal Judicial System —...-..----...

II. The Opinion Below Erroneously Condemns the

Use of an Evidentiary Hearing by the District

Court in Its Consideration of a Motion for Sum-

mary Judgment Which Challenges the Juris-

dictional Predicate of the Action —.....

APPENDIX A—Complaint filed in U.S. District Court

for the Western District of Oklahoma (Oct. 26,

APPENDIX B—Memorandum Opinion and Order of

the U.S. District Court for the Western District of

ee ee, Oe,

11

14

A-l

B-1

eviiliien

TABLE OF CONTENTS

APPENDIX C—Order of U.S. District Court for the

Western District of Oklahoma Sustaining Defend-

ants’ Motions for Summary Judgment (Sept. 27,

PE So Loca cosenisiptiodiphaalentiunmiGaatcanibaiaapaoimumacrssena

APPENDIX D—Judgment of the U.S. Court of Ap-

peals, 10th Circuit, reversing the Judgment of the

U.S. District Court for the Western District of Ok-

SU NN So icc tre

APPENDIX E—Order of U.S. Court of Appeals, 10th

Circuit, denying Petition for Rehearing (June 1,

1979)

PAGE

C-1

D-1

E-1

_

TABLE OF AUTHORITIES

Cases

Arrington v. The = dg of Fairfield, Alabama, 414 F.2d

687 (5th Cir. 1969) - icecoes ee

Bufalino v. Michigan Bell 1 Telephone Company, 404

F.2d 1023 (6th Cir. 1968), cert. den., 394 U.S. 987

I eit ctenitiincadiibteaaceoe etal cestaies dost andiaatbctigion

Burnham Chemical Co. v. Borax Consolidated, Ltd.,

170 F.2d 569 (9th Cir. 1948), cert. den., 336 U.S. 924,

reh’g den., 336 U.S. 995, ‘hc den. 337 U.S. 961

RI Micra. canrccenecadenshsccskicanie scitaraiga eds sacecacaede ease ia eee ices

Chan Wing Cheung v. Hamilton, 298 F.2d 459 (lst

GN IID serosatsciconceuieniscadieianbesnncmccgias RUSE Ree

Fender v. General Electric eee: 380 F.2d 150

re are I kc 5 i,

First National Bank of Arizona v. Cities Service Co.,

391 U.S. 253, reh’g den., 393 U.S. 901 (1968)

Georgia Southern and Florida Railway Company v.

Atlantic Coast Line Railroad Company, 373 F.2d 493

(5th Cir.), cert. den., 398 U.S. 851 (1967)

Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186

| SSRN SPSS AREE LAR er ee BOs Bee ele PS ae

Hospital Building Co. v. Trustees of the Rex Hospital,

425 U.S. 738 (1976)

Las Vegas Merchant Plumbers Association v. United

States, 210 F.2d 732 (9th Cir. 1954), cert. den., 348

U.S. 817, reh’g den., 348 U.S. 889 (1954)

Page v. Work, 290 F.2d 323 (9th Cir.), cert. den., 368

Be I aia sath cseceionnrest eo ochiduaplapneiionenc cicdemncaieaen

Poller v. Columbia shitictaiie ee 368 U.S. 464

(1962) . at

PAGE

13

13

10

=f You

AUTHORITIES CONTINUED PAGE

United States v. Yellow Cab Company, 332 U.S. 218

(WP) . ee aaron aches tee pi setae eet ae 8

Rules

Fed. R. Civ. P. BGG) acco eee 11

Miscellaneous

Moore’s Federal Practice, $56.11[8] 00-1

10 Wright and Miller, Federal Practice and Procedure,

> yy neem 12

ER ON RTI rn

In the

Supreme Court of the United States

OcTOBER TERM, 1979

No.

GENERAL ADJUSTMENT BUREAU, INC. and

PROPERTY LOSS RESEARCH BUREAU,

Petitioners,

VERSUS

MAC ADJUSTMENT, INC., and B. J. GOSTING,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

es

The petitioners, General Adjustment Bureau, Inc. and

Property Loss Research Bureau, respectfully pray that a

writ of certiorari issue to review the judgment and opinion

of the United States Court of Appeals for the Tenth Cir-

cuit entered in this proceeding on April 30, 1979.

The opinion of the Court of Appeals is reported at

597 F.2d 1318 (10th Cir. 1979) and appears in the Appendix

hereto. The opinion and order of the United States District

Court for the Western District of Oklahoma were not

published, but appear in the Appendix.

a

JURISDICTION

The judgment of the Court of Appeals for the Tenth

Circuit was entered April 30, 1979. A timely Petition for

Rehearing and Suggestion for Rehearing en Banc was de-

nied on May 30,.1979, and this Petition for Certiorari was

filed within 90 days of that date. This Court’s jurisdiction is

invoked under 28 U.S.C. § 1254(1).

The jurisdiction of the District Court was invoked

under Section 1 of the Sherman Act, 15 U.S.C. §1, and

under 28 U.S.C. § 1337.

QUESTIONS PRESENTED

1. Whether the plaintiff in a Sherman antitrust case

must show, in response to a Motion for Summary Judg-

ment which challenges only the jurisdictional predicate

of plaintiff’s action, the existence of a sufficient nexus with

interstate commerce to warrant the exercise of federal

jurisdiction.

2. Whether a Federal District Court may conduct an

evidentiary hearing in considering a Motion for Summary

Judgment which challenges only the jurisdictional predi-

cate of plaintiff’s action.

STATUTORY PROVISIONS INVOLVED

United States Code, Title 15:

“$1. Trusts in Restraint of Trade Illegal:

“Every contract, combination in the form of trust

or otherwise, or conspiracy, in restraint of trade or

commerce among the several states, or with foreign

nations, is declared to be illegal... .”

=

Federal Rules of Civil Procedure:

“Rule 43(e): Evidence on Motions.

“When a motion is based on facts not appearing of

record the court may hear the matter on affidavits

presented by the respective parties, but the court may

direct that the matter be heard wholly or partly on

oral testimony or deposition.”

STATEMENT OF THE CASE

Respondents, Mac Adjustment, Inc., and its president

and sole owner, B. J. Gosting, filed suit in the United

States District Court for the Western District of Oklahoma,

under Section 1 of the Sherman Act, 15 U.S.C. § 1, alleging

that petitioners conspired to damage Mac’s adjusting busi-

ness. A copy of the complaint is reproduced in the Ap-

pendix hereto. Petitioners filed answers denying the exist-

ence of any alleged conspiracy and further stating that

the matters complained of neither occurred in the flow

of, nor substantially affected, interstate commerce.

At the first pretrial conference held in this matter, on

March 1, 1977, the District Court requested that the parties

conduct discovery on the two jurisdictional questions raised

by the pleadings, i.e., the applicability of the McCarran-

Ferguson exemption (15 U.S.C. § 1101, et seq.) and fur-

ther, whether there in fact existed the required nexus

between the alleged conspiracy and interstate commerce.

During the ensuing six-month period, respondents made

no attempt to conduct any discovery. Petitioners pro-

pounded Interrogatories to the respondents, and conducted

an exhaustive search of documents produced by the re-

spondents which allegedly showed the existence of the

nexus with interstate commerce.

en

In their Answers to Interrogatories, respondents ac-

knowledged that they were in competition only with other

Oklahcma adjusting firms, and that the sole office of Mac

Adjustment, Inc. was, and always had been located in

Ponca City, Oklahoma. The sole damage which was caused

by the alleged conspiracy was to respondents’ adjusting

business in Ponca City, Oklahoma.

At the conclusion of this first phase of discovery,

petitioners filed Motions for Summary Judgment on the

two ,urisdictional issues noted above. After considering the

briefs, the District Court denied petitioners’ motions in-

sofar as they related to the McCarran exemption, for the

reason that the acts complained of were not the “business

of insurance’, as that term is used in the McCarran Act.

In its opinion, the District Court specifically reserved rul-

ing on the interstate commerce issue, and set the matter

down for further pretrial conference to determine the

proper method of developing the record to permit a ruling

on that question.

At the second pretrial conference, held on August 30,

1977, the court determined that an evidentiary hearing

should be held at which all parties would be permitted to

present evidence on the interstate commerce issue. The

court invited all parties to present adffiavits or other evi-

dence to the court prior to this hearing.

On September 15, 1977, the evidentiary hearing was

held, during which respondents presented the testimony

of Mr. Gosting and some thirty-seven exhibits which al-

legedly showed the existence of the required nexus be-

tween the alleged conspiracy and interstate commerce. The

~

District Court made no attempt to limit the introduction

of any evidence.

During the course of Mr. Gosting’s testimony, he in-

dicated that, while he could cross state lines in order to

adjust an insurance claim, he rarely did so; the normal

practice was to refer out-of-state claims to adjusters lo-

cated in the vicinity of the loss. In fact, of the 1400-1500

adjustments performed by respondents during the time

they were engaged in business, only seven or eight could

be shown to have occurred in a location outside the State

of Oklahoma.

Respondents presented no additional evidence to the

court at the evidentiary hearing, and, in response to an

inquiry from the court, they indicated that no additional

facts could be developed if further discovery were per-

mitted. Finding that there was no possibility of additional

evidence which would warrant a trial, the District Court

thereupon granted both of the petitioners’ Motions for

Summary Judgment, and dismissed the respondents’ Com-

plaint with prejudice.

On appeal, the Court of Appeals for the Tenth Circuit

reversed, holding, inter alia, that the utilization of an evi-

dentiary hearing in passing upon a Motion for Summary

Judgment was unauthorized by the Federal Rules of Civil

Procedure, and that plaintiffs should be given an oppor-

tunity to develop further evidence on the jurisdictional

question. A timely Petition for Rehearing and Suggestion

for Rehearing en Banc was denied by the Court of Appeals.

i

REASONS FOR GRANTING THE WRIT

I.

THE OPINION BELOW, PERMITTING AN ANTI-

TRUST PLAINTIFF TO DEFEAT SUMMARY JUDG-

MENT WHICH CHALLENGES THE JURISDICTIONAL

PREDICATE OF THE ACTION BY FAILURE TO SUB-

MIT ANY EVIDENCE TO SHOW THE EXISTENCE

OF THE REQUIRED NEXUS WITH INTERSTATE

COMMERCE, WILL CREATE SERIOUS PROBLEMS

IN THE ORDERLY ADMINISTRATION OF THE FED-

ERAL JUDICIAL SYSTEM.

The District Court below attempted to provide for

the orderly disposition of what could have developed into

a highly complex and lengthy lawsuit. At the outset, the

parties and the District Court agreed that discovery should

be limited to the jurisdictional questions raised by the

pleadings. During the six months which elapsed between

the first pretrial conference and the dismissal of their

case, respondents made no effort to conduct-any discovery

whatsoever. When presented with petitioners’ Motions for

Summary Judgment which were based. upon the admis-

sions made and documents produced by respondents, they

made no effort to show the required nexus between the

alleged conspiracy and interstate commerce.

Rather, respondents limited their answer to the Mo-

tions for Summary Judgment to legal argument by way

of briefs, and the testimony of Mr. Gosting at the evi-

dentiary hearing. The facts presented by respondents to

the District Court showed no impact whatsoever upon in-

terstate commerce, but rather merely attempted to estab-

lish that respondents’ business had been injured. In its

anion

opinion, the Court of Appeals correctly characterized Mr.

Gosting’s testimony as “not satisfactory” for this very

reason. Despite this, the Court of Appeals reversed the

entry of Summary Judgment, in effect holding that peti-

tioners should be forced to a jury trial simply because

respondents failed to show the necessary impact on inter-

state commerce.

It is well settled that a plaintiff claiming relief under

the Sherman Act must demonstrate that the actions of

defendant either impeded the flow of, or substantially and

adversely affected interstate commerce. See e.g., Hospital

Building Co. v. Trustees of the Rex Hospital, 425 U.S. 738

(1976). As the Court of Appeals for the Ninth Circuit has

summarized this two-fold test:

“A case under the antitrust laws, so far as the inter-

state commerce element is concerned may rest on one

or both of two theories:

1. That the acts complained of, occurred within

the flow of interstate commerce. This is generally

referred to as the ‘in commerce’ theory.

2. That the acts complained of, occurred wholly

on the state or local level, in intrastate commerce,

but substantially affected interstate commerce.” Las

Vegas Merchant Plumbers Association v. United

States, 210 F.2d 732, 739, fn. 3 (9th Cir. 1954), cert.

denied, 348 U.S. 817, reh’g denied, 348 U.S. 889

(1954).

In the District Court, respondents were unable to show

that the alleged conspiracy occurred in the flow of inter-

state commerce. Rather, they argued that the business of

insurance, taken as a whole, operated in interstate com-

merce; respondents argued that because they were part of

—

the business of insurance, ipso facto, any conspiracy di-

rected toward them would automatically have occurred

in the flow of interstate commerce. The District Court

properly rejected this theory. As this Court has noted,

“interstate commerce is an intensely practical concept

drawn from the normal and accepted course of business.

...” United States v. Yellow Cab Company, 332 U.S. 218,

231 (1947).

Similarly, the respondents failed to demonstrate that

the alleged conspiracy had a substantial and adverse effect

upon interstate commerce. In fact, respondents presented

no evidence of any effect whatsoever, adverse or otherwise,

on commerce. Respondents evidently believed that it would

be sufficient for them to show that they had been injured,

without presenting any proof of an effect upon commerce.

Such a showing is insufficient to warrant the exercise of

federal antitrust jurisdiction. See, e.g., Page v. Work, 290

F.2d 323 (9th Cir.), certuwclenied, 368 U.S. 875 (1961).

Petitioners acknowledge that “dismissals prior to giv-

ing the plaintiff ample opportunity for discovery should be

granted very sparingly.” Hospital Building Co. v. Trustees

of Rex Hospital, 425 U.S. 738, 746. However, petitioners

would note that in the Rex Hospital case, the District Court

had entered a dismissal under Rule 12, Federal Rules of

Civil Procedure, for the failure of the complaint to state

a claim upon which relief could be granted. Mr. Justice

Marshall, writing for the Court specifically pointed out,

however:

“It may, of course, be that even though Petitioner’s

complaint adequately alleges an effect on interstate

commerce, further proceedings in this case will demon-

-

strate that Respondents’ conduct, in fact involves no

violation of law, or indeed no substantial effect on

: interstate commerce element.” Gulf Oil Corp. v. Copp

Trustees of Rex Hospital, 425 U.S. 738, 747, n. 5.

In the case at bar, Petitioners heeded this admonition,

and conducted extensive discovery solely on the interstate

commerce question. Petitioners thereafter filed their Mo-

tions for Summary Judgment under Rule 56. As this Court

has noted, in a decision under the Robinson-Patman Act:

“There is no objection to use, in appropriate cases, of

Summary Judgment procedure to determine whether

there is a genuine issue of material fact as to the

interstate commerce elements.” Gulf Oil Corp. v. Copp

Paving Co., 419 U.S. 186, 203, n. 19 (1974).

In reversing the District Court’s Entry of Summary

Judgment in this case, the Court of Appeals ignored the

mandate of this Court in First National Bank of Arizona v.

Cities Service Co., 391 U.S. 253, 289-290, reh’d denied, 393

U.S. 901 (1968). In that decision, in response to the de-

fendant’s Motion for Summary Judgment under Rule 56,

plaintiff failed to produce any evidence showing the exis-

tence of a conspiracy. In affirming the granting of Sum-

mary Judgment to the defendant, this Court held:

‘““l'o the extent that Petitioner’s burden-of-proof argu-

ment can be interpreted to suggest that Rule 56(e)

should, in effect, be read out of antitrust cases and

permit plaintiffs to get a jury on the basis of the

allegations in their complaint, coupled with the hope

that something can be developed at the trial in the

way of evidence to support those allegations, we de-

cline to accept it. While we recognize the importance

of preserving litigants’ rights to a trial on their claims,

onlin

we are not prepared to extend those rights to the point

of requiring that anyone who files an antitrust com-

plaint setting forth a valid cause of action be entitled

to a full-dress trial notwithstanding the absence of

any significant probative evidence tending to support

the complaint.”

The District Court thus properly followed the guide-

lines set down by this Court in its dismissal of respondents’

action. The granting of Summary Judgment under Rule 56

was the most appropriate method of disposing of this liti-

gation. It also exemplifies the type of case discussed by

Mr. Justice Harlan in his dissenting opinion in Poller v.

Columbia Broadcasting System, 368 U.S. 464 (1962). Writ-

ing for four members of this Court, he stated:

“In administering the rule (Rule 56, Fed. R. Civ. P.),

the availability of pretrial discovery, as well as matter

actually discovered, is a factor to be considered in

determining whether a ‘genuine issue as to any ma-

terial fact’ is open. (Citation omitted). Further, the

Rule does not indicate that it is to be used any more

‘sparingly’ in antitrust litigation than in other kinds

of litigation, or that its employment in antitrust cases

is subject to more stringent criteria than in others.

On the contrary, without reflecting in any way upon

the good faith of this particular lawsuit, having regard

for the special temptations that the statutory private

antitrust remedy affords for the institution of vex-

atious litigation, and the inordinate amount of time

that such cases sometimes demand of the trial courts,

there is good reason for giving the Summary Judg-

ment rule its full legitimate sweep in this field.” 368

U.S. at 478.

The opinion below condemns the use of Summary

Judgment in cases in which an antitrust plaintiff himself

=

fails to establish the required nexus between the activities

of which he complains and interstate commerce. In so hold-

ing, the Court of Appeals has permitted such plaintiffs to

proceed to a jury trial based solely upon their complaint,

coupled with their own failure to develop the evidence on

the commerce question. The consequence of such a ruling,

especially in the complex field of antitrust litigation, would

undoubtedly compound the heavy caseload of the already

beleaguered federal judiciary. Because of this, petitioners

respectfully suggest that this Court exercise its discretion

and grant a writ of certiorari to the Court of Appeals to

review this judgment.

Il.

THE OPINION BELOW ERRONEOUSLY CONDEMNS

THE USE OF AN EVIDENTIARY HEARING BY THE

DISTRICT COURT IN ITS CONSIDERATION OF A

MOTION FOR SUMMARY JUDGMENT WHICH CHAL-

LENGES THE JURISDICTIONAL PREDICATE OF

THE ACTION.

The District Court, after considering the briefs of the

parties and the evidence before it on the Motions for Sum-

mary Judgment filed by petitioners, found that the record

was not complete, and required supplementation. There-

after, at the second pretrial conference, the District Court

directed that the matter be set down for an evidentiary

hearing, evidently relying upon the clear language of Rule

43(e), Federal Rules of Civil Procedure, which states:

“Evidence on Motions. When a Motion is based on

facts not appearing of record the Court may hear the

matter on affidavits presented by the respective parties,

but the Court may direct that the matter be heard

wholly or partly on oral testimony or deposition.”

—1l2—

Rather than hearing the matter on affidavits, the District

Court permitted respondents to present any facts in their

possession at the evidentiary hearing.

It has long been accepted that Rule 43(e) is fully

applicable to Motions for Summary Judgment under Rule

56. See, e.g., Moore’s Federal Practice, {| 56.11[8]; 10 Wright

and Miller, Federal Practice and Procedure, § 2723. Despite

this, and even though respondents never argued that the

evidentiary hearing was improper, the Court of Appeals

below so held.

Despite the apparently clear language of Rule 43(e),

the opinion below states:

“There is, of course, no provision in the Rules of

Civil Procedure for having a hearing of the kind that

was here conducted, that is, an in limine hearing to

decide whether or not the plaintiffs could sufficiently

satisfy the jurisdictional requirement of being engaged

in interstate commerce so as to justify going to trial.”

The Courts cf Appeals for other circuits that have

considered the propriety of holding evidentiary hearings

during proceedings on a Motion for Summary Judgment

have concluded that such hearings are, indeed, proper. One

of the first decisions to consider such a procedure was

Burnham Chemical Co. v. Borax Consolidated, Ltd., 170

F.2d 569 (9th Cir. 1948), cert. denied, 336 U.S. 924 reh’g

denied, 336 U.S. 955, reh’g denied, 337 U.S. 961 (1949).

The Court of Appeals for the Ninth Circuit in that decision

characterized the procedure of permitting an evidentiary

hearing on a Rule 56 motion for summary judgment as

being “both rational and in harmony with the spirit and

oe

the purpose of the Rules of Civil Procedure. See R. Civ.

P. 43(e).” 170 F.2d at 573. To the same effect is Fender v.

General Electric Company, 380 F.2d 150, 152 (4th Cir.

1967).

The holding of such an evidentiary hearing has been

reviewed without express comment by the Court of Ap-

peals for the Sixth Circuit. Bufalino v. Michigan Bell Tele-

phone Company, 404 F.2d 1023 (6th Cir. 1968) cert. denied,

394 U.S. 987 (1969). The First Circuit, in reviewing this

procedure, has criticized it, but without expressly disap-

proving of its use. Chan Wing Cheung v. Hamilton, 298

F.2d 459 (1st Cir. 1962). The Court of Appeals for the

Fifth Circuit has considered the question on two occasions,

once criticizing, but not expressly disapproving of its use,

Georgia Southern and Florida Railway Company v. At-

lantic Coast Line Railroad Company, 373 F.2d 493 (5th

Cir.) cert. denied, 398 U.S. 851 (1967), and once reviewing

such a procedure without express comment, Arrington v.

The City of Fairfield, Alabama, 414 F.2d 687 (5th Cir.

1969).

The opinion rendered below by the Court of Appeals

for the Tenth Circuit marks the first time that a Court of

Appeals has expressly condemned and prohibited the use

of evidentiary hearings in passing on a Motion for Sum-

mary Judgment. Thus, that decision not only violates the

express mandate of Rule 43(e), Federal Rules of Civil

Procedure, but it has created a conflict among the circuits.

Petitioners therefore respectfully suggest that the instant

case is appropriate for review by this Court, and that a

writ of certiorari should be granted to review the opinion

rendered below.

oniiliens

CONCLUSION

For these reasons, a writ of certiorari should issue

to review the judgment and opinion of the Court of Ap-

peals for the Tenth Circuit.

August, 27, 1979

D. Kent Meyers

Jim K. Goodman

John J. Love

CROWE, DUNLEVY, THWEATT,

SWINFORD, JOHNSON & BURDICK

1700 Liberty Tower

Oklahoma City, Oklahoma 73102

(405) 235-7700

and

Clarence W. Olmstead, Jr.

SHEARMAN & STERLING

53 Wall Street.

New York, New York 10005

(212) 483-1000

Counsel for Petitioner,

General Adjustment Bureau, Inc.

Burck Bailey.

Terry W. Tippens

Margaret McMorrow Love

FELLERS, SNIDER, BLANKENSHIP,

BAILEY & TIPPENS

2700 First National Center —

Oklahoma .City, Oklahoma 73102

(405) 232-0621

Counsel for Petitioner,

Property Loss Research Bureau |

APPENDICES

APPENDIX A

UNITED STATES DISTRICT COURT FOR THE

WESTERN DISTRICT OF OKLAHOMA

MAC ADJUSMENT, INC., )

an Oklahoma Corporation, )

and B. J. GOSTING, )

Plaintiff, )

vs. ) CIV-76-0848-E

GENERAL ADJUSTMENT BUREAU, _)

INC., )

a New York Corporation, and )

PROPERTY LOSS RESEARCH BUREAU,)

an unincorporated association, )

Defendants. )

COMPLAINT

I.

This complaint is filed and the proceedings are insti-

tuted under Section 1 of the Act of Congress of July 2,

1890, entitled “An Act to protect trade and commerce

against unlawful restraints and monopolies”, as amended,

commonly known as the Sherman Act to recover damages

for injury by defendants to the business and property of

plaintiff sustained by reason of violations by defendants

as hereinafter alleged. Plaintiff seeks the recovery of three-

fold damages by him sustained, and the costs of suit, in-

cluding a reasonable attorney’s fee, all as provided by

Title 15 U.S.C.A. § 15.

II.

This court has jurisdiction of the subject matter of

this complaint under the Act of June 25, 1948, 62 Stat.

931; Title 28 U.S.C.A. § 1337. ©

A-2

(APPENDIX)

Il.

Plaintiff Mac Adjustment, Inc. is and at all times herein

mentioned was a corporation duly organized and existing

under and by virtue of the laws of the State of Oklahoma,

with its principal place of business in the City of Ponca

City, County of Kay, State of Oklahoma, engaging in the

insurance adjustment business as an independent adjuster

for various insurance companies both within and without

the State of Oklahoma. In conducting its business plaintiff

competes and at all times herein mentioned has competed

with other independent adjusting firms, including the de-

fendant corporation, General Adjustment Bureau, Inc.

IV.

Defendant, General Adjustment Bureau, Inc., is and

at all times herein mentioned was a corporation duly or-

ganized and existing under and by virtue of the laws of

the State of New York, with its home office at 123 William

Street in the City of New York, State of New York. Said

defendant is and at all times herein mentioned was engaged

in the insurance adjustment business throughout the United

States and in certain foreign countries, maintaining some

600 different branch offices, adjusting claims filed against

various insurance companies by persons who have sus-

tained losses for which they seek to be compensated by

insurance, and in direct competition with plaintiff and

other independent adjusting firms. The business conducted

by these independent adjusting firms and corporations, in-

cluding that of the plaintiff and the defendant, is carried

on in interstate commerce. Adjustments are made of claims

filed in numerous cities and states throughout the United

States for insurance companies which are engaged in busi-

ness within many different cities and states throughout

the United States, in return for the payment of money.

Defendant, Property Loss Research Bureau, is an un-

incorporated association of Chicago, Illinois and has as its

members, some 100 insurance companies, among which is

A-3

(APPENDIX)

Iowa Mutual Insurance Company, a company licensed to

do business in the State of Oklahoma.

As a direct and proximate result of the defendants’

violations as set forth in the following paragraphs, which

violations constituted an illegal restraint of trade under

Section 1 of the Sherman Act, the plaintiff has been in-

jured in its business and property in diverse ways, as will

be hereinafter set forth.

V.

Between November 19, 1973, and December 20, 1974,

and at other subsequent times known to the defendants

but unknown to the plaintiff, the defendant, General Ad-

justment Bureau, acted in concert with Property Loss Re-

search Bureau in an effort to ccerce, direct, influence and

thereby cause insurance companies, including Iowa Mutual,

to refuse and refrain from doing business with plaintiff,

MAC Adjustment, Inc. In this connection, defendants en-

gaged in a concerted attempt to injure and destroy the

plaintiff’s competitive position in the adjusting business

by the use of means which were not within the area of

fair and honest competition. Defendants made false, fraud-

ulent and unjustified statements and reports to lowa Mu-

tual Insurance Company, to other insurance companies, to

Southwest Adjustment Company, and to certain insurance

agents representing insurance companies, and even to in-

dividual insureds, with all of whom the plaintiff had dealt

or would have dealt in the future, regarding the plaintiff's

ability, competency, honesty and integrity in the handling

of losses in the adjustment business. These statements were

false, and known to be false at the time they were made;

were made to injure the plaintiff’s competitive position in

the adjusting business and resulted in unlawfullly increas-

ing defendants’ businesses, at the expense of plaintiff. Said

acts of defendants occurred in the Western District of

Oklahoma.

A-4

[APPENDIX)

As a direct and proximate result of these particular

violations the plaintiff has sustained the following injuries

to its business and property:

1. Plaintiff has as a result of said actions, acquired a

reputation in the insurance industry among many com-

panies, agents and other adjusting firms and corporations,

with whom he had dealt or would have dealt, that he does

not possess the qualities necessary to be considered a com-

petent adjuster. Because of the acts of the defendants,

plaintiff’s reputation in the adjusting business has been

severely damaged to the extent that companies, agents and

other adjusting firms and corporations are no longer willing

to do business with plaintiff, causing damage to the plain-

tiff as hereinafter set forth.

2. Plaintiff’s competitive position in the insurance ad-

justing business has been severely damaged to the extent

that he can no longer compete, with any degree of success,

with defendant, General Adjustment Bureau, and others

engaged in the independent adjusting business causing

damage to the plaintiff as hereinafter set forth.

VI.

Defendant, General Adjustment Bureau, has continued

from November of 1973 to the present, to act in concert

with, collude, conspire, ccmbine, and cooperate with Prop-

erty Loss Research Bureau and others known to the de-

fendants but unknown to the plaintiff, in a deliberate and

calculated effort to destroy the plaintiff's adjusting busi-

ness, with an intent to capture as General Adjustment

Bureau’s own, the business which plaintiff had been

handling, and to further prevent the plaintiff from expand-

ing its business.

Although plaintiff’s President, B. J. Gosting, was em-

played as an adjuster by the defendant, General Adjust-

ment Bureau, from the years 1963 through 1972, the said

defendant, though requested throughout 1975 and 1976, has

A-5

(APPENDIX)

refused to verify B. J. Gosting’s previous work history

with defendant to enable the plaintiff to become listed

and thereby advertise in the “Claim Service Guide”, a

publication which is the only source of detailed informa-

tion about adjusters, including their personal background,

with lines of insurance handled and references verified.

Plaintiff has made numerous requests of said defendant to

provide such verification but said defendant has refused

to cooperate. Defendant’s actions made it impossible for

plaintiff to obtain a verified listing in the aforesaid pub-

lication and has and will continue to result in a loss of

anticipated business to the plaintiff for the reason that a

verified listing in said publication would have been a po-

tential source of additional business to the plaintiff. De-

fendant’s refusal to verify plaintiff’s work history was a

calculated effort and attempt on the part of the officers,

directors and representatives of the defendants to restrain

plaintiff’s business and thus to impede the’ free exercise

of competition in the adjusting business, and was a direct

and proximate cause of damage to the plaintiff as herein-

after set forth.

VII.

Defendant, General Adjustment Bureau, acted in con-

cert with insurance companies during the year of 1973 and

at other times thereafter to conspire and agree to establish

uniform practices and procdures to be used in the adjust-

ment and settlement of insurance claims. In essence, said

defendant has been engaging in “quality control checks”

for these insurance companies by reviewing the work done

by the plaintiff and other independent adjusters such as

the plaintiff. This has given said defendant an unfair ad-

vantage in the adjusting industry and enabled said de-

fendant to eliminate competition and restrain trade by

treating itself and causing others in the insurance industry

to treat said defendant’s practices and procedures as a

uniform standard or guide to be used in the adjustment

and settlement of insurance claims. Plaintiff has sustained

A-6

(APPENDIX)

damage as hereinafter set forth as a direct and proximate

result of this concerted effort, conspiracy and agreement

of both defendants to restrain trade and impede free com-

petition in the adjusting business.

VIII.

The defendants’ actions as set forth in paragraphs V

through VII, inclusive, constitute violations of the Sherman

Act, Section 1, and directly and proximately caused injury

to plaintiff’s business by illegally restraining trade and

destroying the plaintifi’s competitive position in the ad-

justing business. The defendants’ acts have unduly re-

strained, hindered and suppressed competition between

plaintiff and defendants in the adjusting business in inter-

state commerce, and plaintiff has thereby been damaged

in the total sum of $750,000.00. Under said U.S.C.A., Title

15, Section 15, plaintiff is entitled to recover from defend-

ant treble damages and costs of suit, including a reasonable

attorney’s fee.

WHEREFORE, plaintiff prays for judgment against

defendannts in the amount of $750,000.00, said amount to

be trebled in accordance with the provisions of U.S.C.A.,

Title 15, Section 15, making a total of $2,250,000.00, for

plaintiff’s costs of suit, including reasonable attorney’s fees,

and for such other and further relief as the court may deem

just and proper. ;

(s) B. J. Gosting

B. J. Gosting

President of MAC Adjustment, Inc.

(s) Jack N. Shears

Jack N. Shears

Shears & Shears

Attorneys for Plaintiff

P.O. Box 2085

Ponca City, Oklahoma 74601

(405) 769-9984

APPENDIX B

IN THE UNITED STATES DISTRICT COURT FOR THE

WESTERN DISTRICT OF OKLAHOMA

MAC ADJUSTMENT, INC. )

an Oklahoma Corporation, )

and B. J. GOSTING, )

Plaintiffs, ) No.

VS. ) CIV-76-0848-E

INC.,

a New York corporation, and

PROPERTY LOSS RESEARCH BUREAU,)

an unincorporated association, )

Defendants, )

)

GENERAL ADJUSTMENT BUREAU, _ )

)

)

MEMORANDUM OPINION AND ORDER

oe Before LUTHER B. EUBANKS, United States District

udge.

The complaint alleges a combination and conspira

by the defendants in restraint of trade in violation a med

Sherman Act. Plaintiff! is an Oklahoma corporation “en-

gag[ed] in the insurance adjustment business as an inde-

pendent adjuster for various insurance companies both

within and without the State of Oklahoma.” Plaintiff al-

leges that the defendants undertook “a concerted attempt

to injure and destroy the plaintiff's competitive position

in the adjusting business” by influencing or coercing in-

surance companies to refrain from doing business with it.

1 Gosting is identified in the complaint as “plaintiff's P | ” ”

the allegations in the complaint are in the singular mage

this style and refer only to “plaintiff.” SAG. Fak cet WEE Salo

B-2

[APPENDIX]

The defendants move for summary judgment? on the

grounds that:

1. The provisions of the McCarran-Ferguson Act (15

U.S.C. § 1012) exempt them from liability under the Sher-

man Act; and

2. Their allegedly unlawful activity could have impact

on only local, and not interstate, commerce.

Determination

The “MaCarran exemption” provides that the Sher-

man Act is “applicable to the business of insurance to

the extent that such business is not regulated by State

law.” The threshold question is whether the activities com-

plained of partake of the nature of “the business of in-

surance.”

For the answer, the court first turns to the guidance

offered by the Supreme Court in SEC v. National Securi-

ties, Inc., 393 U.S. 453, 458-460 (1969):

“ _. [In enacting the McCarran-Ferguson Act] Con-

gress was mainly concerned with the relationship be-

tween insurance ratemaking and the antitrust laws,

and with the power of the States to tax insurance

companies. . . . The debates centered on these issues,

and the Committee reports shed little light on the

meaning of the words ‘business of insurance.’ . . . In

context, however, it is relatively clear what problems

Congress was dealing with. . . . The South-Eastern

2 Defendant Property Loss Research Bureau has moved for order of

dismissal, but joins in GAB'’s two arguments. The court is uncertain

whether this defendant's references to res judicata and prior state court

suits were made in the attempt to raise a third argument. Suffice it to

say no documentation relating to a final judgment from a court of compe-

tent jurisdiction on the merits of this controversy as between these parties

has been proffered. In any event, defendant's theory as to the impact of

the doctrine of res judicata on a court's subject-matter jurisdiction is

(necessarily) unclear.

B-3

fAPPENDIX)

Underwriters decision threatened the continued su-

premacy of the States in [the] area [of regulating

the dealings between insurers and their policyholders,

their negotiations, and the contract which resulted].

The McCarran Ferguson Act was an attempt to turn

back the clock, to assure that the activities of insur-

ance companies in dealing with their policyholders

would remain subject to state regulation. .. .

“Given this history, the language of the statute takes

on a different coloration. The statute did not purport

to make the States supreme in regulating all the ac-

tivities of insurance companies; its language refers not

to the persons or companies who are subject to state

regulation, but to laws ‘regulating the business of in-

surance.’ Insurance companies may do many things

which are subject to paramount federal regulation;

only when they are engaged in the ‘business of in-

surance’ does the statute apply. Certainly the fixing

of rates is part of this business; that is what South-

Eastern Underwriters was all about. The selling and

advertising of policies, . . . and the licensing of com-

panies and their agents . . . are also within the scope

of the statute. Congress was concerned with the type

of state regulation that centers around the contract

of insurance. . . . The 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.’ Undoubt-

edly, other activities of insurance companies relate so

closely to their status as reliable insurers that they

too must be placed in the same class. But--whatever

the exact scope of the statutory term, it is clear where

the focus was—it was on the relationship between the

insurance company and the policyholder.” (Citations

omitted. )

The court has carefully studied’ defendant GAB’s

thorough brief and examined the cases relied upon therein.

B-4

[APPENDIX]

The court has come to the conclusion, however, that the

activities complained of herein do not partake of the nature

of “the business of insurance” as defined by the Supreme

Court. The activities complained of are not incidents of

ratemaking, ratefixing, licensing or taxation, nor are they

incidents of the contract between, or the contractual re-

lationship between, insurers and their policyholders. The

activities complained of—allegedly concerted attempts to

disrupt the flow of business to plaintiff—are not peculiar

to the insurance business; what they are peculiar to is the

“Tanti-] business of restraint” and as such they are not

exempted by the McCarran Act from the reach of the

Sherman Act but rather are “subject to paramount federal

regulation.”

National Securities is not on point factually with the

case at hand. No case has been uncovered which is. How-

ever, in studying the myriad of opinions in which the

McCarran Act has been discussed, the court has concluded

that those relied upon by defendant(s] are less analogous®

than the following: Allied Financial Services, Inc. v. Fore-

most Ins. Co., 418 F.Supp. 157 (Neb. 1976); American Fam.

L. Assur. Co. v. Planned Mktg. Assoc., Inc., 389 F.Supp.

1148 (E.D. Va. 1974); DeVoto v. Pacific Fidelity Life In-

suranc Company, 354 F.Supp. 874 (N.D. Cal. 1973), aff'd,

516 F.2d 1 (9th Cir. 1975), cert. denied, 423 U.S. 894 (1975).

See also Zelson v. Phoenix Mut. Life Ins. Co., 549 F.2d 62,

69 (8th Cir. 1977), and compare the above two cases, cited

in note 11, with those cited in note 10. This court agrees

with the Court of Appeals for the Eighth Circuit that while

the holdings in Allied Financial Services and American

3 For example, Proctor v. State Farm Mut. Auto. Ins. Co., 406 F.Supp.

27 (D.C. 1975). That case involved a dispute over the adjustment and

settlement of claims, plaintiffs alleging that defendants had agreed among

themselves to fix prices for automobile repairs. The court held “claims-

settlement procedures are clearly ‘the business of insurance’ as defined in

National Securities, Inc., supra.” This court has no quarrel with that hold-

ing. It is simply not applicable here, where no allegation of any illegal

claims adjustment procedure is made.

B-5

[APPENDIX]

Family Life might be questionable,* they have had the

prophylactic effect of discouraging the practice of defining

the business of insurance as any activity in which an in-

surance company might be involved, and encouraging close

scrutiny on a case-by-case basis of the factors set out in

National Securities.

Given the foregoing, the question whether state law

regulates the activities is immaterial. Nor need the court

address plaintiff’s argument that in any event it is entitled

to the protection of § 1013(b).

Defendant GAB’s second argument is that the required

nexus between the alleged unlawful activities and com-

merce among the several states does not exist. The court

is not prepared to discount the suggestion that at the heart

of this lawsuit is a garden-variety claim of interference

with business relations essentially local in character. No

Suggestion is intended thereby of pre-judgment on the

merits of the claim as made. But the issue must be ad-

dressed inasmuch as the fact of restraint of interstate trade

is not only an element of the claim, it is a jurisdictional

prerequisite.

The court concludes that the issue cannot be resolved

on the record as developed on this notion. The facts here

are not as clear as in, e.g., Frackowiak v. Farmers Ins. Co.

Inc., 411 F.Supp. 1309 (Kan. 1976). At the pretrial con-

ference herein, depending on the status of discovery, the

determination will be made as to proper resolution,

whether by way of supplemental briefs, oral gum

: ar

and/or evidentiary hearing. “3

* “We have no doubt that much, and i

oubt . probably most, of

company’s dealing with its agents is within the suliblints cotublished by

National Securities. a Zelson, supra at 68; see also p. 69, note 12. Ameri-

can Family Life is criticized in Lawyer's Realty Corp v. Peninsular Title

a a a (E.D. 2 1977). At the core of Lawyer's Realty

, Was a dispute over the state insur ommissi 's refusal

to renew the plainti? s license. a aaah _—

B-6

(APPENDIX) .

Defendants’ motions denied in part; ruling reserved

in part.

IT IS SO ORDERED.

The Clerk of the Court is directed to mail a copy

hereof to counsel of record.

DATED this 23 day of August, 1977.

(s) Luther B. Eubanks

United States District Judge

APPENDIX C

IN THE UNITED STATES DISTRICT COURT FOR THE

WESTERN DISTRICT OF OKLAHOMA

MAC ADJUSTMENT, INC., an )

Oklahoma corporation and )

B. J. GOSTING, )

Plaintiffs, ) NO.

Vv. ) CIV-76-0848-E

GENERAL ADJUSTMENT BUREAU, _)

i ee )

a New York corporation and )

PROPERTY LOSS RESEARCH BUREAU, )

an unincorporated association, )

Defendants. )

ORDER SUSTAINING DEFENDANTS’

MOTIONS FOR SUMMARY JUDGMENT

NOW on this 15th day of September, 1977, there comes

on for evidentiary hearing the motions of defendants Gen-

eral Adjustment Bureau, Inc. and Property Loss Research

Bureau for summary judgment. The Court, after hearing

testimony of B. J. Gosting and receiving documentary evi-

dence and hearing argument of counsel, being fully advised

in the premises finds and

IT IS THEREFORE ORDERED, ADJUDGED AND

DECREED that defendants’ Motions for Summary Judg-

ment should be and the same hereby are sustained on the

grounds and for the reasons that the acts complained of

did not substantially affect interstate commerce, all as is

more particularly set forth in the transcript of this hearing

which includes the sworn testimony, the exhibits offered

and argument of counsel.

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that this action be dismissed.

UNITED STATES DISTRICT JUDGE

LUTHER B. EUBANKS

BA tr erm mm

APPENDIX D

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

No. 77-1986

MAC ADJUSTMENT, INC., an

Oklahoma corproation, and B. J.

GOSTING,

Plaintiffs-Appellants,

v.

GENERAL ADJUSMENT BUREAU,

INC., a New York corporation, and

PROPERTY LOSS RESEARCH

BUREAU, an unincorporated

association,

Defendants-Appellees.

United States

District Court

) _ for the

) Western District

) of Oklahoma

) (D.C. No.

) CIV-76-0848-E)

)

)

)

)

) Appeal from the

)

Before McWILLIAMS and DOYLE, Circuit Judges, and

MARKEY, Chief Judge.* |

DOYLE, Circuit Judge.

This is an antitrust action which is alleged to have

arisen under Section 1 of the Sherman Act, 15 U.S.C. Sec-

tion 1. The trial court decided the case after a pretrial

conference and after hearing evidence on a limited aspect

of the case, namely, whether or not there was sufficient

impact on interstate commerce to justify the assumption

of jurisdiction on its part. The court held, following the

* Of the United States Court of Customs and Patent Ap-

peals, sitting by designation.

D-2

[APPENDIX]

hearing, that there was insufficient evidence to support

a finding that the acts of the defendants had a substantial

effect on interstate commerce. It sustained the defendants’

motions for summary judgment which had been filed.

The testimony given was that of the plaintiff Gosting,

the president of Mac Adjustment, Inc. (Mac), alone and

it pertained to the extent to which his business was in

commerce. Apparently the trial court concluded that his

activities were not sufficiently extensive to be regarded

as beinng substantially involved in commerce.

The plaintiffs’ theory of the case is set forth in a

general way in the complaint. It alleged that the defend-

ants conspired to eliminate Mac’s business as an independ-

‘ent insurance adjuster. The General Adjustment Bureau,

Inc. (GAB), one of the defendants, operates an insurance

adjustment business throughout the United States. Prop-

erty Loss Research Bureau, the other defendant, is an

unincorporated association of some 100 insurance compan-

ies. One of the association’s members was Iowa Mutual

Insurance Company.

The allegation in the complaint is that the defendants

acted in concert to ccerce insurance companies, including

Iowa Mutual, not to use Mac as an independent adjuster.

It is alleged that this coercion was successful as a result

of the issuance of false statements by GAB in which it

was claimed that the plaintiff was too generous in adjusting

losses, in particular the losses from a storm in Tonkawa,

Oklahoma, in November of 1973. It is alleged that these

statements were made to Iowa Mutual, Southwest Adjust-

ment Company (a company which provided about 75%

of MAC’s business), various insurance agents, and some

individual insureds. Most of the storm losses were covered

by Iowa Mutual. The defendant GAB was engaged to audit

and readjust plaintiffs’ previous adjustments of these

losses. The conspiracy to destroy the plaintiff’s business al-

legedly resulted from a series of meetings which took

place in relationship to this auditing procedure.

D-3

[APPENDIX]

Mac Adjustment was started in 1972, after GAB termi-

nated Mr. Gosting’s employment. It had prospered until

late 1973, and thereafter the business declined, until by

1976 there was almost nothing remaining. Another allega-

tion in the complaint was that plaintiffs were deprived of a

listing in a trade publication which served to notify the

trade that Gosting was in business. GAB refused to verify

Gosting’s having been employed as a GAB adjuster from

1963 to 1972.

Also, GAB and the insurance companies allegedly

agreed to uniform practices and procedures to be used in

the adjustment and settlement of claims. These standards

and the “quality control.checks” GAB performed on other

adjusters allegedly gave GAB an unfair advantage.

Due to the fact that the complaint was vague as to the

extent to which Mac was engaged in interstate commerce,

the trial court, following a pretrial conference, decided

that since it was a jurisdictional matter, evidence should

be offered at a special hearing on this question.

On September 15, 1977, the testimony of Mr. Gosting

was given before the trial court in Oklahoma City. The

testimony generally addressed the question whether the

plaintiffs were actually engaged in interstate commerce.

He testified that he represented 180 insurance companies.

A large number of these representations. were obtained

through Southwest Adjustment with which he had a busi-

ness connection, and from this connection investigations

were apparently referred to Mac. Gosting testified that a

vast majority of these companies were in states-other than

Oklahoma where his office was located.

One gets the impression from reading the testimony

that most of Mac’s investigations were conducted inside

Oklahoma, although some of the work was indeed outside

of Oklahoma, but Mac did have this contractual agreement

for adjustment services with Southwest Adjustment Com-

pany. Gosting spoke of representing a number of insurance

D-4

(APPENDIX)

companies who had offices outside of Oklahoma which re-

quired him go to to their home offices from time to time.

Mac had written contracts with adjusting companies from

other states, but there were few written contracts with

insurance companies, if any. These tended to be oral.

Gosting testified that his company agreed with the

insurance companies it represented to go anywhere in the

world for adjustment purposes, but he quickly admitted

that it would not be feasible for him to pursue an investi-

gation in Australia and that it would be better to have a

local agent do it.

In answers to interrogatories it was shown that Mac

gompeted with adjusting firms in Oklahoma, but Mac could

not point to any firms outside of Oklahoma with which it

had competed. The only state in which Gosting was li-

censed as an insurance adjuster was Oklahoma, but there

were some kinds of arrangements which allowed him to

function in other states even though he did not have a

license issued from other states. He could do this on the

basis of having the license in Oklahoma. He persisted, how-

ever, in contending that it was necessary to travel across

state lines in some of his investigations of storms, fires,

and automobile losses. However, a review of the exhibits

‘shows that enly 18 adjustments, at the most, out of 1400

or 1500 required Gosting or Mac’s employees to travel

outside cf Oklahoma. The out-of-state assignments, for the

most part, were trips to neighboring Kansas. Additional

cases involved telephone calls for mail across state lines

as commerce. Some of the assignments completed in Okla-

homa involved adjustments on shipments which had come

from outside Oklahoma and had come to rest there.

The appellants, Mac and Gosting, maintain that the

adjustment and settlement of claims is an integral part of

the insurance business. Accordingly, since many insurance

companies conduct their business in commerce by soliciting

policies, collecting premiums, and paying claims outside

D-5

[APPENDIX]

of Oklahoma and in other states, the adjustments made

by Mac must be regarded as an integral part of the inter-

state insurance business.

It is not too simple or easy to link the insurance bus'-

ness with interstate commerce. For a long time, the po-

sition that the Supreme Court took was that the insurance

business was not interstate commerce. However, in 1944,

it decided United States v. South-Eastern Underwriters

Ass’n, 322 U.S. 533 (1944), which held that the insurance

business, although not necessarily in interstate commerce,

could be engaged in this kind of commerce. There the

charge was that there existed a conspiracy to fix insurance

rates in a number of states, and the simple question was

whether the Sherman Act prohibited this. The district

court: has held that the Sherman Act did not apply since

the insurance business did not constitute trade or com-

merce within the meaning of the commerce clause. The

Supreme Court had to decide this exact question. The price

fixing activities affected commerce because premiums were

collected, policies were transmitted, and claims were paid

throughout the United States. Also, a nationwide business

was not deprived of its interstate character merely because

it was built on local sales contracts with policyholders.

So, the thrust of the Supreme Court’s decision was that

under the evidence before it, South-Eastern Underwriters

Ass’n was engaged in commerce and was subject to the

Sherman Act. It is not, however, an across-the-board de-

cision and therefore had a tendency to be restrictive.

In any event, Congress enacted the so-called McCar-

ran-Ferguson Act, 15 U.S.C. Section 1011 et seq., the pur-

pose of which was to guarantee that states could continue

to regulate the insurance rates. This measure also provided

that the Sherman Act applied to the business of insurance

only to the extent that such business was not regulated

by state law. The Act also provided an exception, whereby

the Sherman Act continued to apply to an agreement to

boycott, coerce or intimidate in relation to the business of

D-6

(APPENDIX)

insurance. See 18 U.S.C. Section 1013(b). It is this boycott

aspect and coercion feature that the plaintiffs rely on and

emphasize. Mac contends that the defendants-appellees

used fraud and deceit in order to destroy its business.

The main injury complained of was that Mac’s busi-

ness gradually diminished as a result of GAB communi-

cating to an insurance trade association, companies, and

agents that Mac’s adjustment work was incompetent and

dishonest and that Mac oversettled claims or (in other

words) paid too much.

The essence of the trial court’s decision was that the

plaintiffs were not in the business of insurance as that is

defined by the Supreme Court, and so the consequence

would be that the restraints were not beyond the reach

of the Sherman Act because of any exemption under the

McCarran-Ferguson Act. This particular ruling has not

been appealed.

The ruling that the plaintiffs are not in the business

of insurance for the purpose of the McCarran-Ferguson

Act creates somewhat of a difficulty because, as a conse-

quence, they must establish that they are in the business

of insurance in order to satisfy the interstate commerce

requirement of the Sherman Act. It is, of course, possible

to argue that the insurance adjustment business is inde-

pendent of the Supreme Court’s decision in South-Eastern

Underwriters Ass’n, supra, that the McCarran-Ferguson

Act does not apply and that Mac was engaged in interstate

commerce, but there is a question as to whether anything

is gained by taking this tack because you cannot get away

from the fact that this is, if not the insurance business,

so closely related to it that it is not distinguishable from

it. So, the commerce element is more likely present by

the approach of insurance as commerce.

The difficulty which we find with the judgment is that

there is not any evidence to review to speak of because

the only testimony that was offered was that of Mr. Gosting

D-7

[APPENDIX]

in a special hearing that grew out of the filing of the

motions for summary judgment. The purpose of the hear-

ing in the trial court was to determine whether or not

the plaintiffs were engaged in interstate commerce and

whether the activity had a substantial impact or effect on

the commerce. No doubt the ultimate question is whether

this was an atmosphere of commerce so that the alleged

restraints or obstructions on Mac’s business created a suf-

ficient impact on commerce. It is rendered all the more

complex by the fact that the trial court appeared to be

requiring a great impact on commerce, one that this small

company was incapable of producing. Certainly the effect

on commerce cannot be tremendous in a total social sense

if the company which is the object of the conspiracy is

small. Nevertheless, if the company is engaged in inter-

State commerce, it is entitled to the proteetion of the anti-

trust law and particularly so if the conspiracy succeded

in putting it out of business. See, e.g., Hospital Building

Co. v. Trustees of Rex Hospital, 425 U.S. 738, 745-46 (1976);

DeVoto v. Pacific Fidelity Life Insurance Co., 516 F.2d 1

(9th Cir.), cert. denied, 423 U.S. 894 (1975); Yellow Cab

Co. v. Cab Employers, Automotive & Warehousemen, Lo-

cal #881, 457 F.2d 1032 (9th Cir. 1972).

The testimony of Mr. Gosting is not satisfactory be-

cause it is limited to the kinds of activities in which he

engaged—how frequently he traveled to other states, why

he did so, what he did in these other states and so on, but

it did not deal at all with the injuries that were allegedly

inflicted by the defendants and so that facet of effect upon

commerce was not explored at all.

A further problem is that the judgment of the district

court contained no findings of fact. It merely concludes

D-8

(APPENDIX)

in most general terms that there was not a substantial

impact on commerce. The wording of that final decree is

such that one gets the impression that it had to be an

impediment of a very major kind in order for the plaintiffs

to prove a case. Actually if the plaintiffs were able to

establish an unreasonable restraint on interstate commerce,

and were able to establish that they were engaged in inter-

state commerce, then they would be entitled to go to the

jury or to have the court consider the matter of establish- _

ing liability. The narrowness of the hearing leaves a re-

viewing court with a question as to whether other evi-

dence existed which, if the trial had been full-scale, would

have produced a prima facie showing.

There is, of course, no provision in the Rules of Civil

Procedure for having a hearing of the kind that was here

conducted, that is, an in limine hearing to decide whether _

or not the plaintiffs could sufficiently satisfy the jurisdic- |

tional requirement of being engaged in interstate com-

merce so as to justify going to trial. J

Our disposition is, therefore, to remand the case for

further proceedings to enable the trial court to take any

further action that may be necessary in order to prepare

the case for trial or to give, at least, the plaintiffs an op-

portunity to make a further showing if they have addi-

tional evidence which would add to this picture of carrying

on business in interstate commerce and of the defendants

restraining the flow or substantially affecting interstate

commerce.

The judgment here was entered pursuant to Rule

56(c) of the Federal Rules of Civil Procedure. It was not,

however, an orthodox summary judgment proceeding in

that an evidentiary hearing was held. It is fundamental

that summary judgment is appropriate if and only if there

is no genuine issue as to any material fact. Only then is

the moving party entitled to a judgment as a matter of

law. What we are saying above is that the record does

aise anit bomen BRL A tN —

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(APPENDIX)

not demonstrate that there exists no genuine issue as to

any material fact whereby the movants would be entitled

to judgment as a matter of law. When such an issue of

fact is present, summary judgment is not appropriate.

In the case at bar the issue as to whether the plain-

tiffs-appellants were engaged in interstate commerce and

whether the impact on commerce was substantial are con-

nected and considered singly or together are factual.

The summary judgment rule in an anntitrust case

i that the summary procedures are. to be used sparingly.

us

Where it [the record] establishes a per se violation of

the anti-trust laws, summary judgment is proper, but,

in other situations, where the impact of the alleged

violation is too little known, and the bare bones of the

paper record are insfficient to pass judgment thereon,

a trial should be had. Both factual inferences and the

record as a whole must be viewed in the light most

favorable to the party opposing summary judgment.

And summary procedures should be used sparingly in

complex anti-trust litigation where motive and intent

play leading roles, or the proof is in the hands of the

movant.

6 Moore’s Federal Practice Para. 56.17[5], at 56-741 to

56-743 (2d ed. 1976). The record in this case is, to say the

least, sketchy and it fails to demonstrate beyond a reason-

able doubt that there is no question of fact to be tried.

The Supreme Court in recent opinions has considered

what is necessary in order to satisfy the commerce re-

quirement of the Sherman Act. Thus in Hospital Building

Co. v. Trustees of Rex Hospital, 425 U.S. 738 (1976), the

Supreme Court held that:

It is settled that the Act [Sherman Act] encompasses

far more than restraints on trade that are motivated

by a desire to limit interstate commerce or that have

D-i0

[APPENDIX)

their sole impact on interstate commerce. “[W]holly

local business restraints can produce the effects con-

demned by the Sherman Act.” United States v. Em-

ploying Plasterers Ass’n., 347 U.S. 186, 189 (1954). As

long as the restraint in question “substantially and

adversely affects interstate commerce,” Gulf Oil Corp.

v. Copp Paving Co., 419 U.S. 187, 195 (1974); Mande-

ville Isiand Farms, Inc. v. American Crystal Sugar Co.,

334 U.S., at 234, the interstate commerce nexus re-

quired for Sherman Act coverage is established. “ ‘If

it is interstate commerce that feels the pinch, it does

not matter how local the operation which applies the

squeeze.’” Gulf Oil Corp. v. Copp Paving Co., supra,

at 195, quoting United States v. Women’s Sportswear

Assn., 336 U.S. 460, 464 (1949)... . It was sufficient

for us that the allegations in the complaint, if proved,

could show that the conspiracy resulted in “uwnreason-

able burdens on the free and uninterrupted flow of

plastering materials into Illinois.” 347 U.S., at 189 (em-

phasis added).

425 U.S. at 743, 746.

In Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975),

the Supreme Court considered the interstate commerce

requirement where the activity restrained (title exami-

nation) was an integral part of the transaction (financing

home purchases). In that case significant amounts of the

loan money came from outside the state, and the lenders

required a title examination before loans could be granted.

These two cases we regard as valuable in determining

the applicable commerce standards required by the Sher-

man Act.

In addition to those cited in the Hospital Building Co.

and Goldfarb cases, there is a decision of the Third Cir-

cuit, Mortensen v. First Federal Sav. and Loan Ass’n, 549

F.2d 884 (3d Cir. 1977), which is useful and should prove

eee

seh i eM

D-11

[APPENDIX]

to have value on remand, for Mortensen considered the

jurisdiction problem arising from treating interstate com-

merce and the impact on commerce as a jurisdictional mat-

ter and as an element in a Section 1 Sherman Act case.

The framework of the opinion is not unlike that at bar

because it was disposed of on a motion for summary judg-

ment by the district court. The opinion of the appellate

court was written by Judge Hunter. It was painstaking

and careful. It considered at length the commerce prob-

lem in an antitrust case as it affects jurisdiction and as

it affects the merits.

Based upon the foregoing, the judgment of the district

court is reversed, and the cause is remanded for further

proceedings consistent with the views expressed herein.

a cnet heen

sa en eilealnsaenaa

a

APPENDIX E

MAY TERM—MAY 30, 1979

Before Honorable Oliver Seth, Chief Judge,

Honorable Robert H. McWilliams, Circuit Judge,

Honorable James E. Barrett, Circuit Judge,

Honorable William E. Doyle, Circuit Judge,

Honorable Monroe G. McKay, Circuit Judge,

Honorable James K. Logan, Circuit Judge,

Honorable Howard T. Markey, Chief Judge*

MAC ADJUSTMENT, INC., an Oklahoma _)

corporation, and B. J. GOSTING, )

Plaintiffs-Appellants, )

vs. ) No. 77-1986

GENERAL ADJUSTMENT BUREAU, INC., )

_a New York corporation, and PROPERTY )

LOSS RESEARCH BUREAJ, an )

unincorporated association, )

Defendants-Appellees. )

This matter comes on for consideration of the petition

for rehearing with suggestion for rehearing en banc filed

by appellees General Adjustment Bureau, Inc., and Prop-

erty Loss Research Bureau.

Upon consideration whereof, the petition for rehearing

is denied.

Judge Holloway did not participate in this proceeding.

(s) Howard K. Phillips

HOWARD K. PHILLIPS, Clerk

* of the United States Court of Customs and Patent Ap-

peals, sitting by designation