Opposition Brief — Wilson v. North Carolina Mutual Life Insurance

e \ Office - Supreme Court, U.S.

2 / FILED

No. 84-1716 MAY 22 1065

AREXANDER L, STEVAS,

IN THE CLERK

Supreme Court of the United States

OCTOBER TERM, 1984

. OWEN WILSON, et al.,

. Petitioners,

NORTH CAROLINA MUTUAL LIFE

INSURANCE COMPANY, et al.,

Respondents.

On Petition For A Writ Of Certiorari To The

United States Court Of Appeals For The

District Of Columbia Circuit

BRIEF FOR RESPONDENTS IN OPPOSITION _

EUGENE D. GULLAND *

COVINGTON & BURLING

1201 Pennsylvania Ave., N.W.

P.O. Box 7566

Washington, D.C. 20044

(202) 662-6000

HARRISON M. ROBERTSON, JR.

MICHAEL E. YAGGY

NILES, BARTON & WILMER

929 North Howard Street

Baltimore, Maryland 21201

(301) 539-3240

Counsel for Respondents

* Counsel of Record

May 1985

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QUESTIONS PRESENTED

1. Whether petitioners may relitigate in federal courts

the same factual issues finally resolved against them in

extensive evidentiary hearings by the Maryland Insur-

ance Commissioner and on appeals dismissed by the

Maryland state courts.

2. Whether petitioners have standing, as alleged own-

ers or former officers of an insurance company, to prose-

cute a federal antitrust action alleging that the public

has been injured by a contract of reinsurance, approved

by the Maryland Insurance C. mmissioner, between their

company and another.

3. If petitioners may relitigate the factual issues, and

have standing, whether a contract of reinsurance ap-

proved by the Maryland Insurance Commissioner under

state laws extensively regulating such insurance transac-

tions is exempted from the federal antitrust laws by the

McCarran-Ferguson Act, 15 U.S.C. § 1012(b).

(i)

ii

STATEMENT PURSUANT TO RULE 28.1

Set forth below, pursuant to Rule 28.1, is a list of

all parent companies, subsidiaries and affiliates of re-

spondent North Carolina Mutual Life Insurance Com-

pany:

Mid-West Underwriters, Inc.

American Citizens Life Insurance Company, Inc.

American Capital Life Insurance Company

NCM Life Communications

Nashville Television, Inc.

Charlotte Broadcasting Company

Holly Hill Cablevision, Inc.

St. George Cablevision, Inc.

TABLE OF CONTENTS

Page

OR) ge bi Bg 8 | | Fc care i

STATEMENT PURSUANT TO RULE 28.1 ................ ii

RELATED PROCEEDINGS AND JUDGMENTS BE-

CF ERATE UR ARS en OC eer 1

pe ea

Pe a ce 2

pe eg 5 Ee ee ee 2

COUNTERSTATEMENT OF THE CASE .......000000000.... 2

Proceedings Before the MIC ~......00000....2e2eeeee 3

EET ELI OO EE CREE 4

The Commencement of the Federal Litigation........ 5

REASONS FOR DENYING THE WRIT ...................... 6

I. PETITIONERS’ EFFORTS TO RELITIGATE

I cscatanbehabied 7

II. PETITIONERS’ LACK OF ANTITRUST

LN RI ee Rae era ; 10

III. PETITIONERS’ MCCARRAN-FERGUSON

ACT CONTENTIONS ........... epeide acide details: 13

I i cpcsanae pe OMAR Ae deweReDE oar 16

RE SERS RL REE BO MEE EARS Set COTO la

(iii)

iv

TABLE OF AUTHORITIES

Cases Page

Allen v. McCurry, 449 U.S. 90 (1980) .................... 7,8

In Re: American Citizens Life Insurance Corpora-

tion (Order 77-26, decided May 13, 1977) ........... 2

American Mutual Reinsurance Co. v. Calvert Fire

Insurance Co., 367 N.E.2d 104 (Ill. App. 1977),

cert. denied, 436 U.S. 906 (1978) ..................-...... 14

Ames V. American Telephone & Telegraph Co., 166

Fed. 820 (D. Mass. 1909) ....... PRE ae ae oe eee 12

Ash v. International Business Machines, 353 F.2d

491 (3d Cir. 1965), cert. denied, 384 U.S. 927

ae 12

Associated General Contractors of California v.

California State Council of Carpenters, 459 U.S.

BE RE aA ec oe en 12

Azalea Drive-In Theatre v. Hanft, 540 F.2d 713

(4th Cir. 1976), cert. denied, 430 U.S. 941

(= 5 RRR SRI reeiReiiie brome Ue iene Oe a nt meen 10

Badders v. Uhler, 233 Md. 441, 197 A.2d 120, cert.

GO TT Cie ee CD norerekdecec ibis. 8

Becher v. Contoure Laboratories, Inc., 279 U.S. 388

PE ikicicsn)sdnmaaiiaiiah shu nisclicaen beets ioatiinbiaasbaniecedind 10

Lawrence N. Brandt, Inc. v. Montgomery County

Comm’n on Landlord-Tenant Affairs, 39 Md.

App. 147, 383 A.2d 688 (1978) ..............0............ 8

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429

be Oo yy 5 SRRARRURNAEIR Dw err fe Set Aoe ee ene amo anew 10, 11

Central National Bank v. Rainbolt, 720 F.2d 1183

I eee 11, 12

Conference of Studio Unions v. Lowes, Inc., 193

F.2d 51 (9th Cir. 1951), cert. denied, 342 U.S.

Bk: RNR peer te ame PAM a he ON ea 12

Fein v. Security Banknote Co., 1957 CCH Trade

Cie, Fee Ce > ED a cre 12

Fertitta v. Brown, 252 Md. 594, 251 A.2d 212

a 8

Gerli v. Silk Assn. of America, 36 F.2d 959 (S.D.

2, Soe, ROR ESTicra a Peer eC teat Oh Xce nee 12

Group Life and Health Ins. Co. v. Royal Drug Co.,

Sa ER siihdseticersictisirciirecinicwctacceisncen 15

Vv

TABLE OF AUTHORITIES—Continued

In Re: Industrial Gas Antitrust Litigation, 681

F.2d 514 (7th Cir. 1982), cert. denied, 460 U.S.

| RN ae ea Se PN eu REED CIN OS

Jeffrey Vv. Southwestern Bell, 518 F.2d 1129 (5th

Oli, SII vrais eic kecenceticnseiaticaninien eek eae

Kreager v. General Electric Co., 497 F.2d 468 (2d

Cir. 1974), cert. denied, 419 U.S. 861 (1974)...

Kremer v. Chemical Construction Corp., 456 U.S.

GRE. CIID saseicessencissniticnnncss taseienccsniecehanilnamnsidupiadadadasiaa

Marrese v. American Academy of Orthopaedic

Surgeons, U.S. , 105 S.Ct. 1827 (de-

CRO TRAINEE Gi, BOI D ciircscnnsca iii vinialliiiniienshiintecanesineiielins

Mayer Goldberg Inc. of Lorain v. Fisher Foods,

Inc., 7117 F.2d 290 (6th Cir. 1983) -....................

MPC, Inc. v. Kenny, 279 Md. 29, 367 A.2d 486

Eg 7 Eee RIS eR ini nee leetpan te nia oe Recetas oF Ee As

National Supply Co. v. Hillman, 57 F. Supp. 4

‘EA, | | | RR crannies Se 87 Se

New Sanitary Towel Supply, Inc. v. Consolidated

Laundries Corp., 211 F. Supp. 276 (S.D.N.Y.

| TRIP MERE TO ernie ee ho. OF

Ohio Casualty Ins. Co. v. Insurance Commissioner,

39 Md. App. 547, 387 A.2d 622 (1978) ................

Peter v. Western Newspaper Union, 200 F.2d 867

COE GRR: SD eataticnccaats netbeans

Peterson v. Borden Co., 50 F.2d 644 (7th Cir.

WED oii Shia ise ne eee

Petition of Charlton Bros. Transp. Co., 30 A.2d

a See Ee etait ec

Reibert v. Atlantic Richfield Co., 471 F.2d 727

(10th Cir.), cert. denied, 411 U.S. 938 (1978)..

State Ins. Comm’r v. Nat’l Bureau of Casualty Un-

derwriters, 248 Md. 292, 236 A.2d 282 (1967)...

Straus v. American Publishers’ Ass’n, 201 Fed.

306 (2d Cir. 1912), apz. tismissed, 235 U.S. 716

CID sc: sie: igearenmscsseh usicincistgepcaialebaaiadialicdah nike Sastre a

Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119

TINNED sx1ctu: sscnesecguisaciestgakiueocine suneiamiedaeeaienaacastatdadees

Page

vi

TABLE OF AUTHORITIES—Continued

Page

Warth v. Seldin, 422 U.S. 490 (1975) -................. 13

Westmoreland Asbestos Co., Inc. v. Johns-Manville

Corp., 30 F. Supp. 389 (S.D.N.Y. 1939), aff’d on

opinion below, 118 F.2d 114 (2d Cir. 1940)........ 12

Statutory Provisions

The Clayton Act, § 7, 15 U.S.C. § 18 11

The McCarran-Ferguson Act, §2(b), 15 U.S. C.

> LP ENES es tt i, 14

28 U.S.C. § 1738 6,8

District of Columbia Insurance Code, § 1903 (d)

(1) (BB) (ISTE) .22n-.n...nceneececeencecseronsnesee 9

Maryland Insurance Code, “Art. 48-A Md. Code

Oe FS) | ESS ee passim

I eisisicacsicesnnshiinncinten ean ninnesahestiepalblbsebanisbedaeabeibipananiihde 4

OD i sitsnccnininsossinssetenisi ip teaceiacilatidnialaliaada 4

TO icsaiscnsdsviisettinncsicncebbisdbchshnenscdeiasadannadidaiieielindndamtett 5,8

ID iciccsnscsncinesstsctinsin encase acactaatiaalstvaltalion diane 8

SI isi wik <ecicsevitiantinnsinin diibadunicenhieaenieiaiaeaibiiedniaote 9

OI icitiichccetrensiiiscinisitasstinscneininsadbenkiseiiniididiaduniigiaaadeinted 9

[i TEI vssiccsdncnscoispniptctianiendessalideapeaiaeniaiaaiiiiitaainaaicna 5,9

GD ais csiecncsitsitinsccicicsssestinsiniinsiinicialaidanindinvasacnnatinalas 5,9

I a vcciscisshincceetciicinincitsiatiassbitnihindaaiiagtaaaiigade 3, 4, 14

In THE

Supreme Court of the United States

OCTOBER TERM, 1984

No. 84-1716

OWEN WILSON, et al.,

. Petitioners,

NORTH CAROLINA MUTUAL LIFE

INSURANCE COMPANY, et al.,

Respondents.

On Petition For A Writ Of Certiorari To The

United States Court Of Appeals For The

District Of Columbia Circuit

BRIEF FOR RESPONDENTS IN OPPOSITION

RELATED PROCEEDINGS AND JUDGMENTS BELOW

The petition does not accurately reflect the eight-year

procedural history of this litigation, which is marked by

petitioner Owen Wilson’s persistent opposition to a re-

insurance contract between North Carolina Mutual Life

Insurance Company (“North Carolina”) and Mutual

Benefit Society of Baltimore (‘“Mutual’’).

The Maryland Litigation

Wilson, a former officer, director and policyholder of

Mutual, first opposed the contract in protracted hearings

before the Maryland Insurance Commissioner (“MIC”).

The MIC approved the reinsurance transaction seven

years ago in a comprehensive 48-page written decision.

In Re: Approval of a Contract and Agreement of Rein-

surance of the Mutual Benefit Society of Baltimore City

2

(Case No. 1960, decided June 5, 1978) (cited hereinafter

as “MIC Order”). The Baltimore City Court dismissed

Owen Wilson’s appeal, the Maryland Special Court of

Appeals affirmed the dismissal, and the highest court ir

Maryland denied certiorari. Wilson v. Insurance Commis-

sioner of the State of Maryland, No. 24-P, File No.

101580, Balt. City Ct. (November 9, 1978), aff'd, No.

1237, Court of Sp. App. (June 14, 1979), cert. denied, No.

217, Maryland Court of Appeals (September 10, 1979).?

The Federal Litigation

Petitioner Wilson and others commenced these proceed-

ings in November 1980, seeking to set aside the reinsur-

ance transaction based on federal securities, civil rights,

antitrust and state law theories. On June 30, 1983, the

United States District Court for the District of Columbia

dismissed the action and entered judgment for respond-

ents. (Petition, Appendix A, pp. 23-24.) The United

States Court of Appeals for the District of Columbia Cir-

cuit affirmed without opinion in a judgment filed on Oc-

tober 29, 1984. (Petition, Appendix B, pp. 25-26.)

STATUTES INVOLVED

Pertinent provisions of the Maryland Insurance Code

as they existed in 1978 are included in the appendix to

this brief. See pp. la-6a, infra.

COUNTERSTATEMENT OF THE CASE

Mutual is a small, Baltimore-based mutual insurance

company operating only in the state of Maryland. (MIC

Order at 3.) In 1977, Mutual was in financial difficulty,

1The MIC Order was submitted to the district court and also

was included as a separate appendix to respondents’ brief to the

court of appeals.

2 The District of Columbia Superintendent of Insrance also ex-

amined and approved the reinsurance transaction to the extent it

affected a subsidiary of Mutual located in the District of Columbia.

In Re: American Citizens Life Insurance Corporation (Order 77-

26, decided May 13, 1977).

3

having sustained operating losses and suffered a shrink-

ing surplus for eight of the nine preceding years. (Jd.

at 12.) With petitioner Owen Wilson and his daughter

the only dissenting directors, Mutual’s Board voted 7-2

to enter into a contract of reinsurance under which North

Carolina would assume Mutual’s insurance policy. liabil-

ities and assets. (/d. at 1, 16.)* North Carolina, a large

and stable insurance company with an “excellent reputa-

tion,” possessed the financial strength to shoulder Mu-

tual’s mounting liabilities and protect its policyholders.

(Id. at 7-9, 42.)

Maryland, like virtually all states, pervasively regu-

lates the insurance business through an administrative

agency—the MIC—specializing in that industry. Under

the Maryland Insurance Code, 48-A Md. Code § 274, the

proposed reinsurance transaction could only be ccnsum-

mated in accordance with statutory procedures requiring

(i) approval of Mutual’s policyholders; and (ii) the

MIC’s authorization, following evidentiary hearings es-

tablishing that the transaction complied with applicable

law, provided adequate protection to Mutual’s policyhold-

ers, and was fair to Mutual.

Proceedings Before the MIC

In accordance with procedures supervised by the MIC,

an independent mailing firm sent proxy materials to the

22,000 policyholders of Mutual. (MIC Order at 16.) The

materials included petitioner Owen Wilson’s written state-

ment of reasons why he objected to the transaction and

is recommendation that policyholders vote against it. (Jd.

at 17.) More than 80 percent of the responding nolicy-

holders voted in favor of the reinsurance transaction.

(Id.)

% Petitioners persist in terming the transaction a “merger.”

They made the same argument to the MIC, which rejected it.

(MIC Order at 20.) The fact is, as the complaint recognizes (Com-

plaint, 7), that Mutual continues in existence. See p. 15, infra.

4

The MIC then heard testimony on the reinsurance

transaction during many days of hearings in October,

November and December 1977. By law, the proceedings

are “quasi-judicial” in nature and petitioners had the

right to subpoena witnesses, to present evidence and to

cross-examine opposing witnesses. 48-A Md. Code §§ 38-

39. Further hearings were held in May 1978 to enable

Owen Wilson and others to present additional opposition

evidence. The hearings were convened only after “due

notice [was] given” by both newspaper notice and mail to

interested parties. (MIC Order at 4.) The “hearings

were well attended and the chief participants were repre-

sented by able and experienced counsel.” (Jd.)* The MIC

delayed its decision for nearly five months in order to

schedule additional evidentiary hearings requested by

Owen Wilson’s counsel. (Jd. at 41.)

The MIC’s Decision

Owen Wilson and other petitioners raised the same ob-

jections before the MIC that they later sought to reliti-

gate below. The MIC rejected each of the contentions in

a 48-page decision which the district court rightly charac-

terized as “detailed.”

Thus, in accordance with the reinsurance provisions of

48-A Md. Code § 274, the MIC concluded, inter alia, that

(1) the rights of Mutual policyholders “are amply pro-

tected under the [reinsurance] agreement” (MIC Order

at 42); (2) the transaction is “fair and equitable to

Mutual” (id. at 43); and (3) the transaction had been

duly approved by many more than the required two-

thirds of voting policyholders. (Jd. at 42-43.)° The MIC

4The MIC noted that petitioner Owen Wilson was personally

responsible for “most of the opposition to the proposal... .” (MIC

Order at 18.) Owen Wilson filed nine petitions opposing the trans-

action (id. at 44-45) but “he declined to accept an invitation of the

Insurance Commissioner to testify” at the hearings. (/d. at 18.)

5 The MIC also explored in detail—and rejected—contentions that

the proxy materials sent to policyholders had been misleading or

5

also considered and rejected Owen Wilson’s contentions

that the reinsurance transaction would violate the anti-

trust/fair trade practice provisions of the Maryland In-

surance Code, 48-A Md. Code §§ 220, 229; after analyz-

ing the evidence, the MIC concluded that North Carolina

would have only a trivial share of the business within the

pertinent markets and that the transaction would cer-

tainly not “create a monopoly or lessen competition in any

measurable degree.” (MIC Order at 29-31.)

Only petitioner Owen Wilson sought to appeal the

MIC’s decision under the exclusive statutory judicial re-

view procedure. 48-A Md. Code §40. His appeal was

dismissed for failure to comply with the rules and proce-

dures for appeals; the dismissal was upheld by the Mary-

land Court of Special Appeals and certiorari was denied

by the Maryland Court of Appeals. (See pp. 1-2, supra.)

The Commencement of the Federal Litigation

In late 1980—more than two years after the MIC’s

decision—petitioners commenced this litigation. The com-

plaint chiefly challenged the reinsurance transaction as a

“conspiracy” among defendants to obtain assets of Mu-

tual for unfairly low consideration. It also alleged that

the transaction violated federal securities, civil rights

and antitrust statutes. The complaint sought equitable

relief nullifying the reinsurance transaction and prayed

for damages. (Complaint, {[] 60-69.)

The petition for certiorari abandons all but the anti-

trust theories. The complaint alleged that the reinsur-

ance transaction violated Section 7 of the Clayton Act, 15

U.S.C. § 18, by reducing competition among insurance

companies. (Complaint, {\] 15-33.) The complaint does

not allege that plaintiffs (i.¢., petitioners) suffered any

otherwise inadequate. (MIC Order, 18-23.) Similarly, the MIC

found no basis for assertions that there were any “improper cor-

porate acts” undertaken in connection with the authorization and

approval of the reinsurance transaction. (Jd. at 32.)

6

antitrust injury; rather, it asserts that “the insurance

purchasing public in this line of commerce has been

denied the benefits of free and open competition.” (Com-

plaint, 32.) Plaintiffs sought relief for themselves on

the different theory that they are “policyholders who are

the owners of Mutual” and that the reinsurance transac-

tion diminished, or deprived them of, the value of their

alleged ownership interests. (Complaint, {] 1, 29-32, 59-

60.)

REASONS FOR DENYING THE WRIT

Far from meeting the requirement of Rule 17.1 that

there be “special and important reasons” for review by

certiorari of the decision below, this case was properly

disposed of by settled and noncontroversial principles.

The petition does not and could not cite any conflict be-

tween the decision below and decisions of this Court, fed-

eral courts of appeal or any state courts.

First, petitioners’ “antitrust” claims were nothing

more than an effort to dress as a “federal” cause of ac-

tion the identical competitive evidence and arguments

they had unsuccessfully presented to the MIC. The MIC

expressly found that the transaction would have no ap-

preciable effect on competition within Maryland—Mu-

tual’s only market. Maryland law does not permit col-

lateral attacks on the MIC’s findings and conclusions.

Under 28 U.S.C. § 1738 and decisions of this Court, peti-

tioners cannot relitigate these factual issues simply by

recasting them as federal claims.

Second, another fatal flaw in petitioners’ “antitrust”

claims is their lack of standing to assert them. They

brought suit to vindicate injury to their alleged owner-

ship interests in Mutual. The only “antitrust injury” al-

leged in the complaint is harm the general public might

suffer from asserted reductions in competition. There is

no allevation that any petitioner has suffered “antitrust

injury” and it is clear that, under settled principles, pe-

7

titioners have no standing to litigate some generalized

public interest in unspecified “competition.”’

Third, petitioners’ bewildering discussion of the im-

pact of the McCarran-Ferguson Act upon health care

and health insurance is irrelevant to this case, and seems

designed to distract attention from the dispositive stand-

ing and relitigation obstacles to their antitrust claims.

The only McCarran-Ferguson Act issue raised below was

the district court’s alternative finding that detailed state

regulation of the reinsurance contract in the interests of

policyholders qualified for McCarran-Ferguson exemption.

The only other court that has considered this question

decided it in the same way.

I. PETITIONERS’ EFFORTS TO RELITIGATE THE

ISSUES

The district court held, inter alia, that petitioners’ com-

plaint “represents a meritless collateral attack upon the

findings and conclusions issued by the [MIC].” (Petition,

p. 24.) This is indeed a paradigm case for application of

“res judicata and collateral estoppel [to] relieve parties

of the cost and vexation of multiple lawsuits, conserve

judicial resources, and, by preventing inconsistent deci-

sions, encourage reliance on adjudication.” Allen v. Mc-

Curry, 449 U.S. 90, 94 (1980).

Petitioners seek to relitigate the final approval of a

long-consummated transaction affecting the rights of

thousands of former Mutual policyholders. Maryland has

found that the “complex problems” of insurance can be

resolved “more expeditiously, effectively, cheaply and sim-

ply” by confiding them to an agency having “expertise

and superior ability.” State Ins. Comm’r v. Nat’l Burevw

of Casualty Underwriters, 248 Md. 292, 236 A.2d 282,

286 (1967). To this end, Maryland’s Insurance Code re-

quires persons aggrieved by any decision of the MIC to

present their opposition in an exclusive statutory appeal

8

process. 48-A Md. Code § 40. Petitioners could have chal-

lenged all aspects of the MIC’s decision and even intro-

duced additional evidence. Id., § 40(4). Only Owen Wil-

son appealed. But his failure to do so in timely fashion

resulted in dismissal, which was upheld by the Maryland

appellate courts.

Maryland law requires parties aggrieved by adminis-

trative decisions to make use of the exclusive statutory

appeal procedure and forbids collateral attacks through

other forms of action. Lawrence N. Brandt, Inc. v. Mont-

gomery County Comm’n on Landlord-Tenant Affairs, 39

Md. App. 147, 383 A.2d 688, 693-95, (1978); Fertitta v.

Brown, 252 Md. 594, 251 A.2d 212 (1969) ; see also, Ohio

Casualty Ins. Co. v. Insurance Commissioner, 39 Md.

App. 547, 387 A.2d 622 (1978). Moreover, Maryland

embraces the standard rule of collateral estoppel under

which “determinations of fact or issues actually litigated

in the first case are conclusive in [the second].” MPC,

Inc. v. Kenny, 279 Md. 29, 32, 367 A.2d 486, 489 (1977).

Here, as in Badders v. Uhler, 233 Md. 441, 197 A.2d 120,

cert. denied, 377 U.S. 958 (1964), the dismissal of peti-

tioner Owen Wilson’s appeal confirmed that the MIC’s

decision could no longer be challenged under Maryland

law. Federal courts are obliged by 28 U.S.C. § 1738 to

accord the final decision the same “full faith and credit”

as would Maryland courts. Marrese v. American Acad-

emy of Orthopaedic Surgeons, US. , 105 $.Ct.

1327 (decided March 4, 1985); Allen v. McCurry, supra,

449 U.S. at 96; see also, Kremer v. Chemical Construction

Corp., 456 U.S. 461, 466 (1982).

It is true that the MIC did not (and could not) assert

jurisdiction over federal antitrust claims. But petitioner

Owen Wilson himself injected competitive issues arising

under state law into the MIC proceedings, and the MIC

gave them detailed consideration. Its decision on these

issues was governed by the identical statutory appeal

procedures under 48-A Md. Code § 40.

9

The MIC’s decision is clear and comprehensive on these

points. Owen Wilson and others contended that the rein-

surance transaction would “ ‘reduce competition in the in-

dustrial insurance business’” and urged that it be dis-

approved under antitrust/unfair trade practices provi-

sions of the Maryland Code that are in terms substan-

tially identical to the standards of the Clayton Act. (MIC

Order, 28-29.) The MIC conducted a detailed review of

the markets in question, which were all within Maryland

—the only state within which Mutual does business. (Jd.

at 8, 29-31.) Even under the definition of the market

resulting in the highest post-transaction market share,

the MIC found that Mutual’s share of the market’ was

less than one percent, and that Mutual and North Caro-

lina would together have less than two-and-one-half per-

cent of the market if the reinsurance transaction were

implemented. (Jd. at 29.) The MIC also stressed that

many other insurers in the market dwarfed Mutual and

North Carolina. (Jd. at 29-31.) Considering these and

other pertinent facts, the MIC expressly found that the

reinsurance transaction raised no conceivable competitive

issue:

6 48-A Md. Code § 229 prohibits acquisitions, common manage-

ment or other transactions that would “substantially lessen compe-

tition generally in the insurance business or tend to create a

monopoly therein.” Section 220 likewise forbids acts or “agree-

ments” that “result in or tending to result in unreasonable restraint

of, or monopoly in, the business of insurance.” The MIC has juris-

diction to enforce these provisions under Art. 48-A Md. Code

§§ 215-16.

™The geographic market analyzed by the MIC was properly

focused on Maryland, the only state in which Mutual is authorized

to do business. (MIC Order, 3; Complaint 7.) Nor did the MIC

make “extraterritorial” findings on competition. To the extent the

stock of a small District of Columbia insurer was involved—Ameri-

can Citizens—the D.C. Superintendent of Insurance specifically

found in a separate proceeding that the competitive standards of 35

D.C. Code § 1903(d) (1) (B) (1978) were satisfied. (See p. 2, n.2,

supra.) That provision required a finding that the transaction

would not “substantially lessen competition in insurance in the Dis-

trict or tend to create a monopoly therein.”

10

“Acquisition of Mutual Benefit by North Carolina

would certainly not create a monopoly or tend to

lessen competition in any measurable degree. The

reason is simply that Mutual Benefit is such a very

small factor in the total insurance market. This is

true even in the specialized market in which Mutual

Benefit operates.” (Jd. at 29.)

These findings, applying state-law competitive standards

virtually identical to the Clayton Act standards raised

anew by petitioners, necessarily foreclose relitigation of

the issues. The federal courts’ exclusive jurisdiction over

Clayton Act cases does not permit petitioners to avoid

the standard principles of collateral estoppel (or “issue

preclusion”) and Maryland law that forbid relitigation

of the same factual issues in the guise of new, “federal”

claims. See, e.g., Azalea Drive-In Theatre v. Hanft, 540

F.2d 713, 715 (4th Cir. 1976), cert. denied, 480 U.S. 941

(1977) ; Straus v. American Publishers’ Ass’n, 201 Fed.

306, 310 (2d Cir. 1912), app. dismissed, 235 U.S. 716

(1913); see also, Marrese, supra, 105 S.Ct. at 1332;

Becher v. Contoure Laboratories, Inc., 279 U.S. 388

(1929); Kremer v. Chemical Construction Corp., supra,

456 U.S. at 482 n.22. Since Maryland law forbids peti-

tioners from attacking the MIC’s findings in proceedings

other than the statutory appeal procedures, they may

not relitigate the same factual issues in a federal court.

II. PETITIONERS’ LACK OF ANTITRUST STANDING

Private plaintiffs have standing to raise antitrust

claims only when they suffer injury caused by anticom-

petitive effects of an activity prohibited by the antitrust

laws. Brunswick Corp. v. Pueblo Bowl-O-Mai, Inc., 429

U.S. 477, 489 (1977).* Petitioners have not complained

8 In Brunswick, this Court held:

“. . . for plaintiffs to recover treble damages on account of

§ 7 violations, they must prove more than injury causally linked

to an illegal presence in the market. Plaintiffs must prove anti-

11

of injury sustained by monopolization or other anticom-

petitive conduct. Rather, they asserted that the reinsur-

ance transaction unfairly deprived them of their full

rights as alleged owners of Mutual. (Appellants’ Court

of Appeals Br. 10, 19-20; Complaint, {I 1, 29-32, 59-60) .°

Thus, petitioners sued as “policyholders who are owners

of the Mutual Benefit Society of Baltimore.” (Complaint,

71.) They sought treble damages based on the alleged

diminution of their ownership interest in Mutual (Com-

plaint, | 60), and they equated their membership status

in Mutual (a mutual corporation) with stockholder status

in a stock corporation. (Appellants’ Court of Appeals Br.

10.) See Petition of Charlton Bros. Transp. Co., 30 A.2d

5388 (Md. 1942).

Consistent with the rule of Brunswick, however, persons

complaining of the impact of acquisitions upon their

ownership interests generally have no standing to litigate

competitive claims under Section 7 of the Clayton Act.

Central National Bank v. Rainbolt, 720 F.2d 1183, 1186-

87 (10th Cir. 1983). A fortiori, stockholders Cv not have

standing to bring a treble damage action or » suit for

injunctive relief with respect to allegedly anticompetitive

transactions affecting their corporation because “[i]t is

well settled that a stockholder is not a person injured in

his business or property within the meaning of the anti-

trust laws.” Kreager v. General Electric Co., 497 F.2d

468, 472 (2d Cir. 1974), cert. denied, 419 U.S. 861

(1974). A legion of federal cases upholds these prin-

ciples.?°

trust injury, which is to say injury of the type the antitrust

laws were intended to prevent and that flows from that which

makes defendants’ acts unlawful.” 429 U.S. at 489.

® The complaint alleges that the general public has suffered from

the loss of competition, but does not allege that any plaintiff has

been injured by that loss of competition. (Complaint, {/] 32, 52-58.)

10 Cases ruling that shareholders may not bring an antitrust suit

when the value of their stock has been impaired include: In Re

12

Petitioner Owen Wilson also sought a separate award

of damages in his capacity as “officer, director, policy-

holder [and] stockholder.” (Complaint, 60.) He, too,

alleged no “antitrust injury” within the meaning of

Brunswick. The cases uniformly hold that directors and

employees have no standing to raise antitrust claims

because their injury is not “within that area of the

economy which is endangered by a break down of com-

petitive conditions in a particular industry.” Conference

of Studio Unions v. Lowes, Inc., 193 F.2d 51, 55 (9th

Cir. 1951), cert. denied, 342 U.S. 919 (1952); Central

National Bank v. Rainbolt, supra, 720 F.2d at 1186."

Industrial Gas Antitrust Litigation, 681 F.2d 514, 517-18 (7th Cir.

1982), cert. den‘ed, 460 U.S. 1016 (1983) ; Mayer Goldberg Inc. of

Lorain v. Fisher Foods, Inc., 717 F.2d 290 (6th Cir. 1983) ; Jeffrey

v. Southwestern Bell, 518 F.2d 1129, 1131 (5th Cir. 1975) ; Reibert

v. Atlantic Richfield Co., 471 F.2d 727, 731 (10th Cir.), cert. denied,

411 U.S. 938 (1973) ; Peter v. Western Newspaper Union, 200 F.2d

867, 872 (5th Cir. 1953); Peterson v. Borden Co., 50 F.2d 644,

645-46 (7th Cir. 1931) ; Ash v. International Business Machines, 353

F.2d 491. 493-94 (3d Cir. 1965), cert. denied, 384 U.S. 927 (1966) ;

New Sanitary Towel Supply, Inc. v. Consolidated Laundries Corp.,

211 F. Supp. 276 (S.D.N.Y. 1962).

Nor does a shareholder have standing under the antitrust laws

when he has lost dividends or salaries. Westmoreland Asbestos

Co., Inc. v. Johns-Manville Corp., 30 F. Supp. 389, 391 (S.D.N.Y.

1939), aff'd on opinion below, 113 F.2d 114 (2d Cir. 1940); Gerli

v. Silk Assn. of America, 36 F.2d 959 (S.D.N.Y. 1929). Nor could

a shareholder secure standing by alleging that he has been deprived

of voting rights. National Supply Co. v. Hillman, 57 F. Supp. 4, 8

(W.D. Pa. 1944). See also Associated General Contractors of Cali-

fornia v. California State Council of Carpenters, 459 U.S. 519, 534

n.29 (1983), citing Ames v. American Telephone & Telegraph Co.,

166 Fed. 820 (D. Mass. 1909) for the proposition that ‘a stock-

holder has no legally cognizable antitrust claim against defendants

for illegally acquiring the corporation, thereby rendering plaintiffs’

stock worthless. Plaintiffs’ claim was not distinguishable from any

injury sustained by the company itself.”

11 See also, Gerli v. Silk Ass’n of America, supra, 36 F.2d at 960-

61; Jeffrey v. Southwestern Bell, supra, 518 F.2d at 1131; Reibert v.

Atlantic Richfield Co., supra, 471 F.2d at 781; Fein v. Security

Banknote Co., 1957 CCH Trade Cas. { 68,887 (S.D.N.Y. 1957).

he Chetan ca eel moe BPS

13

Petitioners cannot acquire personal standing by alleg-

ing that “members of the insurance purchasing public

have been denied the benefits of free and open competi-

tion in the market place.” (Complaint, 32.) The most

basic principle of standing is that a plaintiff must allege

personal, concrete injury to himself. It is not sufficient to

assert “a ‘generalized grievance’ shared in substantially

equal measure by all or a large class of citizens.” Warth

v. Seldin, 422 U.S. 490, 499 (1975). Here, there is no

allegation that any petitioner was harmed by any re-

duced competition; to the contrary, the MIC specifically

found that competition would not be affected and that. the

reinsurance transaction would preserve and protect appel-

lants’ interests as policyholders. (MIC Order, 29-31.) In

fact, the Maryland Attorney General, whose responsibili-

ties include protection of the “insurance purchasing pub-

lic’ in Maryland, urged below that petitioners’ litigation

should be dismissed. (Letter from Maryland Attorney

General to District Court dated January 5, 1983.)

Ill. PETITIONERS’ MCCARRAN-FERGUSON ACT CON-

TENTIONS

Petitioners contend, with scarcely any reference to the

facts of this case, that the decisions below raise important

questions of the applicability of the McCarran-Ferguson

Act to programs seeking to contain health care costs.

(Petition at 10-21.) The complaint focused entirely upon

the life insurance business of the companies in defining

an alleged market. (Complaint, 32.) There is no al-

legation whatsoever concerning health care cost contain-

ment issues and no such issues were ever raised below.

The McCarran-Ferguson Act is implicated only because

the district court concluded that the case should be dis-

missed for the additional reason that the reinsurance

transaction qualified for exemption under the Act. The

Act provides that the Sherman and Clayton Acts shall be

“applicable to the business of insurance” only “to the ex-

14

tent that such business is not regulated by state law.” 15

U.S.C. § 1012(b). Here, the reinsurance transaction ap-

proved by the MIC met the literal requirements for ex-

emption because it (1) embraced the “business of insur-

ance” and (2) was regulated and approved under 48-A

Md. Code § 274.

This Court has stressed that the “business of insur-

ance” exempted by the McCarran-Ferguson Act is char-

acterized by transactions: “transferring or spreading a

policyholder’s risk;” affecting the “policy relationship be-

tween the insurer and the insured;” and limited to “en-

tities within the insurance industry.” Union Labor Life

Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982). The re-

insurance contract at issue here reflects each of these

aspects of the business of insurance. The underwriting

risk was being transferred from Mutual to North Caro-

lina, two “entities” within the insurance industry. In ac-

cordance with the express terms of 48-A Md. Code § 274,

“the protection or service to [Mutual’s] policyholders”—

i.€., preservation of their insurance policy rights—was a

paramount issue to be reserved at the hearings. The very

purpose of the transaction was to rescue policyholders

from Mutual’s continuing financial decline by substituting

North Carolina for Mutual as insurer.

We are aware of only one other decision that considered

whether regulated reinsurance transactions are exempt

under the McCarran-Ferguson Act, and it concluded that

such transactions fall squarely within the “business of

insurance” for the purpose of invoking the exemption:

‘

‘.. . [T]he ultimate purpose of the [reinsurance]

agreement is to provide reliable insurance to policy-

holders. Consequently, the agreement between Am-

reco and Calvert constitutes the ‘business of insur-

ance’ within the meaning of the McCarran-Ferguson

Act.” American Mutual Reinsurance Co. v. Calvert

Fire Insurance Co., 367 N.E.2d 104, 109 (Ill. App.

1977), cert. denied, 486 U.S. 906 (1978).

15

Petitioners cannot change the true character of the re-

insurance transaction by arguing that its asset convey-

ance aspects make it a “merger.” The MIC rejected the

same argument when it was advanced by petitioner Owen

Wilson, and Mutual in fact continues to exist as an inde-

pendent entity. (MIC Order at 20; Complaint, {| 7.)

In recent years, there have been a number of decisions

—particularly involving the health care industry—con-

struing narrowly the McCarran-Ferguson Act exemption.

See, e.g., Group Life and Health Ins. Co. v. Royal Drug

Co., 440 U.S. 205 (1979); Union Labor Life Ins. Co. v.

Pireno, supra, 458 U.S. 119. To the extent that the peti-

tion really means to argue generally that the district

court’s alternative holding applied the exemption too

broadly in view of these cases, no issue worthy of this

Court’s review is presented. The case was properly dis-

posed of on the collateral estoppel and standing issues, so

that McCarran-Ferguson Act questions are of purely

academic interest. Even then, the exemption question

depends on facts that are unique to this case, involves no

important issues, and raises no conflict between the judg-

ments below and decisions of other courts.

16

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be denied.

Respectfully submitted,

EUGENE D. GULLAND *

COVINGTON & BURLING

1201 Pennsylvania Ave., N.W.

P.O. Box 7566

Washington, D.C, 20044

(202) 662-6000

HARRISON M. ROBERTSON, JR.

MICHAEL E. YAGGY

NILES, BARTON & WILMER

929 North Howard Street

Baltimore, Maryland 21201

(301) 539-3240

Counsel for Respondents

* Counsel of Record

May 1985

APPENDIX

la

APPENDIX

MARYLAND INSURANCE CODE, ART. 48-A OF THE

ANNOTATED CODE OF MARYLAND (1978):

§ 37. Notice of Hearing.

“Not less than ten (10) days in advance the Commis-

sioner shall give notice of the time and place of the

hearing, stating the matters to be considered thereat. If

the persons to be given notice are not specified in the

provision pursuant to which the hearing is held, the

Commissioner shall give such notice to all persons di-

rectly affected by such hearing. In the event all persons

directly affected are unknown, notice may be perfected

by publication in a newspaper of general circulation in

this State at least ten (10) days prior to such hearing.”

§ 38. Hearing Procedure.

“(1) Hearings to be Open to Public—Except as to

filing made under subtitle 16 hearings shall be open to

the public in accordance with the provisions of Article 41,

§ 14.

(2) Right to Appear and Present Evidence, etc.—The

Commissioner shall allow any party to the hearing to ap-

pear in person and by counsel, to be present during the

giving of all evidence, to have a reasonable opportunity

to inspect all documentary evidence and to examine wit-

nesses, to present evidence in support of his interest, and

to have subpoenas issued by the Commissioner to compel

attendance of witnesses and production of evidence in his

behalf.

(3) Intervention.—The Commissioner shall permit to

become a party to the hearing by intervention, if timely,

any person who was not an original party thereto and

whose pecuniary interests are to be directly and immedi-

ately affected by the Commissioner’s order made upon

the hearing.

2a

(4) Rules of Pleading and Evidence.—Formal rules of

pleading or evidence need not be observed at any hearing.

(5) Record of Procee. ngs.—Upon written request sea-

sonably made by a party to the hearing and at such per-

son’s expense, the Commissioner shall cause a full steno-

graphic record of the proceedings to be made by a com-

petent reporter. If transcribed a copy of such steno-

graphic record shall be furnished to any other party to

such hearing at the request and expense of such other

party. If no stenographic record is made or transcribed,

the Commissioner shall prepare an adequate record of the

evidence and of the proceedings.”

§ 39. erder on Hearing.

“‘(1) In conducting any such hearing the Commissioner

shall sit in a quasi-judicial capacity. Within thirty (30)

days after termination of the hearing or of any rehear-

ing thereof or reargument thereon, he shall make his

order on hearing, covering matters involved in such hear-

ing and in any rehearing or reargument thereof, and

shall give a copy of such order to the same persons given

notice of the hearing.

(2) The order shall contain a concise statement of the

facts as found by the Commissioner, and of his conclu-

sions therefrom, and the matters required by § 29.

(3) The order may affirm, modify, or nullify action

theretofore taken or may constitute the taking of new

action within the scope of the notice of the hearing.”

§ 40. Appeals from Commissioner.

“(1) Decisions Appealable; How and by Whom Appeal

Taken; Parties; Jurisdiction—An appeal from the Com-

missioner shall be taken only from an order or hearing

or with respect to a matter which the Commissioner has

refused a hearing. Any person who was a party to such

wees

3a

hearing, or whose pecuniary interests are directly and

immediately affected by any such order or refusal and

who is aggrieved thereby may, within 30 days after (i)

the order has been mailed or delivered to the persons en-

titled to receive it, or (ii) the Conimissioner’s order deny-

ing rehearing or reargument has been so mailed or de-

livered, or (iii) the Commissioner’s refusal to grant a

hearing, appeal from such order or hearing or such re-

fusal of a hearing. The appeal shall be taken to the Balti-

more City Court, by filing written notice of appeal in

such court and by filing a copy of such notice with the

Commissioner. However, in appeals from the suspension

or revocation of the certificate of authority of a domestic

insurer or of the license of an agent, broker, solicitor,

adjuster, or adviser, the person taking the appeal at his

option, in lieu of the Baltimore City Court, may take the

appeal to the circuit court of the county of Maryland in

which the insurer has its principal place of business or

the licensee resides. An appeal taken pursuant to this

subsection shall be captioned in the name of the person

filing the appeal, as the party appellant, versus the In-

surance Commissioner of the State of Maryland, as the

party appellee. In all such appeals, the Commissioner

shall be a necessary party appellee. In addition to the

person filing the appeal and the Commissioner, any other

person whose pecuniary interests are or may be directly

and immediately affected by the matter on appeal, or who

may be aggrieved thereby, upon application to the court,

may be deemed an additional party appellant or appellee,

as the court directs.

(2) When Appeal to Operate as Stay.—Upon filing of

the notice of appeal therein the court shall have full juris-

diction, and shall determine whether such filing shall

operate as a stay of the order or action from which an

appeal is taken.

(3) Record on Appeal.—Within twenty (20) days after

filing of the copy of the notice of appeal in his office, the

4a

Commissioner shall maxe and return to the court in which

the appeal is pending a copy of his order appealed from

and a full and complete transcript, duly certified by the

Commissioner, of the record upon which the order was

issued, together with al] exhibits and documentary evi-

dence introduced thereat. If the appeal is from an action

of the Commissioner with respect to which a hearing was

refused, the Commissioner shall within such twenty (20)

day period make and return to the court a full and com-

plete transcript, duly certified by him, of all documents on

file in his office directly relating to the matter as to which

such appeal is taken.

(4) Hearing de Novo.—Upon receipt of such tran-

scripts and evidence the court shall hear the matter de

novo as soon as reasonably possible thereafter. Upon the

hearing of the appeal the court shall consider the evidence

contained in the transcript, exhibits, and documents

therein filed by the Commissioner, together with such ad-

diional evidence as may be offered by any party to the

appeal.

(5) Judgment.—The court may affirm the decision of

the Commissioner or remand the case for further proceed-

ings; or it may reverse or modify the decision if the

substantial rights of the petitioners may have been preju-

diced because the administrative findings, inferences, con-

clusions, or decisions are:

(i) In violation of constitutional provisions; or

(ii) In excess of the statutory authority or jurisdiction

of the Commissioner; or

(iii) Made upon unlawful procedure; or

(iv) Affected by other error of law; or

(v) Unsupported by competent, material, and substan-

tial evidence in view of the ertire record as submitted: or

(vi) Against the weight of competent, material and

substantial evidence in view of the entire record, as sub-

5a

mitted by the Commissioner and including de novo evi-

dence taken in open court; or

(vii) Unsupported by the entire record, as submitted

by the Commissioner and including de novo evidence

taken in open court; or

| (viii) Arbitrary or capricious.

(6) Costs.—Costs shall be awarded as in civil actions.

(7) Appeal to Court of Special Appeals.—Appeal by

: any party appellant or party appellee including the Com-

missioner may be taken to the Court of Special Appeals

7 from the judgment of the Baltimore City Court or circuit

court of the county, as in other civil cases. A stay of the

effectiveness of any such judgment may be made only by

order of court upon the giving of such security as the

court deems proper.”

§ 229. Interlocking Ownership or Management.

“(a) Any insurer may retain, invest in or acquire the

whole or any part of the capital stock of any other in-

surer cr insurers, or have a common management with

any other insurer or insurers, unless such retention, in-

vestment, acquisition or common management is incon-

sistent with any other provision of this article, or unless

by reason thereof the business of such insurers with the

public is conducted in a manner which substantially

lessens competition generally in the insurance business or

tends to create a monopoly therein.

(b) Any person otherwise qualified may be director of

two or more insurers which are competitors, unless the

effect thereof is to lessen substantiaily competition be-

tween insurers generally or tends materially to create a

monopoly.”

§ 274. Bulk Reinsurance—Mutual Insurers.

i “(a) Authorized; Agreement to be Filed With and Ap-

proved by Commissioner.—A domestic mutual insurer may

a

6a

reinsure all or substantially all its business in force or

all or substantially all of a major class thereof, with an-

other insurer, stock or mutual, by an agreement of bulk

reinsurance after compliance with this section. No such

agreement shall become effective unless filed with the

Commissioner and approved by him in writing after a

hearing thereon.

(b) Approval or Disapproval by Commissioner; Notice

of Disapproval—The Commissioner shall approve such

agreement within a reasonable time after filing if he

finds it to be fair and equitable to each domestic insurer

involved, and that such reinsurance if effectuateu would

not substantially reduce the protection or service to its

policyholders. If the Commissioner does not so approve,

he shall so notify each insurer involved in writing speci-

fying his reasons therefor.

(c) Submission of Plan and Agreement to Vote of

Members.—The plan and agreement for such reinsurance

must be approved by vote of not less than two thirds of

each domestic mutual insurer’s members voting thereon

at meetings of members called for the purpose, pursuant

to such reasonable notice and procedure as the Commis-

sioner may approve. If a life insurer, right to vote may

be limited to members whose policies are other than term

or group policies, and have been in effect for more than

one year.

(d) Reinsurance of Mutual Insurer in Stock Insurer.—

If for reinsurance of a mutual insurer in a stock in-

surer, the agreement must provide for payment in cash to

each member of the insurer entitled thereto as upon con-

version of such insurer pursuant to § 270, of his equity in

the business reinsured as determined under a fair for-

mula approved by the Commissioner, which equity shall

be based upon such member’s equity in the reserves, as-

sets (whether or not ‘admitted’ assets), and surplus, if

any, of the mutual insurer to be taken over by the stock

insurer.”