Court Opinion

ID: 8910761
Source: CourtListenerOpinion
Date Created: 2022-11-27 02:53:59.642719+00
Date Added: 2024-06-11T17:08:30.550314
License: Public Domain

K. K. HALL, Circuit Judge,
concurring in part and dissenting in part:
I concur, somewhat timorously, in the majority’s holding that the American Chiropractic Association is not transacting business in the state of Virginia. But I strongly dissent from Part II of the majority opinion, which, allows providers of services to restrain trade in their markets, free from antitrust liability, if they enlist an insurer’s aid in enforcing their scheme. By ignoring the language of the McCarran Act, its history, and the Supreme Court’s insistence that the statute be strictly construed, the majority transforms a narrow area of deference to state regulation into a broad grant of antitrust immunity to insurance companies and their cohorts outside the industry.
I.
The majority attempts to distinguish this case from Group Life and Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979), in which the Supreme Court held that an insurer’s arrangements with pharmacies, setting a maximum price for drugs furnished to its policyholders is not within the scope of the McCarran Act’s antitrust exemption for the “business of insurance.”1 I agree that there is an important distinction between the two cases — as the four dissenting members of the Court emphasized, Royal Drug
is not a case where the petitioner pharmacies themselves conspired to exclude others from the market, and either pressured Blue Shield to go along, or were voluntarily joined by the insurer. Such an agreement among pharmacies, itself neither necessary nor related to the insurer’s effort to satisfy its obligations to its policyholders, would be outside the “business of insurance.” An insurance company cannot immunize an illegal conspiracy by joining it. Id., 99 S.Ct. at 1094 (Brennan, J., dissenting) (citations omitted).
The majority’s holding in this case gives insurers the power to immunize such conspiracies. Plaintiffs allege that the Virginia and American Chiropractic Associations established a peer review mechanism for the express purpose of fixing prices and monopolizing the profession, through the device of a fixed maximum charge per office visit. This fixed ceiling is significantly lower than the fee normally charged by plaintiffs, whose different treatment methodology, involving a' greater number of treatments per visit, is opposed by the Associations’ members. Accepting these allega*819tions as true, as we must on a motion to dismiss, the majority now holds that, by persuading insurance companies to utilize their peer review committees and their fee schedules, the defendant chiropractors have successfully immunized their conduct from antitrust liability.
The legislative history of the MeCarran Act, as it applies to the antitrust laws, shows that the sole congressional concern was with the effect of uncontrolled competition on insurance companies, whose continued solvency and ability to meet future obligations to policyholders was essential.2 By extending MeCarran Act immunity to the type of conduct alleged here, where both the perpetrators of the conduct and its impact are outside the insurance industry, the majority ignores the purpose of the Act and the Royal Drug Court’s explicit direction on its construction:
It is well settled that exemptions from the antitrust laws are to be narrowly construed. This doctrine is not limited to implicit exemptions from the antitrust laws, but applies with equal force to express statutory exemptions.
Application of this principle is particularly appropriate in this case because the Pharmacy Agreements involve parties wholly outside the insurance industry. In analogous contexts, the Court has held that an exempt entity forfeits antitrust exemption by acting in concert with nonexempt parties. Id. 99 S.Ct. at 1083 (citations omitted).
I do not believe that the McCarrán Act provides any shield for the conduct of defendant chiropractors. Further, the insurance companies themselves may have forfeited any exemption to which they might otherwise be entitled, by their participation in the alleged scheme.3 The plaintiffs’ allegations raise complex issues, which cannot be decided without further development of the record.
II.
Even if the conduct of defendants is properly considered to be the “business of insurance,” the MeCarran Act does not automatically exempt it from the application of the federal antitrust laws. The statute affirmatively provides that these laws “shall be applicable to the business of insurance to the extent that such business is not regulated by State law.” McCarran-Fergu-son Act § 2(b), 15 U.S.C. § 1012(b) (emphasis supplied).
The MeCarran Act was a direct and immediate response by Congress to the Supreme Court’s decision in United States v. South-Eastern Underwriters Association, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944), which shattered the assumption that regulation of the insurance business was within the sole province of the states. Reversing a seventy-five year old precedent, the Court held that the industry was subject to federal regulation in general, and to the provisions of the Sherman Act in particular. The MeCarran Act represents a compromise between the House of Representatives’ desire to restore the status quo, by totally exempting the business of insurance from the federal antitrust laws, and the Senate’s belief that the necessary public supervision of the industry could be best *820accomplished by full application of those laws.4
The statute establishes a scheme of complementary state and federal regulation of the insurance business, with the states given primary — but not exclusive — authority. The states may regulate the business of insurance within their boundaries, and may authorize practices which might reduce competition in the insurance industry. But the federal antitrust laws still apply to protect the public from practices which the states have not chosen to regulate.
The state of Virginia closely regulates many aspects of the insurance industry through its State Corporation Commission. See Va.Code § 38.1-1 et seq.5 But neither the Virginia Code, nor any regulation promulgated by the Commission, provides public supervision of an insurer’s methods for determining reimbursement rates.6 Therefore, I believe that this activity remains subject to the federal antitrust laws, regardless of how intimately it may be related to the “business of insurance.”
In enacting the McCarran Act, “Congress was willing to permit the States to substitute regulation for competition” within the insurance industry. St. Paul Fire & Marine Insurance Co. v. Barry, 438 U.S. 531, 548, 98 S.Ct. 2923, 2933, 57 L.Ed.2d 932 (1978). By failing to determine whether the state has, in fact, regulated the conduct at issue here, the majority allows what Congress was not willing to permit7 — action by “private *821groups ... to enforce not public regulations written by public authority but regulations for the insurance business which they wrote themselves.” 91 Cong. Rec. 1485 (1945) (remarks of Sen. O’Maho-ney).
I respectfully dissent.

. In district court, the insurance company defendants insisted that “disposition of this case is simplified because the McCarran Act questions it raises have been disposed of in at least five recent cases . . . with facts not materially distinguishable from those involved here.” “Insurance Company Defendants’ Memorandum of Points and Authorities in Support of Their Motion to .Dismiss” at 7. One of these cases was Royal Drug (defendants relied on the district court’s holding in that case that the pharmacy agreements were the business of insurance. 415 F.Supp. 343 (W.D.Tex.1976). Of the four other cases the defendants here found indistinguishable, two were singled out by the Supreme Court in Royal Drug as being “in conflict” with the Court’s own interpretation of the phrase “business of insurance”: Anderson v. Medical Service, 551 F.2d 304 (4th Cir. 1977) and Proctor v. State Farm Mutual Automobile Insurance Co., 561 F.2d 262 (D.C. Cir. 1977) (vacated and remanded, 440 U.S. 942, 99 S.Ct. 1417, 59 L.Ed.2d 631 (1979)). Royal Drug, 99 S.Ct. 1072, n.2.

. Congress’ primary concern in enacting the MeCarran Act was to “ensure that the States would continue to have the ability to tax and regulate the business of insurance,” Royal Drug, 99 S.Ct. at 1076, following the Supreme Court’s ruling that insurance is interstate com- . merce. The applicability of the antitrust laws to the insurance business was only a “secondary concern,” which “focused simply on whether cooperative rate-making should be exempt.” Id. at 1076, 1079. See S.Rep. No. 20, 79th Cong., 1st Sess. (1945); H.R.Rep. No. 143, 79th Cong., 1st Sess. (1945); 91 Cong.Rec. 1442-1444, 1477-1489 (1945).

. Plaintiffs claim that the insurance companies’ participation goes beyond their use of peer review recommendations to determine the amount of reimbursement they will pay. According to plaintiffs, the insurers have advised their policyholders that plaintiffs’ fees are unreasonable, and have defended policyholders against suit brought by plaintiffs to recover the difference between plaintiffs’ actual charge and the ceiling fixed by the peer review committee.

. For a detailed history of the McCarran Act, see C. Weller, The McCarran-Ferguson Act’s Antitrust Exemption for Insurance: Language, History and Policy, 1978 Duke L.J. 587.

. Two of the ten articles in the Virginia Code’s insurance provisions were enacted in direct response to the McCarran Act. Article 6 apparently seeks to fully displace the Federal Trade Commission Act within the state, by listing and defining all insurance company practices “which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.” Va.Code §§ 38.1-49 to -57. See FTC v. National Casualty Co., 357 U.S. 560, 78 S.Ct. 1260, 2 L.Ed.2d 1540 (1958). The State Corporation Commission is given enforcement power, but may not “enlarge upon or extend” the detailed listing in the statute. Va.Code § 38.1-53. Article 7, the “antitrust provisions,” does not purport to be similarly exclusive. It simply forbids two types of activities, insurance company mergers and interlocking directorates, if they would “substantially lessen competition generally in the business of insurance, or [tend] to create a monopoly therein.” Id., §§ 38.1-58, -59. There is no indication that, by failing to deal with other practices having an anticompetitive impact, the Virginia legislature intended to authorize such practices or to remove them from federal antitrust scrutiny.
In addition to the Code provisions relating specifically to the insurance business, Virginia has a state antitrust law, Va.Code § 59.1-9.1 et seq., which arguably applies to the conduct alleged in plaintiffs’ complaint. See Blue Cross v. Commonwealth, 211 Va. 180, 176 S.E.2d 439 (1970). But the McCarran Act does not grant primacy to all types of state regulation which might apply to the business of insurance. The Act concerns only “the type of state regulation that centers around the contract of insurance.” SEC v. National Securities, Inc., 393 U.S. 453, 460, 89 S.Ct. 564, 568, 21 L.Ed.2d 668 (1969).

. In 1977, the insurance code’s listing of unfair or deceptive trade practices was amended to prohibit fourteen specific “unfair claim settlement practices.” Va.Code § 38.1-52(8a). Regardless of whether this statute now provides state regulation of the particular conduct at issue in this case, and it is not clear from the face of the statute that it does, it would not bar plaintiffs’ complaint, which was filed in 1977 and concerns conduct which began in 1973.
The conduct of defendant chiropractors is clearly not regulated by the state’s insurance laws. Those laws apply only to insurance companies and their agents, and the State Corporation Commission, which has enforcement responsibility, has no authority over providers of services. See Blue Cross v. Commonwealth, supra at 192, 176 S.E.2d at 447. Yet the majority offers McCarran immunity to all defendants, including the ACA, which is not even subject to service of process within the state.

. In signing the McCarran Act, President Roosevelt stated that “Congress did not intend to permit private rate fixing which the Antitrust Act forbids, but was willing to permit actual regulation of rates by affirmative action by the states.” S. Rosenman, The Public Papers of Franklin D. Roosevelt 587 (1950) (quoted in Royal Drug, supra, 99 S.Ct. at 1079). As the Court noted in Royal Drug, 99 S.Ct. at 1076-1080, the floor debates also show that the Act’S purpose was to defer to the states’ desire to permit certain anticompetitive conduct, particularly cooperative ratemaking. See 91 Cong. Rec. 1442-1444, 1477-1489 (1945).