HUMANA INC. v. FORSYTH
Mary Forsyth, the beneficiary of a group health insurance policy issued by Humana Health Insurance of Nevada, Inc., received medical care at a hospital owned by Humana Inc. Humana Insurance agreed to pay 80 percent of Forsyth's hospital charges over a designated deductible. Forsyth bore responsibility for the remaining 20 percent of the charges. Forsyth complained that the hospital gave Human Insurance large discounts on their portion of the hospital charges. Thus, Humana Insurance paid the hospital significantly less than the actual 80 percent of the original bill and, in turn, Forsyth paid significantly more than her 20 percent of the hospital charges. Forsyth alleged that Humana Insurance and Humana Inc. had violated the federal Racketeer Influenced and Corrupt Organizations Act (RICO) through fraudulent activity. The District Court ruled in favor of Humana, citing the McCarran-Ferguson Act, which prevents acts of Congress from encroaching on state insurance law unless the act specifically relates to insurance. The Court of Appeals reversed and adopted a "direct conflict" test for determining when a federal law "invalidate[s], impair[s], or supersede[s]" a state insurance law. Under such a test, the McCarran-Ferguson Act did not bar Forsyth's suit because the Act does not preclude application of a federal statute prohibiting acts that are also prohibited under state insurance laws. The Act and Nevada law only provided for different damages to be collected.
May plaintiffs use the federal anti-racketeering law to sue their health insurers over alleged fraud?
Legal provision: 15 U.S.C. 1012
Yes. In a unanimous decision, announce by Justice Ruth Bader Ginsburg, the Court ruled that because RICO advances states' interests in preventing insurance fraud, and since RICO does not encroach on Nevada law, the McCarran- Ferguson Act did not block Forsyth's recourse to RICO in this case.
Argument of James W. Colbert, III
Chief Justice Rehnquist: We'll hear argument next in Number 97-303... spectators are cautioned to remain quiet until you leave the courtroom.
The Court remains in session.
Do not talk until you get outside.
Humana Inc, v. Mary Forsyth.
Mr. Colbert: Mr. Chief Justice, and may it please the Court:
The issue presented before the Court here reduces itself down to two questions.
The first and the most fundamental question is the meaning that Congress intended to the phrase invalidate, impair, or supersede as used in the McCarran-Ferguson Act.
Did Congress intend to afford to those words, and particularly to the word impair, its common parlance plain meaning, or did Congress intend a special, restricted meaning, as respondents and the Government have argued and as the Court below has found?
I suggest to the Court that that critical question makes the second question easy.
The second question is, under a proper reading of the word impair, and I focus on that because I think it is the critical word, under a proper reading of the word impair, as intended by Congress, is a State regulatory scheme impaired by an alternative Federal remedy that renders academic the State legislature's decision as to the appropriate remedy to be afforded for the violation of some standard?
Those are the two questions that I believe are dispositive of the matter before the Court.
With respect to the first question, the Court below did not attempt a parsing of the language.
We do not see anything in the decision of the Ninth Circuit or of the other circuits that adopt the same view as the Ninth Circuit, no attempt to go to the words of the statute and ask, what does the word impair mean?
What did it mean to the 79th Congress when the McCarran-Ferguson Act was adopted?
In the courts of appeal, what we had is an interpretation by analogy.
The McCarran-Ferguson Act has about it an aspect of preemption in that it has an analogous effect and therefore the Ninth Circuit and the other circuits that go along with the Ninth Circuit have reasoned, we believe incorrectly for the reasons set forth in our briefs, that preemption and the special rules of preemption apply.
Justice O'Connor: Well, how do you say we should look at the level of conflict between Federal and State law to determine impairment?
I mean, one way to look at this is that the Federal RICO law gives a remedy that is not precluded by State law, and that may be supplemental but doesn't impair the State scheme.
Mr. Colbert: Whether a remedy is supplemental of a State scheme or impairment of a State scheme depends upon the answer to the question of whether we take seriously the decision of the State legislature to limit remedies.
If Nevada in this instance, when it had adopted the private cause of action under its State insurance law, had said, we... had put a preamble in that said, the legislature has considered and rejected enhanced damages because of a concern for impeding the solvencies of insurers for the purpose of giving windfalls to the first person to get into the courthouse door, if we had such a preamble, there could be no question...
Justice Ginsburg: But I thought the law didn't commute punitive damages which have no lid and could be higher than treble damages.
Mr. Colbert: But the limit on punitive damages, which is critical to this issue, is that punitive damages, are not allowed where they impair the solvency of the defendant.
You may punish, but you may not destroy, and the first goal of the insurance laws of the State of Nevada and every other State in the Union is to protect the solvency of the insurers.
RICO gives no discretion to the Court.
Treble damages are mandatory, and if that impairs the solvency of the insurer, so be it.
The same is not true of punitive damages.
Justice O'Connor: Well, I can understand if Nevada had passed some statutory provision in expressing its intent that its State remedies be exclusive, that this would be an impairment, but absent that, it isn't so clear to me that allowing the Federal remedy is an impairment.
Mr. Colbert: But why do we put the burden on the State of Nevada to adopt the hypothetical preamble I came up with a moment before?
Why is it Nevada's burden to justify its legislative decision?
The structure of the McCarran-Ferguson...
Justice O'Connor: Well, it doesn't have to, but when it's enacting its own laws it can certainly make it clear.
In the meantime, how is it an impairment?
Mr. Colbert: Well, what are we to have the district courts do in applying Federal law in this instance?
Are we to now ask the Federal district courts to examine the legislative history of every portion of the insurance law in Nevada or the several States, and ask the question, did the Nevada State legislature mean it when it adopted...
Justice Breyer: Well, the obvious thing would be much simpler.
I mean, the obvious thing if you didn't know anything about it, you'd say, well, this Court held that insurance was interstate commerce.
And at that point Congress is worried that it might have a whole lot of laws out there that affect interstate commerce, and it doesn't want those laws to affect insurance.
It doesn't want, in other words, to be taken by surprise.
Mr. Colbert: Absolutely.
Justice Breyer: So Congress simply says, look all these laws out there that we've passed, general laws affecting interstate commerce, all right, they don't preempt State insurance laws unless we specifically said so by directing limited insurance, end of the matter, period, and the only purpose that the word impair is doing there is that sometimes you could in effect impair... sorry.
You could in effect preempt the State law by so wrecking it through your preemptive interpretation that although it's still on the books it's severely impaired.
In other words, impair does almost nothing, not completely nothing but almost nothing, and now, if that is so, you have the purpose achieved of what you think was ordinary.
What's the evidence that what I just said is not the case?
Mr. Colbert: Well, it is perfectly plain from the debates and the enactment of the McCarran-Ferguson Act that Congress was, as you've just suggested, Justice Breyer, extremely concerned about inadvertent interference with the State regulation of the business of insurance, and it's for that reason that Congress placed upon itself the burden of saying when congressional legislation would apply, the reference in the McCarran-Ferguson Act to no act of Congress except that specifically related to the business of insurance.
And it is perfectly plain that Congress intended more than just antipreemption, but remember...
Justice Breyer: It couldn't have said when it would apply.
I don't mean to cut you off, but obviously the tax laws, for example, don't specifically mention insurance, but they apply.
I mean, thousands of Federal laws apply to insurance, like everything else, so Congress couldn't have meant just, we have to say specifically when Federal law applies.
Mr. Colbert: When... Federal law applies where the Federal rule of decision results in a different answer from the State rule of decision with respect to the business of insurance, the relationship between an insurance company and its insureds.
And the notion that it is somehow the burden of the State of Nevada to say, when we adopted a private remedy that allows only compensatory damages, we thought about that, we thought about whether compensatory damages would be sufficient, or whether we should have enhanced damages, the notion that McCarran-Ferguson places on the States the obligation to put such preambles in the law is inconsistent with the observation you just made, Justice Breyer, which was Congress didn't want Congress to interfere by accident with the regulation of the States.
Congress could have provided that RICO applies to the business of insurance.
It can do so tomorrow, but it is not Nevada's burden under the act to anticipate that Congress will adopt a statute and then have an ambiguity down the road as to whether or not the Nevada decision with respect to remedies will or will not be respected by the Federal courts.
Chief Justice Rehnquist: Mr. Colbert, what is your authority for saying that Nevada does not allow punitive damages where they would threaten the solvency of the insurance company?
Mr. Colbert: The Nevada law, Your Honor, I believe is referenced in one of the amicus briefs, and I'm sorry I don't have the citation at my finger tips.
Chief Justice Rehnquist: Is it a case from the Nevada supreme court?
Mr. Colbert: It is a case I believe from the... I believe it is from the Nevada supreme court.
I'm embarrassed that I cannot give the Court the cite.
Chief Justice Rehnquist: It isn't in your brief?
Mr. Colbert: It is not in our brief, Your Honor.
It was not... it is I believe a generally accepted principle, not simply in Nevada but generally among the States.
It may... I appreciate that this Court has struggled many times with punitive damages.
I would suggest that it is probably a constitutionally driven principle, but of course...
Chief Justice Rehnquist: Well...
Mr. Colbert: that's not before the Court.
Chief Justice Rehnquist: we'll struggle even harder if we can't find the case.
Justice Ginsburg: As far as your brief presentation is concerned, the Nevada punitive damage provision has no cap and that's it.
That's all you put before us.
I mean, that's all that you... that is before us on the parties' presentation.
Never mind the friends, but the parties have one treble damages, one punitive damages with no cap, no cap in the statute, right?
Mr. Colbert: That is correct.
It is an issue created by judicial interpretation.
Justice Ginsburg: And your position about the... you keep saying Nevada doesn't have to prove this or that.
It's slightly uncomfortable for you to be such a stalwart champion of the State when we have the National Association of Insurance Commissioners, which includes Nevada's commissioner, saying, this is a harmonious provision.
This RICO harmonizes with our statute.
It doesn't impair it.
Mr. Colbert: Well, it does not surprise me that the executive branch of the State wishes to have available to it all of the possible remedies and weapons that it can use to carry out the executive policy.
The McCarran-Ferguson Act...
Justice Scalia: Some insurance commissioners would like to have stronger State insurance regulation laws.
Mr. Colbert: That's correct, Justice Scalia, and they haven't been able to get them.
That's why they are supportive of the application of RICO, because they've been unable to persuade the State legislatures to give them comparable remedies, comparable weapons.
It is the State legislatures that are the beneficiaries of the McCarran-Ferguson Act.
It is to the State legislative decision that Congress deferred, not...
Justice Stevens: Yes, but your argument, it seems to me, on impair talks about impairing the business of the insurance companies, not impairing any law.
McCarran-Ferguson says no act of Congress shall be construed to invalidate, impair or supersede any law enacted by the State.
Mr. Colbert: That is correct.
Justice Stevens: And what law enacted by Nevada was impaired by this?
Mr. Colbert: It's Nevada Code section 686A, Chapter 686A of the Nevada revised statutes, most specifically sections .310 of that particular chapter, which enumerates various acts which are rendered unlawful under Nevada insurance law and provides a...
Justice Stevens: And are those laws still rendered unlawful notwithstanding the application of RICO?
Mr. Colbert: Yes, Your Honor.
Justice Stevens: Well then, how are they impaired?
Mr. Colbert: Because Nevada elected not to provide an enhanced damage remedy for violation of those provisions, whereas the parallel substantive...
Justice Stevens: No, but the remedies provided in those provisions may be enforced to the letter as far as the Nevada legislature is authorized.
Mr. Colbert: Yes.
Justice Stevens: The... in other words, the Nevada laws can be fully enforced, notwithstanding the enforcement of RICO, and that's... for that reason it's hard for me to see how those laws have been impaired.
Mr. Colbert: Well, I return to the question, suppose the preamble to the private remedy contained in that same statute expressly recognized the possibility of enhanced damage and stated the decision of the Nevada legislature to provide only compensatory damages, not enhanced damages.
That preamble does not exist, don't get me wrong.
Justice Stevens: No, but even if it did, and they'd say for that reason we've decided there's going to be a cap on all State law causes of action, you may still enforce the State law cause of action 100 percent, and therefore, how is it impaired?
Mr. Colbert: Because you have made the decision of the Nevada legislature to limit damages in that fashion an idle act.
You have... you have as much impaired their...
Justice Stevens: No, it's not an idle act.
If you sue in the Nevada courts you can only get those damages.
It still... it defines the scope of the Nevada remedy, and the Nevada remedy is precisely the same, whether or not RICO is on the books.
Mr. Colbert: But keep in mind, Justice Stevens, that the principal goal of insurance regulation in this State and every other State is the protection of the solvency of the carrier.
Justice Stevens: Oh, I'm not sure that's right.
I think they also have an interest in protecting policyholders and the general public.
It's not just to protect the industry.
Mr. Colbert: Oh, no, I don't mean to overstate it, but it clearly is the principal aim of all State insurance legislation, because that is how you protect policyholders.
The policyholders of an insurance company are most protected if the company is still in existence to pay the claim.
If the ability of a company to pay the claims of policyholders next year is impaired because a policyholder this year recovered treble damages, you have clearly impaired the principal goal of the State regulation.
You cannot brush aside the decision of a State legislature to award only compensatory damages to a policyholder.
That is, the policyholder will now get that which the policyholder is entitled to receive under the policy.
Giving a mandatory trebling of that amount with no discretion in the trial court to reduce it is not consistent with the notion that what you want to do is have the insurance company here tomorrow to pay tomorrow's claims.
Now, again, I cannot point the Court to a preamble in the Nevada law that says, we, the legislature, gave this thought when we were adopting the private right of action that exists in Nevada law.
Chief Justice Rehnquist: Well, what...
Mr. Colbert: Yes.
Chief Justice Rehnquist: Mr. Colbert, what if a Nevada trial judge had before him a case like this and the insurance company says, well, the recovery... we don't want you to charge on punitive damages because the recovery might threaten our solvency.
What sort of an inquiry would the trial judge make to decide whether or not to allow punitive damages?
Mr. Colbert: Well, the traditional analysis, Your Honor, is to examine the amount of the jury's award, or I suppose if you get a bench trial award as well, and to compare that with the net worth of the company to ascertain whether payment of those sums would significantly impair the net worth of the company.
It's a... it is the kind of analysis that's done all the time.
Justice Breyer: If that's so, that's what... the kind of thing that convinces me that impair can't mean impair, or it must mean something quite weak.
On your theory, suppose Nevada passes the following law: On good legal advice we've learned that the Federal Government law can't impair ours, and on that assumption we pass a law that all insurance companies will pay a 5 percent corporate tax, and we pick this number 5 because we know they won't have to pay any more Federal tax once we pass this law, because we think for them to pay the Federal business tax, you know, under ordinary corporate tax law, we'll really impair what we're trying to do here, which is to raise 5 percent
And they write it out as much as you want, and every Federal trial judge in Nevada says, that's their purpose all right.
This whole law of theirs is wrecked, impaired, if they have to pay under the general Federal law the ordinary corporate tax.
Mr. Colbert: I don't believe, Justice Breyer, that I have argued, nor can you read the McCarran-Ferguson Act to go so far as to say it was an intention by Congress to yield the Federal taxing...
Justice Breyer: But why not?
It's a general law.
Why Federal tax law one wit more or less than Federal RICO law?
Mr. Colbert: Because the imposition of the Federal tax has no effect upon the collection of the State tax.
Justice Breyer: Oh, yes, they find it does.
They say, as you've just said, we don't want to hurt the company's position and how much money it has, and they don't have enough money for both, and we've picked a rate here that just works perfectly and, boy, the company will be down the drain if they have to pay not only our rate, but also the Federal rate.
I can draw it out as much as you want.
We both could.
But that's... once you see that, it seems to me impossible to say that they really meant that word impair literally the way you're taking it.
Mr. Colbert: But I see a distinction, if I may, between the State indicating it wishes to collect its tax and a State making a decision that the remedy that will be afforded to a private litigant will be limited to that which makes the litigant whole and provides no more for the litigant, no enhanced damages, out of the view that after all, all of these litigants... at least all the ones we're talking about here... are policyholders.
They're all claiming the same pool of funds, the ultimate availability of which is dependent upon the continued solvency of the insurance carrier who's going to pay all these claims, and to make a decision at the State court level that as between different private litigants, different policyholders, we are not going to permit windfalls.
We're only going to permit recovery.
I see a difference between that and the decision on the part of the State that we're going to collect a tax, and because we want to collect a tax, we're going to urge that we have the ability under the McCarran-Ferguson Act to restrict Congress' ability to tax the same entity.
You're not directing yourself at the same issue.
In the instance in which you have single damages as opposed to enhanced damages, you really are asking yourself the question, should I be taking money out of the pocket, or potentially taking money out of the pockets of policyholders next year in order to provide excess compensation to policyholders this year.
It's the same body of people that the State is... the State legislation's intended to protect, and I don't see the analogy between that and...
Justice Scalia: Yes, well, I'm... you know, I'm not sure you're really urging a different test from the test that your opponents argue, the way you describe it.
You're asserting there's a conflict between the Federal Government's providing for treble damages and the State's desire not to have treble damages.
I mean, does it make sense to fight this on the battlefield of whether we're going to have a conflict test versus a, quote, impairment test?
Mr. Colbert: Not as you have used the word conflict, Justice Scalia, but I'm afraid that we can get ourselves lost in semantics.
The test that is being urged by the respondents and the Government is what they call the direct conflict test, and by that they...
Justice Scalia: You can't comply with one law and comply with the other at the same...
Mr. Colbert: Exactly.
Justice Scalia: Well...
Mr. Colbert: And if we use conflict itself in the more common parlance mat that we use... that I've just used since I've been speaking with Justice Breyer, then conflict is a perfectly good word.
I'm quite content...
Justice Scalia: You're content to have that as the test, whether you conflict with the policy of the State?
Mr. Colbert: That is correct.
Justice Scalia: Okay.
Mr. Colbert: And I suggest that you find the policy of the State only by looking, as the McCarran-Ferguson Act directs us to, look at the laws of the State enacted for the purpose of regulating insurance, and ask yourself if the laws of the State are materially different than the otherwise parallel Federal law, because...
Justice Ginsburg: You're not saying there's any difference in substance, so does your whole case... do I understand correctly that your whole case turns on the treble damage feature of the Federal law, which you say is absent on the State side?
Mr. Colbert: It doesn't...
Justice Ginsburg: No difference in substantive provisions?
Mr. Colbert: That is correct, Justice Ginsburg.
Justice Ginsburg: And then if you're not right about the punitive damages... suppose we don't have this case that says we won't make the company insolvent.
Suppose there's no lid on punitive damages.
First, there's treble damages on the Federal side.
Then is there an impairment?
Mr. Colbert: There is, and the reason is that in punitive damage instance the trial judge always has the discretion to reduce the punitive damage award.
It's never mandatory.
For RICO, it is mandatory.
It does not matter what the consequence may be to the insurance company.
You could have a situation in which, as a result of mandatory treble damages, the insurance company defendant goes straight into liquidation.
It is insolvent.
You could have the same award come out of a jury and the trial judge doesn't have to let that happen, and I suggest it would be an abuse of discretion to allow that to happen, and that is a very real difference.
Now, I'm not pretending in this case that the award below is going to put this petitioner into liquidation, but if you're... but if you want to ask yourself the question of whether we have an important policy issue at the State court level, I think it's fairly clear that we do.
Justice Ginsburg: So that RICO would be incompatible with any State law that didn't provide for treble damages.
Mr. Colbert: Any State insurance law that didn't provide for treble damages, that is correct, and I said the treble damage provision in this case... because that's what we have.
We have... Nevada does have a private cause of action, allows compensatory damages, whereas RICO has treble damages.
Obviously in other States the points of distinction might be broader than we have in this particular case, but in this case that is the point of distinction.
Justice Scalia: Are there other more general Nevada laws that could apply to insurance fraud?
Mr. Colbert: Nevada recognizes a common law cause of action for bad faith failure to provide benefit.
Justice Scalia: And is that... is the application of that law somehow limited by the special provision governing insurers?
Mr. Colbert: No, because the Nevada... Nevada insurance legislation does not purport to supplant other Nevada State law.
It has a preamble in which it indicates that it is intended to comply with the requirements of McCarran-Ferguson that there be State regulation, but there is no indication, and I believe the contrary is indicated, that Nevada intended by the adoption of its insurance law to oust other Nevada State law.
That is not... that's not the issue that McCarran-Ferguson raises.
McCarran-Ferguson directs the court to compare the Federal laws of general applicability with the State laws enacted for the purpose of regulating the business of insurance, and that's the focus that...
Justice Scalia: I understand that, but whether you're contravening some policy set forth in the State insurance law in particular is affected by whether that State insurance law is hermetically sealed, or whether in fact the insurance company is subject to a lot of other State laws anyway.
Mr. Colbert: Well, in this instance, although I do not believe that it is dispositive of the question, in this instance, as the district court noted below, Nevada does have a little RICO, and the predicate acts listed in Nevada's little RICO do not include violation of the provisions of the Nevada insurance law that are implicated by the conduct alleged.
If we're going to look to what the Nevada legislature did, we do have some indication that the Nevada legislature did not elect to provide treble damages, as their little RICO provides, for this kind of conduct, but I don't think claimants responsible...
Justice Scalia: What about violation by the insurance company of that... the common law fraud provision?
Mr. Colbert: Of the...
Justice Scalia: Would that come under the little RICO?
Mr. Colbert: No, Justice Scalia.
The little RICO statute in Nevada is quite explicit with respect to what it lists.
The district court went through it.
We've discussed it in our brief.
There isn't... the provisions...
Justice Stevens: Let me give you another...
Mr. Colbert: of the insurance law that are implicated...
Justice Stevens: Supposing your Federal statute authorizes a remedy for a RICO fraud that you can seize the assets of the company that have been used to perpetrate the fraud, but the Nevada statute does not have that remedy in it.
Could you enforce the Federal remedy or not?
Mr. Colbert: No.
Justice Stevens: You could not.
Mr. Colbert: I think that would be a more extreme example.
Justice Stevens: Yes.
Mr. Colbert: Mr. Chief Justice, may I reserve the rest of my time?
Argument of G. Robert Blakey
Chief Justice Rehnquist: Yes, thank you, Mr. Colbert.
We'll resume at 1:00.
We'll resume the arguments in Number 97-303, Humana, Inc. v. Forsyth.
Mr. Blakey: Mr. Chief Justice, and may it please the Court:
My name is G. Robert Blakey and I represent Mary Forsyth and the other respondents.
Before I begin my argument directly, and I do want to talk about the text of the statute, I would like to make six very quick points about the insolvency question that came up previously.
First, the case that my colleague was referring to is Nevada Cement, 514 Pacific the 2nd, 1180.
The case holds that the purpose of punitive damages in Nevada law is to vindicate the public interest without annihilating the defendant.
I don't see how he has standing to complain about the possibility of an insolvency.
He has conceded he's not insolvent.
Surely as he's construing the word impair, it would be impaired as applied, so if we got it in a company where triple damages would, in fact, make it insolvent, in that situation you would have an impairment under his test, but not otherwise.
Second, I cannot see where he finds his limitation on punitive damages in Nevada law since, when they put the limitation of triple damage, triple punitive damages, they expressly excepted bad faith cases against insurance companies.
This legislature has recognized the possibility of unlimited punitive damages subject to due process.
Justice Scalia: I didn't get that last point.
Mr. Blakey: The...
Justice Scalia: The punitive damages exception for driving someone into insolvency does not apply to...
Mr. Blakey: No, Your Honor.
Let me see if I can't make it clear.
In 1987, Nevada passed tort reform.
That tort reform put a limitation on punitive damages.
If it's in excess of $100,000 you can only get three times the actual.
If it's less than $100,000 actual, you cannot get more than $300,000.
Justice Scalia: Okay.
Mr. Blakey: That limitation has an exception to it.
That exception to it is bad faith insurance, in which those limitations don't apply.
Therefore, the voice of the law in this State has certainly not shown that kind of solicitude towards insurance companies.
Next is... and this I have to apologize for.
This was not part of the briefing, and so I didn't get it.
My mind has the fact that there's an Oklahoma district court opinion that says you cannot collect triple damages under RICO in a bankruptcy, and if that's good law, it seems to me is what would happen in this case, if the actual damage judgment sent them into bankruptcy, we couldn't collect RICO triple damages against them in bankruptcy anyway.
Chief Justice Rehnquist: Well, do insurance companies go into ordinary bankruptcy if there's an insolvency proceeding under State law?
Mr. Blakey: Mr. Chief Justice, that is in fact my next point.
Most every State has an insolvency fund, so if a judgment put it into bankruptcy, the stock... the stockholders might lose, but the policyholders would be paid by the insolvency fund, so in fact we've taken into consideration in Nevada law the danger of insolvency.
Justice Scalia: Well, his point would be you would need a bigger insolvency fund, which means you would need higher premiums, and his point would be that the legislature has carefully calculated what a good level of premiums is, and it doesn't include the level necessary to pump up the insolvency fund enough to cover treble damages.
Mr. Blakey: I hesitate to opine on insurance law generally, but my understanding of many of the insolvency funds is, they're not real funds.
What they do is just, they assess all the insurance companies for whatever has to be paid.
They do not necessarily assess the other policyholders, except in the sense that they would assess all policyholders generally.
The last two points I make, and it is extremely quick, is his notion that actual damages makes somebody whole flies into the face of all economic analysis.
It doesn't discount the opportunity cost and others, and I would refer the Court on that point to an able opinion by Judge Easterbrook in the context of a RICO case, and it is Mosler v. the S&P Enterprises, and the relevant page is 888 Fed. 2d at 1143-44.
And as to the general economic analysis of the effect of triple damages, the studies particularly under the antitrust law is, they result in actual settlements and actual damage.
Accordingly, you probably need triple damages to make a plaintiff whole.
Justice Scalia: Through settlement, you mean?
Mr. Blakey: Pardon?
Justice Scalia: You have treble damages, you can get a settlement that makes you whole?
Mr. Blakey: Yes, and if you don't have triple damages, what you end up is some discount of actual damages, so actual damages, a lot of... like a lot of phrases in the law, actual doesn't really mean actual.
To return to my argument, respondents' construction of impair is premised on a misconstruction of the purposes of the McCarran-Ferguson Act, and is fundamentally inconsistent with the statute.
As a whole...
Justice Kennedy: Is it common ground here among the parties that we do have before us a State law that's for the business of regulating... for the purpose of regulating the business of insurance?
Mr. Blakey: Yes.
Justice Kennedy: And that is the Nevada law which prohibits the insurance companies to defraud their policyholders?
Mr. Blakey: Yes.
It's inconsistent with the statute as a whole, the section of which it is a part, and the phrasing in which it is embedded.
Respondents argue that the purpose of the McCarran-Ferguson Act was to privilege State law over Federal law.
Well, that's just not true.
If you look at the final text of the statute, it is a carefully crafted compromise that in some situations does that, and in others doesn't, and I've asked the Clerk to have available to each of you respondents' Exhibit Number 1, which is the actual text of the statute from the statutes at large, and you can see it right on the face of the statute.
I've highlighted the five places in that statute that adjust the relationship between Federal and State law.
You start at the bottom.
Section 4 preserves labor law under a standard of, to affect in any manner.
That's the typical preemption of Federal labor law of all State law.
That's no privileges of State law in that.
Section 3(b) preserves the Sherman Act insofar as agreements to boycott and coerce or intimidate is there.
It's fully applicable under this Court's jurisprudence under conflict...
If you look at section 3(a), he got his reverse field preemption for a temporary period of time in order that the States could enact laws.
And finally, we move up to the crucial section, but my point has been, this is a carefully balanced statute that privileges Federal law sometimes and State law the other, and for him to want to interpret it in light of one of its purposes and not its others is to forget that this is a compromise, not a recognition of a jurisprudential proposition that State law is more important than Federal.
If we look at the crucial language in the statute... Your Honors, this is section 2(b)... we have to look at two points in it.
One, the crucial language, to invalidate, impair, or supersede.
Let's take his common ground that supersede means to displace, that invalidate means to eliminate but not displace.
If you give impair the kind of open-ended, broad definition that he would give it, there's no role left to play for invalidate and supersede.
It's sucked right out of the statute.
Chief Justice Rehnquist: I don't know that I agree with you, Mr. Blakey, on that.
It seems to me impair could be having a lesser effect, short of invalidation or of superseding, but nonetheless impairing.
Mr. Blakey: But in that case, since impair is met at a lesser stage, every time where you've had a supersession, every time when you've had an invalidation, you'd also have an impairment.
Accordingly, you would never spend any time in the future in looking at the other two statutory words.
It seems to me the most plausible reading of this phrase is, these are three alternative but not mutually exclusive ways that State law or Federal law could upset State law.
Chief Justice Rehnquist: Are you saying that each word means something different?
Mr. Blakey: Well, there's a connotation that's different.
Chief Justice Rehnquist: Well, could you answer the question?
Mr. Blakey: The answer, as I understand the question, is, my position is that impairment would take place in all three situations.
Any time you were superseded, you would be impaired.
Any time you were invalidated, you would be impaired.
Sometimes under his construction you would be impaired but not invalidated and not superseded.
Therefore, the only operative word in the phrase would be impaired, and the normal assumption is...
Justice Stevens: Yes, but you're explaining his view, and I think the Chief Justice asked you what is your view.
Chief Justice Rehnquist: Yes, I asked your view.
Mr. Blakey: Oh, my view... I'm sorry, Justice Stevenson.
My view is, these are three alternative ways, not mutually exclusive, in which you can bring about a conflict between State and Federal law.
Chief Justice Rehnquist: And does each word, each of those three verbs have a separate meaning, do you think?
Mr. Blakey: Yes.
In other words, when the impairment met a conflict, it didn't supersede, it didn't invalidate, but it arose to the level of a conflict, you couldn't follow Federal law and State law, then that's what it would... exactly impairment would mean.
What he's done is, he's unhooked impairment from any limitation.
Indeed, he suggests that the word impair is derived from 3270, which was the original McCarran-Ferguson Act as introduced, but if you go to 3270, what it said in that context was, apply to or in anywise to repair... impair, and what happened between 3270 and S. 340 is that in anywise was dropped out, and this Court's jurisprudence teaches that if you drop language out, it's presumed to be deliberate.
Justice Stevens: I'm still a little puzzled, because is it... are you suggesting that a law could invalidate a State law without impairing it?
Mr. Blakey: No.
No, on the contrary.
I think that invalidate... these words are not necessarily mutually exclusive, but my argument is that if impair is construed as he does, impair would be the only operative word.
Justice Stevens: It still seems to me under your reading it is, too.
Justice Scalia: The same with yours.
Mr. Blakey: No.
Justice Stevens: Can you give me an example, under your reading, of a law that would impair the State law without invalidating or superseding it?
Mr. Blakey: Okay.
If... suppose, in his example, the State legislature squarely and unequivocally said as against insurance companies in this State, only actual damages can be recovered, and at that time it abolished the State common law and it put an exception in the State RICO so there wasn't insurance fraud there, and the only way you could get... or even more so, the only remedy under State law would be an administrative sanction.
The only remedy would be an administrative sanction.
I'm inclined to think in that situation he would have a conflict.
If he's got a policy decision by the State legislature that we're only to do administrative sanctions against insurance companies.
That might rise to the level of a conflict.
Chief Justice Rehnquist: Then Mr. Blakey, when you say he, Humana I guess is a corporation, and your opposing counsel, is that who you're referring to?
Mr. Blakey: Yes.
Chief Justice Rehnquist: I think it might be better to refer to him as counsel.
Mr. Blakey: Okay.
If we take his reading of the statute, this impair, at this level of broadness, he gives no function to the proviso in this section.
The proviso in this section says, to the extent that the States have enacted antitrust type statutes, to that extent State law does trump Federal law, but to the extent that they've acted it, that would mean, in effect, impair, as he's defined it.
Therefore, his reading of impair in effect...
Chief Justice Rehnquist: Mr. Blakey, my suggestion was that you refer either to the petitioner or...
Mr. Blakey: I apologize.
Humana's construction of the statute would in effect read as follows: no act of Congress shall be applicable to the business of insurance if it impairs such business regulated by State law, or which is State law otherwise enacted for the purpose of the business
You cut out of it, to the extent that you cut out of it invalidate, you cut out impair, and you cut out of it supersede.
That's his definition of impair.
That cannot be what it means.
Justice Breyer: What... I'm having trouble what it does mean.
I mean, the normal thing, if you're just looking to preemption analysis, you don't really... you normally don't look to what the State law's about except in a limited extent.
You look to what the Federal law is about, and you ask yourself whether or not this State law... State law prevents... State law creates a direct conflict or whether or not this Federal law has a purpose that the State law significantly interferes with achieving.
Now, is that all we're supposed to do here?
Mr. Blakey: Well, this Court's teaching... yes and no.
Justice Breyer: If the answer to that's yes, then all it says is, if the Federal law would preempt a State law, it doesn't.
Mr. Blakey: Well, preemption in this Court... well, I'm uncomfortable with the word preemption, because that's a Whig's view of history, to read back into a 1945 statute preemption jurisprudence.
They discussed it at the time in terms of conflict.
I am more comfortable discussing it in terms of conflict.
Nevertheless, this Court's jurisprudence in English suggested that there were three not mutually exclusive ways to preempt, express, field, and conflict, and we think that this is conflict, and the reason we think that this is conflict is that the contemporary jurisprudence of this Court discussed this in terms of conflict.
Justices acting in dissent actually said, only actual conflict impaired...
Justice Breyer: Oh, but that's exactly now the point, because conflict can take place in one of two ways.
You put people under conflicting obligations, in which case it's easy.
But the harder case is typically where the Federal law is trying to achieve a purpose, which purpose the State law interferes with achieving.
Now, if we're just going... is it your view that the word impair applies only in that case, or is there something else, like you look to the State purpose and see if the Federal law interferes with achieving that purpose?
Mr. Blakey: With all due respect, Justice Breyer, I think this Court ought to spend its time interpreting Federal law and not get into a quagmire of State law, and this is not only a quagmire of State law, it's a quagmire of...
Justice Breyer: Your answer is the first, not the second.
Mr. Blakey: Actually, it's both.
I'm willing to say that I think it's a direct conflict between Federal and State law such that you couldn't do both.
That's my interpretation.
But if I accept his impair to the degree of upset the balance, there are two things presupposed, first that there was a balance, and second that it was upset, and there are not one but several reasons to suggest that there was no balance.
Justice Scalia: Before you go on, Mr. Blakey, I wasn't aware that conflict preemption in the Federal scheme... you know, you mentioned the three types, field, and so forth.
I wasn't aware that conflict preemption was limited to the case where you're put under conflicting obligations.
I would think that a State statute could conflict with a Federal statute if it frustrated the purpose of a Federal statute.
Mr. Blakey: Well, in National Securities, this Court held that impair in the McCarran-Ferguson Act meant only direct impair, and saw it in terms of this kind of, you can't do both.
This Court in Fabe saw that there was a conflict by seeing it in terms of both.
I see that my time is almost exhausted.
I would suggest to you that there is no balance, 1) because the face of the State insurance code recognizes that other sanctions outside of the code are possible, in fact, now has a private claim for relief.
Second, there's no indication that the common law claims for relief with punitive damages has been set aside, and the State RICO statute specifically includes obtaining money by false pretenses, and if the Court wants a case close to this fact situation, it is Bright v. The Sheriff, 521 Pacific the 2d, 371.
They suggest there's no obtaining money by false pretenses because we're complaining about what they didn't give us.
We're also complaining about what they caused us to give them by virtue of fraud.
I would suggest that it would be unwise to go down the route of conflict of this impairment jurisprudence.
You've got really clear jurisprudence on conflict.
You have Silkwood, ARC, English, and Cippolone, all of which have looked to see the relationship between Federal and State law, and have preserved as much as possible State law.
As Justice O'Connor said in her concurring opinion in Medtronic, there's no necessary conflict between a Federal administrative remedy and State torts.
You just... quote, an additional damage remedy is another reason to comply.
Let me conclude by making a reference to Judge Learned Hand.
He says in his essay on the contribution of an independent judiciary to civilization that enacted law... and he could have been talking about the McCarran-Ferguson Act... is not enactment of eternal principles of jurisprudence.
It's the resolution of a conflict, and that compromise, that conflict ought not to be broadened or narrowed.
It ought to be read loyally as the language indicates until such time as it is changed by the process that created it.
In 1944, this industry came to Congress to get an exemption, and they didn't get it.
In 1989, this industry is coming to this Court to get an exemption.
They ought not get from this Court what they could not get from Congress.
Argument of Lawrence G. Wallace
Chief Justice Rehnquist: Thank you, Mr. Blakey.
Mr. Wallace, we'll hear from you.
Mr. Wallace: Thank you, Mr. Chief Justice, and may it please the Court:
The full text of the McCarran-Ferguson Act is set out in the appendix to the blue brief, the petitioner's brief, and textual analysis, particularly in its historical context, takes us a long way in this case.
The special rule of statutory construction in section 2(b) or 1012(b) does not say that no act of Congress shall be construed to affect the insurance business.
It's quite specific in saying that no act shall be construed to invalidate, impair, or supersede any law enacted by a State to regulate or tax the business of insurance.
Chief Justice Rehnquist: You emphasized the word law when you read that.
Does that mean to say that a common law decision of a court would not be regarded as law by you?
Mr. Wallace: Perhaps common law would be included.
That is not something that has come to the fore in this case.
What the concern was in the dissents in Southeastern Underwriters, in all of the entreating to Congress, was that State laws would be inadvertently repealed, that the authority of the States to regulate and tax insurance was thrown into question.
Indeed, it was quite revealing, as we quote at the top of page 19 in our brief, that Senator Ferguson himself explained this provision as providing that no Federal legislation shall by implication repeal any existing State law unless the act of Congress specifically so provides, so it was to preserve the authority of the States to have their law that was what was foremost in the minds, and what is stated here in the act.
It does not say that no act of Congress shall be construed to impair or supersede any State policy, leaving the courts open to speculation about negative implications of what the State failed to enact.
Justice Scalia: Do you think you don't impair a law if you impair the policy that the law seeks to further?
Mr. Wallace: Well, we tried to show how the phrase impair a law was used in historical context to mean in effect a partial repeal, or to render it partially ineffective.
It's quite difficult for Federal courts construing this act of Congress to determine what are the policies of Federal laws, let alone to try to come to grips with whether a Federal statute should be thought to in some way be inconsistent with an unstated policy of the State law, and...
Justice Scalia: Let's assume you had a prologue to the statute of the sort that was hypothesized this morning, where the State legislature says very clearly we don't think that insurance companies should be exposed to treble damages because we're concerned about their solvency and blah, blah, blah, blah, blah, okay, and then it proceeds to enact this thing.
Would you say that even in that stark situation this RICO treble damage proceeding would not impair the State law?
Mr. Wallace: That would be a much closer case than this one, when you'd have an articulated State policy, but it still is not a law that itself regulates the business of insurance.
It refrains from regulating, and to the extent the State is purporting to limit...
Justice Kennedy: Well, of course, that's just grammar.
Suppose it just said no court in this State shall enter any judgment for punitive damages or for damages more than compensatory damages.
Mr. Wallace: That would be...
Justice Kennedy: If that's the law, how do we then interpret the word impair to resolve that hypothetical problem?
Mr. Wallace: The... I think it would be, as I say, a much closer case, but the fact is the State is not in a position to tell the Federal Government what remedies it can provide for patterns of criminal enterprises, and to the extent that it purports to do that, it's a law regulating the Federal Government rather than a law regulating the business of insurance.
The argument can be made, but we're far from that case here.
Justice Breyer: But we have to... that is exactly the question.
I mean, it could come up in writing the opinion.
I mean, what you say in your brief is, you think that impair a law, that phrase connotes partial preemption, the displacement of some portion of a statute or its preclusion in certain contexts.
So then isn't your answer, and explain if it isn't, to Justice Scalia's question, write anything in that preamble you want, including the very words that Justice Scalia suggested, and your answer would be no, RICO does not impair that statute, because the operate words of that statute are the same which are at present before us.
Is that your answer?
Mr. Wallace: The answer is that the statue would stand because the courts of the State, which are the State courts, not the Federal court, would still not be able to award treble damages under State law, but...
Justice Breyer: So RICO would apply.
RICO would apply in Justice Kennedy's example, RICO would apply in Justice Scalia's example, in your opinion.
Mr. Wallace: I think we could go that far, yes, but we don't have to in this case, because the State...
Justice Breyer: All right, then, and if you don't have to go that far in this case...
Mr. Wallace: They're reading negative...
Justice Breyer: if I were writing the opinion and got to the phrase, the word impair means, and then there's a blank, how would you fill it in?
Mr. Wallace: To render partially ineffective what the State has ordained by law.
Justice Scalia: How is that different from supersede?
Wouldn't that be...
Mr. Wallace: Supersede is to replace with something.
There's a slightly different connotation.
Justice Scalia: All right.
Mr. Wallace: Invalidate means to nullify or render ineffective without necessarily replacing, but it doesn't have the same connotation as impaired, doing it only in part.
Invalidate sounds like you're doing... you're nullifying the whole thing.
Justice Scalia: If you invalidated it only in part it wouldn't be an invalidation?
I would think it was an invalidation.
Mr. Wallace: Well, the connotation is somewhat different.
They're closely related terms.
Justice Scalia: Why didn't they say, invalidates or supersede in whole or in part?
Mr. Wallace: Well...
Justice Scalia: I mean, that's only...
Mr. Wallace: They could say that, but that isn't what it says.
Justice Stevens: May I suggest, Mr. Wallace, that the statute can be read to impair a State insurance policy that favors collective rate-making without affirmatively commanding it, because clearly most insurance... and that that's exactly what they... well, the Congress wanted to preserve, even though it didn't invalidate any specific law in itself, but just conflicted with the policy.
Do you understand what... my question's a little garbled, but...
Mr. Wallace: Well...
Justice Stevens: But they did not want the Sherman Act to be construed to ban collective rate-making by States where there was...
Mr. Wallace: That is quite correct, and there's a special provision about the Sherman Act.
That special provision shows the limited reach of the rule of construction, because that special provision says that with respect to the antitrust laws if the State has a system of regulation in place the Federal antitrust laws are ousted except for boycott, intimidation, or coercion so it shows that the special rule of construction is something of a much more limited nature.
It must be remembered that RICO is not just a one-way street with respect to the solvency of insurance companies.
We have amicus filings before this Court by receivers of looted insurance companies who are using civil RICO to try to get assets back in for the benefit of the policyholders.
Justice Ginsburg: Mr. Wallace, if I were to ask you... we took this case because it's a purported circuit split, and we have the Ninth Circuit direct conflict.
As far as I understand this case and your position is, you don't have... that's really academic in this case because these... this Federal law is in total harmony with the State law and so you don't have to decide in this case other cases that might present the more extreme example, or are you saying, yeah, pick one of these tests?
Mr. Wallace: The conflict is about whether civil RICO can be applied to claims against insurance companies.
Justice Ginsburg: But in every State's law, or are we to look at this State's law and say, as far as what this... it doesn't provide just an administrative remedy.
It provides for going to court, it provides for punitive damages, as far as Nevada is concerned?
Mr. Wallace: Well, it would be much better to have a uniform application.
It's true that treble damages might be available under Massachusetts law, but Congress has seen fit to provide treble damages for patterns of serious, indictable criminal activity.
Rebuttal of James W. Colbert, III
Chief Justice Rehnquist: I think you've answered the question, Mr. Wallace.
Mr. Colbert, you have 4 minutes remaining.
Mr. Colbert: Thank you, Mr. Chief Justice, and may it please the Court:
Let me begin by thanking my opposing counsel from respondents for answering the question I was unable to answer from Justice Ginsburg before with respect to the citation.
That is the case that I had in mind as the leading authority in Nevada on the limitations on the award of punitive damages.
Let me move on to the areas where I'm not so grateful for his argument.
Let me begin first with the standing question.
We heard a lot about standing this morning in the prior issue.
Surely there is no question before this Court that Humana has standing to contest the applicability of RICO to it, and surely there is no question that this Court will not be announcing a rule of law that determines whether a Federal statute applies or not by looking at the financial condition of the defendant against whom the Federal law is urged.
We have conceded that insolvency is not an issue in this case, but that is not an answer to the jurisprudential problem of whether the States are entitled to have Federal deference under the McCarran-Ferguson Act to decisions which are related to that consideration in the general context.
And let me move, then, to the question of impair, and whether a State statute that does not contemplate multiple damages, as the Nevada statute does not, is in fact impaired.
Several justices put to the Government and to the respondents a hypothetical circumstance that I posed this morning.
Suppose the preamble of the statute specifically recognized the State interest in preserving the solvency of the insurance company and the potential impediment to that State purpose, that treble damages, mandatory treble damages provide.
The respondents conceded that if that preamble existed, RICO would impair Nevada law.
The Government did not make such a concession, but I suggest that the Government's response was not entirely satisfactory.
The issue before this Court I believe boils down to the question of whether, under McCarran-Ferguson, the States must adopt such preambles.
Is... are the Federal courts to look beyond what the State statute says and second-guess the policymaking decision of the State legislature to say that the State legislature didn't really mean it when it only allowed for compensatory damages under the State insurance law?
The counsel for respondents concluded his argument with a reference to Judge Learned Hand.
Let me conclude mine with a reference to Judge Magruder of the First Circuit in one of the follow-up cases to Erie.
And I am going to do this by memory, so I may not get it entirely correct, but if the Federal courts can sit in judgment of the State legislatures and decide whether particular legislative enactments are or are not important, then the ghost of Swift v. Tison still walks the land, greatly reduced in size but still capable of much mischief.
Chief Justice Rehnquist: Thank you, Mr. Colbert.
The case is submitted.
The honorable court is now adjourned until tomorrow at ten o'clock.