Opinion ID: 3010847
Heading Depth: 2
Heading Rank: 3

Heading: Preclusion of RICO Claims Under the McCarran-

Text: Ferguson Act Having found that the activity challenged in the complaint constitutes the business of insurance, and is 11 therefore within the ambit of the Act, we consider whether plaintiff 's RICO cause of action is precluded under S 1012(b). No party to the appeal argues that RICO specifically relates to insurance. Indeed, virtually every court considering this issue has held that RICO is not a federal statute exempt from the McCarran-Ferguson Act. See, e.g., Kenty, 92 F.3d at 391; Merchants, 50 F.3d at 1489; Dornberger, 961 F.Supp. at 516. Nor is it disputed that the applicable Pennsylvania insurance statute is a state law enacted for the purpose of regulating the insurance business. Thus, all that is left for us to consider under the Act is whether an application of RICO to the instant case would invalidate, impair, or supersede state law.
In order to determine whether a cause of action under RICO would invalidate, impair, or supersede Pennsylvania insurance law, we must initially juxtapose RICO with a specific state law enacted for the purpose of regulating the insurance business. The district court, along with both sides on appeal, point to Pennsylvania's Unfair Insurance Practices Act, 40 Pa. Cons. Stat. Ann. SS 1171.1 to 1171.15 (West 1992) (UIPA), as the relevant state law governing MetLife's challenged activity. The Act prohibits persons from engaging in unfair or deceptive practices in the business of insurance. Id. S 1171.4. An exhaustive list of activity is set forth in section 1171.5 as deceptive or unfair practices forbidden under section 1171.4. The UIPA further empowers the Pennsylvania insurance commissioner to investigate illegal insurance practices and to take certain remedial actions including the imposition of monetary penalties, cease and desist orders, the suspension or revocation of an insurance license, or additional injunctive relief. Id. SS 1171.7 to 1171.11. By judicial precedent, the Pennsylvania Insurance Commissioner alone may seek to enforce the UIPA. See Wright v. North Am. Life Assurance Co., 372 Pa. Super. 272, 279, 539 A.2d 434, 438 (1988) ([T]he provisions of this statute were not intended to confer a right of private action. Rather, the Unfair Insurance Practices Act vests 12 enforcement powers in the Pennsylvania Insurance 539 Commissioner.); Wexco, 820 F.Supp. at 203-204. Pennsylvania courts, however, have not barred common law actions for fraud and deceit arising out of insurance practices even though the UIPA does not allow private causes of action. Wright, 372 Pa. Super. at 279, 539 A.2d at 438. These private lawsuits, in addition to other private actions authorized by Pennsylvania law,4 provide the only judicial remedies available to plaintiffs victimized by illegal insurance practices. RICO, on the other hand, grants a private cause of action to any person injured as a result of a pattern of racketeering activity. 18 U.S.C. S 1964(c). The statute also authorizes the award of treble damages, attorney's fees, and costs. Id. Pursuant to 18 U.S.C. S 1961(2), a pattern of racketeering activity is defined as at least two acts of illegal activity identified in section 1961(1) and includes both mail fraud and wire fraud. Beyond the general classes of crimes enumerated in section 1961(1), RICO does not specifically address insurance practices.
Given this comparison of RICO with the UIPA, the legal question before us is whether allowing plaintiff 's suit under RICO would invalidate, impair, or supersede Pennsylvania law as that phrase is understood under the Act. The phrase invalidate, impair, or supersede is not defined anywhere in the Act and we are faced with the considerable task of grappling with its construction in the present context. Courts of Appeals jurisprudence is in disarray as to the extent and meaning of invalidate, impair, or supersede under the Act. One line of cases, spearheaded by thefirst, seventh, and ninth circuit Courts of Appeals, looks to a _________________________________________________________________ 4. In addition to common law fraud and deceit, Pennsylvania courts have sanctioned the use of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa. Cons. Stat. Ann. SS 201-1 to 201-9.2 (West 1993), to allow aggrieved insureds recovery against insurance fraud. See Pekular v. Eich, 355 Pa. Super. 276, 285-90, 513 A.2d 427, 432-41 (1986). 13 direct conflict in the substantive provisions of the federal and state statutes at issue. See Merchants Home Delivery Service, Inc. v. Frank B. & Hall Co., 50 F.3d 1486, 1491-92 (9th Cir. 1995); NAACP v. American Family Mut. Ins. Co., 978 F.2d 287, 295-97 (7th Cir. 1992); Villafane-Neriz v. FDIC, 75 F.3d 727, 736 (1st Cir. 1996). These courts typically reason that the Act is a form of inverse preemption where federal laws must yield to state laws when the state enacts a statute for the purpose of regulating the insurance business and the federal statute does not specifically apply to insurance. Logic then drawn from ordinary rules of federal preemption under the supremacy clause is reversed so that a state law will not preempt a federal law unless the laws of both sovereigns directly conflict in terms of governing the behavior of insurance carriers. See American Family, 978 F.2d at 296 (citing Silkwood v. Kerr-McGee Corp., 464 U.S. 238 (1984)). The Act's preemption is appropriate, these courts will conclude, where it is simply not possible for the insurance carrier to comply with both state and federal law. However, because duplication is not conflict, differences in state remedies and federal remedies could not be the basis of preemption when both statutes proscribe the same insurance practices. Id. In further support for the foregoing analysis, these courts reason that the Act was not intended to cede the entire field of insurance regulation to the states. Where a state law or regulation is silent as to remedy, or does not provide a private cause of action, federal regulation will not be preempted. Merchants, 50 F.3d 1492. A contrary interpretation of the statute, these courts will conclude, would essentially rewrite the Act to read: No federal statute shall be construed to apply to the business of insurance, unless such federal statute specifically relates to the business of insurance. The Congress did not so provide and therefore state silence surrounding the assurance of a private remedy does not provide the basis for federal preemption. Id. The fourth, eighth, and to a certain extent the sixth, circuit Courts of Appeals disagree. When state insurance laws provide for enforcement through an administrative process to the exclusion of private damage actions, treble 14 damages, attorney's fees, and costs, these courts reason that RICO's expanded remedial framework cannot coexist with state law based on a plain meaning of the words invalidate, impair, and supersede.5 See Doe v. Norwest Bank Minn., 107 F.3d 1297, 1307 (8th Cir. 1997); Ambrose v. Blue Cross & Blue Shield of Virginia, Inc., 891 F.Supp. 1153, 1165 (E.D.Va. 1995), aff'd, 95 F.3d 41 (4th Cir. 1997) (unpublished per curiam). They say the Act was designed to allow state legislatures to adopt their own regulatory framework governing how insurance grievances are redressed. If a state chose a private forum for redress through administrative enforcement, then the Act would protect such a decision and federal law would not be allowed to upset this balance. Thus, they conclude that the drastic nature of federal remedies is directly relevant to assessing the application of the invalidate, impair, or supersede phrase in the Act. See Doe, 107 F.3d at 1307; Kenty v. Bank One, Columbus, N.A., 92 F.3d 384, 392 (6th cir. 1996). To be sure, a direct conflict in the substantive provisions of RICO with those provided for in the UIPA would fall within the ambit of laws that invalidate, impair, or supersede state insurance law. If, for example, Pennsylvania explicitly authorizes certain insurance practices that RICO would clearly prohibit, the McCarranFerguson Act would eviscerate the federal cause of action. Cf. American Family, 978 F.2d at 297 (If Wisconsin wants to authorize redlining, it need only say so; if it does, any challenge to that practice under the auspices of the Fair Housing Act becomes untenable.). This would be the case no matter how the phrase invalidate, impair, or supersede is to be construed, as we cannot imagine any more impairment then an absolute contradiction in legalfiat concerning insurance practices. But we cannot find any such conflict in the UIPA when compared to RICO, at least in the present context. Consequently, the more critical _________________________________________________________________ 5. Invalidate is defined as to weaken or make valueless; impair means to make worse . . . diminish in quantity, value, excellence or strength; supersede means to make obsolete, inferior, or outmoded. Webster's Third New International Dictionary 1199, 1131, 2295 (1986). See Ambrose, 891 F.Supp. at 1165. 15 issue is whether we may look to divergent state and federal implementation of similar legal norms. Part of this puzzle has been answered by the Supreme Court in National Securities. There, the Securities and Exchange Commission sought to unwind a merger between two insurance companies based on violations of Rule 10b-5. The merger had already been approved by the Arizona State Director of Insurance in his capacity as licensor of insurers within the state. This approval was predicated upon a finding that the merger would not substantially reduce the security of and service to be rendered to policyholders. 393 U.S. at 462 (quoting Ariz. Rev. Stat. Ann. S 20-731(B)(3) (1969)). Upon the foregoing factual scenario, the Supreme Court phrased the issue as whether the McCarran-Ferguson Act bars a federal remedy which affects a matter subject to state insurance regulation. Id. The Court reasoned that any impairment in the case would be indirect--the federal government sought to protect security holders while the Arizona sought to safeguard insurance policy holders. Id. at 463. Moreover, the Court noted that there was no true conflict in remedies at all because Arizona has not commanded something which the Federal Government seeks to prohibit. Id. at 463. The Court also found that the paramount federal interest in prohibiting securities fraud was perfectly compatible with the state interest in protecting policyholders. Thus, because of the nature of the indirect impairment, and because the remedy the Commission seeks does not affect a matter predominantly of concern to policyholders alone, the Court held that it saw no reason to emasculate securities laws through an application of the McCarran-Ferguson Act. In the end, the Supreme Court simply [could] not see the conflict and allowed the federal government to unwind the merger notwithstanding Arizona's explicit approval. Id. We too cannot see the conflict in this case andfind no invalidation, impairment, or supersedence, however defined, of Pennsylvania insurance law. The federal policies embodied in RICO, namely, the grant of a liberal federal 16 remedy to those who have been victimized by organized crime, see Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 487 (1985), are in no way inconsistent with the stated purpose of the UIPA, which is to regulate trade practices in the business of insurance . . . by defining . . . such practices . . . which constitute unfair methods of competition or unfair or deceptive acts . . . . 40 Pa. Cons. Stat. Ann. S 1171.2; see also D'Ambrosio v. Pennsylvania Nat. Mut. Cas. Ins. Co., 494 Pa. 501, 508, 431 A.2d 966, 970 (1981) (stating that the UIPA serves to deter bad faith conduct in the insurance business). Borrowing from the Supreme Court's analysis in National Securities, the RICO remedy does not exclusively affect matters predominantly of concern to those protected only by the UIPA. 393 U.S. at 463. RICO, whether in effect or purpose, is not an attempt to regulate the sphere reserved primarily to the States by the McCarran-Ferguson Act. Id. Of course, this court would be remiss not to recognize MetLife's argument that an application of RICO may affect, in a more abstract sense, Pennsylvania's overall implementation of insurance norms and its decision to enforce certain insurance violations in an administrative context. As acknowledged by the Court of Appeals for the Seventh Circuit: Undoubtedly there is a sense in which any overlap between state and federal law upsets a balance struck by one of the two legislatures. . . . Laws enforced only be administrative agencies with limited budgets are less potent than laws enforced by both agencies and private litigants. One could say that a federal rule increasing the probability that a state norm will be vindicated (or augmenting the damages assessed in the event of a violation) conflicts with a decision by the state that remedies should be limited or rare. American Family, 978 F.2d at 295 (citations omitted). While such an argument may be compelling, there is no place for it in the present context. We find no indication, through legislative intent or judicial interpretation, that Pennsylvania's non-recognition of a private remedy under the UIPA represents a reasoned state policy of exclusive administrative enforcement or that the vindication of UIPA 17 norms should be limited or rare. Private actions for fraud and deceit in the insurance business coexist with the UIPA even though the same conduct may be covered by both the common law and the UIPA. See, e.g., 40 Pa. Cons. Stat. Ann. SS 1171.5(1) to 1171.5(3) (generally prohibiting false, misleading or misrepresentative statements and omissions). In addition, Pennsylvania courts have held that the state's general consumer protection statute, 73 Pa. Cons. Stat. Ann. SS 201-1 to 201-9.2, provides a private remedy and treble damages for victims of insurance fraud. See Peckular, 355 Pa. Super. at 285-90, 512 A.2d at 430-41. This certainly undercuts any purported balance struck by the Pennsylvania legislature favoring administrative enforcement to the exclusion of private damages actions and we see no reason why a federal private right of action cannot coexist with the UIPA in these circumstances. We therefore conclude that a RICO cause of action and remedy would not invalidate, impair, or supersede Pennsylvania's scheme of insurance regulation in this context. Because we need not reach the issue here, we will leave for another day the question of whether different federal and state remedies could ever be the basis for preclusion under the Act. Accordingly, the district court's dismissal of the plaintiff 's RICO claims for failure to state a claim will be reversed to the extent it relied on the McCarran-Ferguson Act as a basis for preclusion. We will also reverse the district court's denial of the motion to amend the complaint since the amendment would no longer be futile under our application of the McCarran-Ferguson Act. In so doing, however, we express no opinion as to whether the plaintiff has stated proper claims under RICO law itself.