Amicus Curiae Brief — Metropolitan Life Insurance v. Sabo

No. 98- #60002

IN THE

Supreme Court of the Wnited States

OCTOBER TERM, 1997

>_>

METROPOLITAN LIFE INSURANCE COMPANY,

Petitioner,

—VYV

RICHARD SABO,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE THIRD CIRCUIT

MOTION AND BRIEF AMICUS CURIAE

IN SUPPORT OF PETITION FOR

AMERICAN COUNCIL OF LIFE INSURANCE

PHILLIP E. STANO PHILIP K. HOWARD*

AMERICAN COUNCIL OF GERARD E. LYNCH

LIFE INSURANCE HOWARD, SMITH & LEVIN LLP

1001 Pennsylvania Avenue, N.W. 1330 Avenue of the Americas

Washington, D.C. 20004 New York, New York 10019

(202) 624-2183 (212) 841-1000

* Counsel of Record

July 29, 1998

IN THE

Supreme Court of the Wnited States

OCTOBER TERM, 1997

No. 98-100002

>

METROPOLITAN LIFE INSURANCE COMPANY,

Petitioner,

—_vV.—

RICHARD SABO,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE THIRD CIRCUIT

>_> —

MOTION OF AMERICAN COUNCIL OF LIFE

INSURANCE FOR LEAVE TO FILE AMICUS

CURIAE BRIEF IN SUPPORT OF PETITION

American Council of Life Insurance hereby moves, pur-

suant to Rule 37 of this Court, for leave to file an Amicus

Curiae Brief urging the Court to grant the petition and sched-

ule the case together with Humana, Inc. v. Forsyth, 114 F.3d

1467 (9th Cir. 1997), cert. granted, 66 U.S.L.W. 3793 (U.S.

June 22, 1998) (No. 97-303). The motion is necessitated by

Respondent’s refusal to consent.

American Council of Life Insurance (“ACLI”) is the prin-

cipal trade association for life insurance companies, repre-

senting 532 life insurers that have issued approximately 90%

of the life insurance in force in the United States. ACLI files

briefs before courts of appellate jurisdiction in cases which

2

raise significant questions of insurance law and which have a

substantial impact on its member insurers and the public.

ACLI has a strong interest in the construction of the

McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015 (1994),

which generally reserves to the states the regulation of insur-

ance and provides that, unless explicit, no federal law should

be construed to “invalidate, impair or supersede” state regu-

lation of the “business of insurance.” 15 U.S.C. § 1012(b). In

Humana, Inc. v. Forsyth, this Court granted the petition for

certiorari to consider a split among the circuits on whether a

federal RICO cause of action for treble damages would

“invalidate, impair, or supersede” the state insurance regu-

latory systems. This case involves insurance sales practices,

a core competency of state regulators, and, together with

Humana, sharply poses the legal and policy implications at

issue.

American Council of Life Insurance believes that the deci-

sion below, if upheld, will significantly alter the regulation of

all insurance companies. ACLI thus respectfully prays that the

Court grant the motion for leave to file its brief.

Respectfully submitted,

/s/ Purtiep K. HOWARD

PHILLIP E. STANO PHILIP K. HOWARD*

AMERICAN COUNCIL GERARD E. LYNCH

OF LIFE INSURANCE HOWARD, SMITH & LEVIN LLP

1001 Pennsylvania Avenue, Counsel for American Council

N.W. of Life Insurance

Washington, D.C. 20004 1330 Avenue of the Americas

(202) 624-2183 New York, New York 10019

Of Counsel (212) 841-1000

* Counsel of Record

july 29, 1998

TABLE OF CONTENTS

TABLE OF AUTHORITIES

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oa Neti eat tt Peden ee tee Se LT OS fe So ee ee

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TABLE OF AUTHORITIES

Cases

PAGE

Alabama Public Serv. Comm. v. Southern Ry. Co.,

341 U.S. 341 (1951) ...... cece ec ee eee eeeeeeeceees 6

Ambrose v. Blue Cross & Blue Shield of Va., Inc.,

891 F. Supp. 1153 (E.D. Va. 1995) ....------++++: 3

Burford v. Sun Oil Co., 319 U.S. 315 (1943) ........--- 5, 6

Doe v. Norwest Bank Minn., 107 F.3d 1297

(Sth Cir. 1997) ........ cece ecees eee eeceeeeeeeeeeees 3

Garner v. Teamsters, 346 U.S. 485 (19$3)....scceveess 5

Humana. Inc. v. Forsyth, 114 F.3d 1467 (9th Cir.

1997), cert. granted, 66 U.S.L.W. 3793

(U.S. June 22, 1998) (No. Pais ccstccsssces passim

International Paper Co. v. Ouellette, 479 U.S. 481

(DOB) 5. cnvadccasenccangaassschpenassessscee>s>s* 5

Kenty v. Bank One, 92 F.3d 384 (6th Cir. 1996) .....-. 3

Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996) ....+... 6

Merchants Home Delivery Serv., Inc. v. Frank B. Hall

& Co., 50 F.3d 1486 (9th Cir. 1995) ....---.--+--- 3

Miranda v. Ponce Fed. Bank, 948 F.2d 41

(Ast Cir. 1991)..........ecceeeen cen eeeeeneeeeeseres 6

NAACP v. American Family Mut. Ins. Co., 978 F.2d

287 (7th Cir. 1992). ...... cc. eecee eres ceeeeeeeccees 3

Northwest Airlines, Inc. v. Transport Workers Union

of Am., 452 U.S. 77 (1981) ..-.--- se cree ree eeetees 5

Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947) 6

ili

PAGE

Sabo v. Metropolitan Life Ins. Co., No. Civ. A. 94-307,

1995 WL 928256 (W.D. Pa. Jan. 4, 1995) ........ 3,4

Sabo v. Metropolitan Life Ins. Co., 137 F.3d 185

OG AGEs BOOT 6s cal ckernGeu ct ied ys a cdas een aS

San Diego Bldg. Trades Council v. J. S. Garmon,

Pee Risen ee AR OOD | da cass Caicedo ede hkl 6

Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985)... 6

Villafane-Neriz v. FDIC, 75 F.3d 727 (1st Cir. 1996) . 3

Wexco Inc. v. 1.M.C., Inc., 820 F. Supp. 194

SLR EG RUINED at cc oicu ov rades ci ek tbcs a eens 5

Statutes and Rules

McCarran-Ferguson Act of 1945, 15 U.S.C.

De ROPER ORES CRED a x vo iebcksd oko bhkcsns hs passim

CRONE: OO fee a nen a fac EN Sy 2

Racketeer Influenced and Corrupt Organizations Act

of 1970, 18 U.S.C. §§ 1961-1968 (1994) ........ passim

Nevada Revised Statutes, tit. 15, §§ 207.350-207.520

SIN RW PD inns kd sia oud vk tetas pda os 4

Pennsylvania Corrupt Organizations Act, 18 Pa.C.S.A.

SEC AP BOP iii kohn ik hs ak, 4

IN THE

Supreme Court of the United States

OCTOBER TERM, 1997

No. 98-100002

—_—~<>—_-

METROPOLITAN LIFE INSURANCE COMPANY,

Petitioner,

—_vV—

RICHARD SABO,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE THIRD CIRCUIT

<=>

BRIEF AMICUS CURIAE IN SUPPORT OF PETITION

FOR AMERICAN COUNCIL OF LIFE INSURANCE

American Council of Life Insurance, the principal trade

association for life insurance companies in the United States,

submits this brief amicus curiae in support of the Petition.’

Summary of Argument

The issue presented, whether a federal RICO treble damage

claim will “invalidate, impair or supersede” a state’s regulation

: Pursuant to Rule 37.6, American Council of Life Insurance

States that counsel for no party authored any portion of the brief, and that

no party made a financial contribution to the preparatior .1 submission

of the brief. Pursuant to Rule 37.2(a), ACLI states that respondent did not

consent to the filing of this brief.

Pee Ee ene ne Ce ee eee TT

of insurance within the meaning of the McCarran-Ferguson

Act, 15 U.S.C. §§ 1011-1015 (1994), is one of vital impor-

tance to the life insurance industry. Mandatory treble damages

claims under RICO would threaten the financial stability of

insurance companies and thereby undermine an important

goal of state regulation. Further, the reasoning of the decision

below would permit application of federal laws generally to

state insurance regulation and thereby alter the regulatory

balance. The issue is before the Court in Humana, Inc. v.

Forsyth, 114 F.3d 1467 (9th Cir. 1997), cert. granted, 66

U.S.L.W. 3793 (U.S. June 22, 1998) (No. 97-303). ACLI

urges the Court to hear this case together with Humana

because this case involves a standard regulatory concern, the

sale of life insurance, and presents different regulatory

schemes remedying such problems. This case thus provides

the Court with the basis for a broader and more dispositive

ruling than does Humana alone.

Argument

For over 100 years, the regulation of insurance companies

has been the province of the states. This policy was reaffirmed

by Congress in 1945 in the McCarran-Ferguson Act, which

provides that “[nJo Act of Congress shall be construed to

invalidate, impair, or supersede any law enacted by any State

for the purpose of regulating the business of insurance. . .

unless such Act specifically relates to the business of

insurance.” 15 U.S.C. § 1012(b). The federal Racketeer

Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.

§§ 1961-1968 (1994), although explicitly encompassing many

statutory crimes and violations of law, nowhere indicates that

Congress intended it to apply to the business of insurance.

The court below held that a federal RICO action for

treble damages would not “invalidate, impair or supersede”

Pennsylvania insurance regulation. Sabo v. Metropolitan Life

Ins. Co., 137 F.3d 185, 195 (3d Cir. 1998). The basis for this

mn rie .

decision was that there was no “direct conflict” between a

RICO claim and any state regulation, applying a test normally

used to determine whether a state law is preempted by federal

law. Similar holdings have been adopted by the First, Seventh

and Ninth circuits.” By contrast, the Fourth, Sixth and Eighth

circuits have held that a RICO claim alters the balance of

State regulation and consequently is barred by McCarran-

Ferguson.°

The Court has already recognized in Humana that the

issue of whether a RICO remedy should “supplement” state

insurance regulation, as held below, requires resolution by the

Supreme Court. The value to the Court in hearing this case

simultaneously is that it presents a traditional fact pattern of

insurance regulation, and sharply poses the policy issues.

In each of the following ways, this case will supplement

Humana:

(i) The MetLife allegations involve alleged mis-

conduct in the sale of life insurance, an area the court

below acknowledged as the “core” of insurance regula-

tion. Sabo, 137 F.3d at 191. Humana, by contrast, alleges

a scheme to misappropriate rebates from an affiliated

health institution.

(ii) Pennsylvania has enacted a comprehensive

insurance regulatory scheme that aims to balance goals

of consumer protection with protection of the financial

health of insurers in the state. The Pennsylvania com-

missioner regularly conducts regulatory examinations

of insurers, including in this situation. See Sabo v.

‘ Villafane-Neriz v. FDIC, 75 F.3d 727, 736 (ist Cir. 1996):

Merchants Home Delivery Serv., Inc. v. Frank B. Hall & Co., 50 F.3d

1486, 14972 (9th Cir. 1995); NAACP vy. American Family Mut. Ins. Co..,

978 F.2d 287, 295-97 (7th Cir. 1992).

3 Doe v. Norwest Bank Minn., 107 F.3d 1297, 1307-08 (8th Cir.

1997); Kenty v. Bank One, 92 F.3d 384, 392 (6th Cir. 1996); Ambrose v.

Blue Cross & Blue Shield of Va., Inc., 891 F. Supp. 1153, 1165-67 (E.D.

Va. 1995), aff'd, 95 F.3d 41 (4th Cir. 1996).

4

Metropolitan Life Ins. Co., No. Civ. A. 94-307, 1995 WL

928256, at *3 n.1 (W.D. Pa. Jan. 4, 1995). A question

before the Court is whether the availability of a RICO

treble damages action would “invalidate, impair or

supersede” the regulatory scheme.

(iii) The Pennsylvania legislature also passed its own

RICO statute which, unlike federal RICO, provides no

private right of action. 18 Pa. Con. Stat. Ann. § 911. In

addition to its own comprehensive regulatory scheme, the

jurisdiction in Humana, Nevada, has a RICO statute that

permits treble damages claims in certain situations,

although not as broadly as the federal action. Nev. Rev.

Stat. §§ 207.350-207.520. As we note below, these dis-

tinctions in state law, depending on the Court’s holding,

could conceivably determine the reach of federal RICO.

The lower court’s reliance on the “direct conflict” test when

interpreting the scope of McCarran-Ferguson could dramat-

ically affect the insurance industry by permitting a vide range

of federal laws to apply to insurance regulation. The policy

behind preemption, however, is exactly the opposite: the

purpose is to avoid federal interference with state regulation

by limiting preemption of state laws to the situations where

they “directly conflict” with a federal statute. McCarran-

Ferguson takes the presumption in favor of state law

dramatically further and, in essence, precludes application of

any general federal statute if it would impliedly “invalidate,

impair or supersede” state regulation. By creating a pre-

sumption in favor of applying federal law to the business

of insurance, the decision below turns the explicit mandate of

McCarran-Ferguson on its head and undermines the purpose

of the preemption doctrine.

Substantial uncertainty will result from the holding below

as to whether any particular federal law “directly conflicts”

with each state’s regulatory scheme. Pennsylvania’s RICO

statute, as noted, might be held to apply to insurance miscon-

Pb newt tenet Che he?

duct, but does not provide a private right of action. Does that

clear intent of the Pennsylvania legislature to exclude a

private right mean that there is a “direct conflict” with federal

RICO, which provides a private right of action? Or does the

absence of a private right under Pennsylvania RICO mean that

there is no “direct conflict” on the basis, adopted by the court

below, that the federal RICO statute merely supplements

Pennsylvania law? Similar questions arise with respect to

many federal statutes, and in each of fifty states, in light of

the decision below.

Regulating insurance companies, unlike certain other areas

of regulation, has always been two-sided. A state has an inter-

est not only in deterring and remedying any misconduct by

insurers, but also in ensuring that insurance companies remain

solvent and healthy for the benefit of all the insured. Thus, in

its choice of rules and remedies, the regulatory scheme

crafted by the Pennsylvania legislature “establishes and

regulates .... the balance of relationships between

insurance entities and insureds.” Wexco Inc. v. I.M. C., ime.,

820 F. Supp. 194, 204 (M.D. Pa. 1993). The key to the ruling

below, by contrast, was the presumption that “divergent state

and federal implementation of similar legal norms” will not

materially affect Pennsylvania’s insurance scheme. Sabo, 137

F.3d at 194. This holding, which necessarily undermines

a state’s efforts to balance the interests of insureds and

insurers, is contrary to established jurisprudence.‘ In general,

See International Paper Co. v. Ouellette, 479 U.S. 481. 494

(1987) (state remedies would upset “the balance of public and private

interests so carefully addressed by the [Clean Air] Act”); Northwest

Airlines, Inc. v. Transport Workers Union of Am., 452 U.S. 77, 97 (1981)

(right to contribution precluded by Title VII and the Equal Pay Act

because such “new remedies might upset carefully considered legislative

programs” embodied by the statues); Garner v. Teamsters, 346 U.S. 485.

498-99 (1953) (“[W]hen two separate remedies are brought to bear on the

Same activity, a conflict is imminent.”). The Court has also developed an

abstention doctrine that cautions federal courts to withhold jurisdiction

in instances where a comprehensive state regulatory program already

occupies the field. See Burford v. Sun Oil Co., 319 U.S. 315, 325-27

as Justice Frankfurter noted, “remedies form an ingredient of

,

any integrated scheme of regulation,” and to permit dual

remedies for the same wrong “only accentuates the danger of

conflict” by “allowing two law-making sources to govern.”

San Diego Bldg. Trades Council v. J. S. Garmon, 359 U.S.

236, 247 (1959).

When deciding whether federal law should be applied “‘in

a field which the States have traditionally occupied,’” the

Court has held that the state law should not be “‘superseded

by the Federal Act unless that was the clear and manifest

purpose of Congress.’” Medtronic, Inc. v. Lohr, 518 U.S. 470,

485 (1996) (citing Rice v. Santa Fe Elevator Corp., 331 U.S.

218, 230 (1947)). There is no evidence that Congress intended

RICO to apply to the business of insurance. See Sedima,

S.P.R.L. v. Imrex Co., 473 U.S. 479, 500 (1985). Thus, private

claims under RICO, characterized by one appellate court as a

“thermonuclear device,” * cannot be applied to that industry

without subverting Congress’s intent in the McCarran-

Ferguson Act to reserve insurance regulation to the states.

(1943). See also Alabama Public Serv. Comm. v. Southern Ry. Co., 341

U.S. 341, 351 (1951) (federal courts should “exercise their discretionary

power to grant or withhold relief” in areas of traditional state concern “so

as to avoid needless obstruction of the domestic policy of the states’’)

(internal quotations omitted).

5

Miranda v. Ponce Fed. Bank, 948 F.2d 41, 44 (Ist Cir. 1991).

EES Ae eR En

Conclusion

For the reasons stated, American Council of Life Insurance

urges that the petition be granted and argument heard on the

same day as Humana, Inc. v. Forsyth.

Respectfully submitted,

PHILIP K. HOWARD*

GERARD E. LYNCH

HOWARD, SMITH & LEVIN LLP

Counsel for American Council of

Life Insurance, Amicus Curiae

1330 Avenue of the Americas

New York, New York 10019

(212) 841-1000

* Counsel of Record

PHILLIP E. STANO

AMERICAN COUNCIL OF

LIFE INSURANCE

1001 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 624-2183

Of Counsel

July 29, 1998