# Opposition Brief — Wilson v. North Carolina Mutual Life Insurance

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1985
- **Citation:** 472 U.S. 1018

## Text

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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WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001 7

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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.”

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385018_0161%3A2. Public record. Not legal advice.