Petition — Consolidated Farmers Mutual Insurance v. Anchor Savings Ass'n

80-683 FILED a

OCT 18 1980

., CLERK

In the Supreme Court of the United States

October Term, 1980

CONSOLIDATED FARMERS MUTUAL

INSURANCE COMPANY, et al.,

Petitioners,

vs.

ANCHOR SAVINGS ASSOCIATION, et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

DonaLp H. Loupon

(Counsel of Record)

SHERIDAN MorGAN

Morris, LARSON, Kinc, STAMPER AND

BoLp

Two Crown Center, Suite 400

2420 Pershing Road

Kansas City, Missouri 64108

(816) 421-6767

L. M. CornIsH

E. EDWARD JOHNSON

GLENN, CoRNISH, SCHULTEIS & HANSON

900 Merchants National Tower

Topeka, Kansas 66612

(913) 232-0545

Attorneys for Petitioners

E. L. MEenpenHa.t, Ino., 926 Cherry Street, Kansas City, Mo. 64106, (816) 421-8030

QUESTIONS PRESENTED

1. Did the Supreme Court in Continental T.V., Inc. v.

GTE Sylvania, Inc., 433 U.S. 36 (1977), restrict the per se

test of illegal conduct applied since Northern Pacific Ry. Co.

v. United States, 356 U.S. 1 (1958), in anti-trust litigation,

particularly in the instant case involving a group boycott,

or did the Court merely affirm the applicability of the rule

of reason to vertical, nonprice restrictive action?

2. On the facts presented in this case, does the claimed

group boycott constitute sufficient substance to show per se

illegal activity and to withstand motions for summary judg-

ment under the broad definition suggested by this Court

for such situations in Klor’s, Inc. v. Broadway-Hale Stores,

Inc., 359 U.S. 207 (1959), and St. Paul Fire & Marine Ins.

Co. v. Barry, 438 U.S. 531 (1978) ?

PARTIES

Petitioners:

1. Consolidated Farmers Mutual Insurance Company

2. Kansas Mutual Insurance Company

Respondents: *

1. Anchor Savings Association

2. Fidelity Investment Company

3. Federal National Mortgage Association

*Note: Federal Home Loan Mortgage Corporation was orig-

inally a defendant in the District Court but was previously dis-

missed from the case before Summary Judgment was granted and

was not involved in the appeal.

IIL

TABLE OF CONTENTS

na ol. cs ccsdcpstentpcsnhnscncansnumnishionboes I

SEA Se a oe ees mE 1

scrip nsseiddtibaonbedinbinnlbleesioin 2

Statutory Provisions Involved ........................-0cecseseeseeeeeees 2

I a sccnninneenesncsenpnsnnwonas 2

Reasons for Granting the Writ—

1. Lower Courts Are Misconstruing the Thrust of

Certain Anti-Trust Decisions of This Court to

Restrict and Impair the Per Se Test of Illegality

I RIND. « icesisscnsaiesohartepneseashimcieysansbountace 6

2. This Court Should Reaffirm and Clarify the

Position Taken by It in Previous Cases That a

Claimed Group Boycott Situation Must Be An-

alyzed on the Particular Facts of the Case and

the Effect Created by the Restraint Examined

to Determine If a Group Boycott Does Exist

Without Imposition of Artificial and Technical

Stylized Requirements to Determine the Exis-

tence of Such a Group Boycott ............................ 13

i idariniweuntinesinnbnnemneninn vesmcinansinonnees 19

RRND OF BOT VITG .........--..--.22...00.-0ecnneecsoccccccecesscscoreccccscsses 20

Appendia—

A—Opinion, United States Court of Appeals, Tenth

a i sadunidedhtiapenphognpentioe Al

B—Memorandum and Order, United States Dis-

trict Court, District Kansas .......00..00..0000000.200.2... A5

C—Judgment, United States Court of Appeals,

i a delesdeapntamnenbunibonee A36

D—Judgment, United States District Court, Dis-

as alseaneabainndingneiineinataden A37

PREVIOUS PAGE WAS BLANK |

2 eA eR

IV

Index to Citations

CASES

Brown Shoe Co. v. United States, 370 U.S. 294 (1962) .... 10

Consolidated Express, Inc. v. N.Y. Shipping Ass’n,

CUR Fe OPE CEG Cae. TOTO) rasarnnsissinscccinsivecisteriotnrcionnes 12

Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S.

Fe EE epi cobptcdsdiabneszbiatatinieectiaibahientaianntnagaad 6, 8,9. 10,11

Denver Rockets v. All Pro Management, Imc., 325

fo ge ke Be RR) 5 Seana ene tn RUCONER One 17-18

Duplan Corp. v. Deering Milliken, Inc., 594 F.2d 979

GUID Sy IPI aces bhaeccis sien dccisbbacapuaciins deb idcladieslbibedaeaintinatod 17

Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U.S.

BE RNA siesodcsncctthnanseaibiiinneacancniielisbiinsis doe 11, 13, 14, 15, 16, 18

Neeld v. National Hockey League, 594 F.2d 1297, 1299

(1979) . isha ciasctstiadilisieceatichliane scincicbabeseietealbisbabe’ 8

Northern Pacific Ry. Co. v. United States, 356 U.S. 1

CARINE cesntibrtcsohilcescichanibeiapsadiassosdshtniolintasdldiaiastaildaagssch-enncechtiahasa 6,10, 11

Smith v. Pro Football, Inc., 593 F.2d 1173 (D.C.Cir.

DT iiiclbissiuinedanlbccdiirhseshdbeliiniigaiiatieceian cae apaidt ige 11, 12, 14

St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531

CIID Lecessssaaseasi tne dsouidiidlaesinaisscan. tab maginpaibcneataveciahibes 13, 15, 16

United States v. Griffith, 334 U.S. 100 (1948)... 17

STATUTES

Sherman Act:

ee INIT, Sek lideiictisscantiderenbtcnbcncibislcndadaiia: 2, 3,11

ge ES RESET Ta eee EME GY MPO T NAS 2,3

I CE Re Te RCE) iicsdadanchasrcsaccioniicsiabianasalahaandccins 2

re TEXT

BOO TUMOUIE IND TO oan ssc hsticebdecateceins 3, 4,5

In the Supreme Court of the United States

Octeber Term, 1980

CONSOLIDATED FARMERS MUTUAL

INSURANCE COMPANY, et al.,

Petitioners,

vs.

ANCHOR SAVINGS ASSOCIATION, et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Petitioners, Consolidated Farmers Mutual Insurance

Company and Kansas Mutual Insurance Company, respect-

fully pray that a Writ of Certiorari issue to review the

Judgment entered August 18, 1980, and the Opinion of the

United States Court of Appeals for the Tenth Circuit filed

in this proceeding on July 24, 1980, which affirmed Sum-

mary Judgment of the United States District Court for the

District of Kansas entered on November 7, 1979, that denied

relief to petitioners.

OPINIONS BELOW

The Opinion of the United States Court of Appeals for

the Tenth Circuit, affirming the Memorandum and Order

of the United States District Court for the District of Kan-

sas is as yet unreported and is set forth as Appendix A.

The Memorandum and Order of the United States District

Court for the District of Kansas is reported at 480 F. Supp.

640 and appears as Appendix B.

2

JURISDICTION

On July 24, 1980, the United States Court of Appeals

for the Tenth Circuit entered its Opinion (Al). This

Petition for Certiorari has been filed less than 90 days from

the date aforesaid. Jurisdiction of this Court is invoked

under 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

Sherman Act:

15 U.S.C. § 1

“Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or com-

merce among the several States . . . is hereby declared

to be illegal .. .”

15 U.S.C. § 2

Every person who shall monopolize, or attempt to

monopolize, or combine or conspire with any other

person or persons, to monopolize any part of the trade

or commerce among the several States .. . shall be

deemed guilty of a felony .. .”

STATEMENT OF THE CASE

The facts relevant to the questions presented by this

Petition are basically uncontroverted since the case was

decided on motions for summary judgment at the District

Court level and therefore may be introduced to the Court in

a summary fashion.

Petitioners are two insurance companies incorporated

under the laws of the State of Kansas and admitted to do

business in that state under the provisions of the Kansas

Insurance Code. A cause of action under Sections 1 and 2

3

of the Sherman Act; 15 U.S.C. Sections 1 and 2, is claimed.

The respondents are a Kansas chartered savings and loan

association, a Kansas mortgage banker and the Federal Na-

tional Mortgage Association.

Petitioners compete for home mortgage (residential)

type hazard insurance with all other insurance companies

qualified to carry on such business in the State of Kansas.

The two respondents which are Kansas financial institu-

tions originate numerous home mortgages on Kansas prop-

erty, and in the course of their business, sell substantial

amounts of such mortgages to Federal National Mortgage

Association and others in the so-called secondary (national)

market which is virtually entirely interstate commerce.

Both Kansas financial institutions originate millions of dol-

lars of Kansas home mortgages annually which are in-

tended to be sold and are in turn sold by them in the

secondary market to various purchasers, including respon-

dent Federal National Mortgage Association.

The action being attacked by petitioners under the

anti-trust laws is alleged to be a group boycott. The

claimed boycott is imposed upon petitioners and other

similarly situated insurance companies! through individual

home purchasers or owners (mortgagors). Such action

prevents the home purchasers from obtaining home mort-

1. While this case deals exclusively with the situation in

Kansas, petitioners know the same exclusionary size standard

is applied to many similarly situated hazard insurance sellers

throughout the United States. The result is a uniform restric-

tion on competition against insurance companies in each state

which have a capital/surplus total less than $1,500,000 and are

not related in the private publication Best’s Insurance Reports,

even though petitioners, and such other insurance companies

similarly situated, are heavily reinsured against loss by con-

flagration and catastrophe and first and third party claims are

further insured against insolvency by the various statutorily

operated insurance guarantee funds and associations which are

located in each state. In particular, the Kansas fund insures

against the insolvency of each company authorized to sell in-

surance in the state.

4

gage hazard insurance in a normal competitive market-

place. Individual mortgagors who accede to the financing

demands by the financial institutions and eliminate peti-

tioners as a source of insurance thus become participants

in the boycott of petitioners. The hazard insurance which

must accompany any Kansas home mortgage sold in the

secondary market is qualified according to regulations or

requirements promulgated by Federal National Mortgage

Association and subsequently adopted by both of the Kan-

sas based respondents.

Petitioners have produced evidence through discovery

suggesting that such adoption was required by Federal

National Mortgage Association befove it would purchase

such mortgages and thus qualify such mortgages for the

secondary market. Petitioners have suggested that such

adoption of requirements are conscious parallel acts or,

in fact, acts through common design. In any event, all

respondents are aware that unless the home mortgages

produced by the Kansas financial institution respondents

conform to the hazard insurance requirements of Federal

National Mortgage Association that the mortgages cannot

be sold in the secondary market. The use of the common

hazard insurance requirement is the combination charged

or concerted action charged in creating a group boycott.

The Kansas financial institution respondents are both

lenders of funds to home mortgagors. The same prospec-

tive home mortgagors approach both Kansas financial insti-

tution respondents as borrowers.

The regulation or requirement of all respondents relat-

ing to hazard insurance obtained by mortgagors on Kansas

home mortgages relates to the financial size of any par-

ticular insurance company selling such hazard insurance

as reflected by the rating service provided by Best’s Insur-

ance Reports. The current designation of a minimum qual-

5

ifying financial size for a company supplying hazard in-

surance for the Kansas home mortgages is a Class VI

rating. The petitioners have established that the rating’s

publisher itself indicates the financial size of an insurance

company, does not necessarily show or gauge the financial

stability thereof or address itself to performance or reliabil-

ity of the particular insurance company being rated as

to size. Petitioners presented evidence to the District

Court showing the particular rating service involved alter-

natively provides a separate rating of insurance companies

based on performance. It is clear the alternative standard

of performance is not utilized by respondents in establish-

ing which companies are qualified to sell hazard insurance.

Since discovery had not been fully completed in this

litigation when summary judgment was granted, there is

some conflict as to the meaning of certain ratings in the

publication known as Best’s Insurance Reports between

the litigants.

Petitioners are excluded from the commercial market-

place for an identical product, i.e., insurance, simply be-

cause of their limited financial size. The insurance product

is the new residential horne kind which is the most profit-

able line of residential fire and extended coverage insur-

ance. The combination causing the exclusion includes the

home purchasers (mortgagors) as well as the respondents.

2. Best’s Insurance Reports contains the following explana-

tion:

“Safety Not Dependent Upon Size

There is no discrimination against the well-managed

smaller companies. Many small companies, writing spe-

cialized lines are carefully efficiently managed, and sound in

proportion to liabilities assumed. The policy of the com-

pany which writes only moderate lines, and conscientiously

avoids writing coverages in the areas more than it could

afford to pay in the event of a conflagration or a catastrophe

may be more desirable than that of a much larger concern

operated upon less conservative lines.”

REASONS FOR GRANTING THE WRIT

1. Lower Couris Are Misconstruing the Thrust of

Certain Anti-Trust Decisions of This Court to Re-

strict and Impair the Per Se Test of Illegality to

Group Boycotts.

In reaching a conclusion that per se rules of illegality

were inapplicable to the present fact situation both the

Circuit Court of Appeals and the District Court below

referenced Continental TV, Inc. v. GTE Sylvania, Inc.,

supra at page 50, which indicates:

“Per se rules of illegality are appropriate only when

they relate to conduct that is manifestly anticompeti-

tive.” (Emphasis added. )

However, this Court went forward in the next sentence to

indicate that the kind of conduct which was being re-

ferred to had been previously illustrated in Northern Pa-

cific Ry. Co. v. United States, supra. The full text of the

referenced paragraph from the Northern Pacific Ry. Co. v.

United States, supra decision explained and identified per

se illegal conduct which specifically included group boy-

cotts. The attempt by the Court of Appeals to brush by

the claimed group boycott existing on the facts presented

withouc a thorough analysis of same or to eliminate some

group boycotts as not falling within the per se rule appears

to be a restriction of the exact teachings of this Court.

The full text from Northern Pacific Ry. Co. v. United

States, supra at page 5, reads:

“However, there are certain agreements or practices

which because of their pernicious effect on competi-

- tion and lack of any redeeming virtue are conclusively

presumed to be unreasonable and therefore illegal

without elaborate inquiry as to the precise harm they

7

have caused or the business excuse for their use. This

principle of per se unreasonableness not only makes

the type of restraints which are proscribed by the

Sherman Act more certain to the benefit of everyone

concerned, but it also avoids the necessity for an in-

credibly complicated and prolonged economic investi-

gation into the entire history of the industry involved,

as well as related industries, in an effort to determine

at large whether a particular restraint has been un-

reasonable—an inquiry so often wholly fruitless when

undertaken. Among the practices which the courts

have heretofore deemed to be unlawful in and of

themselves are price fixing, United States v. Socony-

Vacuum Oil Co., 310 U.S. 150, 210, 60 S.Ct. 811, 838,

84 L.Ed. 1129; division of markets, United States v.

Addyston Pipe & Steel Co., 6 Cir., 86 F. 271, 46 L.R.A.

122, affirmed 175 U.S. 211, 20 S.Ct. 96, 44 L.Ed. 136;

group boycotts, Fashion Originators’ Guild of America

v. Federal Trade Comm., 312 U.S. 457, 668, 61 S.Ct.

703, 85 L.Ed. 949; and tying arrangements, Interna-

tional Salt Co. v. United States, 332 U.S. 392, 68 S.Ct.

12, 92 L.Ed. 20.”

The Northern case, supra, clearly referenced situations

involving distinct entities combining or joining in concerted

activity in the summation of appropriate per se applica-

cations. The one opening for a conceptual unilateral situa-

tion was “division of markets” when done in closely re-

lated or vertically integrated business situations, i.e., manu-

facturer-distributor. The group boycotts as weil as price

fixing and tying arrangements involved a push and pull of

economic pressure. The pressure was regarded as an ar-

tificial and proscribed influence on a free marketplace

regardless of claimed justification or benefit. The effect

was paramount to this Court’s inquiry. The effect of ex-

clusionary conduct should be paramount in all judicial ex-

aminations of a claimed group boycott.

The instant factual situation presents a claimed group

boycott with defendants alleged to be in combination with

others to prevent petitioners from competing in their

normal market. It is undisputed petitioners are excluded.

The interrelational aspects of a limited vertical intrabrand

situation such as that applied in a manufacturer-distributor

relationship never were intended for a claimed group boy-

cott situation. The lifting of a particular sentence and

phrase from the rationale of this Court in such a case is an

unwarranted exercise. There was never any intent or hint

in Continental TV, Inc. v. GTE Sylvania, Inc., supra, that

the per se rules on group boycotts were to be diluted.

Likewise, the Ninth Circuit in Neeld v. National Hoc-

key League, 594 F.2d 1297, 1299 (1979), indicated in a foot-

note that Continental TV, Inc. v. GTE Sylvania, Inc., recog-

nized only one of “many recognized exceptions” to the per

se rule. The court reached a conclusion in denying relief

for a claimed group boycott that the exclusionary conduct

present had “merely an incidental effect.” Neeld v. Na-

tional Hockey League, supra at 1300. Then the Ninth Cir-

cuit proceeded to find the conduct permissible under a

rule of reason approach.

The impact of the Court of Appeals decision below is

to indicate that certain kinds of claimed group boycotts

can be dismissed out of hand and ruled to be non per se

violations on the basis of deeming same as something less

than manifestly anticompetitive. Using the pronounce-

ments of Continental TV, Inc. v. GTE Sylvania, Inc., supra,

for such a proposition is absurd and obvious error. The

Court of Appeals failed to analyze a factual situation in a

careful manner to determine whether or not the claimed

group boycott existed.

9

Even the District Court below commented in its Memo-

randum and Order, 480 F.Supp. 640, 651 (D.C.Kan. 1979),

that:

“Perhaps the most critical question presented by the

pending motion is whether defendants’ conduct can be

considered a group boycott deserving of per se treat-

ment.”

The District Court then delved into an extensive analy-

sis of what constituted a group boycott and applied Con-

tinental TV, Inc. v. GTE Sylwania, Inc., supra, in exactly

the same manner as was used by the Circuit Court of

Appeals. The District Court below stated that per se

treatment of business activity is not lightly invoked and

quoted Continental TV, Inc. v. GTE Sylvania, Inc., supra,

to the effect that per se rules were appropriate only when

they relate to conduct that is “manifestly anticompetitive”.

The District Court below went on to say at page 652

that:

“Tt cannot be said that conduct is manifestly anti-

competitive where, as here, absolutely no anticompeti-

tive intent or motive existed. 16 J. Von Kalinowski,

Business Organizations: Antitrust and Trade Regula-

tions, § 76.02, page 76-11 (1979) (“Rule of Reason Boy-

cotts Are Not Inspired by Anticompetitive Motives.’)

Nor can manifestly anticompetitive conduct be found

where the anticompetitive effect is, as here, merely

incidental. Neeld v. National Hockey League, supra.”

This Court’s clear teaching that certain practices must

receive per se branding as illegal must not be impeded or

distorted or diminished by clever additions of specific in-

tent or predatory conduct. The exclusion of petitioners

from the marketplace is conceded here as a direct result

of respondents’ concerted action. In other words, even

10

though the effect of group action is exclusionary, the courts

below find noneconomic justification to allow that injury

without remedy. The Sherman Act is meant to protect

against abuses which eliminate economic competition.

This Court has often stated that the anti-trust laws

are for the protection of competition, not the competitors.

Even though dealing with a Clayton Act Section 7 matter

primarily, the comment in Brown Shoe Co. v. United States,

370 U.S. 294, 320 (1962), seems particularly appropriate

in reference to anti-trust matters. The Court stated:

“Taken as a whole, the legislative history illuminates

congressional concern with the protection of competi-

tion, not competitors, and its desire to restrain merges

only to the extent that such combinations may tend

to lessen competition.”

Petitioners understand that this is the basis of the

statements made in Northern Pacific Ry. Co. v. United

States, supra at page 5, that clearly established per se rules

for certain conduct. In other words, the standard used by

both the District Court as to incidental contact or lack of

predatory intent or motive simply are not a concern of

judicial inquiry into a claimed per se violation.

The careless judicial analysis and reasoning below re-

sulting in a distortion and inappropirate use of Continental

TV, Inc. v. GTE Sylvania, Inc., supra, to reduce the per se

analysis required in a claimed group boycott situation must

not be allowed to stand.

Petitioners suggest there is no magic in the two words

“manifestly anticompetitive” which would allow inquiry

into the intention of the parties forming a combination re-

sulting in an economic boycott of products, i.e., insurance,

sold by petitioners which would force petitioners to prove

anticompetitive intent or anticompetitive motive existed

11

before a per se finding of illegality could be made. This

Court indicated no such hurdle would be imposed on plain-

tiffs seeking relief under the anti-trust laws and claiming

violations of Section 1 of the Sherman Act in Northern

Pacific Ry. Co. v. United States, supra. This Court has

never indicated any such restrictions.

Klor’s, Inc. v. Broadway-Hale Stores, Inc., supra, de-

termined group boycott situations were without question

deserving of per se treatment even though noncompetitors

joined to exclude plaintiff. The fact situation in Klor’s,

supra, had a single competitor involved as a motivating

force behind the concerted action but the case clearly ex-

tended per se rules to both horizontal and vertical boycotts

as well as combinations designed to influence trade prac-

tices of victims. However, if the District Court here was

correct in its analysis of Smith v. Pro Football, Inc., 593

F.2d 1173 (D.C.Cir. 1979), then at least one other Circuit

Court of Appeals is reducing the prescribed applicability

of per se rules to claimed group boycott violations.

The Smith v. Pro Football, Inc., supra, decision seems

to establish a rule of reason approach to noncompetition

boycott situations. Further, the Court of Appeals for the

District of Columbia proceeds to justify discarding per se

rules for certain group boycotts by extended reference to

and incorporation of both the Northern Pacific Ry. Co. v.

United States, supra, and Continental TV, Inc. v. GTE

Sylvania, Inc., supra, cases. Smith v. Pro Football, Inc.,

supra at 1181.

The court in Smith v. Pro Football, Inc., supra at

1179-80, based its rationale for holding a per se rule inap-

plicable on the different kinds of group boycotts it per-

ceived. The exact language containing reference to this

Court’s position is:

12

“In view of these differences, we conclude that

the NFL player draft cannot properly be described

as a group boycott that traditionally has elicited in-

vocation of a per se rule. The ‘group boycott’ desig-

nation, we believe, is properly restricted to concerted

attempts by competitors to exclude horizontal com-

petitors; it should not be applied, and has never been

applied by the Supreme Court to concerted refusals

that are not designed to drive out competitors but

to achieve some other goal.”

The District Court and others have noted Smith v.

Pro Football, Inc., supra, as a signal the per se rules

are relaxed in many claimed group boycotts. See dissent

of Judge Weis in Consolidated Express, Inc. v. N.Y. Ship-

ping Ass’n, 602 F.2d 494 at 528-529 (3rd Cir. 1979). In

particular, the following statement from Consolidated Ex-

press, Inc. v. N.Y. Shipping Ass’n, supra at 528:

“Concededly, a bovcott may include noncompetitors

and be a violation of the Clayton Act, but that does

not answer the question whether a per se violation

is involved.”

The petitioners present a substantial question of anti-

trust law which is important to any litigant involved with

a claimed per se violation of the Sherman Act. The Court

can seize this opportunity to dispel once and for all ju-

dicial inroads to the plain meaning of the per se doctrine

and establish it firmly as a guiding principle in anti-trust

cases. The creeping tendency to find exception or diminish

the effect of the doctrine effectively denies relief and

impairs the protection of competition as required by the

Sherman Act.

The need for a definitive approach to per se rules,

especially in the context of noncompetitor boycotts, is re-

quired for the benefit of the judiciary and counsel on

13

both sides. There is a real groping for solid authority

to provide attorneys and commercial entities with a sense

of how the Supreme Court intends per se rules to apply

in group boycott situations. This case offers a perfect

vehicle to decide the question and provide guidance to

all.

2. This Court Should Reaffirm and Clarify the Posi-

tion Taken by It in Previous Cases That a Claimed

Group Boycott Situation Must Be Analyzed on the

Particular Facts of the Case and the Effect Created

by the Restraint Examined to Determine If a Group

Boycott Does Exist Without Imposition of Artificial

and Technical Stylized Requirements to Determine

the Existence of Such a Group Boycott.

A group boycott within the broad scope of Klor’s,

Inc. v. Broadway-Hale Stores, Inc., supra, is what peti-

tioners claim exists through adoption of the Class VI size

standard for insurance companies which denies open com-

petition for the hazard insurance purchased by Kansas

home mortgagors. The understanding or analysis of facts

constituting group boycotts often founder on the details

vhich make the forest invisible.

This Court in St. Paul Fire & Marine Ins, Co. v.

Barry, supra, set forth an extended discussion of what

constitutes an illegal group boycott that violates the Sher-

man Act. An illegal group boycott is something which

equates to a concerted refusal to deal. The concept of

group action as opposed to an individual, unilateral refusal

is essential in finding the action illegal. It should make

no difference if this refusal is applied to preclude a supplier

or seller such as petitioners from the marketplace as com-

pared to a buyer. The fact situation of St. Paul Fire

& Marine Ins. Co. v. Barry, supra, is apposite to the

7%

14

instant case if you can consider the action aimed at caus-

ing the mortgagors to become participants.

However, the main target of the group boycott here

is the petitioners and other similarly situated Kansas insur-

ance companies. A case from this Court with facts analo-

gous to the instant case illustrating group boycotts are

per se illegal is Klor’s, Inc. v. Broadway-Hale Stores, Inc.,

supra.

The District Court below made a factual analysis whic.

found the situation outside of the limited Smith v. Pro

Football, Inc., supra, categories of per se application to

group boycotts. Further, the District Court applied and

emphasized rationale that dismissed any per se rule because

petitioners were: (1) not competitors of respondents; and

(2) were insignificant or incidentally harmed. (A26)

This Court noted the situation before it in Klor’s,

Inc. v. Broadway-Hale Stores, Inc., supra at 359 U.S. 213

and indicated the harm flowing therefrom as follows:

“This combination takes from Klor’s its freedom to

buy appliances in an open competitive market and

drives it out of business as a dealer in the defendants’

products. It deprives the manufacturers and distribu-

tors of their freedom to sell to Klor’s at the same

prices and conditions made available to Broadway-

Hale and in some instances forbids them from selling

to it on any terms whatsoever. It interferes with

the natural flow of interstate commerce. It clearly

has by its ‘nature’ and ‘character’ a ‘monopolistic ten-

dency.’ As such it is not to be tolerated merely be-

cause the victim is just one merchant whose business

is so small that his destruction makes little difference

to the economy. Monopoly can as surely thrive by

the elimination of such small businessmen, one at a

15

time, as it can be driving them out in large groups.

In recognition of this fact the Sherman Act has con-

sistently been read to forbid all contracts and combina-

tions ‘which “tend to create a monopoly,”’ whether

‘the tendency is a creeping one’ or ‘one that proceeds

at full gallop’.”

By imposing the instant case facts on the same lan-

guage, the analogy and similarity to the previous situation

becomes apparent. This combination takes from plaintiffs

their freedom to sell in an open competitive market and

drives them out of the hazard insurance business for

Kansas home mortgages. The combination deprives the

mortgagors (the coerced participants) of their freedom

to buy from plaintiffs.

The positioning of the parties in Klor’s, Inc. v. Broad-

way-Hale Stores, Inc., supra, is even similar to the instant

case. The suppliers of Klor’s, Inc. were like the mortgagors

here. ‘The suppliers give up their sales as mortgagors

give up their choice of product. The coercing of the mort-

gagors’ participation comes from all respondents like the

position of Broadway-Hale Stores, Inc. The motivation

present, like the one found in Klor’s, Inc. v. Broadway-

Hale Stores, Inc., supra, is to enjoy the fruits of sales

in the secondary market.

Justice Powell went to great lengths in St. Paul Fire

& Marine Ins. Co. v. Barry, supra, to indicate that an

illegal boycott does not fit into any neat formula or precise

factual situation, but rather is designed to be flexible and

prevent anticompetitive action. In analyzing the situation

in finding a group boycott, Justice Powell held the con-

certed refusal denied policyholders the benefits of competi-

tion in vital matters such as claims policy and qualify

of service. Those are exactly the kinds of denials being

forced upon the public in this case where prospective

|

16

‘mortgagors are faced with a choice of obtaining the mort-

gage and being denied their choice as to insurers by par-

ticipating in a boycott and proceeding to obtain the insur-

ance and taking their risk with possibly unsatisfactory

claims policy or quality of service.

The teachings of both Klor’s, Inc. v. Broadway-Hale

Stores, Inc., supra, and St. Paul Fire & Marine Ins.

Co. v. Barry, supra, reflect the same kind of philosophy,

to-wit, anticompetitive activity which obviously stifles

competition or reduces competition should be held illegal

regardless of whether a competitor is harmed. The em-

phasis in both cases is an examination of the effect caused

by the concerted action.

The St. Paul Fire & Marine Ins. Co. v. Barry decision,

supra at 438 U.S. 543, states:

“As the labor-boycutt cases illustrate, the boycotters

and the ultimate target need not be in a competitive

relationship with each other.”

The motivation for the action is clearly economic on

the part of both respondent Kansas financial institutions.

Both are able to create mortgage instruments which are

saleable in the secondary market to prospective purchasers

throughout the country and such business volume totals

millions of dollars per year. It is true such respondents

may occasionally lose a prospective mortgagor who resents

being forced to give up an insurer of his choice (peti-

tioners) but that minimal impact is insignificant in ‘the

face of millions of dollars of annual business which is

made possible through compliance with the regulations.

Both such respondents knew their cooperation was essen-

tial in establishing a secondary marketplace for their goods

and even if their motivation was different than the other

respondent, the responsibility for participating in the boy-

cott or restrictive practice is there even if there was no

17

benefit from the restrictive practice. Duplan Corp. v.

Deering Milliken, Inc., 594 F.2d 979 (4th Cir. 1979).

The anti-trust laws may be violated without specific

intent to restrain trade if restraint of trade results as

a natural consequence of respondents’ conduct or business

arrangements. United States v. Griffith, 334 U.S. 100,

105-106. The United States v. Griffith case, supra at 105,

stated:

“It is, however, not always necessary to find a specific

intent to restrain trade or to build a monopoly in

order to find that the anti-trust laws have been vio-

lated. It is sufficient that a restraint of trade or

monopoly results of the consequence of a defendant’s

conduct or business arrangements.”

The economic benefit in the instant case to Federal

National Mortgage Association is likewise obvious. Such

respondent is able to purchase an instrument in a secondary

market which is structured as it desires by causing others

to impose a boycott for its benefit. Any product which

becomes more desirable on the secondary market from

the denial of business to petitioners or choice to the pros-

pective mortgagors certainly flows a direct economic bene-

fit.

The economic power of Federal National Mortgage

Association as a major buyer in the secondary market

caused compliance with its requirements and excluded peti-

tioners from the marketplace or consideration by most

of the prospective mortgagors. Such use of power for

exclusionary purposes and stifling of competition must

be deemed a group boycott constituting a per se violation

of the Sherman Act.

The problem here presented is similar to that found

illegal in Denver Rockets v. All Pro Management, Inc.,

18

325 F.Supp. 1049 (C.D.Cal. 1971). A pe* se illegal rule

was applied to the National Basketball Association (NBA)

draft because there was no exception or hardship variation

from a uniform, inflexible application of an exclusionary

rule. Here there is no recourse or exception to the abso-

lute exclusionary effect of the Best size standard even

when petitioners’ performance, safety and reliability are

established.

Even if the availability of reinsurance certificates is

considered, the evidence and contentions of petitioners es-

tablish that this is merely an extra economic burden on

petitioners’ ability to compete.

The instant case does show a public injury resulting

in harm to petitioners. The prospective mortgagor is de-

nied free competition for his hazard insurance premium

dollar. Petitioners are the ones eliminated from the com-

petition. This aspect of public harm was exactly what

Klor’s, Inc. v. Broadway-Hale Stores, Inc., supra, was con-

cerned with branding per se illegal under the Sherman

Act.

The situation presents a denial of petitioners’ freedom

to sell in an open competitive market and a denial to

mortgagors of buying in a competitive marketplace if they

choose financing through respondents. The similarity to

Klor’s, Inc. v. Broadway-Hale Stores, Inc., supra, is ines-

capable. Any resort to distinctions of vertical or horizontal

pressure is redundant. The facts reveal the trade practices

of petitioners are drastically changed since no effective

competition remains possible for the hazard insurance be-

cause of the group boycott.

As a matter of law, the instant case presents a clear

and convincing picture of a group boycott and is ripe

for application of a per se rule deeming the practice illegal.

The impact on the availability of home mortgage hazard

19

insurance by the questioned action is national in scope

although the instant case concerns only Kansas.

The restrictive practice of respondents is clearly ex-

clusionary, has a pernicious effect on competition and lacks

any redeeming virtue. The challenged action has no re-

lation to any meritorious end which arguably could be

achieved by its application. There is no justification for

its continuance. Public policy is offended by its presence

and public policy would be benefited by its elimination.

CONCLUSION

For these reasons and, especially for the clarification

and sense of direction needed by bench and bar on the

per se doctrine, a Writ of Certiorari should issue to review

the Judgment and Opinion of the United States Court of

Appeals for the Tenth Circuit.

Respectfully submitted,

Dona_p H. Loupon

(Counsel of Record)

SHERIDAN MorGAN

Morris, LARSON, Kinc, STAMPER AND

BoLp

Two Crown Center, Suite 400

2420 Pershing Road

Kansas City, Missouri 64108

(816) 421-6767

L. M. CorniIsH

E. EDWARD JOHNSON

GLENN, CORNISH, SCHULTEIS & HANSON

900 Merchants National Tower

Topeka, Kansas 66612

(913) 232-0545

Attorneys for Petitioners

20

CERTIFICATE OF SERVICE

I, Donald H. Loudon, a member of the Bar of the Su-

preme Court of the United States, hereby certify that pur-

suant to Rule 33.2(a) of the Rules of the Supreme Court

of the United States I have served the foregoing Petition

for Writ of Certiorari on counsel for Respondents, by de-

positing same in the United States mail, postage prepaid,

on October 16, 1980, addressed to:

James R. Loftis, ITI, Esq.

James W. Olson, Esq.

Jay Gary Finkelstein

Bergson, Borkland, Margolis & Adler

11 DuPont Circle, N.W.

Washington, D. C. 20036

Leonard O. Thomas, Esq.

Weeks, Thomas, Lysaught & Mustain

Home State Bank Building

Minnesota Avenue at Fifth

P. O. Box 1028

Kansas City, Kansas 66117

Robert L. Hamann, Esq.

Anchor Savings Association

Suite 102

Prairie Village, Kansas 66206

John P. Arness, Esq.

Jack McKay, Esq.

David B. Waller, Esq.

Walter A. Smith, Esq.

Hogan & Hartson

815 Connecticut Avenue, N.W.

Washington, D. C. 20003

21

James D. Waugh, Esq.

Cosgrove, Webb & Oman

1100 First National Bank Tower

Topeka, Kansas 66603

Herbert H. Hopper, Esq.

634 North Broadway

Wichita, Kansas 67214

Counsel for Respondents

Donavp H. Loupon

Al

APPENDIX

APPENDIX A

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

No. 79-2260

CONSOLIDATED FARMERS MUTUAL INSURANCE

COMPANY and KANSAS MUTUAL INSURANCE

COMPANY,

Plaintiffs-Appellants,

Vs.

ANCHOR SAVINGS ASSOCIATION, FIDELITY INVEST-

MENT COMPANY, FEDERAL NATIONAL MORTGAGE

ASSOCIATION, and FEDERAL HOME LOAN

MORTGAGE CORPORATION,

Defendants-Appellees.

Appeal from the United States District Court

for the District of Kansas

(D.C. No. 78-4094)

(Filed July 24, 1980)

Donald H. Loudon of Morris, Larson, King, Stamper

& Bold, Kansas City, Missouri (Sheridan Morgan of Morris,

Larson, King, Stamper & Bold, Kansas City, Missouri,

and L. M. Cornish and E. Edward Johnson of Glenn,

Cornish, Schulteis & Hanson of Topeka, Kansas, with him

on the brief) for Plaintiffs-Appellants.

James R. Loftis, III, of Bergson, Borkland, Margolis

& Adler, Washington, D.C. (James W. Olson and Jay Gary

Finkelstein of Bergson, Borkland, Margolis & Adler, Wash-

ington, D.C., Leonard Thomas of Weeks, Thomas, Ly-

A2

saught, Bingham & Mustain, Kansas City, Kansas, and

Robert L. Hamann of Prairie Village, Kansas, with him

on the brief) for Defendant-Appellee Anchor Savings As-

sociation.

John P. Arness of Hogan & Hartson, Washington,

D.C. (Jack McKay, David B. Waller and Walter A. Smith,

Jr., of Hogan & Hartson, Washington, D.C., and James D.

Waugh, Topeka, Kansas, with him on the brief) for De-

fendant-Appellee Federal National Mortgage Association.

Herbert H. Hopper, Wichita, Kansas, filed a brief for

Defendant-Appellee Fidelity Investment Company.

Before McKAY, SEYMOUR, PECK’, Circuit Judges

PECK, Circuit Judge*

Plaintiffs-appellants instituted this suit as a private

antitrust action against the three defendants-appellees al-

leging that they willfully conspired to boycott plaintiffs’

insurance businesses, in violation of the Sherman Act, 15

U.S.C. §§ 1 and 2, and the antitrust laws of the State of

Kansas. The principal issue on appeal grows out of the

district court’s granting of summary judgment over ap-

pellants’ contention that genuine issues of material facts

existed. Rule 56, Fed. R. Civ. P. Specifically, although

discovery procedures had been pursued, appellants contend

that genuine issues of fact existed concerning the district

court’s conclusions that (1) the evidence showed no con-

spiracy among the defendants and that (2) assuming such

a conspiracy, there was no restraint of trade.

The appellants are insurance companies which sell,

among other coverages, real property hazard insurance.

*Of the United States Court of Appeals for the Sixth Cir-

cuit, sitting by designation.

A3

Defendants-appellees Anchor Savings Association (An-

chor) and Fidelity Investment Company (Fidelity) make

loans to homebuyers and take back mortgages. Defendant-

appellee Federal National Mortgage Association (FNMA)

purchases mortgages from institutions such as, and includ-

ing, Anchor and Fidelity.

In 1974 FNMA promulgated a regulation providing that

coverage of property subject to any mortgage purchased

by it must be written by an insuranve company having a

“Best’s VI” or a “Class VI” rating. In that year Fidelity

adopted a policy of granting loans only on properties cov-

ered by policies written by Class VI carriers, and Anchor

followed suit in 1978.

The rating referred to is established, the record shows,

by the A. M. Best Company, in its Best’s Insurance Report.

That company is the predominate publisher of insurance

related publications, and is the only major specialized in-

surance reporting and rating service. It has been making

such ratings since 1907, and, by a formula which has

evolved over the years and which is well known and ac-

cepted in the industry, rates insurance companies into

classifications ranging from Class I (carriers with net re-

sources of $250,000 or less) to Class XV (net resources of

$100,000,000 or more). Class VI is assigned to insurance

companies having a net worth of at least $1,500,000.

We conclude that the case before the district court was

in proper posture for summary judgment disposition. Ap-

pellants failed to respond to appellees’ affidavits “with spe-

cific facts showing the existence of a genuine issue for

trial,” Stevens v. Barnard, 512 F.2d 876, 878 (10th Cir.

1975); Fed. R. Civ. P. 56(e). Further, even the adoption of

the “‘Class VI” standard did not constitute a per se violation

of the Sherman Act. “Per se rules of illegality are appro-

priate only where they relate to conduct that is manifestly

A4

anticompetitive,” Continental TV, Inc. v. GTE Sylvania,

Inc., 433 U.S. 36, 50 (1977) (emphasis added), and it could

not seriously be contended that such a showing was made

here. See generally, Smith v. Pro Football, Inc., 593 F.2d

1173, 1181 (D.C. Cir. 1978) ; Broadcast Music, Inc. v. Colum-

bia Broadcasting System, Inc., 441 U.S. 1, 7-10 (1979); White

Motor Co. v. United States, 372 U.S. 253, 263 (1963);

Gough v. Rossmoor Corp., 585 F.2d 381, 387 (9th Cir. 1978),

cert. denied, 440 U.S. 936 (1979); Joseph E. Seagram &

Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71,

76-79 (9th Cir. 1969), cert. denied, 396 U.S. 1062 (1970).

Having concluded that no per se violation occurred, we

consider whether a violation was committed under the “rule

of reason.” FNMA’s adoption of Best’s “Class VI” criterion

may or may not have been the ultimate wisdom in pro-

viding protection in the event of damage to property cov-

ered by its mortgages, but appellees argue that it was not

an unreasonable standard to adopt, and we so hold. An

affidavit filed in support of the motion for summary judg-

ment establishes that FNMA purchased mortgages on a

national basis, and that in 1978 it purchases approximately

311,002 home mortgages with unpaid balances of some $12,-

301,650,000. Obviously, to say the least, it would be im-

practical for FNMA to attempt to examine the position of

the carrier in each mortgage it considered purchasing, so

it turned to the eminently reasonable alternative of rely-

ing on the one standard source of information available

as to the fiscal reliability of insurance writers on a na-

tional basis. It seems superfluous to add that we con-

clude this to have been no violation of the Sherman Act

under the “rule of reason,” or otherwise.

Affirmed.

A5

APPENDIX B

CONSOLIDATED FARMERS MUTUAL

INSURANCE COMPANY et al.,

Plaintiffs,

Vv.

ANCHOR SAVINGS ASSOCIATION et al.,

Defendants.

No. 78-4094

United States District Court,

D. Kansas

Nov. 7, 1979

L. M. Cornish, Jr., Glenn, Cornish, Leuenberger, Char-

tered, Topeka, Kan., Sheridan Morgan, Donald H. Loudon,

Morris, Larson, King, Stamper & Bold, Kansas City, Mo.,

for plaintiffs Consolidated Farmers Mutual Insurance Co.

and Kansas Mutual Insurance Co.

James R. Loftis, ITI, James W. Olson, Bergson, Bork-

land, Margolis & Adler, Washington, D. C., Leonard O.

A6

Thomas, Weeks, Thomas, Lysaught, Bingham & Mustain,

Kansas City, Kan., Robert L. Hamann, Prairie Village,

Kan., for defendant Anchor Savings Association.

James D. Waugh, Cosgrove, Webb & Oman, Topeka,

Kan., John P, Arness, Jack McKay, David B. Waller, Hogan

& Hartson, Washington, D. C., for defendant Federal Na-

tional Mortgage Association.

Herbert H. Hopper, Wichita, Kan., for defendant Fi-

delity Investment Co.

MEMORANDUM AND ORDER

ROGERS, District Judge.

INTRODUCTION

This is an antitrust action brought pursuant to Sec-

tions 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and

under unspecified sections of the Kansas antitrust laws

contained in K.S.A. 50-101 et seq.

Plaintiffs Consolidated Farmers Mutual Insurance

Company and Kansas Mutual Insurance Company are two

Kansas insurance companies which as part of their busi-

nesses sell real property hazard insurance.

Defendant Anchor Savings Association is a Kansas

savings and loan association. Defendant Fidelity Invest-

ment Company is a Kansas mortgage banker. Defendant

Federal National Mortgage Association (FNMA) is a fed-

erally chartered, privately owned’ corporation which was

1. Both plaintiffs’ complaint and this Court’s order of Sep-

tember 8, 1978, mistakenly refer to FNMA as a “quasi-public”

corporation. Prior to 1968, the federal government did own the

preferred stock of FNMA. However, the Housing and Urban

(Continued on following page)

A7

created “to provide supplementary assistance to the sec-

ondary market for home mortgages by providing a degree

of liquidity for mortgage investments.” 12U.S.C. § 1716(a).

When the case began, a fourth defendant was the Federal

Home Loan Mortgage Corporation (FHLMC), a quasi-

public corporation authorized by Congress in 12 U.S.C.

§ 1451 et seq. to aid the secondary market. By order of

September 8, 1978, this Court dismissed FHLMC from the

action on grounds of statutory immunity.’

A brief background is necessary to an understanding

of the nature of the action. When a home is purchased the

prospective homeowner frequently obtains a mortgage loan

from a savings and loan institution or a bank. This is the

“primary” mortgage market. Defendants Fidelity and

Anchor are in the business of originating mortgages in the

primary market. In order to gain funds to make addi-

tional loans, Fidelity and Anchor sell these mortgages to

institutional investors and entities such as FHLMC and

FNMA. When the originator of a mortgage attempts to

transfer it, the “secondary” mortgage market is involved.

In the secondary market, FNMA and FHLMC facilitate

the transfer of mortgages from originators to institutional

investors, in part by establishing some uniformity in the

mortgage transaction so that the institutional investor will

have a better idea of what it is purchasing. Congress in-

tended that the federally sponsored secondary mortgage

market should provide standardized mortgage instruments.

J. Murray and H. Judy, Uniform Multifamily Mortgage In-

struments, 33 Bus.Law. 2303, 2359 (1978).

Footnote continued—

Development Act of 1968, 12 U.S.C. §§ 1716b, 1717(a) (2), par-

titioned FNMA into the Government National Mortgage Associa-

tion (GNMA), under the jurisdiction of the Department of Hous-

ing and Urban Development, and FNMA became a wholly private

corporation serving a public purpose.

2. This dismissal order is now on appeal to the Tenth Cir-

cuit Court of Appeals.

A8

Congress mandated that FHLMC and FNMA should

follow certain guidelines to guarantee the quality of the

mortgages handled. In 12 U.S.C. § 1719(a), FNMA is in-

structed:

(1) To carry out the purposes set forth in para-

graph (a) of section 1716 of this title, the operations

of the corporation under this section shall be con-

fined, so far as practicable, to mortgages which are

deemed by the corporation to be of such quality, type,

and class as to meet, generally, the purchase standards

imposed by private institutional mortgage investors.

See also 12 U.S.C, § 1454(a) (1).

In order to meet the Congressional mandate, FNMA

and FHLMC have established several standards relating

to various as)ects of the mortgages they purchase, One

of these star.dards regards the hazard insurance covering

the property which secures the mortgages purchased. Both

FNMA and FHLMC require that such hazard insurance

be provided by a company with at least a Class VI rating

in Best’s Insurance Reports. FNMA adopted this require-

ment in July, 1974.4 In 1975, FNMA determined to accept

mortgages covered by hazard insurance provided by .om-

panies which did not meet the appropriate standard but

provided reinsurance certificates by companies which did.

3. The A.M. Best Company has issued reports on insurance

companies since 1900. It is now the only major specialized in-

surance reporting and rating service in the United States. Best’s

provides two ratings. First is the ‘Financial Size Category” with

which we are primarily concerned here. The second is the

“Policyholders’ Rating’ which gives Best’s opinion as to the

relative permanence and safety of each company. Best’s ratings

are widely used in the mortgage field.

4. Actually, in 1974 Best’s “Financial Size Category” was

rated alphabetically. Thus, FNMA and FHLMC adopted a BBB +

rating. In 1976 Best’s converted from an alphabetical to a nu-

merical system and Class VI became the appropriate rating.

A9

Anchor, which for many years has had a similar re-

quirement regarding the insurance policies for mortgages it

created, changed its standard in 1978 from the higher

Best’s X rating to a Best’s VI rating. Fidelity changed its

standards in 1974 to the Class VI rating in light of the fact

that the majority of its home loan production was orig-

inated for sale to either FNMA or GNMA.

A Class VI rating means that an insurance company

has net resources of $1,500,000 to $2,500,000. Neither plain-

tiff is large enough to obtain a Best’s Class VI rating. For

that reason, unless they make suitable arrangements for

reinsurance the plaintiffs are unable to provide hazard

insurance coverage for property securing mortgages which

defendants Anchor and Fidelity originate with the intent

of selling to FNMA, GNMA, or FHLMC.

The plaintiffs claim that the Class VI requirement is

“arbitrary and without foundation”, and that its promul-

gation by FNMA and FHLMC and the other defendants’

acts of honoring that requirement constitute a “combina-

tion and boycott” in violation of federal and state antitrust

laws.

This action now comes before the Court upon the mo-

tions for summary judgment filed by remaining defendants

FNMA, Anchor, and Fidelity.

DISCUSSION

The major issue presented by the pending summary

judgment motions is whether plaintiffs have a viable claim

under Section 1 of the Sherman Act. Boiled down to

basics, defendants’ briefs argue that plaintiffs’ § 1 cause

of action is defective in three particulars: (1) plaintiffs

cannot show concerted action; (2) plaintiffs cannot show

an unreasonable restraint of trade; and (3) plaintiffs

cannot show an impact upon interstate commerce.

A10

Summary Judgment

[1-3] Before discussing the legal issues presented by

plaintiffs’ antitrust claims, we take cognizance of the ap-

plicable procedural standards. It is familiar law that no

summary judgment motion is lightly granted. Summary

judgment is to be denied unless the moving party demon-

strates entitlement to it beyond a reasonable doubt. Madi-

son v. Deseret Livestock Co., 574 F.2d 1027, 1037 (10th

Cir. 1978); Mustang Fuel Corp. v. Youngstown Sheet &

Tube Co., 516 F.2d 33, 36 (10th Cir. 1975). The court must

examine all the evidence in the light most favorable to

the party opposing the motion. Mogle v. Sevier County

School Dist., 540 F.2d 478, 482 (10th Cir. 1976) cert. denied,

429 U.S. 1121, 97 S.Ct. 1157, 51 L.Ed.2d 572 (1977); Frey

v. Frankel, 361 F.2d 437, 442 (10th Cir. 1966). Affidavits

are not a substitute for trial. Madison v. Deseret Live-

stock Co., supra, 574 F.2d at 1036; Eagle v. Louisiana South-

ern Life Ins. Co., 464 F.2d 607, 608 (10th Cir. 1972). Where

different inferences can be drawn from conflicting affi-

davits and depositions, summary judgment should be de-

nied. United States v. Diebold, Inc., 369 U.S. 654, 655, 82

S.Ct. 993, 8 L.Ed.2d 176 (1962).

[4] The Court is aware that precautions against

hasty termination of a potentially meritorious action are

especially crucial in the area of antitrust. Poller v.C. B.S.,

Inc., 368 U.S. 464, 467, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962).

Nevertheless, summary judgment can be appropriate even

in an antitrust action should the party opposing such a

motion fail to respond to a legally sufficient motion sup-

ported by affidavits with a showing of specific facts dem-

onstrating the existence of genuine issues of material fact

for trial. Stevens v. Barnard, 512 F.2d 866, 878 (10th

Cir. 1975); Whitfield v. Gangas, 507 F.2d 880, 882 (10th

Cir. 1974). Before granting motions for summary judg-

All

ment in Natrona Service, Inc. v. Continental Oil Co., 435

F.Supp. 99, 106-107 (D.Wyo.1977), aff'd 598 F.2d 1294

(10th Cir. 1979), Judge Brimmer of Wyoming wrote that

admonitions against the granting of such motions in an

antitrust case

are not warrants “for every plaintiff who can draft an

antitrust complaint, no matter how groundless or im-

probable its allegations, to force his claim to trial

despite its deficient factual underpinnings. Murdock

v. City of Jacksonville, 361 F.Supp. 1083, 1086-87 (M.D.

Fla.1973). Where the Court has permitted extensive

discovery, and where the requirements of Rule 56,

Federal Rules of Civil Procedure, are satisfied, the

Court may properly grant a motion for summary judg-

ment. Umdenstoek .v.. American Mortgage and Inv.

Co., 495 F.2d 589 (10th Cir. 1974). Moreover, when

that discovery has failed to reveal any evidence to

support the plaintiffs’ claims, and the record contains

an overwhelming amount of evidence which contra-

dicts the plaintiffs’ conspiracy allegation and poses a

variety of non-conspiratorial motives, for the defen-

dants’ acts, rooted in business judgment, the defen-

dants are entitled to summary judgment. First Nat’l

Bank of Ariz. v. Cities Service Co., 391 U.S. 253, 88

S.Ct. 1575, 20 L.Ed.2d 569 (1968); Semke v. Enid Auto

Dealers’ Ass’n, 456 F.2d 1361 (10th Cir. 1972). When

it becomes plain that the allegedly unlawful acts do

not exist, and the plaintiffs’ claims are without merit,

the Court has a duty to grant summary judgment.

Capital Temporaries, Inc. v. Olsten Corp., 365 F.Supp.

888 (D.Conn.1973), aff'd, 506 F.2d 658 (2d Cir. 1974).

Allegations which are “glib and conclusory” are

insufficient to raise genuine issues of material fact

once they have been specifically denied in sworn af-

fidavits and depositions. Kemp Pontiac-Cadillac, Inc.

Al2

v. Hartford Automobile Dealers’ Ass’n, 380 F.Supp.

1382 (D.Conn.1974). In addition, where the defen-

dants have expressly denied by sworn testimony the

plaintiffs’ allegations of conspiracy to monopolize or

restrain trade, “it [is] up to the plaintiffs to produce

significant probative evidence—by affidavit or deposi-

tion—demonstrating that a genuine issue of fact existed

as to this element of the complaint, if summary judg-

ment is to be avoided.” Scranton Constr. Co. v. Litto~

Indus. Leasing Corp., 494 F.2d 778, 782 (5th Cir. 1974),

cert. denied, 419 U.S. 1105, 95 S.Ct. 774, 42 L.Ed.2d 800

(1975) (Emphasis added); ALW, Inc. v. United Air

Lines, Inc., 510 F.2d 52 (9th Cir. 1975); Clark v. United

Bank of Denver, supra.

Summary judgment cannot be defeated “by the

vague hope that something may turn up at trial.”

Perma Research and Dev. Co. v. Singer Co., 410 F.2d

572, 578 (2d Cir. 1969). Where, as here, the plain-

tiffs have failed to turn up substantial evidence in sup-

port of their conspiracy theory, and the defendants

have introduced extensive and substantial evidence

negating the theory, it is unreasonable to assume a

trial would provide the plaintiffs with any greater op-

portunity to prove their theory, especially when the

most that can be hoped for is to discredit the defen-

dants’ witnesses at trial. Under these circumstances,

no question of fact is presented. [435 F.Supp. at 136-

137]

Judge O’Connor of this District made a similar state-

ment in Frackowiak v. Farmers Ins. Co., Inc., 411 F.Supp.

1309, 1319-1320 (D.Kan.1976):

. .. this case represents an instance in which “injury

' resulting from normal business hazards is sought to

Al3

be redressable by casting the affair in antitrust terms”

that simply do not fit the case. Poller v. Columbia

Broadcasting System, Inc., 368 U.S. 464, 474, 82 S.Ct.

468, 491, 7 L.Ed.2d 458, 465 (1962) (Harlan, J. dis-

senting). As recently as 1968, the United States Su-

preme Court rejected the suggestion that “Rule 56(e)

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

permit plaintiffs to get to a jury on the basis of allega-

tions in their complaints, coupled with the hope that

something can be developed at trial in the way of

evidence to support those allegations.” First National

Bank of Arizona v. Cities Service Co., 391 U.S. 253,

289-90, 88 S.Ct. 1575, 1593, 20 L.Ed.2d 569, 592 (1968).

In that case, the Court held, “While we recognize the

importance of preserving litigants’ rights to a trial on

their claims we are not prepared to extend those rights

to the point of requiring that anyone who files an

antitrust complaint setting forth a valid cause of action

be entitled to a full-dress trial notwithstanding the ab-

sence of any significant probative evidence tending to

support the complaint.” Id.

This case has now been on file for 20 months. Much

discovery in the form of depositions and interrogatories has

been undertaken. Although plaintiffs protest that the

pending motions are premature, they have not shown the

Court that any discovery remains to be done as to material

issues of fact which are now unresolved. None of the

areas in which plaintiffs now seek to delve is relevant to

the material issues presented by the pending motions.

Plaintiffs have had ample opportunity to partake in dis-

covery as to the relevant issues, and the record compiled

before the Court is quite clear.

_ Avery strong blow to plaintiffs’ prematurity argument

is struck by defendants’ willingness to concede virtually

Al4

every factual allegation lodged by plaintiff, thus convert-

ing the dispute into one composed almost totally of issues

of law rather than issues of fact. In its reply brief to plain-

tiffs’ brief in opposition to the summary judgment motions,

defendant Anchor wrote:

. while Anchor disputes the ultimate, legal con-

clusions of combination and of unreasonable restraint

argued by plaintiffs, and while many of plaintiffs’

claims are ambiguous, inaccurate and unsupportable,

for purposes of this motion, we do not dispute, to

paraphrase plaintiffs’ own memorandum in opposition:

(1) that Anchor adopted a standard which led to the

creation of a standard mortgage package to be pro-

duced within Kansas for sale in the secondary market

(Plaintiffs’ Opposition, p. 2); (2) that plaintiffs were

excluded from the hazard insurance marketplace (as-

suming plaintiffs chose not to avail themselves of the

reinsurance option which Anchor made available) by

deliberate actions, i. e., requirements of defendants

(Plaintiffs’ Opposition, p. 2); (3) that the identical

requirements as to a Best’s rating were and are used

by Anchor and the other defendants (Plaintiffs’ Op-

position, p. 3); (4) that the secondary market for

mortgages is a vital part of Anchor’s business (Plain-

tiffs’ Opposition, p. 3); (5) that the circumstances or

necessity for entry into the secondary market through

sales to defendant, Federal National Mortgage As-

sociation dictated compliance or conformance with a

standard for hazard insurance at least equal to that of

FNMA (Plaintiffs’ Opposition, p. 3); (6) that plaintiffs

have been excluded from the marketplace of the crea-

tion of mortgages by Anchor so iong as they do not

meet Anchor’s standard in order, among other reasons,

for Anchor to make its goods (mortgages) attractive

for buyers in the secondary market without regard to

Al5

the indiv,..ual quality of plaintiffs’ product (insurance)

which everyone agrees must be a part of the goods pro-

duced for the secondary market (Plaintiffs’ Opposition,

p. 3) (as noted Anchor would consider whether the

secondary market standards were less than necessary

to meet Anchor’s needs and deemed it infeasible to re-

view the management capabilities and financial sta-

bility of every insurance company with which its cus-

tomers might do business; see the Affidavit in Support

of Anchor’s motion); (7) that mortgagors are denied

access to mortgage financing by Anchor and Fidelity,

unless they accede to the terms set by Anchor and

Fidelity and thereby plaintiffs are denied a chance to

compete for that hazard insurance which constitutes

an integral part of the mortgage package of financing

(assuming they choose not to avail themselves of the

reinsurance option) (Plaintiffs’ Opposition, p. 4); (8)

that in a number of instances mortgagors have paid

more of a premium for hazard insurance than would

have been paid by purchasing insurance from one of

the plaintiffs (Plaintiffs’ Opposition, p. 5); (9) that it

is a benefit to Anchor that Anchor is able to create an

instrument which is salable in the secondary market

to prospective purchasers throughout the country and

this constitutes a major item of its business (Plaintiffs’

Opposition, p. 5); and, (10) that Anchor had reason to

exclude entities which did not meet its criteria, such

as plaintiffs, from writing hazard insurance on mort-

gages created by Anchor (assuming plaintiffs chose not

to avail themselves of the reinsurance option) because,

among other reasons, such exclusions made Anchor’s

mortgages more salable in the secondary market.

(Plaintiffs’ Opposition, p. 5) [Doc. # 50, pp. 5-6]

Given the facts firmly established by previous dis-

covery and the facts admitted by moving defendants, we

Al6

conclude that the motions for summary judgment are ripe

for disposition.

The question presented for our resolution is clear.

FNMA buys mortgages on the secondary market. Rather

than examine the financial situation of the thousands of

insurance companies in this country which provide hazard

insurance, FNMA established an objective standard, Best’s

Class VI rating, to identify acceptable hazard insurance

carriers for the mortgages it purchases. A threshold size

requirement was considered necessary, in part, to insure

that coverage would be adequate if a major disaster oc-

curred. In part because Anchor and Fidelity desire to sell

the mortgages they originate to FNMA and FHLMC, they

have also adopted the Class VI rating to make their mort-

gages more salable. These standards block plaintiffs out

of the market, no matter how financially stable and well

managed they may be. The legal issue is whether these

facts establish an antitrust violation. We believe the an-

swer is in the negative.

Sherman Act, § 1

As mentioned previously, the major issue presented

for our consideration is whether plaintiffs have a viable

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

which reads, in pertinent part, as follows:

Every contract, combination in the form of trust

or otherwise, or conspiracy, in restraint of trade or com-

merce among the several States, or with foreign na-

tions, is declared to be illegal ....

[5, 6] In order to prevail on a § 1 claim, a plaintiff

must show (1) concerted action, and (2) an unreasonable

restraint of trade. Standard Oil Co. v. United States,

221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911); American

Telephone & Telegraph Co. v. Delta Communications

Al7

Corp., 408 F.Supp. 1075, 1088 (S.D.Miss.1976), aff'd 579

F.2d 972 (5th Cir. 1978). Additionally, in order to estab-

lish federal jurisdiction a plaintiff must show that the

restraint in question has a sufficient effect upon interstate

commerce. Goldfarb v. Virginia State Bar, 421 U.S. 773,

783-785, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975); Hospital

Bldg. Co. v. Rex Hospital Trustees, 425 U.S. 738, 743-

745, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976); United States

v. Yellow Cab Co., 332 U.S. 218, 225, 67 S.Ct. 1560, 91

L.Ed. 2010 (1947); Bryan v. Stillwater Bd. of Realtors,

578 F.2d 1319, 1324 (10th Cir. 1977). Defendants contend

that plaintiffs’ claims fall short in all three areas. We

agree with defendants regarding the first two issues, and

feel no need to discuss the close question of impact upon

interstate commerce.

Concerted Action.

In order to establish the existence of the “contract,

combination, or conspiracy” referred to in 15 U.S.C. § 1,

a plaintiff must show:

. . . (1) two or more persons (2) acting in concert.

The second requirement, concerted action, is usually

defined as referring to a consensus or agreement by

the parties to act together. [16 J. Von Kalinowski,

Business Organizations: Antitrust and Trade Regula-

tions § 6.01[3], pp. 6-42 to 6-43 (1979) ]

The element of concerted action is, as noted above,

especially critical to a § 1 claim. Spectrofuge Corp. v.

Beckman Instruments, Inc., 575 F.2d 256, 286 (5th Cir.

1978) cert. denied 440 U.S. 939, 99 S.Ct. 1289, 59 L.Ed.2d

499 (1979), emphasized:

Essential to every § 1 offense is concert of action

between separate business entities. It is axiomatic

that unilateral activity by a single firm cannot be

reached via this section.

Al8

See also Card v. National Life Insurance Co., 603 F.2d

828, 834 (10th Cir. 1979); Morton Buildings of Nebraska,

Inc. v. Mortcn Buildings, Inc., 531 F.2d 910, 916-917 (8th

Cir. 1976); Ford Motor Company v. Webster’s Auto Sales,

Inc., 361 F.2d 874, 878 (1st Cir. 1966).

[7] The evidence in this case demonstrates that no

concert of action occurred. The depositions and affidavits

before the Court make it clear that defendants did not

contract, combine, conspire, consult, or even communicate

with one another regarding the adoption of the Best’s

Class VI rating requirement, Even plaintiffs have asserted

that FNMA unilaterally adopted the Class VI standard

in 1974. Later, Anchor and Fidelity independently adopted

the same standard. It is not disputed that Anchor and

Fidelity were motivated, at least in part, by a perceived

need to make the mortgages they originated more salable

in the secondary market.°

[8] That FNMA unilaterally established a standard

to which Anchor and Fidelity later “acquiesced” does not

establish concerted action within the meaning of the Sher-

man Act. Frackowiak v. Farmers Ins. Co., Inc., supra, 411

F.Supp. at 1319. Thus, in Polytechnic Data Corp. v. Xerox

Corp., 362 F.Supp. 1, 8 (N.D.Il1.1973), the court noted:

Polytechnic has alleged that Xerox has combined

with certain of its lessees who have “acquiesced” in

the prohibition of the attachment of devices to its

machines. ... These charges do not contain the “col-

laborative element” of a combination or conspiracy

required by the Sherman Act. Dart Drug Corp. v.

Parke, Davis & Co., supra [120 U.S.App.D.C. 79, 344

F.2d 173 (D.C.Cir. 1965) ].

5. Anchor claims that its Class VI requirement is also based

upon its desire to protect its shareholders and depositors, this

being part of the reason why Anchor had an even higher rating

requirement for many years prior to 1974.

A19

And regarding a similar context it has been written:

. something more than mere acquiescence in the

seller’s offending policy would be required to support

a finding of the existence of that agreement or under-

standing essential, in the absence of monopoly, to mak-

ing out a violation of the antitrust laws. [Barber,

Refusals to Deal Under the Federal Antitrust Laws,

103 U.Pa.L.Rev. 847, 859 (1955) ]

[9] In light of the fact that all of the direct evi-

dence, and it is substantial, points to a conclusion that

no concerted activity occurred in this case, plaintiffs ask

the Court to infer such activity from the parallel actions

of the defendants. Plaintiffs ask this Court to infer more

than is justified by the law or the facts of this case.

Conscious parallelism alone does not establish a § 1 viola-

tion. In United States v. CIBA-GEIGY Corp., 1976-1

Trade Cases, {| 60,908, pp. 68,935, 68,960 (D.N.J.1976), the

court stated simply: “Parallel business activity does not

itself constitute a violation of the Sherman Act,” citing

Theatre Enterprises, Inc. v. Paramount Film Distrib. Corp.,

346 U.S. 537, 541, 74 S.Ct. 257, 98 L.Ed, 273 (1954). It

has been written:

Attempts to rely upon conscious parallelism to trans-

form unilateral refusals into an allegedly collective

refusal have generally been unsuccessful. [A.B.A.,

Antitrust Law Developments 16 (1975) ]

See also First National Bank v. Cities Service, supra, 391

U.S, at 287, 88 S.Ct. 1575; Cackling Acres, Inc. v. Olson

Farms, Inc., 541 F.2d 242, 245 (10th Cir. 1976) cert. denied,

429 U.S. 1122, 97 S.Ct. 1158, 51 L.Ed.2d 572 (1977); Modern

Home Institute, Inc. v. Hartford Acc. & Ind. Co., 513

F.2d 102, 110 (2d Cir. 1975); Independent Iron Works,

Ine. v. United States Steel Corp., 322 F.2d 656, 661 (9th

Cir.), cert. denied, 375 U.S. 922, 84 S.Ct. 267, 11 L.Ed.2d

A20

165 (1963); Weit v. Continental Illinois Nat. Bank & Trust

Co., 467 F.Supp. 197, 210 (N.D.II1.1978); Hunt v. Mobil

Oil Corp., 465 F.Supp. 195, 229 (S.D.N.Y.1978); Raitport

v. Chase Manhattan Capital Corp., 388 F.Supp. 1095, 1100

(S.D.N.Y.1975); Turner, The Definition of Agreement

Under the Sherman Act: Conscious Parallelism and Re-

fusals to Deal, 75 Harv.L.Rev. 655, 657-658 (1962).

[10, 11] Because parallel conduct in itself establishes

nothing of legal significance, an antitrust plaintiff must

rely upon the surrounding circumstances to establish the

basis for an inference of concerted activity. Such sur-

rounding circumstances must demonstrate two elements

before concerted action may be inferred:

... two elements generally considered critical in estab-

lishing conspiracy from evidence of parallel business

behavior [are]: (1) a showing of acts by defendants

in contradiction of their own economic interests, Dela-

ware Valley Marine Supply Co. v. American Tobacco

Co., 297 F.2d 199 (8rd Cir. 1961), cert. denied, 369

US. 839, 82 S.Ct. 867, 7 L.Ed.2d 843 (1962); and (2)

satisfactory demonstration of a motivation to enter

an agreement, First Nat’l Bank v. Cities Service Co.,

391 U.S. 253, 287, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968).

[Venzie Corp. v. United States Mineral Prod. Co.,

Inc., 521 F.2d 1309, 1314 (3d Cir. 1975) ]

See also Admiral Theatre Corp. v. Douglas Theatre Co.,

585 F.2d 877, 884 (8th Cir. 1978); Bogosian v. Gulf Oil

Corp., 561 F.2d 434, 446 (3d Cir. 1977) cert. denied, 434

U.S. 1086, 98 S.Ct. 1280, 55 L.Ed.2d 791 (1978); A.B.A.,

Antitrust Developments, supra at 35; Turner, supra, 75

Harv.L.Rev. at 681.

[12] Because ell three moving defendants have a

strong interest in requiring that the insurance company

which provides hazard insurance for the property securing

A21

their mortgages is financially stable, it is certainly. not

“in contradiction of their own economic interests” for these

defendants tu establish a Class VI requirement. Nor. has

plaintiffs’ evidence satisfactorily demonstrated a motive

for defendants to enter into an agreement regarding such

a requirement. Defendants are in no way economically

involved in the markets in which plaintiffs compete and

therefore have no motivation to wish plaintiffs good or

ill. .

In sum, the direct evidence in the record overwhelm-

ingly establishes that defendants did not act in concert

when they each established a Class VI requirement of

hazard insurance companies. The doctrine of parallel ac-

tivity does not provide a basis for a finding to the contrary.

Therefore, a critical element in a 15 U.S.C. § 1 cause

of action is missing in this case. Summary judgment could

be granted on this basis alone, for it is clear that a mere

unilateral refusal to deal does not. constitute a Sherman

Act violation.

Unreasonable Restraint of Trade.

[13] Even if we were to assume for purposes of

argument that the acquiescence of Anchor and Fidelity

in the standards set by FNMA constituted the concerted

action required by the Sherman Act, we still could not

find that plaintiffs have shown a proper claim in this

case. The mere fact of combination or conspiracy does

not alone establish § 1 liability. Joseph E. Seagram &

Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d

71, 76 (9th Cir. 1969) cert. denied, 396 U.S. 1062, 90 S.Ct.

752, 24 L.Ed.2d 755 (1970); Natrona Service, Inc. v. Conti-

nental Oil Co., supra, 435 F.Supp. at 108. Plaintiffs must

also establish an “unreasonable restraint of trade.”

Does defendants’ conduct (assuming for argument that

concerted activity has been shown) constitute an imper-

A22

missible restraint of trade? It has been frequently noted

that the wording of § 1 is so broad as to prohibit many

kinds of perfectly normal business transactions:

The Supreme Court has observed that if Section 1

of the Sherman Act were to be read in the narrowest

possible way, any commercial contract could be

deemed to violate it. United States v. Topco Associ-

ates, Inc., 405 U.S. 596, 606, 92 S.Ct. 1126, 1133, 31

L.Ed.2d 515, 524 (1972); Chicago Board of Trade v.

United States, 246 U.S. 231, 238, 38 S.Ct. 242, 244,

62 L.Ed. 683, 687 (1918). It is well-established, how-

ever, that the federal antitrust statutes were not in-

tended and have not been construed to interfere with

ordinary commercial practices in interstate commerce

which are bona fide and not in restraint of trade.

E. g., Naifeh v. Ronson Art Metal Works, Inc., 218

F.2d 202 (10th Cir. 1954). [Frackowiak v. Farmers

Ins. Co., Inc., supra, 411 F.Supp. at 1316]

See also Associated Press v. United States, 326 U.S. 1,

23, 65 S.Ct. 1416, 89 L.Ed. 2013 (1945) (Douglas, J., con-

curring); Neeld v. National Hockey League, 594 F.2d 1297,

1298 (9th Cir. 1979); Joseph E. Seagram & Sons, Inc.

v. Hawaiian Oke & Liquors, Ltd., supra, 416 F.2d at 79;

Madirosian v. American Institute of Architects, 474 F.Supp.

628, 636 (D.D.C.1979).

[14] Notwithstanding the broad wording of § 1,

the Supreme Court established early on that only “unrea-

sonable” restraints of trade were prohibited by § 1. Stan-

dard Oil v. United States, supra. The “rule of reason”

remains the prevailing mode of analysis under § 1. Smith

v. Pro Football, Inc., 193 U.S.App.D.C. 19, 24, 593 F.2d

1173, 1178 (D.C. Cir. 1979).

A23

[15] Due to the fact that application of the “rule

or reason” test can be an arduous task, the courts have

established a judicial shortcut by holding that various

forms of trade restraints are “per se” violations of the

Sherman Act. In E. A. McQuade Tours, Inc. v. Consoli-

dated Air Tour Manual Committee, 467 F.2d 178, 186 (5th

Cir. 1972), cert. denied, 409 U.S. 1109, 93 S.Ct. 912, 34

L.Ed.2d 690 (1973), the court stated:

Certain arrangements are conclusively presumed to

be unreasonable restraints of trade, simply by virtue

of their obvious and necessary effect on competition.

See Northern Pacific Ry. v. United States, 356 U.S.

1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). Once

the existence of such an arrangement has been estab-

lished, no evidence of actual public injury is required,

Radiant Burners, Inc. v. Peoples Gas Light & Coke

Co., 364 U.S. 656, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961),

and no evidence of the reasonableness of defendant’s

conduct will be considered in justification. See North-

ern Pacific, supra. This rule of per se illegality has

been applied thus far to horizontal and vertical price

fixing agreements, division of markets between com-

petitors, tying arrangements, and certain collective

refusals to deal, or “group boycotts.”

Group boycotts are a well established form of per

se violative activity [United States v. General Motors

Corp., 384 U.S. 127, 145-146, 86 S.Ct. 1321, 16 L.Ed.2d

415 (1966); Klor’s, Inc. v. Broadway-Hale Stores, Inc.,

359 U.S. 207, 212-213, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959);

Fashion Originators’ Guild v. F. T. C., 312 U.S. 457, 468,

61 S.Ct. 703, 85 L.Ed. 949 (1941)], and it is within this

exception to the “rule of reason” that plaintiffs attempt

to categorize defendants’ conduct. Perhaps the most crit-

ical question presented by the pending motions is whether

A24

defendants’ conduct can be considered a group boycott

deserving of per se treatment.

Although group boycotts are generally considered per

se violations of the Sherman Act, certain conduct which

is similar to a group boycott has been validated by the

courts which have held either that the activity was not

a boycott or that this type of boycott was not a per se

Sherman violation. Although the state of the law in this

area is quite confused [Cullum Elec. & Mechanical v.

Mechanical Contractors, 436 F.Supp. 418, 428 (D.S.C.1976)

aff'd 569 F.2d 821 (4th Cir. 1978), cert. denied 439 U.S.

910, 99 S.Ct. 277, 58 L.Ed.2d 255], we think ample authority

exists for a finding that the activity asserted in this case

is not a boycott of the type condemned per se by the

Sherman Act.

Regarding the definition of “boycott’, the Supreme

Court recently wrote in St. Paul Fire & Marine Ins. Co.

v. Barry, 438 U.S. 531, 541, 98 S.Ct. 2923, 2930, 57 L.Ed.

2d 932 (1978):

The generic concept of boycott refers to a method

of pressuring a party with whom one has a dispute

by withholding, or enlisting others to withhold patron-

age or services from the target.

In the antitrust field, the “classic” group boycott has

been defined as

. @ concerted attempt by a group of competitors

at one level to protect themselves from competition

from non-group members who seek to compete at that

level. Typically, the boycotting group combines to

deprive would-be competitors of a trade relationship

which they need in order to enter (or survive in)

the level wherein the group operates. The group may

accomplish its exclusionary purpose by inducing sup-

A25

pliers not to sell to potential competitors, by inducing

customers not to buy from them, or, in some cases,

by refusing to deal with would-be competitors them-

selves. In each instance, however, the hallmark of the

“group boycott” is the effort of competitors to “bar-

ricade themselves from competition at their own level.”

It is this purpose to exclude competition that has

characterized the Supreme Court’s decisions invoking

the group boycott per se rule. (emphasis added)

[Smith v. Pro Football, Inc., supra, 593 F.2d at 1178]

See also Alpha-Sentura Business Services, Inc. v. Interbank

Card Ass’n, 48 L.W. 2244 (D.Md. 9/11/79).

[16] A recent analysis of the boycott law suggests

that the courts have found boycotts to constitute per se

Sherman Act violations only if they fit within one of three

categories: (1) horizontal combinations to exclude com-

petitors; (2) vertical combinations to exclude competitors;

and (3) combinations designed to influence trade prac-

tices of boycott victims. Smith v. Pro Football, Inc., supra,

593 F.2d at 1178, n. 18. See also Worthen Bank & Trust

Co. v. National Bankamericard, Inc., 485 F.2d 119, 124 (8th

Cir. 1973); E. A. McQuade Tours, Inc. v. Consolidated Air

Tour Manual Committee, supra, 467 F.2d at 186-187; West

Texas Utilities Co. v. Texas Elec. Service, 470 F.Supp. 798,

816 (N.D.Tex.1979) C. Hills (ed.), Antitrust Adviser 34 (2d

ed, 1978), Annot., 41 A.L.R.Fed. 175 § 8 (1979). The Smith

opinion went on to state that:

6. To put this another way, in order for a boycott to con-

stitute a per se violation, it must have as its purpose either the

exclusion of a competitor or some other anticompetitive goal.

Alpha-Sentura Business Services, Inc. v. Interbank Card Ass’n,

supra; Chastain v. American Telephone & Telegraph Co., 401

F.Supp. 151, 161 (D.D.C.1975); Jones v. National Collegiate Ath-

letic Ass’n, 392 F.Supp. 295, 304 (D.Mass.1975).

A26

When confronted with concerted refusals to deal that

do not fit the classic “group boycott” pattern, the

courts almost without exception have held the per se

rule inapplicable. [593 F.2d at 1179, n. 22]

We believe the per se rule inapplicable here because

this case does not present activity that could be character-

ized as a boycott falling within one of the three categories

listed above. Plaintiffs do not compete with defendants.

The Class VI requirement in no way (either horizontally,

vertically, or diagonally) excludes competitors from de-

fendants’ markets of competition. Nor can the Class VI

requirement be said to be designed to “influence the trade

practices” of the boycott victims, the plaintiffs. The Class

VI requirement was not adopted by FNMA to alter plain-

tiffs’ behavior in any fashion; rather, plaintiffs were simply

beneath FNMA’s notice when the standards were adopted.

Absolutely no anticompetitive purpose appears to have

been in any way related to the adoption of the Class VI

requirement by defendants.’

It is important to remember that per se treatment of

business activity is not lightly invoked:

A court will not indulge in this conclusive pre-

sumption lightly. Invocation of a per se rule always

risks sweeping reasonable, pro-competitive activity

within a general condemnation, and a court will run

7. Plaintiffs claim that the Supreme Court’s recent decision

in St. Paul Fire & Marine Ins. Co. v. Barry, supra, 438 U.S. at

531, 98 S.Ct. 2923, substantially broadened the definition of

boycott in the antitrust context. However, it appears that

Barry merely held that a “boycott” includes at least the practice

involved in that case, i. e., an agreement by which one company

“induced its competitors to refuse to deal on any terms with its

customers.” Smith v. Pro Football, Inc., supr, 593 F.2d at 1180,

n. 22. Such a factual situation is not present here. Further,

Barry once again made it clear that not all concerted refusals

to deal are per se invalid. Neeld v. National Hockey League,

supra, 594 F.2d at 1298-1299 n. 3.

A27

this risk only when it can say, on the strength of

unambiguous experience, that the challenged action is

a “naked restraint[] of trade with no purpose except

stifling of competition.” [Smith v. Pro Football, Inc.,

supra, 593 F.2d at 1181]

Thus, in Continental T. V., Inc. v. GTE Sylvania, Inc., 433

U.S. 36, 50, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977), the

Supreme Court said that “per se rules of illegality are ap-

propriate only when they relate to conduct that is mani-

festly anticompetitive.”

It cannot be said that conduct is manifestly anticom-

petitive where, as here, absolutely no anticompetitive intent

or motive existed. 16J Von Kalinowski, supra, at § 76.02,

p. 76-11 [“Rule of reason boycotts are not inspired by anti-

competitive motives.”] Nor can manifestly anticompeti-

tive conduct be found when the anticompetitive effect is,

as here, merely incidental. Neeld v. National Hockey

League, supra, 594 F.2d at 1299-1300; 16J Von Kalinowski,

supra § 76.04[2], p. 76-41. See also 16J Von Kalinowski at

§ 76.02[1], p. 76-15:

The per se boycott rule is applicable only when

the concerted action is specifically directed at third

parties. The per se rule is not applicable when conduct

only incidentally or indirectly causes a termination in

trade relations with a third party.

[17] Because the law is clear that per se treatment is

not appropriate for defendants’ conduct, the most plaintiffs

can argue for is application of the “rule of reason.” The

“rule of reason” entails basically a weighing process:

Under the rule of reason, a restraint must be

evaluated to determine whether it is significantly anti-

competitive in purpose or effect. In making this evalu-

ation, a court generally will be required to analyze

A28

“the facts peculiar to the business, the history of the

restraint, and the reasons why it was imposed.” If, on

analysis, the restraint is found to have legitimate busi-

ness purposes whose realization serves to promote com-

petition, the “anticompetitive evils” of the challenged

practice must be carefully balanced against its ‘“‘pro-

competitive virtues” to ascertain whether the former

outweigh the latter. A restraint is unreasonable if it

has the “net effect” of substantially impeding com-

petition. [Smith v. Pro Football, Inc., supra, 593 F.2d

at 1183] .

Even were the “rule of reason” to be applied, plaintiffs

must fail. On the one hand, plaintiffs have not demon-

strated that the anticompetitive effects of the Class VI

requirement would be significant at all in terms of the

impact upon the relevant market. This is especially so

in light of the fact that plaintiffs have full access to the

market if they merely use reinsurance certificates.

On the other hand, Congress has mandated that FNMA

accept only mortgages which are “of such quality, type,

and class” as to meet the standards of institutional invest-

ors. Further, FNMA is to promote uniformity in the field.

Use of a standard governing hazard insurance promotes

both those goals. Utilization of an objective standard is

obviously necessary when one considers the tremendous

volume of business being done in this area. In 1978, FNMA

purchased 311,002 mortgages with an unpaid balance of

$12,301,650.00. Anchor sold $16,478,360 worth of mortgages

to FHLMC in 1978. Fidelity has approximately $140,000,000

in the mortgage portfolio which it services, about $62.8

million of this has been sold to FNMA or GNMA. With

this volume of business, it is not feasible to adopt plain-

tiffs’ suggestion that each insurance company be analyzed

individuaily. This would be a costly and time-consuming

A29

process for there are over two hundred companies compet-

ing in the hazard insurance market in Kansas alone.

Plaintiffs claim that they are well-managed and there-

fore more sound financially than some companies larger

in size. This may be true. However, if defendant FNMA

reduced its standard to a smaller classification to include

plaintiffs, or switched to reliance upon Best’s ‘‘Policyhold-

ers’ Rating”, or made some other such adjustment, there

would always be some other company which could sue

making the same arguments which plaintiffs lodge in this

case.

The standard applied by defendants is reasonable. It

serves a legitimate business interest and is therefore not

offensive to the Sherman Act. Neeld v. National Hockey

League, supra, 594 F.2d at 1300; Polytechnic Data Corp. v.

Xerox Corp., supra, 362 F.Supp. at 6, 8; Nankin Hospital

v. Michigan Hospital Service, 361 F.Supp. 1199, 1207 (E.D.

Mich.1973).

[18] So long as the defendants’ actions are reason-

able, they need not constitute the “least restrictive alterna-

tive” available. Foster v. Md., State Sav. & Loan Ass’n,

590 F.2d 928, 935 (D.C. Cir. 1978), cert. denied, 439 U.S.

1071, 99 S.Ct. 842, 59 L.Ed.2d 37 (1979); American Motor

Inns v. Holiday Inns, Inc., 521 F.2d 1230, 1249 (3d Cir.

1975); Newberry v. Washington Post Co., 438 F.Supp. 470,

475 (D.D.C.1977).

We agree with defendants that plaintiffs’ arguments

reveal the fact that the real nub of plaintiffs’ complaint

is not an antitrust claim at all. Rather, plaintiffs simply

feel that defendants have made a mistake in adopting a

standard which precludes dealing with two such reliable

companies as plaintiffs. Unfortunately for plaintiffs’ posi-

tion, bad business judgment does not constitute a Sherman

Act violation. Natrona Service, Inc. v. Continental Oil

A30

Co., supra, 435 F.Supp. at 110. Plaintiffs’ remedy is not

to being an antitrust action, but to present their case to

FNMA’s board of directors. Plaintiffs stand in the shoes

of any company which has lost an account. They need to

send a salesman to attempt to get it back.

[19] Upon contemplation, the Court concludes that

the record in this case shows nothing more than unilateral

refusals to deal which do not constitute Sherman Act vio-

lations. FNMA has chosen a Class VI requirement because

it suits FNMA’s need for a uniform, objective standard.

Anchor and Fidelity have chosen the same requirement in

part because it makes their product more attractive to po-

tential purchasers. Defendants have chosen to deal with

larger insurance companies. They have not chosen to deal

with plaintiffs unless plaintiffs utilize reinsurance. These

are independent decisions which defendants can make with

impunity under the antitrust laws. It was established

long ago that a company has the right to choose with whom

it will deal and on what terms. In United States v. Colgate

& Co., 250 U.S. 300, 307, 39 S.Ct. 465, 468, 63 L.Ed. 992

(1919), the Supreme Court said:

In the absence of any purpose to create or maintain a

monopoly, the act does not restrict the long recognized

right of trader or manufacturer engaged in an entirely

private business, freely to exercise his own independent

discretion as to parties with whom he will deal; and, of

course, he may announce in advance the circumstances

under which he will refuse to sell.

See also Fuchs Sugar & Syrups, Inc. v. Amster Corp., 662

F.2d 1025, 1030 (2d Cir. 1979); Lamb’s Patio Theatre v.

Universal Film Exchanges, 582 F.2d 1068, 1070 (7th Cir.

1978) ; Oreck Corp. v. Whirlpool Corp., 579 F.2d 126, 133 (2d

Cir. 1978) cert. denied, 439 U.S. 1104, 99 S.Ct. 883, 59 L.Ed.

2d 65; Anaya v. Las Cruces Sun News, 455 F.2d 670, 672

- |

A31

(10th Cir. 1972); Dahl, Inc. v. Roy Cooper Co., 448 F.2d 17,

19 (9th Cir. 1971); Natrona Service, Inc. v. Continental Oil

Co., supra, 435 F.Supp. at 108; Frackowiak v. Farmers Ins.

Co., Inc., supra, 411 F.Supp. at 1317.

The courts have upheld refusals to deal on a myriad

of grounds. In A.B.A., Antitrust Law Developments,

supra at 22-23 (and Supp.), it was noted:

Thus, individual refusals to deal have been up-

held when based upon the failure of a distributor to

live up to the supplier’s preferred quality type image,

when reliable security for payment has not been given

or payments have not been made, when the refusal

was based on a chronic history of customer complaints,

when competitive products were sold by a customer

at lower prices or lower prices were available from

other suppliers, when a customer would not enter into

a 5-year contract, when the “refusal was based on the

supplier’s belief that his company had been treated

badly,” when the refusal to deal was initiated because

of a refusal by distributors to supply a newspaper with

a list of its subscribers, when a manufacturer decided

to choose his own distributor or establish his own ex-

clusive outlet, when a coupler manufacturer’s policy

was to sell only to original equipment manufacturers

or to subcontractors who manufactured components di-

rectly for them, and when the transfer from one dis-

tributor to another has been solicited by the new dis-

tributor, [w]hen a hospital did not meet an insurance

company’s standards designed to promote the public

welfare, when the refusal was motivated by a sup-

plier’s decision to abandon a geographic market, when

a supplier changed his policy and initiated a nationwide

cutback in the number of dealers for its products, when

a commercial loan was denied because of the applicant’s

inadequate financial resources and managerial qualifi-

A32

cations, when a distributor provided inadequate sales

performance in an area of primary responsibility, when

a refusal to continue to supply market research data

was intended to prevent the disclosure of proprietary

trade secrets to a customer who had become a compet-

itor, when a refusal was based on a curtailment of non-

contractual customers during a period of shortage, and

when a distributor engaged in misbranding activities.

[footnotes omitted]

Defendants’ actions in this case are as legal and reason-

able as those just listed. It is not for this Court to sub-

stitute its judgment for the business judgment of defen-

dants. Plaintiffs have been unable to present any authority

which supports the positions they assert in any similar legal

context. The cases which are factually similar to the case

at hand are all in defendants’ column.

A very similar case is Shawver & Sons, Inc. v. Okla-

homa Gas & Electric Company, 463 F.2d 204 (10th Cir.

1972), in which an owner directed its general contractors

not to hire a certain subcontractor in their work for the

owner. The subcontractor brought an antitrust action. The

10th Circuit had no trouble affirming the trial court’s deci-

sion to grant defendant’s motion for summary judgment,

stating:

Case law interpreting antitrust statutes has estab-

lished that in the absence of any purpose to create or

maintain a monopoly, anti-trust laws do not restrict

the right of any concern to deal with whom it pleases.

United States v. Colgate & Co., 250 U.S. 300, 39 S.Ct.

465, 63 L.Ed. 992 (1919); Naifeh v. Ronson Art Metal

Works, 218 F.2d 202 (10th Cir. 1954). [463 F.2d at 205]

In Kendall Elevator Co., Inc. v. LBC&W Associates of

S.C., Inc., 350 F.Supp. 75 (D.S.C.1972), defendant prepared

architectual specifications for a building which required

A33

that the elevator supplier should be a manufacturer of

major components “or equal”. Plaintiff installed elevators,

but was not a manufacturer and was therefore precluded

from meeting the specifications. The plaintiff’s antitrust

claim was rejected. The court stated:

As a general rule, a unilateral refusal to do business

does not violate the antitrust laws so long as there is

no purpose to create or maintain a monopoly... .

The manufacturer of a product may select his

customers and has the right to refuse to deal with

anyone so long as such refusal is not in furtherance of

a restrictive trade practice. An architect certainly has

the same right. [350 F.Supp. at 78]

[20] In a similar case, Security Fire Door Company

v. County of Los Angeles, 484 F.2d 1028 (9th Cir. 1973) a

plaintiff claimed an antitrust conspiracy among a county,

its architects, and the supplier of a dumbwaiter system be-

cause the specifications for a county hospital construction

project allegedly excluded all competition. The court re-

jected plaintiff’s claim, holding:

Once a purchaser’s choice of product has been ex-

ercised competition is, of course, at an end. However,

a purchaser is free to choose the product he desires

without rendering himself an antitrust conspirator. The

proscription against restraint of trade in this context

seeks only to assure that the choice of product has been

made freely under circumstances where the play of

competition has been available rather than in response

to anticompetitive factors such as coercion on the part

of the supplier or agreements between suppliers not

to compete with each other. [484 F.2d at 1030]

Plaintiffs. are free to attempt to persuade FNMA to adopt

a Best’s classification which would not exclude them.

A34

Plaintiffs do not allege that insurance companies with a

Best’s VI classification have influenced defendants to adopt

a classification which would exclude plaintiffs. The

fact that no competitor of plaintiffs is a defendant in

this action and that defendants have absolutely no com-

petitive interest in the markets in which plaintiffs compete

serves to highlight the inappropriateness of an antitrust

cause of action in this factual situation.

In summary, we believe that plaintiffs are misusing the

antitrust statutes by attempting to apply them to conduct

which is obviously permissible and not anticompetitive.

No § 1 Sherman Act violation can be found upon the al-

legations and facts presented in this case.

Other Claims

Plaintiffs have also lodged a § 2 Sherman Act claim

and state antitrust law claims.

[21] As defendants point out, and plaintiffs tacitly

concede, a § 2 Sherman Act claim is not even properly

alleged in this case. 15 U.S.C. § 2 prohibits the actions

of those who monopolize, attempt to monopolize, or con-

spire to monopolize. Plaintiffs do not and cannot contend

that the adoption of a Class VI requirement by defendants

was an attempt by any of them to gain a monopoly in

its particular market.

[22] Because plaintiffs cannot show either a § 1

or § 2 claim under the Sherman Act, any pendent claims

that state antitrust laws have been violated should be

dismissed. United Mine Workers v. Gibbs, 383 U.S. 715,

726, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966); Prince v. Wallace,

568 F.2d 1176, 1178 (5th Cir. 1978); Hodge v. Mountain

States Tel. & Tel. Co., 555 F.2d 254, 261 (9th Cir. 1977);

Stevens v. Rock Springs National Bank, 497 F.2d 307,

310 (10th Cir. 1974).

A35

CONCLUSION

Upon consideration of the entire record, the Court

has no difficulty in reaching the conclusion that the motions

for summary judgment must be granted.

IT IS SO ORDERED.

A36

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT |

JULY TERM—July 24, 1980

Before Honorable Monroe G. McKay, Honorable Stephanie

Seymour, and Honorable John W. Peck*, Circuit

Judges

No. 79-2260

(D.C. No. 78-4094)

CONSOLIDATED FARMERS MUTUAL INSURANCE

COMPANY and KANSAS MUTUAL INSURANCE

COMPANY,

Plaintiffs-Appellants,

vs.

ANCHOR SAVINGS ASSOCIATION, FIDELITY IN-

VESTMENT COMPANY, FEDERAL NATIONAL MORT-

GAGE ASSOCIATION, and FEDERAL HOME LOAN

MORTGAGE CORPORATION,

Defendants-Appellees.

JUDGMENT

(Filed August 18, 1980)

This cause came on to be heard on the record on ap-

peal from the United States District Court for the District

of Kansas, and was argued by counsel.

Upon consideration whereof, it is ordered that the

judgment of that court is Affirmed.

/s/ Howard K. Phillips

Howard K. Phillips, Clerk

A37

APPENDIX D

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF KANSAS

Civil Action File No. 78-4094

CONSOLIDATED FARMERS MUTUAL INSURANCE

COMPANY, et al,

Plaintiffs,

VS. |

ANCHOR SAVINGS ASSOCIATION, et al,

Defendants.

JUDGMENT

(Filed November 7, 1979)

This action came on for (hearing) b2fore the Court,

Honorable Richard D. Rogers, United States District Judge,

presiding, and the issues having been duly (heard) and a

decision having been duly rendered,

It is Ordered and Adjudged that the motions of defen-

dants, Anchor Savings Association, Fidelity Investment

Company, and Federal National Mortgage Association for

summary judgment must be granted.

Dated at Topeka, Kansas, this 7th day of November,

1979.

Arthur G. Johnson

Clerk of Court

By /s/ (Ilegible)

Deputy Clerk