Opposition Brief — Winterthur Reinsurance Corp. of America v. California

Supreme Court brief1993

Ask Donna

What actually matters in this document.

Text

L/ - re

Nos. 91-1111, 1128, 1131, & 1146

, GEES

In The

Supreme Court of the United States

October Term, 1991

HARTFORD FIRE INSURANCE CO., et al.,

Petitioners,

STATE OF CALIFORNIA, et al.,

Respondents.

Petitions For A Writ Of Certiorari To The United States

Court Of Appeals For The Ninth Circuit

RESPONDENTS’ CONSOLIDATED BRIEF IN

OPPOSITION TO PETITIONS FOR

WRITS OF CERTIORARI

J]. JoserH CURRAN, Jr.

Attorney General of Maryland

ELLEN S. CoorerR

Assistant Attorney General

Counsel of Record

200 St. Paul Place, 19th Floor

Baltimore, Maryland 21202

(410) 576-6470

Counsel for Respondent the State of Maryland

(For Further Appearances See Signature Page)

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED

1. Whether allegations that insurers’ enlistment of

reinsurers and others in agreements not to trade, as a

means of compelling competitors to stop selling certain

insurance products to American consumers, are sufficient

to state a claim of “boycott, coercion or intimidation”

within the meaning of section 3(b) of the McCarran-

Ferguson Act.

2. Whether insurers’ participation in unregulated,

and, therefore, nonexempt, conspiratorial conduct even

qualifies for the antitrust exemption provided by section

2(b) of the McCarran-Ferguson Act.

3. Whether, under the state action doctrine,

approval of an insurance policy form developed by a

trade association results in antitrust immunity for

unauthorized and unsupervised marketplace activities to

compel competing insurers to use the form and stop

selling certain insurance products to American con-

sumers.

4. Whether foreign reinsurers’ self-regulation of

some aspects of their business should preclude a federal

court from exercising jurisdiction over the foreign rein-

surers’ anticompetitive conduct when (i) that conduct

was targeted at American markets; (ii) that conduct had

direct, substantial and foreseeable effects on American

commerce; and (iii) no relevant regulation, foreign or

domestic, compels or authorizes the anticompetitive con-

duct.

QUESTIONS PRESENTED - Continued

5. Whether American insurance consumers have

standing to sue for injunctive relief and damages under

the antitrust laws when they suffer antitrust injury to

business or property as a result of a restraint of trade in

the market in which they purchase insurance

aarew a

tr?

ili

PARTIES TO THE PROCEEDING

AND RULE 29.1 STATEMENT

The other petitions to which this consolidated oppo-

sition brief apply are styled:

Merrett Underwriting Agency Management

Limited, et al. v. State of California, et al., No.

91-1128;

Winterthur Reinsurance Corp. of America v.

State of California, et al, No. 91-1131; and

Unionamerica Insurance Co. Ltd., et al. v. State

of California, et al, No. 91-1146.

Governmental Plaintiffs (Respondents):

State of Alabama

State of Alaska

State of Arizona

State of California

State of Colorado

State of Connecticut

State of Louisiana

State of Maryland

Commonwealth of Massachusetts

State of Michigan

State of Minnesota

State of Montana

State of New Jersey

State of New York

State of Ohio

Commonwealth of Pennsylvania

State of Washington

State of West Virginia

State of Wisconsin

Borough of Chambersburg, Pennsylvania

City of Altoona, Pennsylvania

PARTIES TO THE PROCEEDING

AND RULE 29.1 STATEMENT - Continued

City of Baton Rouge, Louisiana

City of Birmingham, Alabama

City of Clay, West Virginia

City of Eunice, Louisiana

City of Lafayette, California

City of Mobile, Alabama

City of Nachitoches, Louisiana

City of New Orleans, Louisiana

City of San Francisco, California

City of Slidell, Louisiana

City of York, Pennsylvania

County of Cowlitz, Washington

County of Hancock, West Virginia

County of Hardin, Ohio

County of Mineral, West Virginia

County of San Benito, California

County of San Francisco, California

County of Schuylkill, Pennsylvania

County of Teton, Montana

County of Wirt, West Virginia

Roosevelt Island [New York] Operating

Authority, Inc.

Town of Hanover, Massachusetts

Town of Milford, Massachusetts

Township of Jackson, Ohio

Village of Lake Success, New York

Village of Groton, New York

Private Plaintiffs (Respondents):

Ace Check Cashing, Inc.

Acme Corrugated Box Company, Inc.

Anastasios Markos, t/a Municipal Exxon

Bay Harbor Park Homeowners’

Association, Inc.

Bensalem Township Authority

PARTIES TO THE PROCEEDING

AND RULE 29.1 STATEMENT - Continued

Big D Building Supply Corporation

Carlisle Day Care Center, Inc.

Carmella M. “Boots” Liberto,

t/a R.J. Liberto, Inc.

Durawood, Inc.

Environmental Aviation Sciences, Inc.

Glabman Paramount Furniture Mfg. Co., Inc.

Henry L. Rosenfeld, t/a Mobile Check Cash

Jerry Grant Chemical Associates, Inc.

Keyboard Communications, Inc.

Kirklington Park, Inc.

Les Ray Bobcat, Inc.

P & J Casting Corp.

Defendants (Petitioners):

Allstate Insurance Company

Aetna Casualty & Surety Company

CIGNA Corporation

Hartford Fire Insurance Company

Insurance Services Office, Inc.

Reinsurance Association of America

Constitution Reinsurance Corporation

General Reinsurance Corporation

Mercantile & General Reinsurance Company of

America

North American Reinsurance Company

Prudential Reinsurance Company

Winterthur Swiss Insurance Company

Thomas A. Greene & Company, Inc.

C.J.W. (Underwriting Agencies) Limited

D.P. Mann Underwriting Agency Limited

Edwards & Payne (Underwriting Agencies)

Limited

Janson Green Management Limited

PARTIES TO THE PROCEEDING

AND RULE 29.1 STATEMENT - Continued

Lambert Brothers (Underwriting Agencies)

Limited

Merrett Underwriting Agency Management

Limited

Murray Lawrence & Partners

Sturge Reinsurance Management Ltd.

Peter N. Miller

Robin A.G. Jackson

Three Quays Underwriting Management

Limited

R.K. Carvill & Company

Unionamerica Insurance Company Ltd.

Continental Reinsurance Corporation

(U.K.) Limited

CNA Re (U.K.) Ltd.

Kemper Reinsurance London, Ltd.

Excess Insurance Company, Ltd.

Terra Nova Insurance Company Limited

Ballantyne, McKean & Sullivan Limited

Private plaintiffs do not have any corporate parents

or subsidiaries within the meaning of Rule 29.1.

Vii

TABLE OF CONTENTS

Page

SpemeMnetee PRESEINIGD .... 1.1... cece eee e ee an es i

PARTIES TO THE PROCEEDING AND RULE 239.1

RE errr iii

ND MEO cy cote canisndevewscnenosncs 1

ee yy 6 ou or isd nals eae ek bo 1

STATUTORY PROVISIONS INVOLVED............. 1

pemsememmeee Qh ifte CAGE. ...............0.0005. 1

MISSTATEMENTS IN THE PETITIONS............. 4

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

I. THIS CASE PRESENTS NO OPPORTUNITY TO

CLARIFY THE REACHES OF THE MCCAR-

ng SE a ee 7

A. Defendants’ petition for certiorari asks this

Court to reject the definition of boycott

expressed in St. Paul Fire & Marine Insurance

Co. v. Barry, and used by this Court

eee 8

B. Defendants’ exemption forfeiture arguments

actually seek to expand the scope of the

limited antitrust exemption established by

the McCarran-Ferguson Act............... 12

Il. THE DECISION BELOW RESTS ON A CON-

VENTIONAL APPLICATION OF THE STATE

ms og fo | 16

Ill. THE DECISION TO EXERCISE JURISDICTION

IN THIS CASE PROPERLY APPLIES SETTLED

PRINCIPLES OF INTERNATIONAL COMITY.. 20

viii

TABLE OF CONTENTS - Continued

Page

A. This Case Provides No Occasion to Refine

the General Principle Favoring the Exercise

of Jurisdiction Where American Effects Are

Direct, Substantial and Foreseeable ....... 20

B. No Genuine Conflict Exists Between United

States and United Kingdom Law.......... 24

IV. PLAINTIFFS HAVE STANDING AS CON-

SUMERS IN THE MARKET RESTRAINED BY

THE REINSURER BOYCOTTS. ...............- 25

A. Plaintiffs Meet This Court’s Test for Stand-

Pee Tere Tee TSE rere eT ere vere ree 26

B. This Case Does Not Challenge the Bound-

aries of Standing Doctrine ................ 27

C. Plaintiffs Suffered Distinct Injuries........ 29

ee ee re ree ee eee OCR Te Poe 30

TABLE OF AUTHORITIES

Page

CASES

Abbott Laboratories v. Portland Retail Druggists

Pe ee A OI oa os whee owen heed ens 13

Arizona v. Shamrock Foods, 729 F.2d 1208 (9th

Cir.), cert. denied, 467 U.S. 1252 (1984) ........... 29

Associated General Contractors of California, Inc.

v. California State Council of Carpenters, 459

Se ee Ee a a iinc ba Gelka uae. 26, 28, 29, 30

Beltz Travel Service v. International Air Transport

Assn., 620 F.2d 1360 (9th Cir. 1980)............... 12

Blue Shield of Virginia v. peresactes 457 U.S. 465

CG cn aig pe eae ry cn oN aT 26, 27, 30

California Liquor Dealers Assoc. v. Midcal Alumi-

num, inc., 445 US. 97 (1960) ........6.045. 16, 17, 18

California v. American Stores Co., Inc., 495 U.S.

og Ac. IRR TR Ie TS ate tier cae Ree eg apa indy ee 26

Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S.

ne ee a res ena coe 26, 28

City of Columbia v. Omni Outdoor Advertising,

i he ee, Bo ROWED Gs ack wee ue ece sean 19

Connell Construction Co. v. Plumbers & Steamfit-

re ce See ee See. Se gas ee ec le eras 13

Continental Ore Co. v. Union Carbide, 370 U:S.

ee Pe es re os pre ee wie eres 21

Eastern States Retail Lumber Dealers’ Association

v. United States, 234 U.S. 600 (1914).............. 10

Fashion Originators Guild v. FTC, 312 U.S. 457

CRUE eee ec ee ee ee he eee heres 10

TABLE OF AUTHORITIES - Continued

Page

FMC v. Seatrain Lines, Inc., 411 U.S. 726 (1973)..... 13

Fontana Aviation v. Cessna Aircraft Co., 617 F.2d

re Sn Us sc va a aoe oc nana ue kaka cannes 29

Georgia v. Pennsylvania Railroad Co., 324 U.S. 439

Dt eivelt bot corr OLUee ta keuk webs Ab ceiees 26

Grant v. Erie Ins. Exchange, 542 F. Supp. 457 (M.D.

Pa. 1982) aff'd mem. 716 F. 2d 890 (3rd Cir.),

Cort. Gam, GHG Ua. Fae CUE os na weccecsnndeaccnds 11

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

ee Se ee a cue a cae ncaae eee eens 7, 13

Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) . .29, 30

Laker Airways, Ltd. v. Sabena, Belgian World Air-

lines, 731 F.2d 909 (D.C. Cir. 1964)............. 20, 21

Mannington Mills, Inc. v. Congoleum Corp., 595

Pe SE GR Os REF OE inc skin ak csves aa baeen tees 21

Mine Workers v. Pennington, 381 U.S. 657 (1965) .13, 14

Patrick v. Burget, 486 U.S. 94 (1988) ................ 16

St. Paul Fire & Marine Insurance Co. v. Barry, 438

oS BS. ee rere [sas wee aes oe

Summit Health Ltd. v. Pinhas, 111 S.Ct. 1842

SC Sos Chae ba Care wee ewe eee eee Nae 1

Timberlane Lumber Co. v. Bank of America, 549

F.2d 597 (9th Cir.'1976) (Timberlane I), after

remand 749 F.2d 1378 (9th Cir. 1984) (Tim-

berlane II), cert. denied, 472 U.S. 1032 (1985)

te Ne rh, ests BP iyl be Sas Ae A on AD EEK, Se 20, 21,

nes

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

SURG. Ch Se ga ye eet ett i ie ea Atee e ee eae 13, 14

TABLE OF AUTHORITIES - Continued

Page

United States v. Aluminum Co. of America (Alcoa)

we Pia SIG Cle Cie. WOES qo. nw ccc cnc cccsccsces 21

United States v. McKesson & Robbins, Inc., 351

ns a re ee rhe a adel aie 13

United States v. Socony-Vacuum Oil Co., 310 U.S.

I a ate eve re ER a a on 14

United States v. South-Eastern Underwriters

a | | a rr 10

UNR Industries Inc. v. Continental Ins. Co., 607 F.

supp. 655 (N.D. TH. 1964)...............-. Circe ty 11

W.S. Kirkpatrick & Co. v. Environmental Tectonics

Re, See WD. SD CIGID qn woo ccc cee cccsses 20, 21

STATUTES, RULES AND TREATIES

FEDERAL

3 | Ripe Aree pag Ae Reo Seb ESP Se AGS ae 1

eee oe a ha ca a glee ak eae 1, 21

Se Es EN os aly owe Vr pe coe wenn Deeeb cn ees 1

re on. ts vate teagan Bins Cae 1

ee ee a ny OE a Rees nhac ceacae aa iis 1

er ence ae EE or ts nae 7, 14

See me EG ott SN eh is Se ee 7

Federal Rules of Civil Procedure, Rule 12(b).........7

Federal Rules of Civil Procedure, Rule 56............ 7

Re GS UE WOE hen cca kecnal'ciren ShaNGE EATS 4

xii

TABLE OF AUTHORITIES - Continued

Page

STATE

Md. Ann. Code Art. 48A, § 220 (1986)............ 5, 17

N.j. Stat. Ann. 17:298-4(4) CI9GD). ... «0-5 cs cncnanss 5, 17

FOREIGN

I GR SE Ties sik c ke recs coticnauaesens 24

SURGE GE TOI, FAT Bee sin Ra eee Tw, 24

OTHER

9 E. Kintner & J. Bauer, Federal Antitrust Law 245

OE A iks kan cthh ve cans ew VESVAUANAMER Saba es eRh bat 11

Restatement (Third) of Foreign Relations 443,

CIS BO kn csc nview casctnsaceusaevene Wes 20

Thompson, Critical Issues of the Eighties: Hot

Trends in Reinsurance Will Affect Legal, Legis-

lative, and Regulatory Actions, 16 Forum 1038

ee er rete ee ree ere ee .. 16

P. Areeda & H. Hovenkamp, Antitrust Law (1991

PES CNAs kK Aa aRAD NERA EKA TEN RNE Vee atv ee ueey ee

ee eer eres rer ree 9

RESPONDENTS’ CONSOLIDATED BRIEF

IN OPPOSITION TO PETITIONS

FOR WRITS OF CERTIORARI

OPINIONS BELOW

The opinion of the court of appeals is reported at 938

F.2d 919 (UA App. A1-A35)! The opinion of the district

court is reported at 723 F.Supp. 464 (UA App. A36-A86).

JURISDICTION

The judgment of the court of appeals was entered on

June 18, 1991. Timely petitions for rehearing were denied

on October 15, 1991. UA App. A87-A99. The jurisdiction

of this Court is invoked under 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

The statutory provisions involved in these petitions

are sections 1 and 7 of the Sherman Antitrust Act, 15

U.S.C. §§ 1 & 6a (Merrett App. A93); the McCarran-

Ferguson Act, 15 U.S.C. §§ 1011, et seq. (Hartford App.

98a- 99a); and sections 4 and 16 of the Clayton Antitrust

Act, 15 U.S.C. §§ 15(a) & 26 (UA App. A100-A102).

STATEMENT

This case comes to this Court without the develop-

ment of a factual record, in a posture in which the allega-

tions of the plaintiffs’ complaints and the reasonable

inferences to be drawn from them must be taken as true.”

1 Of the four petitions filed with this Court, the appendix

to the petition filed in Unionamerica Insurance Co., Ltd., et al.,

No. 91-1146 is the most complete. Respondents’ Consolidated

Brief uses that appendix where possible, citing it as “UA App.”

2 Summit Health Ltd. v. Pinhas, 111 S.Ct. 1842, 1845 (1991).

Despite its appearance before this Court, this case remains in

(Continued .on following page)

Plaintiffs’ allegations are reviewed by the Court of

Appeals at 938 F.2d at 922-924 (UA App. A13-A18).

At its core, this case is about the enlistment of “rein-

surers to compel capitulation” to the demands of a hand-

ful of firms. 938 F.2d at 929, UA App. A26. The goal of

these firms was to limit the scope of insurance products

sold in the United States. Id. More specifically, the com-

plaints allege as follows.

In 1984, defendant primary insurers were dissatisfied

with the breadth of risks covered by commercial general

liability insurance policies.* They wanted to shrink the

coverage offered in the market, but could not unilaterally

cease offering the broader coverages without risking the

loss of market share to competitors who remained willing

to sell the broader coverage. See, e.g., Conn. Cmpt.

47 65-67, UA App. A175.

Consequently, the primary insurer defendants, and

the domestic and foreign reinsurers they enlisted, con-

spired to force unwilling competitors to stop insuring

certain risks.4 Collectively, they withdrew necessary

inputs required by competing primary insurers who

wanted to continue writing these risks. They agreed to

withhold reinsurance from U.S. primary insurers who

(Continued from previous page)

its infancy, having been confined by the trial court to motions

designed to test the legal sufficiency of the pleadings. Pre-Trial

Order No. 2, ¥ 3. The trial court allowed discovery “insofar as

necessary for these motions” (UA App. 38, n. 2), but expressly

limited that discovery to matters not likely to raise disputed

issues of fact. Pre-Trial Order No. 2, 4 5. As a result, no

discovery was conducted.

3 Commercial general liability (CGL) insurance provides

coverage against third party claims for businesses and state

and local governments.

4 For example, defendants sought to exclude all pollution

coverage.

were unwilling to comply with the conspirators’

demands. Without reinsurance, a critical input, the capac-

ity of primary companies to offer coverage to their cus-

tomers would be drastically eroded. Thereafter,

defendant Insurance Services Office, Inc. (ISO), the trade

association of primary insurers, withdrew statistical sup-

port for the risks.> See, e.g., Cal. Cmpt. 74 63-100, UA

App. A123-131.

To achieve the full goals of the conspiracy, defen-

dants also moved to limit excess and umbrella coverage

as well as property insurance coverage, to conform to

changes effectuated in CGL coverages. By these coordi-

nated steps, defendants were largely able to compel com-

peting insurers to stop selling insurance written on policy

forms that would have provided the broader coverage,

and to use exclusively the lesser forms which the conspir-

ators forced upon ISO.° See, e.g., Cal. Cmpt. 9] 101-110,

UA App. A131-133.

No state insurance regulator reviewed or approved

the coercive conduct that generated these lesser forms.

No state insurance regulator reviewed or approved the

conduct that forced the use of these forms in the mar-

ketplace. 938 F.2d at 931, UA App. A29.

As the complaints allege, the United States argued’,

and the court of appeals found, this case is about

> Statistical support provides information that insurers

need to price an insurance product.

® No state’s approval of the conspirators’ new policy

forms constituted disapproval of older forms. Absent the con-

spiracy, all forms would have remained available for use in the

marketplace.

? The United States filed a brief as amicus curiae in the

court of appeals. In its brief, the United States argued that (i)

(Continued on following page)

agreements by a few primary insurers and reinsurers to

replace existing insurance products with a lesser quality

product, and the enforcement acts taken by defendants to

compel the market success of the lesser product. Defen-

dants’ enforcement acts, most notably the withholding of

necessary reinsurance and statistical support services, are

central to this case. Defendants used these economic

weapons to force unwilling firms to stop offering higher

quality insurance products to American consumers.

MISSTATEMENTS IN THE PETITIONS.

The petitions contain numerous contradictions and

misstatements of fact. In compliance with Supreme Court

Rule 15.1, plaintiffs note the following major misstate-

ments in the petitions:

1. The Hartford petition describes this case as

involving “nothing more” than “agreements among”

insurers and reinsurers “over coverage risks they were

willing to accept”. Hartford Ptn. 2. This case, however,

involves “much more.” 938 F.2d at 929, UA App. A25. The

complaints expressly allege that primary insurer defen-

dants met with reinsurers to formulate and set in a

motion a joint strategy to eliminate specific coverages

from the market. See, e.g., Conn. Cmpt. 7] 68, 69, 73, UA

App. A175-A177. The complaints also allege that, in fur-

therance of this goal, reinsurers “threaten[ed] to withhold

(Continued from previous page)

the complaints allege conduct constituting boycott, coercion or

intimidation under the McCarran-Ferguson Act; (ii) the state

action doctrine does not prohibit antitrust scrutiny of the

alleged boycotts; and (iii) principles of international comity do

not preclude judicial review of these cases. The decision of the

Court of Appeals is in accord with these arguments.

MO ——

reinsurance from the market for primary companies” that

persisted in offering this coverage (Cal. Cmpt. 7 71, UA

App. A124); reinsurers “threatened a boycott of North

American CGL risks unless” the coverages were elimi-

nated (Cai. Cmpt. ¥ 74, UA App. A125); reinsurers collec-

tively refused to cover certain risks (Cal. Cmpt. 7] 95 &

108, UA App. A130 & A133); and ISO withdrew support

services for coverages that included these risks. Conn.

Cmpt. | 103, UA App. A183-A184; See also Conn. Cmpt.

q 116-117, VA App. A186-A187; 938 F.2d at 929, UA App.

A25. The Winterthur petition even concedes that plain-

tiffs alleged that primary insurers “induced defendant

reinsurers to refuse to provide reinsurance to insurers

writing CGL policies on existing ISO forms.” Winterthur

Ptn. 3.

2. The Hartford petition asserts that states sanc-

tioned the defendants’ activities because “state law

authorized collective forms development”. Hartford Ptn.

27. States, however specifically prohibit boycotts, which

is the conduct at issue in these cases. See e.g., Md. Ann.

Code Art. 48A, § 220 (1986); N.J. Stat. Ann. i17:29B-4(4)

(1985); See also UA App. A61. As the Ninth Circuit found,

the challenged conduct “was neither a reasonable nor

necessary consequence of the conduct regulated and

approved by the state.” 938 F.2d at 931, UA App. A30.

3. The Hartford petition asserts that “state agencies

made substantive determinations of conformity with state

policy.” Hartford Ptn. 28. The regulators reviewed forms,

not market conduct. As the court of appeals found, noth-

ing in the evidence shows that the relevant states super-

vised or approved the boycotts used to produce

agreement on the content or use of the forms. 938 F.2d at

931, UA App. A29.

4. The Hartford petition asserts that insurance and

reinsurance markets are so intimately entwined that state

regulation of primary insurers is de facto regulation of

reinsurers. Hartford Ptn. 15. The Winterthur petition, on

the other hand, states that it “strains credulity” to suggest

that activities in one market, including boycotts, affect

any other market. Winterthur Ptn. 19-20.

5. The Merrett and Unionamerica petitions state

that the Ninth Circuit “dismissed” the global conspiracy

claim in the Connecticut-style complaints. Merrett Ptn. 4,

n. 2; Unionamerica Ptn. 6-7, n. 6. The Ninth Circuit found

this count “consistent” with its opinion and mandated

that “[o]n remand to the district court, plaintiffs should

be afforded the opportunity to amend” to cure a technical

pleading defect. 938 F.2d at 931, UA App. A30.

REASONS FOR DENYING THE WRIT

The court of appeals decision does not warrant

review. Defendants’ real challenge is not to the legal

standards applied by the court of appeals. Rather, defen-

dants contest the court of appeals’ construction of the

facts of these cases as alleged in plaintiffs’ complaints.

Still seeking to mischaracterize those allegations, defen-

dants seek certiorari on questions not presented by this

case.

In resolving the questions actually presented by

plaintiffs’ allegations, the decision below is faithful to

this Court’s prior interpretations of the McCarran-Fer-

guson Act and the state action doctrine. The decision also

accords with this Court’s articulated principles of inter-

national comity and standing. It accords as well with the

decisions of other circuits.

In no respect does the case present questions of

exceptional legal and practical importance. Defendants

cannot seriously contend that the egregious conduct

described in plaintiffs’ complaints must be countenanced

to assure the survival of the insurance industry. No basis

for certiorari has been presented.

The decision below concerned motions brought

under Federal Rules of Civil Procedure 12(b) and 56 to

“test the validity of . . . critical allegations in the com-

plaint[s].” RT at 21 (June 23, 1988). No discovery was

conducted in advance of these motions. Nevertheless, at

this early stage of the litigation, defendants continue to

press a view of the case that differs categorically from the

view of plaintiffs. Disputes over case characterization

provide no basis for certiorari. Defendants have stated no

reasonable basis for review of the decision of the court of

appeals and, on the limited factual record before this

Court, there is no basis for review.

I. THIS CASE PRESENTS NO OPPORTUNITY TO

CLARIFY THE REACHES OF THE MCCARRAN-

FERGUSON ACT.

The McCarran-Ferguson Act “embod[ies] a legisla-

tive rejection of the concept that the insurance industry is

outside the scope of the antitrust laws.” Group Life &

Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 220 (1979).

In striking a balance between competition and regulation,

the Act exempts from antitrust scrutiny conduct that is

the business of insurance and is regulated by the state. 15

U.S.C. § 1012 (b). Otherwise qualified conduct is denied

this exemption, however, if it constitutes an agreement or

act of boycott, coercion or intimidation. 15 U.S.C. § 1013

(b). These cases allege boycott, coercion and intimidation.

Further, these cases allege participation by domestic

insurers in unregulated foreign reinsurance activity —

conduct that does not even qualify for the McCarran

exemption in the first instance. Delicate questions of bal-

ance do not arise. The antitrust laws apply.

The court of appeals’ holdings on the McCarran-

Ferguson Act defenses are unsuited to review by this

Court. They present numerous issues, each of which this

Court would need to resolve in defendants’ favor before

the outcome of these cases would change. Defendants

have asked this Court to reject the court of appeals’

reading of the complaints; to reverse the court of appeals’

opinion that the challenged conduct is a boycott under

the McCarran Act; and to reverse the court of appeals’

conclusion that the McCarran Act does not shield con-

spirators’ participation in nonexempt’' conduct. These

issues are fact-bound. Moreover, each was resolved below

based on conventional applications of legal principles

established by this Court.

A. Defendants’ petition for certiorari asks this

Court to reject the definition of boycott

expressed in St. Paul Fire & Marine Insurance

Co. v. Barry, and used by this Court throughout

its history.

The court of appeals observed the clear line between

conduct constituting an actionable boycott and conduct

constituting permissible joint activity. It correctly found,

938 F.2d 929; UA App. A27, as the United States had

urged in its amicus curiae brief at 16, that the conduct

alleged in this case falls well on the boycott side of the

distinguishing line.

The court of appeals’ decision rested squarely on St.

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

(1978), this Court’s explanation of the boycott exception

in the McCarran-Ferguson Act. In Barry, this Court sur-

veyed the long line of Supreme Court precedent giving

rise to a “common understanding” of the term boycott.

Barry, 438 U.S. at 541-45. The court of appeals found that

the plaintiffs’ allegations fit “exactly” within this com-

mon understanding. 938 F.2d at 929, UA App. A26. In its

brief amicus curiae, the United States had urged that

result, commenting that

the combination of primary insurers and

reinsurers alleged by plaintiffs falls well within

the ‘common understanding’ (Barry, 438 U.S. at

552) of boycott, coercion or intimidation.

Indeed, it is precisely the kind of conduct char-

acterized as a boycott, coercion and intimidation

in the Sherman Act case that led to the passage

of the McCarran-Ferguson Act and with which

Congress was specifically concerned when it

included [the boycott exclusion in the McCar-

ran-Ferguson Act].

Brief for the United States as amicus curiae, filed below, at

16.8

Defendants, however, attempt to manufacture a con-

troversy from the colloquy between the majority and

dissent in Barry. Yet, the majority and dissent in Barry

would agree that the facts presented here constitute a

8 The legislative history of the McCarran-Ferguson Act

demonstrates that Congress carefully distinguished voluntary

agreements among insurers on policy terms —- which could

claim antitrust immunity if regulated by the state —- from com-

binations designed to force unwilling competitors to adhere to

terms through the concerted denial of necessary trade relation-

ships — which were expressly denied immunity. Barry, 438 U.S.

at 547-50. Indeed, the Act recognizes that “the vice in the

industry was not that there were rating bureaus, but that there

was in the industry a system of private government which had

been built up by a small group of insurance companies.” Barry,

438 U.S. at 548, quoting Senator O’Mahoney. Senator

O’Mahoney describes as “absolutely” unprotected “any

attempt by a small group of insurance companies to enter into

an agreement by which they would penalize any person or any

business which is attempting to do business in the insurance

field in any way that was disapproved by them... .” 91 Cong.

Rec. 1480 (1945) (Statement of Senator O’Mahoney). The cen-

tral allegations of the complaints concern these kinds of pro-

hibited agreements.

boycott. The majority in Barry described a boycott as

“(t]he enlistment of third parties in an agreement not to

trade, as a means of compelling capitulation of the boy-

cotted group... .” Barry, 438 U.S. at 544-45. The dissent

in Barry chose different words, but approved the same

concept, concluding that McCarran boycotts concern

“attempts by members of the insurance business to force

other members to follow the industry’s private rules and

practices.” Barry, 438 U.S. at 565.

Thus, the Barry majority and minority agree on a

bright line test. Whatever else a McCarran boycott may

be, it indisputably includes what is alleged here: agree-

ments and acts to withhold an essential input from other

insurers as means of forcing their acquiescence. The court

of appeals’ application of Barry was conventional and

correct.

Grasping at straws, defendants claim that a McCar-

ran-Ferguson boycott does not exist unless “competing.

insurance companies [are] absolutely excluded from the

market” or there is a “total refusal to deal on any terms”.

Hartford Ptn. 24. This Court has never required such a

finding. Indeed, the case that served as the model for the

boycott exception in the McCarran-Ferguson Act, United

States v. South-Eastern Underwriters Assn., 322 U.S. 533,

535 (1944), involved neither situation.

South-Eastern Underwriters involved a conditional

refusal to deal.? The facts of South-Eastern Underwriters

are markedly similar to those involved here. Both cases

9 So-called “conditional” refusals are classic boycotts. E.g.,

Fashion Originators Guild v. FTC, 312 U.S. 457 (1941); Eastern

States Retail Lumber Dealers’ Association v. United States, 234 U.S.

600 (1914). These boycotts are not designed to drive competi-

tors from the market. Rather, they are designed to force unwill-

ing competitors to adhere to particular terms of trade.

concern conspirators who refused to deal in order to force

unwilling competitors to acquiesce to their terms. In both,

reinsurance was withdrawn as the means of forcing

acquiescence. Both allege conduct falling well within the

common understanding of boycott.

Defendants refer to a “debate” in which some lower

courts attempt to distinguish between refusals to deal on

any terms (absolute refusals) and refusals to deal on some

terms (partial refusals). They would classify only the

former as a boycott. This debate is not pertinent here

because it only concerns consumer boycotts.!° The pre-

sent case does not allege consumer boycotts. It alleges

concerted refusals to deal to force competitors to adopt

conspirators’ trade restrictions.!!

Some lower courts may seek to confirm that a partic-

ular consumer boycott is coercive by inquiring into the

absolute or partial nature of the refusal to deal. However,

a boycott to force a competitor to adhere to trade terms

dictated by conspirators is by definition coercive.'? Thus,

10 The cases cited by defendants as holding that an abso-

lute refusal to deal is essential are consumer boycott cases. See

Grant v. Erie Ins. Exchange, 542 F. Supp. 457 (M.D. Pa. 1982),

aff'd mem., 716 F. 2d 890 (3d Cir.), cert. den., 464 U.S. 938 (1983)

and UNR Industries Inc. v. Continental Ins. Co., 607 F. Supp. 855

(N.D. Ill. 1984).

11 Defendants’ citation to 9 E. Kintner & J. Bauer, Federal

Antitrust Law 245 (1989) is, thus, curious. Kintner & Bauer

distinguish consumer boycott cases from those where “a par-

tial or conditional refusal to deal . . . is designed to coerce the

target to conform to certain conduct.” In the latter situation,

Kintner & Bauer note the lack of conflict among lower courts,

citing the overwhelming majority of cases holding that an

absolute refusal to deal is not required. Id. at 245-46.

12 Contrary to defendants’ assertions, this case is not

about ordinary course-of-business arrangements against which

(Continued on following page)

courts confronting boycotts against competitors have not

used, and need not use, the elusive distinction between

partial and absolute refusals to deal to corroborate coer-

cion.

Decided well within the contours of the “common

understanding” of boycott, this case simply presents no

opportunity for this Court to test the reaches of its defini-

tion of boycott under the McCarran-Ferguson Act.

B. Defendants’ exemption forfeiture arguments

actually seek to expand the scope of the limited

antitrust exemption established by the McCar-

ran-Ferguson Act.

As an additional and independent ground for deny-

ing McCarran-Ferguson protection to the defendants’

conduct, the court of appeals held that the Act’s protec-

tion did not extend to the domestic defendants’ participa-

tion in unregulated agreements with the foreign

defendants.'? Relying on Beltz Travel Service v. Interna-

tional Air Transport Assn., 620 F.2d 1360 (9th Cir. 1980), the

(Continued from previous page)

other insurers found it difficult or expensive to compete. This

case is about one group of competitors (defendant primary

insurers) seeking to discipline another group of competitors

(the unwilling primary insurers) by inducing suppliers (rein-

surers and ISO) not to provide necessary supplies (reinsurance

and statistical support) unless the unwilling primary insurers

acceded to the trade terms of the defendant primary insurers.

Thus, there is no necessity in this case to distinguish between

“economic exigencies” that flow from the need to respond to

protected horizontal agreements and “coercion.” The facts as

alleged are well within the traditional concept of a boycott.

13 Petitioners do not challenge the court of appeals’ hold-

ing that the conduct of the foreign reinsurers fails to qualify for

the McCarran exemption because it is not regulated by the

states.

court of appeals found an “exemption forfeiture” as a

result of domestic insurers’ joining in the unregulated

(and therefore non-exempt) conduct of foreign reinsurers.

In its holding, the court of appeals applied well-

accepted principles. First, “[i]t is well settled that exemp-

tions from the antitrust laws are to be narrowly con-

strued.” Group Life & Health Ins. Co. v. Royal Drug Co., 440

U.S. 205, 231 (1979).14 Second, there is nothing novel

about holding an otherwise exempt entity liable when it

conspires in non-exempt conduct. For example, in the

labor exemption context, this Court has stated:

A union may make wage agreements with a

multi-employer bargaining unit and may in pur-

suance of its own union interests seek to obtain

the same terms from other employers. . . . But

we think a union forfeits its exemption from the

antitrust laws when it is clearly shown that it

had agreed with one set of employers to impose

a certain wage scale on other bargaining units.

One group of employers may not conspire to

eliminate competitors from the industry and the

union is liable with the employers if it becomes a

party to the conspiracy.

Mine Workers v. Pennington, 381 U.S. 657, 665-66 (1965)

quoted in Royal Drug, 440 U.S. at 232, n.39 (emphasis

added).'5

14 See, e.g., Abbott Laboratories v. Portland Retail Druggists

Assn., 425 U.S. 1, 11-12 (1976); Connell Construction Co. v.

Plumbers & Steamfitters, 421 U.S. 616, 622 (1975); FMC Corp. v.

Seatrain Lines, Inc., 411 U.S. 726, 733 (1973); United States v.

McKesson & Robbins, Inc., 351 U.S. 305, 316 (1956).

15 Defendants claim that the court of appeals exemption

forfeiture decision is contrary to Union Labor Life Ins. Co. v.

Pireno, 458 U.S. 119 (1982). Hartford Ptn. 16. However, there is

“(Continued on following page)

The record as it currently stands provides no basis

for a reconsideration of these long-standing principles.

The line between exempt and non-exempt conduct can

best be drawn on a well developed factual record, and

not on the bare allegations of even a well-pleaded com-

plaint.

Moreover, defendants’ exemption forfeiture argu-

ment would expand the limited exemption established by

the McCarran-Ferguson Act. There is no legal justification

for doing so.

The present record fails to indicate in anyway that

the insurance industry will become less efficient if this

Court fails to expand the McCarran exemption to include

insurer conspiracies involving unregulated foreign rein-

surance activity. The unavailability of the McCarran

(Continued from previous page)

nothing in Pireno that is inconsistent with the decision below.

In Pireno, this Court considered the factors for determining

what is the “business of insurance” under the McCarran Act,

and noted that involvement of non-insurance companies in

challenged conduct does not necessarily disqualify conduct

from being characterized as the “business of insurance.” This

discussion is not relevant to the present cases, however,

because the exemption forfeiture analysis of the court of

appeals rested on the “state regulation” prong of the McCarran

Act, and not on “the business of insurance” requirement. In

short, the court of appeals’ unchalienged finding is that the

foreign reinsurers’ conduct fails to qualify for the McCarran

exemption because it is not state regulated. 15 U.S.C. § 1012(b).

In finding that the domestic insurers also had no McCarran

exemption, the court of appeals below followed this Court’s

precedent making all conspirators liable for the unlawful acts

of their co-conspirators. See, e.g., Mine Workers v. Pennington,

381 U.S. at 665-66; United States v. Socony-Vacuum Oil Co., 310

'. U.S. 150, 253-54 (1948).

exemption does not automatically impose antitrust lia-

bility on insurers for joint conduct with foreign rein-

surers. If an insurer has no exemption with respect to

certain conduct, that conduct simply becomes subject to

antitrust scrutiny, not necessarily antitrust liability.'®

Moreover, most companies have no trouble discern-

ing the difference between lawful agreements regarding

the supply of important inputs and unlawful agreements

to deny competitors such inputs unless the competitors

accept particular terms of doing business. The court of

appeals’ decision leaves insurers free to purchase rein-

surance but properly warns them against using such

arrangements as exclusionary devices directed against

competitors.

The insurance industry ought not be surprised or

confused by the court of appeals’ ruling. Reinsurers have

long regarded themselves as being without antitrust

exemption, and have generally conducted their business

accordingly.!7 Certainly, primary insurers cannot claim to

16 Agreements between insurers and reinsurers are akin to

purchase and sale agreements between vertically related firms

in any other industry. Reinsurance is an input into insurance,

the finished product. An insurer purchasing reinsurance is like

Chrysler purchasing steel. Both transactions secure inputs into

the finished product. Neither transaction is ordinarily an anti-

trust violation.

17 N. David Thompson, president and chief executive offi-

cer of Defendant North American Re, expressed this view in

Forum, a publication of the American Bar Association:

Reinsurers have generally conducted their opera-

tions free from the type of regulation to which pri-

mary insurers are subject in most jurisdictions.

Reinsurance rates are not approved or filed. Rein-

surance treaty provisions are not governed by stat-

ute or regulation, except for special matters such as

(Continued on following page)

be hamstrung in their ordinary operations because the

court in this case followed settled law and refused to

expand an antitrust exemption to include the egregious

conduct alleged in the complaints. The McCarran-Fer-

guson Act has never protected the conduct challenged in

these complaints.

II. THE DECISION BELOW RESTS ON A CONVEN-

TIONAL APPLICATION OF THE STATE ACTION

DOCTRINE.

This Court has repeatedly held that the state action

doctrine immunizes the conduct of private persons from

antitrust scrutiny only when that conduct is: (1) under-

taken pursuant to a clearly articulated and affirmatively

expressed state policy; and (2) actively supervised by the

State. California Liquor Dealers Assoc. v. Midcal Aluminum,

Inc., 445 U.S. 97, 105 (1980) (“Midcal”). This two-pronged

test assures that the challenged anticompetitive conduct

is that of the State itself. Patrick v. Burget, 486 U.S. 94

(1988). Contrary to defendants’ assertion that the court of

appeals did not apply “the Midcal criteria,” Hartford Ptn.

9, the court faithfully applied these criteria. Defendants

simply failed to meet the requirement of either prong of

the test.

(Continued from previous page)

the nearly universal insolvency clause. . . . Thus,

r.insurers have been outside the protection of the

McCarran Act and so, at least, since the decision in

the South Eastern Underwriters case, they are fully

exposed to the enforcement of the antitrust laws,

state as well as federal. (Footnote omitted.)

N. David Thompson, Critical Issues of the Eighties: How Trends in

Reinsurance Will Affect Legal, Legislative, and Regulatory Actions,

16 Forum 1038, 1055 (1980-1981).

First, defendants’ conduct was not authorized by any

state policy. Indeed, state unfair insurance practices laws

expressly prohibit boycotts. See, e.g., Md. Ann. Code Art.

48A, § 220 (1986). N.J. Stat. Ann. 17:29B-4(4) (1985). Sec-

ond, as the court of appeals found, there is nothing in the

record to demonstrate that states supervised or approved

the boycotts alleged. 938 F2d at 931, UA App. A29.

Moreover, because some of the anticompetitive acts

occurred after the approval of policy forms, supervision

was impossible.'® This case presents no issue as to either

prong of Midcal, and, therefore, no basis for certiorari.

Defendants argue that if states have a clearly articu-

lated policy of permitting joint forms development, then

they implicitly have a clearly articulated policy permit-

ting ali behind-the-scenes coercive activity that might

conceivably be related to the creation and use of a partic-

ular form. This argument would expand the state action

doctrine to immunize agreements denying competitors

access to essential inputs, and the boycotts implementing

those agreements, even absent any evidence of public

authorization, approval or supervision of the agreements

and boycotts. Such an expansion of the state action doc-

trine would be completely at odds with the decisions of

this Court.

In St. Paul Fire & Marine Insurance Co. v. Barry, 438

U.S. 531 (1978), this Court summarily rejected the defen-

dants’ approach. There, four medical malpractice insur-

ance companies agreed that three would not sell

insurance to doctors in Rhode Island in order to force

_18 For example, a key boycott allegation of the complaints

is the withdrawal of support for competing ISO forms. Conn.

Cmpt. 7] 101-104, UA App. A183-A184; See also Cal. Cmpt.

W171 97-100, UA App. A131. As defendants admit, this was not

accomplished until “more than a year after the approved 1986

forms had become effective.” Hartford Ptn. 6.

qusE> qa Eww eee

them to accept new coverage terms set by St. Paul, the

fourth insurer. There, as here, defendants had filed forms

with state insurance regulators related to the boycotted

coverages. Nevertheless, this Court found no suggestion

that the State had authorized the concerted refusals to

deal with St. Paul’s policyholders. Barry, 438 U.S. at 554,

n. 26.

The court of appeals adopted the same reasonable

distinction in the present case. Approval of policy forms

is not approval of market boycotts. The conduct of defen-

dants in these cases “was neither a reasonable nor neces-

sary consequence of the conduct regulated by the state.”

938 F.2d at 931, UA App. A30. Defendants simply fail to

meet either prong of the Midcal test. No further review is

warranted.

Because the facts of this case are so unaccommodat-

ing, defendants seek to recast them as mere forms devel-

opment. Operating within this distorted construct,

defendants focus on the process by which ISO drafts and

obtains approval for insurance forms. But, contrary to

defendants’ characterization, this case alleges mar-

ketplace activities directed at an insurers’ individual

decision what coverage to offer.

Review is also inappropriate on the present unde-

veloped record. in support of their summary judgment

motion, defendants relied upon the affidavit of Carole

Banfield.'? The Banfield affidavit merely asserts that rein-

surers expressed their views cn proposed coverages.?°

19 Defendants also submitted an appendix of state insur-

ance statutes.

20 At its most forceful, the affidavit states:

ISO and the insurance regulators also discussed

the proposed new forms with other interested par-

ties, including insurers, agents, brokers, domestic

(Continued on following page)

Nothing in this affidavit, or anywhere else in the record,

suggests that the various agreements and their attendant

boycotts were ever submitted for regulatory review and

approval in any of the states subject to the state action

motion. 938 F.2d at 931, UA App. A29. Nothing in this

affidavit or anywhere else in the record supports a find-

ing that any state regulator actively supervised these

activities.

Contrary to defendants’ hyperbole, the decision of

the court of appeals will not create a crisis in federalism.

Nowhere do the complaints attack or even question the

regulatory acts of state officials. Accordingly, defendants’

invocation of this Court’s recent decision in City of Colum-

bia v. Omni Outdoor Advertising, Inc., 111 S.Ct. 1344 (1991),

is misplaced.

What plaintiffs do challenge are back-room deals,

unknown and unapproved by regulators, to force unwill-

ing companies to toe a line drawn by a handful of power-

ful firms. Open comment and debate are not at issue in

these cases. If these boycotts are immune from antitrust

scrutiny simply because state regulators see some public

manifestation of the boycott, private regulation of the

insurance industry by a few firms will supplant public

regulation. By deterring these boycotts and forcing full

and fair use of state regulatory processes, the court of

appeals acted to strengthen state regulation, not to sup-

plant it.

(Continued from previous page)

and foreign reinsurers, and corporate risk managers.

The discussions were sometimes heated and the

industry-wide scrutiny was intense. Banfield Afft.

{ 9 at 5.

Ill. THE DECISION TO EXERCISE JURISDICTION

IN THIS CASE PROPERLY APPLIES SETTLED

PRINCIPLES OF INTERNATIONAL COMITY.

A. This Case Provides No Occasion to Refine the

General Principle Favoring the Exercise of

Jurisdiction Where American Effects are

Direct, Substantial and Foreseeable.

As a general principle, “[c]ourts in the United States

have the power, and ordinarily the obligation, to decide

cases and controversies properly presented to them.”

W.S. Kirkpatrick & Co. v. Environmental Tectonics Corp., 493

U.S. 400, 409 (1990).21 This strong presumption in favor of

the exercise of jurisdiction may nonetheless be overcome

and principles of comity may come into play where the

interests of, and links to, the United States are attenuated.

Timberlane I, 549 F.2d 613. See also, Laker Airways, Ltd. v.

Sabena, Belgian World Airlines, 731 F.2d 909, 949 (D.C. Cir.

1984). Such is not the case here. The anticompetitive

effects of the defendants’ conduct in the United States

21 Although Kirkpatrick is an act of state case, its powerful

logic applies to this case as well. Moreover, its analysis stems

from the same roots as the comity doctrine. Compare Restate-

ment (Third) of Foreign Relations 443, comment a [The act of

state doctrine has two policy bases: “deference to the executive

branch and avoid[ing] disrespect for foreign states”] with Tim-

berlane Lumber Co. v. Bank of America, 549 F.2d 597, 612 (9th Ci:.

1976) (Timberlane I), after remand, 749 F.2d 1378 (9th Cir. 1984)

(Timberlane II), cert. denied, 472 U.S. 1032 (1985) {[“Only respect

for the role of the executive and for international notions of

comity and fairness limit [the] constitutional grant” of power

that enables American courts to protect Americans from for-

eign actions that have anticompetitive effects in the United

States].

were direct, substantial and foreseeable22; the action of

the foreign government creates no true conflict with

American antitrust laws.

The lower courts have had occasion to articulate

when principles of international comity require absten-

tion from the exercise of jurisdiction.23 Timberlane, supra;

Laker Airways, Ltd., supra; Mannington Mills, Inc. v. Con-

goleum Corp., 595 F.2d 1287 (3d Cir. 1979). These articula-

tions derive from the venerable Alcoa “effects” test.

United States v. Aluminum Co. of America (Alcoa), 148 F.2d

416 (2d Cir. 1945) (sitting by certification of this Court).24

The minor variations in these articulations are of no

moment in the present case.?5 To the contrary, a court

*2 As both courts below found, the complaints explicitly

allege conduct with a “direct, substantial and reasonably fore-

seeable” impact on American commerce. 723 F.Supp. at 486,

UA App. A73; 938 F.2d at 932, 1'A App. A31.

23 Kirkpatrick cautions against treating such principles as

“doctrines unto themselves” and thereby “expanding judicial

incapacities.” 493 U.S. at 409.

*4 Under Alcoa, “a state may impose liabilities, even upon

persons not within its allegiance, for conduct outside its bor-

ders that has consequences within its borders which the state

reprehends.” Alcoa, 148 F.2d at 443. The conduct should, how-

ever, “significantly” or “directly” affect the United States com-

merce or be intended to have that effect. This Court cited Alcoa

with approval in Continental Ore Co. v. Union Carbide, 370 U.S.

690, 705 (1962).

23 Defendants argue that the court of appeals’ Timberlane

analysis was wrongly “constrained” by reference to the For-

eign Trade Antitrust Improvements Act of 1982 (FTAIA), 15

U.S.C. § 6a. This misstates the use to which the court of

appeals put the FTAIA. Indeed, ii simply concluded that its

Timberlane analysis should be informed, but not superseded, by

the “direct, substantial and foreseeable effect” standard articu-

lated in the FTAIA. 938 F.2d at 932; UA App. A31. Thus, the

(Continued on following page)

ll ll... LG

would exercise jurisdiction over the facts of this case

under any recognized comity test.?¢

The conduct challenged in this case has its principal

effects in the United States. The complaints allege a com-

plex and overlapping pattern of conspiratorial activity

engaged in by both foreign and domestic actors that

targeted United States markets. Initially conceived by the

American domestic primary insurer defendants, the con-

spiratorial scheme sought to limit the number of insur-

ance products offered to insurance consumers in the

United States. Foreign and domestic réinsurers were

recruited as parties necessary to guarantee that unwilling

American competitors would comply with the scheme.

The integral involvement of domestic companies in

the scheme to withhold reinsurance belies any notion that

such activity was “wholly foreign.” 938 F.2d at 932, UA

App. A33. Only by ignoring the overarching American

focus of the complaints can defendants represent that

their motion to dismiss on comity grounds involves

solely British actors in British markets. Merrett Ptn. 3-4.27

(Continued from previous page)

court of appeais concluded: “as the [FTAIA] does not eliminate

comity, a court should look to see if the case before it is one in

which comity still has a role to play.” Id., VA App. A32. This is

precisely what the court of appeals did here.

26 The Timberlane balancing test employed by the court of

appeals is the one most favorable to defendants. Defendants,

notably, do not claim that any other circuit court of appeals

would have reached a different result.

27 The so-called “global claim” for relief in the complaints

of many plaintiffs explicitly alleges that all defendants partici-

pated in a single, overarching conspiracy. Conn. Cmpt.

{7 115-119, UA App. A188-A190. While the court of appeals

(Continued on following page)

Moreover, the complaints expressly allege that foreign

and domestic reinsurers entered into a written agreement

to use their “best endeavors to ensure that all U.S.A. and

Canadian exposed insurance/reinsurance business

attaching on or after 1st January, 1987, will only be writ-

ten where the original business includes a seepage and

pollution exclusion wherever legal and applicable.”

Conn. Cmpt. J 112, UA App. A185-A186; Cal. Cmpt.

{@ 108, UA App. A133. This clear focus on American

commerce justifies the decision of the court of appeals to

exercise jurisdiction.28

At the very most, defendants have only raised factual

disputes as to whether the conspirators were exclusively

foreign nationals and whether the relevant anticompeti-

tive conduct occurred exclusively abroad.29 Jurisdiction

(Continued from previous page)

recognized that the trial court had properly dismissed that

claim on a narrow technicality of pleading, it directed the trial

court on remand to allow plaintiffs an opportunity to cure that

deficiency by amendment. 938 F.2d at 931, UA App. A30.

Defendants’ claim that those allegations were simply dis-

missed, Merrett Ptn. 4, n. 2, is misleading.

28 Urging that jurisdiction be exercised, the United States

as amicus curiae below commented that “[i]nternational comity

principles do not mandate automatic deference to the domestic

law or jurisdiction objections of foreign states . . . where the

conduct challenged has its competitive effects principally in

the United States.” Brief for the United States of America as

Amicus Curiae, at 27. In fact, the United States contended that

the district court “failed to accord adequate weight to the fact

that the competitive effects of the alleged conspiracy were felt

primarily within the United States or to the resulting interest of

the United States in enforcing its law.” Id.

29 No discovery preceded this Rule 12(b)(1) motion and

there is no factual record beyond the face of the complaints

(Continued on following page)

should not be denied on the mere assertion of these

factual disputes.

B. No Genuine Conflict Exists Between United

States and United Kingdom Law. ~

In an attempt to counterbalance the compelling rea-

sons for the exercise of jurisdiction, defendants claim that

the British “tradition of self-regulation” creates an inter-

national conflict of sufficient scope to warrant denying

jurisdiction in these cases. Defendants do not suggest that

British law requires the foreign defendants to take actions

forbidden by American law, that British law forbids what

American law requires, nor even that compliance with

American antitrust law would substantially interfere with

the foreign defendants’ mode of conducting business at

home and within the European economic community.

Merrett Ptn. 6, n. 4. They point to no inconsistency

between American antitrust law and the United King-

dom’s Competition Act of 1980 or Article 85(1) of the

Treaty of Rome, governing competitive practices in the

EEC.30

The supposed conflict is in reality nothing more

than a dispute about the propriety of subjecting British

subjects to the jurisdiction of American courts and

(Continued from previous page)

that can be evaluated to conduct comity analysis. See Tim-

berlane I and Timberlane II, supra (decided only after substantial

discovery and on a full factual record).

30 Defendants do not here, nor did they below, cite any

statute, regulation or court decision to show that English law

requires, Or even acquiesces in, the conduct challenged by

plaintiffs.

interfering with a British tradition of self regulation.?!

The conflict asserted is manifestly insufficient to over-

come the interest of the United States in enforcing its own

law.

IV. PLAINTIFFS HAVE STANDING AS CONSUMERS

IN THE MARKET RESTRAINED BY THE REIN-

SURER BOYCOTTS.

Reinsurers have filed two separate petitions? argu-

ing that plaintiffs lack standing to pursue certain claims

against them. Both petitions are based upon a fundamen-

tal mischaracterization of plaintiffs’ complaints. To

obscure plaintiffs’ unquestionable standing as consumers

in the market restrained by reinsurer boycotts, the peti-

tions focus attention on activities in the reinsurance mar-

ket. Plaintiffs’ complaints plainly allege, however, that

the reinsurers’ boycotts restrained the primary insurance

market in which the plaintiffs are consumers. Cal. Cmpt.

WY 112, 117, 122 & 127, UA App. A134, A136, A137, A139:

Conn. Cmpt. 7] 116 & 121, UA App. A186 & A188. The

31 Defendants have effectively asked this Court to show

greater deference to the supposed regulatory interests of the

United Kingdom than to the regulatory interests of one of the

states of this country. If the two-pronged Midcal test were

applied to the conduct of foreign defendants, no immunity

would attach. The boycott conduct at issue here is neither

permitted by British law, Pet. at 6, n.4, nor actively supervised

by the British government.

32 These are: 1. Docket No. 91-1131 (Winterthur Rein-

surance Corp of America); and 2. Docket No. 91-1146 (Union-

america Insurance Co. Ltd. et al.).

plaintiffs, thus, have standing as consumers that have

been injured by the elimination of competing insurance

products in this market.*%

A. Plaintiffs Meet This Court's Test for Standing.

These petitions do not warrant review by this Court

because the court of appeals decided the standing issues

in these cases strictly in accordance with this Court's

decisions in Associated General Contractors of California,

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

(1983) (AGC); and Blue Shield of Virginia v. McCready, 457

U.S. 465 (1982).

AGC involved a boycott allegedly organized by

building contractors to coerce prospective developers to

use nonunion contractors instead of union contractors.

This Court acknowledged that both the developers and

the union contractors would have had standing to chal-

lenge the boycott because “their injuries would be

direct.” 459 U.S. at 541.%4

Thus, AGC established that those upon whom the

immediate pressure of a boycott falls (developers) agd

33 Regardless of their standing as insurance purchasers,

the state plaintiffs also have standing to seek injunctive relief

as common law parens patriae on behalf of their respective

citizens. Georgia v. Pennsylvania Railroad Co., 324 U.S. 439

(1944). Because citizens in each state have suffered antitrust

injury, even as defined by defendants in their standing peti-

tions, nothing in this Court's opinion in Cargill, Inc. v. Monfort

of Colorado, Inc., 479 U.S. 104 (1986), would limit the states’

parens authority in these cases. See California v. American Stores

Co., Inc., 495 U.S. 271 (1990).

34 However, the mere employees of these victims (or the

union which represents them, the plaintiff in AGC) would not

have standing.

their suppliers (union contractors) whose goods or ser-

vices have been diminished in value because of the boy

cott each have standing to recover antitrust damages

This principle is fully consistent with the Court's

prior decision in McCready. There, both the psychologists

who felt the immediate pressure of a boycott and the

patients who purchased the boycotted product, psycho-

logical services, had standing to sue. McCready, 457 U.S.

at 469 n.4, 478-81. In McCready, the patient was consid-

ered “the direct victim of unlawful coercion.” AGC, 459

U.S. at 540, n.44. Indeed, to the extent that there might be

a difference between suppliers to the direct boycott vic-

tim (the union contractors in AGC) and purchasers from

the direct boycott victim (the patient in McCready), the

courts have tended to favor the latter. See P. Areeda & H.

Hovenkamp, Antitrust Law 9 340.1d (1991 Supp.).

In the instant case the initial victims of the boycott

are non-defendant primary insurers who were coerced by

reinsurer and primary insurer defendants. Plaintiffs are

purchasers of the diminished insurance products sold by

the defendant primary insurers and their victims, com-

peting, non-defendant primary insurers. Plaintiffs, thus,

are in the same position as the patient in McCready and

are in an analogous position to the union contractors in

AGC.

B. This Case Does Not Challenge the Boundaries

of Standing Doctrine.

In AGC this Court established a multi-factor test for

standing.*> As to the claims for damages, each petition

35 The AGC factors are: the intent of the conspirators (459

U.S. at 537); the causal connection between the violation

alleged and harm claimed (id.); the nature of plaintiffs’ injury,

(Continued on following page)

advocates a different formulation of that test. Review is

not warranted, however, because plaintiffs have standing

under either formulation for both damages and injunctive

relief.36

The Winterthur petition argues that plaintiffs must

satisfy all of the AGC factors to have standing. The deci-

sion below correctly holds that plaintiffs satisfy each

factor for all claims. The court of appeals noted that the

“character-of-damages” factor as applied to the reinsurer-

only claims presented some problems of damage alloca-

tion tending against standing for these claims. However,

even as to that factor the court of appeals held that, on

balance, the factor “is in favor of standing.” 938 F.2d at

926, UA App. A20.

Furthermore, the global conspiracy claim?’ over-

comes any “character-of-damages” concerns. Under the

(Continued from previous page)

i.e., antitrust injury (id. at 538); the directness or indirectness of

the claimed injury in the chain of causation (id. at 540-541);

existence of a better class of plaintiffs (id. at 542); and whether

the damages claimed are either speculative in terms of causa-

tion or duplicative (id. at 542-545).

36 Cargill recognizes important differences between dam-

ages and injunctive remedies and holds that “some” AGC

factors “are not relevant under § 16,” i.e. factors addressing

multiple lawsuits and duplicative recoveries. Cargill, 479 U.S.

at 111 n.6.

37 The Unionamerica petition does not challenge plaintiffs’

standing under the global conspiracy claim, but misleadingly

refers to it as “dismissed.” UA Ptn. 6-7, n.6. The court of

appeals granted plaintiffs leave to amend that claim to cure

technical problems. See n.27, supra. The Winterthur petition

concedes the continued vitality of the claim, but apparently

contends that the Court should ignore direct purchases from

coconspirators and deny standing. Winterthur Ptn. 20 n.8.

global claim, the reinsurers are coconspirators of the

defendant primary insurers from which plaintiffs made

direct purchases. See Arizona v. Shamrock Foods, 729 F.2d

1208 (9th Cir.), cert. denied, 467 U.S. 1252 (1984); Fontana

Aviation v. Cessna Aircraft Co., 617 F.2d 478 (7th Cir. 1980).

When a plaintiff purchases directly from a named cocon-

spirator of an antitrust violator, none of the policy con-

cerns of Illinois Brick?® are implicated. P. Areeda & H.

Hovenkamp, Antitrust Law § 337.2e (1991 Supp.). Any

issues of duplicative liability and allocation can be

resolved because all potentially conflicting claimants are

joined in the litigation. In light of plaintiffs’ standing to

sue defendants under the global claim, a fragmented

review of the reinsurance-only claims would be prema-

ture and potentially futile.

The Unionamerica petition argues that “directness”

and “the nature of the injury” are separate and indepen-

dent limitations on standing. Because the court of appeals

correctly held that plaintiffs satisfied both requirements,

consideration of this question should await a case in

which one of the two elements, and, therefore, the out-

come of the case, is in doubt.

C. Plaintiffs Suffered Distinct Injuries.

Defendants’ suggestion that the damages sought by

the plaintiffs in these cases are either speculative or

duplicative is simply without merit. The speculativeness

referred to in AGC only relates to causation of injury and

not to its quantification. AGC, 459 U.S. at 542 (“the

38 Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).

alleged effects on the Union may have been produced by

independent factors”).

The danger of duplicative recoveries does not exist

here. This is not a passing-on case where there will be

“conflicting claims to a common fund,” id. at 544, that

might give rise to concerns similar to those in Illinois

Brick Co. v. Illinois, 431 U.S. 720 (1977). The boycotts in

these cases give rise to two types of injury that are

suffered by distinct and different classes of potential

plaintiffs. The plaintiffs currently before the Court were

injured by the product output restrictions and the over-

charges that flowed from the violation. The competing,

non-defendant primary insurers were injured by the

enforcement effects of defendants’ cartel. Each class of

potential plaintiffs suffered distinct and separable inju-

ries. Indeed, this Court’s decisions in both AGC and

McCready expressly recognized the separate standing of

different classes of plaintiffs for each of these types of

injuries.

No court has ever held that it would be duplicative to

allow standing for the victims of violations which also

cause actionable injury to defendants’ competitors. Such

a holding would limit standing to competitors in a wide

variety of cases. Such a holding would, for example, deny

standing to consumers who pay the overcharges imposed

by a monopolist that unlawfully excludes competitors

from the market.

Defendants have not offered this Court any princi-

pled basis for denying standing to the consumers of

cartellized insurance products in this case. Thus, they

have not provided any basis for review of the decision of

the court of appeals.

CONCLUSION

For the foregoing reasons, the petitions for writs of

certiorari should be denied.

DATED this 14th day of February, 1992

Respectfully submitted,

For the Plaintiff States:

J. JoserH CurRRAN, Jr.,

Attorney General

of the State of Maryland

Rosert N. McDona tp,

Assistant Attorney General

Chief, Antitrust Division

ELLEN S. Cooper

Assistant Attorney General

Deputy Chief, Antitrust Division

200 St. Paul Place, 19th Floor

Baltimore, Maryland 21202

Telephone: (410) 576-6470

James H. Evans,

Attorney General

of the State of Alabama

Marc GIVHAN

Chief, Antitrust Division

11 South Union Street

Montgomery, Alabama 36130

Telephone: (205) 242-7300

CuHares E. Cote,

Attorney General

of the State of Alaska

RON ZOBEL

Assistant Attorney General

Department of Law

1031 W. Fourth Avenue, Suite 200

Anchorage, Alaska 99501

Telephone: (907) 269-5100

GRANT Woops,

Attorney General

of the State of Arizona

SUZANNE M. DALLIMORE

Antitrust Unit Chief

Jer! K. AUTHER

Assistant Attorney General

Consumer Protection &

Antitrust Section

1275 West Washington

Phoenix, Arizona 85007

Telephone: (602) 542-3702

DanieL E. LUNGREN,

Attorney General

of the State of California

Roperick E. WALSTON,

Chief Assistant

Attorney General

SANFORD N. GRUSKIN

Assistant Attorney General

THOMAS GREENE,

Supervising Deputy

Attorney General

Administrative Liaison Counsel

for the States

KATHLEEN E. FOOTE

Jesse W. MARKHAM, Jr.

Deputy Attorneys General

455 Golden Gate Avenue,

Room 6200

San Francisco, California 94102

Telephone: (415) 703-2131

Gace A. Norton,

Attorney General

of the State of Colorado

James R. Lewis,

Assistant Attorney

General, Antitrust Unit

110 Sixteenth Street - 10th Floor

Denver, Colorado 80202

Telephone: (303) 620-4590

RICHARD BLUMENTHAL,

Attorney General

of the State of Connecticut

RosBert M. LANGER

WiLuiAM M. RuBENSTEIN

Assistant Attorneys General

110 Sherman Street

Hartford, Connecticut 06105

Telephone: (203) 566-5374

RICHARD T. IEYous,

Attorney General

of the State of Louisiana

JoserH ErwIN Kopsa

CLiFFTON O. BINGHAM

Assistant Attorneys General

Louisiana Department of Justice

P.O. Box 94095

Baton Rouge, Louisiana

70804-9095

Telephone: (504) 342-8495

Scott HARSHBARGER,

Attorney General

of the Commonwealth of

Massachusetts

GEORGE K. WEBER

Assistant Attorney General

Chief, Antitrust Division

THomas M. ALPERT

Assistant Attorney General

Antitrust Division

Public Advocacy Bureau

One Ashburton Place, Room 1902

Boston, Massachusetts 02108

Telephone: (617) 727-2200

FRANK J. KELLEY,

Attorney General

of the State of Michigan

Harry C. Iwasko, Jr.

FREDERICK H. HoIFFECKER

Rospert C. WARD, Jr.

Assistant Attorneys General

740 Law Building

525 W. Ottawa

Lansing, Michigan 48913

Telephone: (517) 373-7117

Husert H. Humpnrtry, III

Attorney General

of the State of Minnesota

THomas F. Purse,

Deputy Attorney General

Lisa TIEGEL,

Special Assistant

Attorney General

520 Lafayette Road

Suite 200

St. Paul, Minnesota 55155

Telephone: (612) 297-8753

Marc Racicor,

Attorney General

of the State of Montana

PAUL JOHNSON

Assistant Attorney General

Justice Building

215 North Sanders

Helena, Montana 59620-1401

Telephone: (406) 444-2026

Rosert J. Det Turo,

Attorney General

of the State of New Jersey

LAUREL A. PRICE

Deputy Attorney General

Division of Criminal Justice

Antitrust Section

25 Market Street - CN085

Trenton, New Jersey 08625

Telephone: (609) 984-5683

Ropert ABRAMS

Attorney General

of the State of New York

GEORGE SAMPSON

Chief, Antitrust Bureau

RicHARD L. SCHWARTZ

Assistant Attorney General

120 Broadway, Suite 2601

New York, New York 10271

Telephone: (212) 341-2277

Lee FISHER,

Attorney General

of the State of Ohio

DorrREEN C. JOHNSON

Marc B. BANDMAN

Assistant Attorneys General

65 East State Street, Suite 708

Columbus, Ohio 43266-0590

Telephone: (614) 466-4328

ErNest D. PREATE, Jr.

Attorney General of the

Commonwealth of Pennsylvania

THomas L. WELCH

Davip R. Wey

Deputy Attorneys General

1435 Strawberry Square

Harrisburg, Pennsylvania 17120

Telephone: (717) 787-4530

KENNETH O. EIKENBERRY

Attorney General of the

State of Washington

JOHN R. E us,

Deputy Attorney General

James M. BEAULAURIER

Tina E. Konno |

Assistant Attorneys General

Office of the Attorney General

900 Fourth Avenue

Suite 2000

Seattle, Washington 98164

Telephone: (206) 464-6432

Mario J. PaLumso,

Attorney General of the

State of West Virginia

Donatp L. Daruinc

Deputy Attorney General

DONNA S. QUESENBERRY

Senior Assistant Attorney

General

812 Quarrier Street, Sixth Floor

Charleston, West Virginia 25301

Telephone: (304) 348-8986

James E. Doyte,

Attorney General of the

State of Wisconsin

Kevin J. O’CoNNoR

Assistant Attorney General

Post Office Box 7857

Madison, Wisconsin 53707-7857

Telephone: (608) 266-8986

For the private plaintiffs:

H. Lappie Montacug, Esq.

ALAN M. SANDALS, Esa.

BERGER & MONTAGUE

1622 Locust Street

Philadelphia, Pennsylvania 19103

(215) 875-3000

Attorneys for

Henry L. Rosenfield

JERRY S. COHEN, Esq.

COHEN, Mitstein & HaAusre_p

1401 New York Avenue, N.W.

Suite 600

Washington, D.C. 20005

(202) 628-3500

Attorneys for Anastasios

Markos T/A Municipal Exxon and

Carlisle Day Care Center, Inc.

NicHotas E. Cuimictes, Esq.

KATHY MEARMANS, Esq.

GREENFIELD & CHIMICLES

One Haverford Center

361 Lancaster Avenue

Haverford, Pennsylvania 19041

(215) 641-8500

Attorneys for

Big D Building

Supply Corporation

Guipo Savert, Esq.

SAVERI & Saveri

111 Sutter St., Suite 2140

San Francisco, CA 94104

(415) 391-3000

Liaison Counsel

JONaTHAN W. Cuneo, Esq.

Law OFFICES OF

JONATHAN W. CuNEO

1300 I Street, N.W.

Suite 480-E

Washington, D.C. 20005

(202) 962-3860

Attorney for

Anastasios Markos T/A

Municipal Exxon

JEREMIAH F. HALtusey, Esq.

Hauuisey & JOHNSON

300 Montgomery St., Suite 538

San Francisco, CA 94104

(415) 433-5300

Attorneys for

Day Harbor Park Homeowner's

Association, Inc.

STANLEY Nemser, Esq.

Roy L. Jacoss, Esq.

Wotr, Poprrer, Ross,

Wo tr & JONES

845 Third Avenue

New York, N.Y. 10022

(212) 759-6400

Attorneys for

Ace Check Cashing, Inc.

HowarpD J. CRESKOFF

Law OFFICES OF

HowarpD J. CRESKOFF

200 Lippincott Building

227 South Sixth Street

Philadelphia, PA 19106

(215) 922-5056

JEFFREY KL Laster, Esq.

BERNSTEIN, Litow!Tz, BERCER &

GROSSMAN

1285 Avenue of the Americas

New York, NY 10019

(212) 554-1400

Attorneys for

Jerry Grant Chemical Associates, Inc.

ARNOLD LeEviIN, Esq.

Levin, FisHBEIN, SEDRAN &

BERMAN

320 Walnut Street

Suite 600

Philadelphia, PA 19106

(215) 592-1500

Attorneys for

Carlisle Day Care Center, Inc.

WarREN RuBin, Esq.

Gross & METZGER

1500 Walnut St.

4th Floor

Philadelphia, PA 19102

(215) 561-3600

Attorneys for

Acme Corrugated Box, Inc.

Rosert M. RoseMAN, Esq.

Mark S. GoLpMAN, Esq.

RUDOLPH, SEIDNER, GOLDSTEIN,

RocuHestig & SALMON

300 Lewis Tower Building

225 South 15th Street

Philadelphia, PA 19102

(215) 735-5858

Attorneys for

Bensalem Township Authority, et al.

Louis M. Tarasi, JR., Esq

Tarasi & JOHNSON

510 Third Avenue

Pittsburgh, PA 15219

(412) 391-7135

Attorneys for

Carmelia M. “Boots” Liberto Trading

as R. J. Liberto, Inc.

J. Dante Sacarin, Esq.

Hurwitz & SAGARIN

147 North Broad Street

P.O. Box 112

Milford, CT 06460-0112

(203) 877-6071

Attorneys for

Durawood, Inc.

Mark W. Gareney, Esq.

KAPLAN, KILSHEIMER & FoLey

122 East 42nd Street

New York, NY 10168

(212) 687-1980

Attorneys for

Environmental Aviation

Sciences, Inc.

CHarRies R. VAN De WALLE, Esq.

MArTIN, VAN De WALLE,

GUARINO & DONOHUE

17 Barstow Road

Room 206

Great Neck, NY 11021

(516) 482-6100

Attorneys for

Keyboard Communications, Inc.

LAWRENCE WALNER, Esq.

LAWRENCE WALNER & ASSOCIATES, INC.

321 North Clark Street

Suite 3150

Chicago, IL 60610

(312) 527-9494

Attorneys for

P & J] Casting Corp.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.