ST. PAUL FIRE & MARINE INS. CO. v. BARRY

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Argument of Sidney S. Rosdeitcher

Chief Justice Warren E. Burger: Well, we will hear arguments now in St. Paul Fire and Marine against Barry.

Mr. Rosdeitcher, you may proceed whenever you are ready.

Mr. Sidney S. Rosdeitcher: Mr. Chief Justice and may it please the Court.

This case raises for the first time, a question of interpretation of a central portion of the McCarran-Ferguson Act.

Specifically, under Section 2(b) of that Act, Congress withdrew the Sherman Act and other federal Anti-Trust laws from the business of insurance, if the states enacted regulatory legislation specifically provides that the Sherman Act and other Anti-Trust Law shall apply to the business of insurance to the extent not regulated by the states.

Under Section 3(b) of the Act, Congress provided an exception to this policy of deference to state regulation.

It provided that Federal Regulation under the Sherman Act would be reserved and would continue to apply in cases of boycott, coercion, or intimidation.

In this case, we contend that the First Circuit Court of Appeals interpreted that exception so expansively that it nullified the policy of Section 2(b) to withdraw the Sherman Act and the Anti-Trust laws in most cases from the business of insurance where the states enacted regulation.

This afternoon, I hope to demonstrate that the result reached by the first Circuit was unnecessary that it was not required by what the First Circuit believed was the plain meaning of the phrase “boycott, coercion, and intimidation.”

That the history of the Act and the use of those terms in this Court marked out a more reasonable boundary line which would have preserved and given meaning to both Section 3(b) and Section 2(b).

Before I turn to the specific facts of this case, I would like if you will, to give a very brief history which I think will put those facts and issues in this case in perspective. For more than a century, the regulation of the business of insurance and particularly the relationship between the policy holder and the insurance company was assumed to be and was totally within the hands of the states.

In 1944, this Court in South-Eastern Underwriters’ case held that at least one set of Federal Regulation would apply to the business of insurance namely the Sherman Act, and the federal Anti-Trust laws. In the following year, 1945, Congress reacted to that decision and it enacted the McCarran-Ferguson Act.

This Court has already said that the purpose of that statute was to place the force of federal law behind state regulation.

It specifically recognizes that it is in the public interest that state regulation of insurance be the policy in this country.

And finally, as this Court has said, the purpose of the statute was to turn back the clock in most part to where it stood prior to South-Easter Underwriters and placed the regulation of insurance and leave the regulation of the policyholder, insurance company relationship particularly in the hands of the states.

This case raises an issue about one portion of that congressional endeavor.

As I said, it relates to the decision of Congress to withdraw the Sherman Act from the business of insurance with an exception for boycotts, coercion, and intimidation.

The tension between those two provisions is presented starkly in this case and let me briefly recite the facts of this case.

The plaintiffs are two groups.

They purport to bring a Class Action on behalf of doctors in Rhode Island and patients of those doctors or future patients.

The doctors claim that they were insured by the St. Paul Fire and Marine and that for sometime they were getting an insurance policy whose terms they were satisfied with essentially.

A policy known as an occurrence basis policy which provides briefly that the claim will be paid by the insurance company for any event which occurred during the term of the policy whether or not the claim is made at a later time.

Sometime in April 1975, St. Paul announced to its insureds that it would not renew those policies on that basis but would renew only on a so-called claims-made basis which limited the liability of the company by providing that it would only pay for claims submitted during the term on claims which arose during the term of the policy.

Unknown Speaker: That was a substantial change, was it?

Mr. Sidney S. Rosdeitcher: That was a very substantial change.

Unknown Speaker: In fact, had it been used by the insurance industry before this time?

Mr. Sidney S. Rosdeitcher: I am not sure whether it had been used by the insurance industry before this time elsewhere; it had not been used by these companies at that time.

The doctor said they were dissatisfied with this policy and that they went to three other companies, my client Aetna, Hartford, and Travelers, and that those companies would not sell them any insurance.

They then filed this action.

Unknown Speaker: At all?

Mr. Sidney S. Rosdeitcher: They said they would not sell them any insurance at all, then filed this action under the Federal Anti-Trust Laws.

Now if I stop there, before getting to the question of boycott, I will go back to what I said as to why this case starkly raises the tension between Section 2(b) and 3(b).

To start with, this case plainly involves the business of insurance.

It is the very essence of the business of insurance.

The question is what kind of policies the companies are willing to sell.

At what terms, what policies would be issued?

Rhode Island regulated the business of insurance extensively.

Everybody accepted this but it is worth considering how they did regulate it.

They not only had a statute aimed at anti-competitive practice passed in direct response in McCarran Act, but at the very time, we had what looks like a race to see who can get there first.

Consider the events April 18, 1975; St. Paul makes its announcement.

Somewhere in between on specifying the complaint, these plaintiffs decide that there was some kind of conspiracy.

June 1, 1975, the first complaint in this action is filed.

June 16, 1975, Rhode Island commences the Joint Underwriting Association designed to takeover the business of insurance and deal with some of the very problems which are dealt with here, namely the so-called Medical Malpractice Insurance crisis.

So we have the spectacle of a Federal Court action on the one hand began directed at what they claim is a conspiracy as the cause of this crisis.

Chief Justice Warren E. Burger: I was wondering why you used the term crisis.

Is it because the cost of it becomes so prohibitive or because of other consequences?

Mr. Sidney S. Rosdeitcher: I call it a crisis first because the Rhode Island Administrator who issued the regulation shortly after the action began called it a crisis.

I think it was a crisis because there was difficulty and I think it is fairly well known although it is not in the record that there has been difficulty in obtaining Medical Malpractice Insurance that rates have gone very high, what the cause is for that are not the subject to this action.

In our view, what the causes were are matters to be determined by the State of Rhode Island and we think Rhode Island did --

Chief Justice Warren E. Burger: And then you were using the term crisis with respect to Rhode Island not on a national crisis or?

Mr. Sidney S. Rosdeitcher: I think if I may, I think there probably was at that time a national crisis.

There is a list of statutes in one of the amicus briefs that something like 37 states, I believe, have enacted similar type of Joint Underwriting Associations to deal with the problem of the availability and the cost of malpractice insurance.

So that to the extent that it is widespread, it is a national crisis whether everybody views it as such, I am not sure.

Unknown Speaker: Why is that policy change approved by the insurance commissioner of Rhode Island?

Mr. Sidney S. Rosdeitcher: All policy forms have to be approved whether this specific policy change was approved, I do not know.

Unknown Speaker: Are they approved with or without a hearing any sort of general notice to the public?

Mr. Sidney S. Rosdeitcher: My recollection is that they are filed for approval and that the hearings relate to rates whether the policy terms themselves are filed for approval with the commissioner.

Unknown Speaker: Following up on Justice Powell’s questions, supposing Rhode Island Insurance Agent or Commissioner, whatever the body is, had previously approved the two forms of policy, one on (Inaudible) basis and the other an occurrence basis policy, would there be any requirement of Rhode Island Law that the insurance company such as St. Paul must seek the approval of the commission if it discontinues the use of one of the two?

Mr. Sidney S. Rosdeitcher: I do not know that?

Unknown Speaker: So that could be done independently by the company’s own decision as far as the record tells us?

Mr. Sidney S. Rosdeitcher: As far as the record goes, that is all we know.

This was on the motion to dismiss the complaint.

Justice William H. Rehnquist: Does the record tell us anything about the practices of the Rhode Island Insurance Commission with respect to approval or disapproval of policy conditions that may be filed with it?

Mr. Sidney S. Rosdeitcher: No, it does not accept to the extent that it has the statutes and the regulations in it, but I might say, Justice Rehnquist that in our view the practices in Rhode Island, the way they enforce it, the effectiveness of the enforcement are not pertinent to the question which is raised by the McCarran-Ferguson Act.

Whether there is an effective method?

Whether the enforcement is vigorous or whether it is passive is really an issue which this Court has earlier decided in the national casualty cases, not a question appropriate for Federal Court to review in the McCarran Act Case.

Justice William H. Rehnquist: You say then that the State of Rhode Island under the McCarran-Ferguson Act could simply say we are going to have total free enterprise and insurance in Rhode Island.

And so there would be no need for state regulation and that would be sufficient to exempt it from the Anti-Trust Act?

Mr. Sidney S. Rosdeitcher: I am not sure whether if they simply said we are not going to pass any law and we will just have.

They could have done this and I think let me review what they did do.

They passed the statute which was directed at unfair methods and anti competitive methods of competition.

They defined certain of those methods including boycott, coercion, and intimidation which they outlawed and then they left to the commissioner the same kind of power that the Federal Trade Commission has to define anti-competitor practices as they go.

What I am saying is that that statute, that statute was enough as many cases upheld and as I believe this Court effectively held in the FTC v. National Casualty Case and I am saying that that statute reflects a Rhode Island Policy and reflects a kind of regulation which meets the requirements of Section 2(b) to trigger the exemption.

I had come to the point where I had pointed out that first, the business of insurance was plainly involved, the heart of it.

That Rhode Island extensively regulates in a variety of ways and I must say that the unfair practice of statute itself would have been enough regulation without more.

I added that this case is a stocker situation because Rhode Island had actually taken steps to focus on the problems of course, and availability of malpractice.

The First Circuit however held that these plaintiffs could maintain a suit because they had alleged a concerted refusal by the three companies to sell malpractice insurance to the dissatisfied policy holders of St. Paul, who when they could not get the occurrence basis policy from St. Paul sought coverage from the other three.

In so doing, the First Circuit rejected not only the District Court and the views of a dissenting judge there but a number of other decisions and other circuits which expressed this fear about that kind of interpretation.

But if you focus on just a consorted refusal to deal without more, then virtually any collaborative conduct among insurance companies could be styled and pleaded as a boycott, if the boycott meant a consorted refusal of deal and was equivalent with it.

Now, some other courts had look at South-Eastern Underwriters and Legislative History and it concluded that it was limited that that phrase “boycott, coercion, and intimidation” was limited at the type of conduct directed in involvement of South-Eastern Underwriters directed at insurance companies, at excluding insurance companies from the business at forcing them to behave in the way the conspiracy dictated.

They limited the provision to insurance agent, acts aimed suppressing or dictating the policies of insurance companies and insurance agents.

We do not say that that particular gloss is necessary.

What we do say is that the result which the First Circuit achieved here which was to define a boycott in a way which would virtually swallow up the rest of the 2(b) exemption need not have occurred and that the First Circuit was wrong when it concluded that it was compelled to reach this result by the plain meaning of the phrase “boycott, coercion, and intimidation.”

Now I start my statutory analysis where I think the government does and probably my opponents and most of the commentators and Judge McAllen in the DC Circuit in the recent proctor case.

And that is with South-Easter Underwriters because lo and behold, the phrase “boycott, coercion, and intimidation” appears in the South-Eastern Underwriters’ Case.

Now there, what happened was this and it is crucial to focus on the two types of conduct which South-Eastern Underwriters’ dealt with.

To start with, there was a price fixing conspiracy on fire insurance throughout the South-Eastern part of the United States and the Court called that price fixing.

In addition to the price fixing conspiracy, there was a conspiracy among the members of the South-Eastern Underwriters Association to force everyone to do business on their terms and that took two forms.

First, there was conduct which was specifically directed at other insurance companies and agents.

In the case of insurance companies, one of the principle ways was to refuse to reinsure their risk and this was vital and they withdrew re-insurance from any company which was unwilling to follow the price-fixing conspiracy.

In the case of the agent, they had something called the separation and they said to the agent, if you handle the product of a price-cutter, we are going to put you out of business because we are not going to sell you any insurance.

Another way, they dealt with this was they sold fire insurance and allied lines and they said to the consumer, “If you deal with one of these price-cutters on fire insurance, we are not going to sell you other products.

We are just going to not deal with you at all”.

In order to induce those policy holders not to deal with the price-cutters.

Now, we think that South-Eastern Underwriters itself demonstrates what the court, not only what the court but what Congress must have meant by boycott, coercion, and intimidation.

And I would like to draw a line, if I could on the one hand, you have the question of the policy of competition.

That is what the Sherman Act and the Anti- Trust laws are all about.

To enfoster competition between companies and if under the Sherman Act, that there were no McCarran Act, companies getting together and deciding they would not compete, will not sell insurance to their competitor’s policy holders would be a violation of Sherman Act.

Section 2(b) of the McCarran-Ferguson Act however says, the general question of whether a state should have a policy of competition or non-competition in insurance should be for the state.

If the state enacts regulation, dealing with that area then the state occupies the field and the Sherman Act is withdrawn.

Now, where is it that Congress, what did Congress reserve?

In the boycott section, it said one thing was different.

That is, it is one thing for people not to compete with one anther and for the state either by an authorizing law or by a little Sherman Act or a little FTC Act to pursue a policy of competition, non-competition, or a policy somewhere in between.

It is another thing for the private companies to take it into their own hands to say that those who do want to compete and are permitted to compete should be excluded from the business and that pressure should be applied to those who want to compete not to deal with those people in order to exclude those who wish to compete.

In short, a boycott, coercion, and intimidation, however you use those phrases whether separately or singly, is a kind of penal enforcement conduct aimed at regulating competition by excluding those who will want to compete.

And as I see the line, on one side, you have agreements between which the states either can prohibit or can apply the Rule of Reasonableness Test or outlaw per se just as under the Sherman Act or authorize.

And on the other hand, conduct which says we, the private industry will decide who does business and we will decide whether you can compete.

And that in our view, that pressure to prevent people who do want to compete from competing is boycott, coercion, and intimidation.

Justice Byron R. White: But what if one of the reasons that they are putting the pressure on is because some of the companies are doing business with certain kinds of customers?

That the boycotters or the pressure requires that they will think that should be served, that those rates say?

Mr. Sidney S. Rosdeitcher: I think there is this line to be drawn there, if the pressure is being applied to the customer because he deals with the price-cutter.

Justice Byron R. White: They are applying in both, here are five companies that get together and say “We do not like this six company doing business with that class of customer at those rates so we are going to boycott them both.”

Mr. Sidney S. Rosdeitcher: That is not what happened in this case.

Unknown Speaker: I did not.

Mr. Sidney S. Rosdeitcher: Your case is a boycott, Your Honor.

Justice Byron R. White: Well, do you think the customer would have a course of action?

Mr. Sidney S. Rosdeitcher: The customer might, that might be a question standing.

Justice Byron R. White: Well, a boycotted company and the customer both sue, can they both stand in court?

Mr. Sidney S. Rosdeitcher: I think that would raise a question of standing Your Honor.

I think in my Circuit, we would argue that consumer -- I am sorry.

Justice Byron R. White: My question is whether the McCarran Act bars the suit by the customer in that case, is it not?

Mr. Sidney S. Rosdeitcher: The McCarran Act would not bar the suit by the customer but that is a classic boycott because what you described is exactly what we believe a boycott is.

That is pressure applied to the customer not to deal with the price-cutter.

To put the fellow who does want to compete out of business.

To put the fellow who does not want to obey the price fixing conspiracy out of business.

And unless you draw from some such line, you nullify, you erase any distinction between what was left out in Section 2(b) and withdrawn from the Sherman Act and what is covered by the Boycott Section.

And what you described Justice White did not occur here.

That is not claim.

Unknown Speaker: May I ask you a question, I am a little puzzled. When you look at the language of 2(b), it only talks about not invalidating any state law or regulation and we do not know what the Rhode Island Law is, as I understand the record.

So, how do we know that without even reaching the boycott question, how do we know that 2(b) withdraws an agreement among three competitors not to sell the particular customer from the coverage of Sherman Act.

Mr. Sidney S. Rosdeitcher: Let me take that in two stages, Your Honor.

First problem is that 2(b) is divided into two parts.

You will notice that the first part is very different or somewhat different than the second part.

The first part talks generally and says, “Congress should not invalidate, impair, or supersede any state law.

Unknown Speaker: Correct.

Mr. Sidney S. Rosdeitcher: Two, then you have the proviso.

Unknown Speaker: Do you rely on that first part?

Mr. Sidney S. Rosdeitcher: No, we rely on the second part.

Unknown Speaker: The second part says that --

Mr. Sidney S. Rosdeitcher: We rely on both parts but specifically, on the second part which is different.

It is different and that it says that the Sherman Act shall apply to the extent the business of insurance is not regulated by that states or put directly that the Sherman Act shall not apply if the states regulate.

Unknown Speaker: Of course, it does not say the latter.

We say that it implies the latter.

Mr. Sidney S. Rosdeitcher: Well, I think you have to conclude that if you look at the structure of the statute how it came about, the initial Bill, that went to conference, did not have that provision in there.

It had the first half that I just repeat, invalidate and had the 3(b), what is now the 3(b) exception ahead of 3(a) moratorium.

Simply said, the Sherman Act quite not so will not apply at all.

That meant that if you just read it that way, that at the end of the moratorium period, you would have to have a statute which was invalidated in pair or superseded in order to be affected by the 2(b) provision.

But they stuck another provision here, the one I just read about the Anti-Trust laws which says that if the states regulate or sets it backwards but it does say, what happens at the end of the moratorium.

Now let us follow moratorium --

Unknown Speaker: At the end of the moratorium, the Sherman Act, -- Does it not say at the end of the moratorium, the Sherman Act shall apply to the extent that the business is not regulated by state law?

Mr. Sidney S. Rosdeitcher: Right.

Unknown Speaker: Now, is this alleged boycott, I know you do not like the word boycott for this but this refuse of the deal, is that regulated by state law?

Mr. Sidney S. Rosdeitcher: Yes, in this way and in a way accepted by this Court.

I will leave out all the other statutes, I have talked about.

The record is very clear that Rhode Island has an unfair practices statute which says specifically, we are passing this in response to McCarran Act.

We intend to regulate all competitive practices in the business of insurance.

And we provide among other things and say that, that boycotts are unlawful, coercion and intimidation is unlawful.

And then we give to the insurance commission, the power like the Federal Trade Commission to decide on a case by case basis what other practices should be struck down as unfair methods of competition.

Now, we know that price fixing under the Federal Trade Commission Act has long ago been considered as unlawful per se under the FTC Act.

We do not know what the policy is going to be on this specific case, if any.

In the case of the conduct alleged here, but that is precisely what the McCarran-Ferguson Act leaves to that state insurance commission.

He could decide a number of things. He could say this conduct is unlawful per se just like the Federal Law.

Well, if he does and he has done one of the things that he could have done in light of the fact that Congress left him with power to regulate.

He could also have said, “I do not accept Federal Law in this area.”

I am closer to the ground as one of the Courts has said about the reason for McCarran Act.

I know things better.

I understand this problem a lot better than the Federal Government does.

There may be some reasonable justification to this So, I am going to consider that.

That is his prerogative wherein they say it is outlaw.

Unknown Speaker: What if he says it is not an unfair practice within the meaning of the Rhode Island Statute , then what happens?

Mr. Sidney S. Rosdeitcher: Then he has accepted the justification --

Unknown Speaker: Is it regulating or not regulating?

Mr. Sidney S. Rosdeitcher: He is regulating because that was the precise issue Your Honor raised in FTC v. National Casualty.

Let me go back to that case because it has great application here.

In FTC v. National Casualty, the question whether certain advertising practices of insurance company were regulated by the Federal Trade Commission Act.

This Court said that because the state had a law which prohibits unfair and deceptive practices that that law asks the federal jurisdiction altogether.

This Court did not say that the Local Administrator had to conclude like the FTC that it was deceptive.

In fact, one of the premises of the briefs before the Court was that was precisely where the conflict could arise because the State Administrator could decide “I do not think this is deceptive.

In my knowledge of the insurance business, this is not deceptive.”

And I say here, the state should be free and I think that was precisely the intent to Section 2(b) to leave under this regulatory law, the power to the state to decide should this agreement alleged in this complaint, should that conduct be deemed anti-competitive.

In fact, Rhode Island took a different course here.

Rhode Island did not look to hobgoblins of conspiracies.

Instead it said, there is a real problem here, we are going to deal with it with a Joint Underwriting Association, a method used by other states in other areas.

So, we think there is regulation.

It is in the record.

I am sorry I misspoke myself about the question of policy approvals earlier.

I think the line that we are tying to draw here between boycotts on the one hand, enforcement activity designed to pressure other people to stop competing and policies of competition on the other side is not only confirmed by South-Eastern Underwriters.

It is equally confirmed by other hazes in this Court.

Judge Coffin was persuaded that his result was compelled by the plain meaning of the statute.

The plain meaning first of all of boycott, coercion, intimidation is not all that plain, in our view.

But we went back and looked at the boycott cases.

Not only at South-Eastern Underwriters where the conduct was entirely different than what is alleged here but at Fashion Originators’ Guild, at Eastern Retail Lumber and so forth.

And each of those cases, you find the same common thread. You find conspirators getting together to try to dictate the terms on which someone will compete and to force out of business, those who will not listen to the conspiracy’s terms dictated by the conspirators.

Unknown Speaker: Does Broadway Hale against Klor’s fit into that category you think?

Mr. Sidney S. Rosdeitcher: Broadway Hale fits into what was our second which are a second part of the definition to exclude them all together.

That is where competitors get together to either refuse the deal entirely or refuse deal in part in order to exclude one of the competitors of one of the conspirators from the business entirely regardless of what it does and Broadway Hale was exactly that case.

And again that case is not involved here.

I could suppose and there are cases and this is what helped us change and modify our view a little bit, was in considering the Proctor Case or in considering the Ballard Case where if were alleged that the doctors got together and said let us finish all of these class of doctors over here.

Let us induce the insurance companies not to give them any insurance.

That that would be a boycott in my view under the standard not court cases.

Unknown Speaker: That the doctors got together you said?

Mr. Sidney S. Rosdeitcher: Let us suppose, I am just raising a hypothetical that a bunch of doctors in providence who did not like these group of doctors said let us not knock this fellows out of competition. And what we will do is we will go to the insurance companies and induce them not to do business with this group of doctors so that we can put them out of business, that would be a boycott.

In my view, that would be force that was forced.

Chief Justice Warren E. Burger: By putting them out of business, you mean refusing the right issue malpractice insurance.

Mr. Sidney S. Rosdeitcher: Refusing the right to malpractice insurance for the purpose of putting them out of business.

Unknown Speaker: Your hypothesis is that the first group of doctors would says, “We will not buy your malpractice insurance, unless you refuse to sell malpractice insurance to the other group of doctors.”

Mr. Sidney S. Rosdeitcher: That was a General Motors Case.

That would be one hypothesis that would be one form of a boycott.

Unknown Speaker: Well, how was your particular hypothesis that you were just advancing?

Mr. Sidney S. Rosdeitcher: I actually did not put that little extra touch on the doctors themselves.

If the doctors were able to persuade whether through withholding their own custom or simply out of their persuasive power to go with an implied threat that they might not deal with these companies and said to the companies, do not deal with them because we want to put them out of business.

That would be a boycott.

That would be Klors, that would be United States against General Motors.

Finally, I would like to make one last point.

I would like to return to the point I started.

I am meeting into my rebuttal time but I think I will do that, if the court pleases.

And that is back where I started from to the policy of the Act.

I think this Act does have a relatively clear purpose and that is to have the Federal Power defer in the area of regulation of the insurance business and where the states have regulated to put policies of competition in the hands of the states.

In this case, I think the decision of the First Circuit nullifies that purpose because as I said earlier the key area of regulation left to the states was the relationship between the insurance company and the policyholder and matters affecting the terms, rates, and availability of coverage to the policyholder.

That is exactly what is involved here.

I think that Judge Coffin’s decision although we do not have to show an actual conflict in the state regulatory policy and the Sherman Act in order to trigger the 2(b) exemption.

I think there is a conflict and there is an area of conflict involved here.

And that area is this, first questions of conspiracy always questions a fact and different fact finders can view those facts differently depending on what they understand to be the underlying conditions.

Rhode Island could very well come to a very different factual conclusion from viewing all the facts in any case under its unfair methods of competition law or in deciding whether to use that law or employ a Joint Underwriting Association.

So there could be inconsistent conclusions of fact as to what the causes of the medical malpractice problems here were.

There could be different conclusions as to what standard of law should apply whether you should apply the per se rule which applies to agreements not to compete under the Federal Anti-Trust Laws or whether you should apply some Rule of Reason Test.

Perhaps there was some justification.

Perhaps some things were so bad that the insurance commissions say well this is not so bad if these guys said, “Look, let us stop selling this policy, it is going to drive us all insolvent and no one will have any malpractice insurance.”

I think there are other areas where the decision of the First Circuit threatens, accepted insurance practices.

That is not crucial to my position but I think it is true.

The respondents have said, that if you have a Joint Insurance, like the JUA and if you take canter to the one side, and the First Circuit’s decision to the other, what you have to conclude is that in every case of refusal of coverage under the JUA, is possible to commence a Federal Anti-Trust suit and claim that that is a consorted refusal by the members of the JUA to deal with that policyholder.

It may be wrong.

They say apply a Rule of Reason but that will not save it.

That will not save at all.

That will not save the policy of the Act.

Because the question of reasonableness is precisely the question which was left to the State Insurance Department.

For all of those reasons, the reasons of policy, for reasons of making this statute meaningful and work, we suggest that the line we propose should be drawn and that the boycott, coercion, intimidation should be limited to what was involved in South-Eastern Underwriters and other boycott cases, namely pressure by competitors to prevent other people from engaging in a policy of competition.

Thank you.

Chief Justice Warren E. Burger: Mr. Decof.

Argument of Leonard Decof

Mr. Leonard Decof: Mr. Chief Justice and May it please the Court.

At the outset, this case seems to revolve about a very finite and very limited issue that is the construction of Section 3(b) of McCarran-Ferguson Act.

But as it evolved, the position of the petitioners shifted from one point to another.

And I say this not in a pejorative way but I think to give the context and the history of the case to the Court and to illustrate the weakness of the various positions that the petitioners have retreated to, it would cast some light on the witness of their present position.

First, the case was brought in the District Court of Rhode Island and the case was dismissed upon petitioner’s motion based on the so-called black listing limitation which petitioner’s described to 3(b) of McCarran-Ferguson.

And in the Circuit Court of Appeals, the very same limitation was urged.

Now, petitioner’s pointed to one thing in the congressional record, in the Legislative History to support their argument for blacklisting and that was a statement of Congressman seller which merely cited blacklisting as an example, when he said for example, will 3(b) prevent blacklisting?

But at least at that point, petitioners were pointing to something in the Legislative History which could support their position.

At the present stage, since Proctor and by the way there have been a number of cases which have taken the same position as Proctor, I think their case is now in the First, Second, Third, Fourth Circuits.

Part of the Fifth Circuit in the Battle Case and the DC Circuit which is Proctor.

They now take the position that well, we do not ask that the limitation of 3(b) be narrowed to blacklisting but we say it should be narrowed to include all traders.

In implicit in their argument, May it please the court, is that it must exclude consumers.

Now, petitioners in the replied brief on page three, state in the second paragraph, “the only issue here now is to draw the line between boycotts and other combinations and conspiracies in restrain of trade covered by the Sherman Act, so as to give meaning to the expressed exemption of 2(b) of the McCarran-Ferguson Act.”

Petitioners are now asking this Court to go outside 3(b), outside McCarran-Ferguson and give a definition of a boycott under the Sherman Act.

The Sherman Act itself which will fit into their description and thereby exclude petitioners.

And they set forth this proposed definition in the alternative.

The first prong of their definition, I think --

Unknown Speaker: Did you challenge the legitimacy of their suggesting that the word boycott be given interpretation on view of the McCarran-Ferguson language?

Mr. Leonard Decof: Yes, Your Honor.

We challenge this from the very outset.

When the action was brought in the District Court, the petitioner’s then defendants move to dismiss on the grounds of McCarran-Ferguson.

We replied, plaintiffs replied that there was boycott, coercion, and intimidation alleged and therefore we came within the 3(b) exclusion.

Petitioners, then defendants rejoined by stating that yes but that was limited to blacklisting under McCarran-Ferguson.

Unknown Speaker: But does an issue join then on the meaning of the word boycott in 3(b)?

Mr. Leonard Decof: Issue at that time was joined on the meaning of the word boycott in 3(b) and that issue was argued before the First Circuit.

Unknown Speaker: Well, are we arguing here now?

Mr. Leonard Decof: Well, if the Court please, our position is that the petitioners have shifted from this because of the state, originally their argument was bottomed on the assertion that boycott under 3(b) had a different meaning than boycott under the Sherman Act.

Now, they state in their reply brief that the problem here is to define the limits of boycott under the Sherman Act.

So, that the deduction there is that leads us to the conclusion, they now agree that boycott under the Sherman Act is the same as boycott under 3(b).

If they come to that position, then they must take the position that Congress in enacting 3(b) meant to do something which was not just an illusion and did not mean to give with one hand and take away by the other.

Unknown Speaker: But then you both get down to the question of the meaning at least in part of the meaning of the word boycott in 3(b).

Mr. Leonard Decof: Yes, Your Honor.

We do get down to the question of the meaning of the word 'boycott' in 3(b) but which is now, I believe by petitioner’s position correlated to the meaning of boycott under Sherman, and I think the position before this court is that the meaning of boycott is limited.

But it is limited not because of 3(b) but because of its meaning under Sherman should be limited.

Unknown Speaker: What is your position?

Mr. Leonard Decof: Our position of the Court please is that if you apply, --first of all, our first position is that even under the definition that petitioners propose, the respondents here have standing and fall within that definition within the second form of their definition. Our second position is that the definition is unduly restrictive and unduly limiting because by its very nature, it excludes all consumers as victims of boycott.

It injects into the definition of boycott intent which this court has said on many, many occasions is not a consideration in the definition of boycott.

The court has said that the effect is a consideration but that the intent is immaterial.

They have said this in Silver.

They have said it in Frankfort Distilleries and many other cases if the court please.

So, we take the position first that the simple answer to their proposed definition is we do not fall within or outside the limitations.

The first prong of their definition is that there must be a competitor of the victim as one of the conspirators.

As I stated it was couched in the alternative

In the second prong they state that the boycott must be an act which is directed to control the competitive activities of the victim.

Now, the act we fit within the second definition, if the court please, because the act of boycott in this case controlled the commercial activities of the victims that is the doctors and I think since the petitioners have raised the question of the Joint Underwriting Authority, I must put that into context as background to get into this.

This was not a raise if the court please.

There was a medical malpractice crisis in the State of Rhode Island.

But the crisis was ignited by this situation where almost half the doctors, more than half the doctors in the State of Rhode Island were insured by St. Paul.

Most of their policies were going to expire on June 30, 1975.

In April, St. Paul announced that their policies would not be renewed except on a claims-made basis.

And I must touch on the nature of the claims-made policy to illustrate what this meant.

The claims-made policy would ensure the doctor only in the year in which the policy was in effect and if the doctor had been insured by the same company in the year in which the occurrence took place.

Now the doctor’s position was that these locked them in for life with the company because once the first claims-made policy was issued, the doctors must stay with that company.

If they decided for example, to change jurisdictions and move to a state in which for example St. Paul did not sell Medical Malpractice Insurance, they would have to have double coverage for this reason.

Since the claims-made policy insured them only for one year over the time, if they should retire, or if they should die, or if they should leave the company, they would have to buy coverage for any actions which might be brought against them in later years.

Whether because, the statute had not expired, whether because there was a discoverability type action for whatever reason.

And this coverage could be afforded to them by means of a so-called three reporting endorsements.

They had to be bought in three installments.

And so, if a doctor wanted to leave the jurisdiction of Rhode Island, once he had assigned up with St. Paul on a claims-made basis, he would have to buy three reporting endorsements which would cover him for any actions that were brought after the year in which he left because he had been insured in the base year.

Now, if he went to another state, he would have to have double coverage.

And the cost of these reporting endorsements would have come to about a 150%.

And so the pernicious features of this plan and it was an ingenious plan, was that the doctor was locked in, he could not leave the state, he could not retire from the practice.

If he died, his wife or his heirs would have 30 days to decide whether or not they would buy the reporting endorsements which would cover actions which were brought afterward.

Unknown Speaker: But what if all the malpractice insurers in that country had jointly announced the same policy that St. Paul announced, would that not have precisely the same effect on the doctor?

Mr. Leonard Decof: If the court please, I will respond to that although we are not in that situation here.

I think in that situation, this Court or the Federal Court would have the right to look at factual situation to see if it did in fact constitute a boycott, in the first instance.

Now, the defendant’s position is that this Court should be frozen to the definition of boycott which had been established in previous cases because of the fact situations in those cases.

In many instances, the court has looked to the facts.

In the first instance, the Court applied the Rule of Reason, though it decided originally in Northern Pacific Railway Case that if the activity was pernicious and had no redeeming virtues, it was a boycott.

Now, we cannot say, now, I do not think the court would be willing to say now, no but everything outside those circumscribed fact situations is not a boycott.

And the situation, Your Honor proposes, it would be a fact situation on which the Court could decide whether or not this was a boycott and if it was a boycott, then it came within the protection of 3(b) of the McCarran-Ferguson Act.

But we are not at that question at the moment.

My definition of a boycott if the Court cares to hear, I do not think the Court has to go this far.

We are saying that what happened here was a classic boycott. It was a denial of 75 percent of the insurance market to the doctors.

And we are saying that we fit within the second category of the petitioner’s definition because we are traders.

In our society, the doctors cannot practice their profession without Medical Malpractice Insurance.

This is the same to them as buying a scalpel or stethoscope.

And this is what propelled Rhode Island into the medical malpractice crisis.

The JUA was formed as a result of this set of facts.

It was not something that was boiling in the pot while this action was taking place.

The JUA resulted from this set of facts and the JUA is a creature of emergency.

It was promulgated by the Director of Business Regulation of the State of Rhode Island, because the situation was that the doctors had asked the State to put in freezing legislation so that the matter could be looked into and the insurance companies have threatened to pull out of the State of Rhode Island if the freezing legislation was put in and so the JUA which is really inimical to the idea of free enterprise because the way the JUA was set up.

All companies in the State of Rhode Island had to belong to a risk pool and this was a condition of their doing business in the state.

The fact of the matter was the companies both surfacely complained about the JUA.

They rebelled against it.

And it is an emergency type of legislation, a police state type of thing.

The State of Rhode Island certainly does not want to be in the insurance business.

And this is not the kind of thing that should happen. Or if the balance were restored, there would not be any for JUA.

But again, the simple answer to the question of the JUA is it is immaterial here because when this action was brought, there was no JUA.

Unknown Speaker: One point you emphasized, or seemed to emphasized leads me to ask you, what states in the country are there in which the St. Paul company does not do business?

Mr. Leonard Decof: There are a number of states in the country if the Court pleases to my knowledge in which the St. Paul does not do business.

There are only four companies in the State of Rhode Island which sell Medical Malpractice Insurance.

Throughout the United States, again there is something that never has been gotten into, I think because of McCarran-Ferguson, there seems to be a territorial allocation in which certain companies deal in certain states.

In my opinion and I am very familiar with the malpractice seen in the State of Rhode Island, I was on the Governor’s Commission which ended up enacting the new legislation.

The claims experienced in State of Rhode Island to my knowledge has been an excellent one and I wonder why have there not been other companies beside these four petitioners but my answer to you on this question Sir, is that there are a number of jurisdictions in the United States where St. Paul does not sell Medical Malpractice Insurance.

By the same token, companies like Argonaut which deal heavily in Malpractice Insurance are not in the State of Rhode Island.

Now, we say if the Court please that the definition of boycott even if you limit it is a conceited refusal to deal which has that as its effect a restrain on commerce or restrain on trade.

Purpose has been counted immaterial as I stated before in many cases by this Court.

And the effect of this boycott, the only boycott before this Court is where the companies refused absolutely to sell insurance of any kind to the doctors who were insured by St. Paul.

A classic boycott and the only way that this could be remove from that definition is to say a consumer cannot be the victim of a boycott.

This leads us to the anomalous conclusion that a consumer who is protected under the Sherman Act, this is square one law and the petitioners concede this, maybe protected against an act which harms him by virtue of an indirect boycott but cannot be protected from the identical harm when it is aimed directly at him.

Chief Justice, using the appellation case stated that the Sherman Act deals in substance and we are here dealing with substance.

And this is why I am urging to this Court that we have a very great issue here.

Petitioners are asking that the Court examine boycott, the definition of boycott, and pronounce a definition which will exclude consumers from its protection either because they are not competitors of the boycotter or because they are not engaged in some competing business with the boycotter.

Unknown Speaker: And the answer to that question turns on the meaning of boycott as used on the McCarran-Ferguson Act is it not?

Mr. Leonard Decof: Yes, Your Honor but the legislators in adapting the McCarran-Ferguson Act, we submit intended boycott to have the same meaning that it had in the Sherman Act.

We answer the emasculation argument this way.

First of all to petitioner’s contention that almost anything could be defined in terms of a boycott, the Court many times has distinguished between the Act or Agreement for example, price fixing and the consorted activity to carry it out.

There are many proscribe actions on the Sherman which are not boycotts.

For example, a conspiracy to crash a competitor, this could be carried out without a boycott in any number of ways by stealing trade secrets, by stealing employees, by false advertising, and so forth.

Tying agreements need not be enforced by a boycott.

The entire Section 2 on monopolies that is not boycott, so, even if you gave the fullest range to the meaning of boycott under McCarran-Ferguson and therefore insured the protection that Sherman guaranteed to the public, there is still a vast area of installation for the insurance companies reserved by McCarran-Ferguson.

Beside this, McCarran-Ferguson insulated the insurance companies against any actions brought under the other Anti-Trust act, the Clayton Act, the Federal Trade Commission Act, the Robinson-Patman Act.

This again is a vast area of protection.

Finally, the insurance companies were insulated by McCarran-Ferguson against any action brought by any other federal under any other Federal legislation that did not relate directly to insurance.

And so, with reference to the emasculation argument, I believe it is an artificial argument.

There is a great area of protection still reserved to the insurance companies.

With reference to the definition of boycott, if we put that aside, there have been allegations of coercion and intimidation here.

And the legislators made a claim that boycott, coercion, and intimidation were not the same things.

As a matter of fact Senator O’Mahoney said, “We are talking about six things here that the state does not have power to regulate, boycott, coercion, intimidation, or the agreement to do any of these things.

So, that again is an issue that transcends the issue of the boycott.

Now, petitioners have relied greatly and spent a great deal of their time in their briefs and in their arguments on the question of whether or not this is state regulation and whether or not we have an area of state regulation.

We do not deny this and never have.

Respondents’ position is not that State of Rhode Island is not engaged in the regulation of insurance.

However, the fact that they are engaged and the regulation of insurance do not permit them to authorize acts of boycott, coercion, and intimidation.

This has been specifically carved out of that protection and this Court has not been reluctant to look at McCarran-Ferguson cases and for example in the SCC versus Variable Annuities, the Court determined what the scope of insurance was.

There was no question there was regulation of insurance but in that case, the Court determined a variable annuity policy was not within the scope of the business of insurance in FTC versus Travelers.

The Court determined the scope of state regulation.

And again, in that situation the question was whether or not the Travelers are selling these policies outside of state by mail although it had an act which purported to regulate these things, what was the extent and what was the limit of that regulation?

In a most important case, the Frankfort Distillery Case was not a McCarran Case but it was a Miller-Tydings Act case.

In the Frankfort Distillery Case, the State of Colorado had a Fair Trade Practices Act which allowed the fixing of prices.

And the Miller-Tydings Act gave them the right to do this so they were regulating in this area.

There was a boycott involved in enforcing, fixing of prices and the state said that even though they are permitted by the provisions of Miller-Tydings to fix prices and even though they are permitted by the 21st Amendment to do this that still in all that did not permit them to engage in activities of boycott, coercion, or intimidation which would be beyond the scrutiny of the Federal Courts.

Again, the third case, I wanted to cite with reference to McCarran-Ferguson was SEC v. National Securities in which the Court determined what was an insurance policy and this was a case in which there was a prosecution by the SEC against the defendant company for misstatements and misrepresentations made to stockholders of a company which it was going to merge with.

And there was a law that the Director of Insurance in the state had to approve any merges.

Now, the SEC first brought an action for injunction and this was denied because the insurance -- it was held to be insurance and regulated by the state and the merger went through and the SEC then brought an action to unwind the merger.

And this Court said even though it was the Insurance Director’s obligation to approve the merger and even though he did approve the merger, he did not say to these people, you must merge, all he said was you can and I find it to be adequate.

But the Court held also that this could be reviewed and that McCarran-Ferguson did not insulate the state from the action.

Now, this case is not even a strong on its fact as the Barry Case because in the SEC v. National Securities case, the state had passed legislation authorizing and directing the Director of Insurance to approve such a merger and he had acted and had done it.

In the Barry case, there has never been any action by the State of Rhode Island to authorize the Act here and as a matter of fact, I believe that petitioner’s will concede this, there could not be if the State of Rhode Island did say we authorize boycott, coercion, or intimidation to enforce this price fixing, this will be a nullity.

Unknown Speaker: Mr Decof, of course the problem is what is a boycott?

In your view, under the statute, if four companies got together and agreed on a territorial allocation, each took a quarter of the state and each agreed not to sell on the other three quarters, would that be a boycott?

Mr. Leonard Decof: If the Court please, my position would be and I hope that it is not a quibbling one that this would present a new set of facts which should be looked at to see whether or not they are so open issues and so without redeeming virtues that they would be a boycott.

I do not if this court is ready --

Unknown Speaker: Well, it would be clearly without sufficient redeeming virtues to avoid a violation of the Sherman Act if you did not have the McCarran.

Mr. Leonard Decof: I understand Your Honor.

Unknown Speaker: It will be firstly a violation if we use those terms.

But how do we decide whether it is a boycott or not?

Mr. Leonard Decof: In my opinion, if the Court please, I say in this case you do not have to but if the Court wants to circumscribe or define the limits of boycott, I would say a boycott would be a considerable refusal to deal which deprives the victim of the freedom of choice in a market.

Unknown Speaker: Well, then my example would be a boycott.

Mr. Leonard Decof: Yes, Your Honor.

Again, the Court does not have to go to these extremes.

Unknown Speaker: We are not pretty close because I assume your allegation is the three companies agreed not to sell the former customers to St Paul.

Mr. Leonard Decof: Exactly.

Unknown Speaker: Is that not the same as an agreement not to sell to people outside the geographical territory, the same kind of agreement?

Mr. Leonard Decof: Yes, I have in mind if the Court please, the Shuen Case and its subsequent overruling by GTE Sylvania where we had vertical territorial allocations and the Court in the GTE Sylvania said we will apply a Rule of Reason.

The Court said at the same time, we are not saying that a vertical restriction cannot be a per se violation.

We will apply Rule of Reason.

And I would not take issue with applying the Rule of Reason.

I would say in this case, a Rule of Reason could be applied.

There have been some Lower Court cases like Mackey versus the NFL, in which the Court held that the Rozelle Rule was a boycott but applied a Rule of Reason.

I only say that this Court has not yet taken that step and I can understand the Court’s reason for the per se rule.

I think there are excellent reasons for it to have a bright line so that business and the Court can conduct themselves by some standing in an area that is at best very murky but I do on take the position that we have to rigidly freeze a definition into which all sets of facts which come here after must fit or must be rejected if not a boycott.

And it may be that the Rule of Reason would be the answer in the case such as Your Honors.

I know the Court after Shuen was very much bothered because in the White Motors Case, the Court had said that, “We are unfamiliar with this area; we have to know a lot more about it before we decide.”

Unknown Speaker: You are really discussing the question whether at Per Se or Rule of Reason approach applies.

But that is not the problem.

The problem is whether it is a boycott or not which is I supposed a species of the Per Se Violations.

Mr. Leonard Decof: Well, if the Court please, the Per Se Violation and the Rule of Reason get us into a circular argument and semantics, which I noticed earlier in the research in this case.

At some time, the Court applies a rule of reason to describe what a boycott was, that was at level one.

Maybe, now only certain things are boycott and we get into an exercise as to whether something is a boycott and you may undo the pernicious nature of it by applying a rule of reason at the second step.

Well, whether or not you say something when you determine that something is a boycott, the Court in the first instance apply the Rule of Reason and said because of these facts, we have a boycott.

To me, it is immaterial that which step you apply, the Rule of Reason or what I am saying is that we maybe, because of changing times launched into a situation where a set of facts occurs and this is as good an example.

I think this is a new creature, this claims-made policy an ingenious device.

A set of fact occurs which was not anticipated originally.

And then I say maybe the Court is in the position without abandoning the Per Se Rule of saying we are back where we were when we decided fact situation A, B, and C was a boycott but this is new fact situation so let us look at it, see if it has any redeeming virtues, see what the pernicious effect is, and in accordance with Northern Pacific decide whether this is a boycott.

I see my time has expired.

I thank Your Honors.

Chief Justice Warren E. Burger: Very well.

Chief Justice Warren E. Burger: Mr. Friedman.

Argument of Daniel M. Friedman

Mr. Daniel M. Friedman: Mr. Chief Justice, May it please the Court.

The government’s position in this case is that a boycott under Section 3(b) of McCarran-Ferguson means a consorted refusal to deal when people get together and refuse to deal with someone.

A situation which means that the victim of the boycott finds himself excluded from the section of the market which is represented by the people who are combining in this endeavor to exclude him.

And that is we think precisely what is alleged in this case.

The charge in this case is that the three insurance companies other than St. Paul even refused to entertain applications for insurance from any of the doctors, hospitals, and other medical personnel whom St. Paul represented.T

his is not a charge that the insurance companies refuse to deal with these customers except on particular terms and conditions.

Unknown Speaker: Would that be a boycott?

Mr. Daniel M. Friedman: We would think probably not Mr. Justice.

I think it would have to vary from case to case.

It would depend on what it was.

It is possible of course with the particular terms and condition were so unreasonable that is a practical data, it constituted a refusal to deal.

Unknown Speaker: Well, from the plaintiff’s point of view, if it were unreasonable in his view, he would have not sued.

Mr. Daniel M. Friedman: Well, I mean unreasonable.

Unknown Speaker: So, from his point of view, it would be a boycott, would it not, they refuse to deal but may accept on these conditions; I think they are boycotting me from dealing with them on any reasonable basis.

Mr. Daniel M. Friedman: I do not think that is how this Court has treated boycott and its decisions under the Anti-Trust laws and this of course is one of the main points that petitioners make here.

They say the problem with defining boycott as the respondents and the government defines it, is that everything virtually that involves joint action can be framed as a boycott, and that is we think that is not how we think boycott has been defined.

They give their precise example, they said well, an agreement to fix prices could be phrased as an agreement not to sell except upon those prices and therefore you could describe this as a boycott and if that is what boycott means, it has its open-ended meaning.

It would come close to swallowing up the entire McCarran-Ferguson Act provision giving the states broad discretion to regulate insurance.

That is not what we think boycott means and that is not how we think this Court has defined it.

Unknown Speaker: Mr. Friedman, if I could just interrupt for a second.

Under your definition as I understand it, the three out of the four are refusing to deal on any terms at all and therefore their participants in the boycott.

Mr. Daniel M. Friedman: Yes.

Unknown Speaker: But if we assume that the claims only offered by St. Paul was a reasonable way of doing business, St. Paul should be entitled to the exemption, should it not?

Mr. Daniel M. Friedman: Well, except that St. Paul may have been a party to the illegal understanding that the other three would not.

But I would think St. Paul’s -- I would be put it this way.

I would think that St. Paul is standing alone.

Its refusal to sell except on a claims-made basis, I would not think that standing alone is a boycott.

Unknown Speaker: Well, Mr. Friedman does the boycott not imply group action?

Mr. Daniel M. Friedman: Yes, that is the essence.

Unknown Speaker: I mean an individual cannot engage in a boycott, no matter what he does.

He may engage in very illegal action but it is not a boycott unless they are two or more, is that not right?

Mr. Daniel M. Friedman: That is right.

They consorted out that is why I try to suggest that you may have a boycott, St. Paul may be participating in the illegal boycott with the other three.

Unknown Speaker: Well, but does that even hold water because the four of them have agreed that only St. Paul will sell to them on this set of terms.

So, the four of them have not agreed to a total refusal to sell at this point.

Mr. Daniel M. Friedman: But the four of them have agreed that the three will refuse to sell at all.

Unknown Speaker: But if your definition requires a total refusal, the group has not made such a total refusal.

Mr. Daniel M. Friedman: I suggested that it requires a refusal on the part of the people to allow the customers into that segment of the market.

In other words the illegal restraint is that they have refused to permit the doctor’s access to the portion of the Medical Malpractice Insurance market represented by the other three which is something like 40 or 50 percent of the Rhode Island market.

That is the essence, Your Honor

Unknown Speaker: Why is that any difference than saying we will refuse to let them deal with any portion of the market that is willing to sell at less than a dollar or thousand or whatever the premium rate is?

Mr. Daniel M. Friedman: Because I think traditionally, the concept of boycott has been used by this Court in the end Anti-Trust field to deal with a situation where a group of competitors get together --

Unknown Speaker: And all of them refuse to sell?

Mr. Daniel M. Friedman: All of those who get together --

Unknown Speaker: But today, you got one willing to sell.

Mr. Daniel M. Friedman: The one who was willing to sell is not boycotting but the one, nevertheless, may participate in the understanding.

But as far as this case is concerned, the charge in this case and the only question at this point, I stress is whether or not the respondents should be permitted to go to trial on their claim.

The charge in this case is that the three companies other than St. Paul refuse to deal on any terms, on any terms with the large number of doctors to whom St. Paul was selling insurance.

Unknown Speaker: Was it ever alleged what the purpose was of the agreement?

Mr. Daniel M. Friedman: There is no allegation.

There was no charge with respect to the specific boycott by the three of them.

There is a charge that the four of them conspired to try to sell insurance on a claims-only basis and to eliminate --

Unknown Speaker: Is it alleged that the purpose of the agreement among the three, the refusal of the three was to force the doctors to do business on St. Paul’s terms?

Mr. Daniel M. Friedman: I have to check that and see I do not think that was specifically alleged.

But that of course is the practical consequence of it because there are only the allegations --

Unknown Speaker: But whether it was a boycott or not then would it have been coercion?

Mr. Daniel M. Friedman: I am not sure that that kind of economic coercion is what Congress had in mind, in the coercion language of McCarran-Ferguson.

It seems to me that --

Unknown Speaker: So it is either a boycott or it is nothing under 3(b)?

Mr. Daniel M. Friedman: Yes, but I think it is clearly --

Unknown Speaker: Mr. Friedman, what if the big four automakers all get together and agree that we will not sell car to any buyer for less than $10,000.00, is that a boycott?

Mr. Daniel M. Friedman: I would not think that would be a boycott but if it reach the point --

Unknown Speaker: It is keeping buyers out of the automobile market.

Mr. Daniel M. Friedman: It is keeping some buyers out but it seems to me the point could be reached that it might be a boycott if for example, the big four automobile makers got together and agree they will not sell automobiles to anyone in a particular city for less than a $100,000.00.

It seems to me at some point, you could say that what seemed to be just a price-fixing agreement has transcended the line because it is something different now than just fixing the price.

It is obviously something designed and with the effect of excluding them.

Let me come to the other point that the petitioners make and the Mesa as well, they say if you construe McCarran-Ferguson to treat this kind of thing, this absolutely refusal to deal as a boycott, this is a practical matter is going to wipe out the careful system of regulation that the states have built up over the years and again it is in terms of everything can be framed as a boycott.

And therefore, all you have to do is allege that an agreement among insurance companies to include particular terms in their policies or particular types of insurance is a boycott and therefore it is no longer within the state’s exclusive jurisdiction but it is subject to McCarran-Ferguson.

Now, we come back and say that as we interpret boycott, boycott is not this open-ended you cannot just take any conceivable thing that results from joint action and say that it is a boycott.

We think it is under the decisions of this Court is somewhat narrow, considerably narrower than that.

And as thus construed, this definition, this provision would give the states the authority to continue basically what they have been doing, what they were doing at the time of South-Eastern Underwriters.

They can continue to ensure the financial solvency of the insurance companies which is an important thing.

They can continue to control the rates of the insurance company.

Unknown Speaker: But can they ever though unless specifically authorized by state law, can they ever jointly refuse to deal with the group of possible customers?

Mr. Daniel M. Friedman: Well, if it is a boycott, state law makes no difference.

Unknown Speaker: Even if state law purported expressly to authorize and approve that, it would still be subject to the Anti-Trust law?

Mr. Daniel M. Friedman: Well, it would not if it was.

Unknown Speaker: I take it, you still think the Parker against Brown approach would be applicable?

Mr. Daniel M. Friedman: If it were a state action --

Unknown Speaker: Well that is what I am saying is if the state law specifically ordered say, specifically ordered the companies to act in a certain way.

Mr. Daniel M. Friedman: That would not be subject to the Sherman Act at all --.

Unknown Speaker: But you would say that if they got together and refuse to deal with a group of customers at all, that they are subject to the Sherman Act Boycott?

Mr. Daniel M. Friedman: Yes, unless if the state ordered them to do that.

Unknown Speaker: But it would not be an illegal boycott if they refused to deal except on certain terms?

Mr. Daniel M. Friedman: That is right.

Unless the terms were so oppressive that it is a practical matter, the refusal to deal except on certain terms amounted the o refusal to deal.

Unknown Speaker: Well who is going to decide that?

An Anti-Trust Court, right?

Mr. Daniel M. Friedman: An Anti-Trust Court.

Unknown Speaker: So there is not an exemption.

Mr. Daniel M. Friedman: Well, it would depend whether or not this particular course of conduct.

Unknown Speaker: And somebody has to decide that?

Mr. Daniel M. Friedman: That is right, the Court has --

Unknown Speaker: So, anybody is free to bring in an anti-trust action under your theory? But this consorted refusal to deal has tantamount to a boycott.

All you have to do is allege that in your complaint, you are in the Anti-Trust Court and the McCarran-Ferguson Act is out the window?

Mr. Daniel M. Friedman: Well, that would depend on --.

Unknown Speaker: Correct?

Mr. Daniel M. Friedman: No, I would say you are in the Court but you may be out very quickly.

Unknown Speaker: Well that is true anytime you go in to any court on any basis.

That is true now, it is true now, it is true now.

You can get into court and the question is how fast he gets out now.

Mr. Daniel M. Friedman: How fast or if he stay in is really the critical question.

I think it sure, it can always be phrased that way but it seems to me if that is all that it is, if in fact turns out to be a price-fixing agreement, I would think such a complaint could be rather easily dismissed either on a motion to dismiss or on summary judgment.

Unknown Speaker: But you would not say that just a widespread agreement among insurance companies in Rhode Island as to the rates at which they would sell Medical Malpractice Insurance would be a boycott?

Mr. Daniel M. Friedman: No, no, we think not.

Unknown Speaker: Even though all of them agree not to do business with anybody except on that term?

Mr. Daniel M. Friedman: That is right.

We think that would not be a boycott.

That would be a traditional price-fixing agreement and the one thing it is clear from McCarran-Ferguson it seems to us is that Congress intended to take that kind of an agreement, that kind of a price-fixing agreement out from under the Sherman Act and live it to the discretion of the states because that of course was the essence, that was one of the most important things of state regulation at the time of South-Eastern Underwriters was the rate bureaus to which the insurance companies were --

Unknown Speaker: But if St. Paul is willing to sell at certain rights or on a certain way and three other companies’ just get together and say we refuse to deal with those putative customers of St. Paul that is a boycott?

Mr. Daniel M. Friedman: That is a boycott.

That is a boycott, if they say we refuse to deal with those customers of St. Paul, that we think is a boycott.

Unknown Speaker: Do you think the Court of Appeals, the District of Columbia in the Proctor Case, that it is a criteria that it worked out or right or wrong?

Mr. Daniel M. Friedman: I probably would have to disagree with it but I would qualify to this extent.

Unknown Speaker: You do not have to.

Mr. Daniel M. Friedman: I would point out this distinction that what Proctor said was in a rate fixing context, in a rate fixing context, it believes that boycott requires some enforcement action.

That was a case where the insurance companies said they would not pay more than certain going right s for a field insurance --

Unknown Speaker: -- or repair insurance.

Mr. Daniel M. Friedman: And we think that is not a proper limitation.

We think that even in the right fixing context, if they refuse to deal with certain customers that we think that is a boycott.

Unknown Speaker: Judge McAllen’s opinion seems to require some sort of coercion at least in that context.

Mr. Daniel M. Friedman: He suggested you have to do something more than in the rate case, you have to do something more than just refuse to deal.

You have to do something more.

You have to enforce it someway, put pressure.

He suggested there was not a claim, for instance, that they would not refer customers except to the repair firms who agreed to their terms and conditions but he said that was not established by the record in the case and he left open.

I take if that might have been the kind of enforcement procedure that --

Unknown Speaker: That was an affirmance of a summary judgment for the defendants.

Mr. Daniel M. Friedman: I think it was.

Unknown Speaker: Yes, yes it was.

Mr. Daniel M. Friedman: But there was a detail affidavits.

Unknown Speaker: There had been, there was a whole at least --

Mr. Daniel M. Friedman: There was a lot of evidence taken in that case.

Unknown Speaker: There was the affirmance of a summary judgment for the defendant and that was the basis of Judge rights to dissent.

Mr. Daniel M. Friedman: Yes, he thought he should have entirely to go to trial.

Unknown Speaker: Mr. Friedman, following up on Justice Stewart’s question, supposing the plaintiff here had alleged that all four companies have refused to do business in any terms except the claims-made basis, this had never been tried in any other part of the country which the have alleged, would that be a boycott?

Mr. Daniel M. Friedman: I would think not.

Justice William H. Rehnquist: Do you distinguish the fact that there is a total refusal by the three?

Mr. Daniel M. Friedman: It is a total refusal.

Let me justify if I may in conclusion, come back again to South-Eastern Underwriters where of course, the boycott was not only of the insurance company holders but of the policy holders and while it is true that that was the context in which it was done, the fact is, that the boycott was just not so limited and I would like to close with what the Court stated in that case.

In answering a similar argument to that made here, there the contention was that if you applied the Sherman Act itself to the business of insurance, this would uproot and destroy state regulation and speaking for the Court Justice Black stated, “No states authorize combinations of insurance companies to coerce, intimidate, and boycott competitors and consumers in the manner here alleged.”

Thank you.

Chief Justice Warren E. Burger: Very well Mr. Friedman.

Do you have anything further?

Rebuttal of Leonard Decof

Mr. Leonard Decof: Just a brief marker.

Your Honor, we have come along way from what Judge Coffin said was the plain meaning of boycott because one of the questions that Justice Stevens asked was whether a market allocation is a boycott.

Under the Solicitor General’s definition, a market allocation which this Court in Topco and Sealy(ph) and in other cases treated as a market allocation and a Per Se Violation, antitrust which becomes a boycott so much for the plain meaning.

I also would like to add that we now have a situation where conduct which is economically indistinguishable is treated as a boycott and while I suggested that we have come to an artificial reading, in fact, I believe the government’s position and the respondent’s position is most artificial because the examples we have had of where you have four people, four companies, I think my correspondents here would like to get out because apparently, they are not part of the boycott, you have for companies here.

One of them is going to sell claims-made and three do not want to sell, occurrence is that they do not want to sell anything so they have to try claims-made.

Now, if all four had agreed to sell only claims-made, according to the Solicitor General, that is not a boycott but the other is.

I say that there is no logical distinction. I would like to just go back to our position as to why there is a sound and logical dividing line between what we say is a boycott and what we say is covered by 3 (b) exemption.

Under our definition, a boycott is exactly what this Court has used it in the past situations where although the competitors or group of conspirators agree among themselves that they will not sell except at a fixed price or fixed terms.

They do more.

They prevent the fellow who does want to sell at a different price from coming in.

They decide in Senator O’Mahoney’s words, engaged in private regulation.

They are going to punish that fellow in a variety of ways.

In the South-Eastern-Underwriters Case, as Mr. Friedman correctly points out they punished that fellow by cutting off the consumer.

But it was not just the consorted refusal deal with the consumer.

It was a consorted refusal to deal with consumer who had to marry the deal with the price-cutter.

That is what South-Eastern Underwriters called a boycott.

That is what this Legislative History is all about.

That is where Congress drew the line.

They said if insurance companies agreed --

Unknown Speaker: Well, it is explicit really that Congress drew that line, am I not correct whether you changed your position since the Court of Appeals too, have you not?

Mr. Leonard Decof: Yes, I have in this respect.

Unknown Speaker: Well, then it became clear between the argument there and here were the Congress drew the line.

Mr. Leonard Decof: Very clear Your Honor, I think Judge McAllen opened my eyes to something that I have not seen before.

And that was this, my definition of a boycott in most cases would be very much like the Fifth and Ninth Circuit definitions which limited to insurance agents and insurance companies because in most cases, as in South-Eastern Underwriters, my description and this Court’s definition in the use of a boycott in past cases, in the insurance business, typically the fellow who is going to be boycotted or pressured not to compete is a competing agent or a competing insurance company.

I realize that reading Proctor, that that is not always the case that you can reach out into another business which is what happened in Proctor and do the same thing they did in South-Eastern Underwriters.

Now Judge McAllen’s opinion in my view, as I read it says exactly what we are saying that he says --

Unknown Speaker: Let me test your theory for a moment, supposing the insurance companies thought brain surgery was particularly risky business or something like that, they all agreed that none of them would insure brain surgery, total exclusion, would that be a boycott?

Mr. Leonard Decof: No, Your Honor, that would be in agreement to fix the terms of a product which is a -- .

Unknown Speaker: Can someone insure this particular category of risk. No brain surgery at all.

Mr. Leonard Decof: They will not insure that category of risk.

Unknown Speaker: What if they said, no Malpractice Insurance at all, would that be a boycott?

Mr. Leonard Decof: That would be in agreement not to compete.

Unknown Speaker: It would not be a boycott?

Mr. Leonard Decof: It would not be a boycott in my view.

Your Honor, I think I am through unless the Court has further questions.

Thank You.

Chief Justice Warren E. Burger: Very well, thank you gentlemen.

The case is submitted.