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AMERICAN STD. LIFE & ACCIDENT INS. CO. v. U.R.L.

December 7, 1988

AMERICAN STANDARD LIFE AND ACCIDENT INSURANCE COMPANY, Plaintiff,
v.
U.R.L., INC., UNITED PRESIDENTIAL LIFE INSURANCE COMPANY, UNIVERSAL INVESTMENT COMPANY, DONALD WARNE, MARY FRANCES FORD, DAVID HELM, ROBERT MEALY, RONALD GARLOFF, DAVID RUGH, and JAMES C. SPRECHER, Defendants


William W. Caldwell, United States District Judge.


The opinion of the court was delivered by: CALDWELL

WILLIAM W. CALDWELL, UNITED STATES DISTRICT JUDGE

 Introduction

 On June 15, 1988, plaintiff, American Standard Life And Accident Insurance Company (American Standard), an Oklahoma insurance company, filed this action under section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, sections 4 and 16 of the Clayton Antitrust Act, 15 U.S.C. §§ 15 and 26, the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§ 201-1 et seq., the Pennsylvania Unfair Insurance Practices Act, 40 P.S. §§ 1171.1 et seq., and Pennsylvania common law. Plaintiff seeks injunctive relief, treble and punitive damages, attorney's fees and costs.

 Before the court are nearly identical motions to dismiss and motions to strike filed by defendants, United Presidential Life Insurance Company (United Presidential), U.R.L., Inc. (U.R.L.), James C. Sprecher and Ronald Garloff. Defendants David Helm, David Rugh and Mary Francis Ford, while together filing a separate motion to dismiss, have joined in United Presidential's brief in support of its motion. Defendants, Donald Warne and Robert Mealy, filed a motion for judgment on the pleadings as did Universal Investment Company (Universal Investment).

 Background

 According to the complaint, on or about January 28, 1986, Life Assurance Company of Pennsylvania (LACOP) acquired United Republic Life Insurance Company (United Republic). United Republic had several blocks of insurance business on its books, including whole life policies, universal policies and annuities. In April of 1986, plaintiff entered into negotiations with LACOP to purchase the United Republic whole life insurance blocks. *fn1" On or about December 31, 1986, plaintiff allegedly paid LACOP $ 14.7 million for a reinsurance agreement and on February 1, 1987, agreed to administer the whole life policies. LACOP thereupon transferred $ 30 million in reserves to plaintiff. Plaintiff has since been collecting premiums from the United Republic whole life policyholders and has been administering the policies.

 Prior to LACOP's purchase of the United Republic policies in January of 1986, the individual defendants, Warne, Ford, Helm, Mealy, Garloff, Rugh, and Sprecher, had allegedly been agents of United Republic. The complaint alleges in the alternative that defendant Rugh was and remains an agent of defendant United Presidential, an Indiana corporation licensed to conduct business in Pennsylvania. United Presidential sells, inter alia, whole life insurance in competition with plaintiff. The individual defendants allegedly are now employed by either defendant, Universal Investment, or by defendant, U.R.L., both Pennsylvania corporations and insurance agencies. The individual defendants allegedly sell life insurance policies, issued by United Presidential and other insurance companies, in the course of their employment.

 By virtue of their positions with United Republic, defendant agents allegedly acquired confidential United Republic information, including customer lists, prospect files, renewal lists, and other business records relating to the company's insurance business in Pennsylvania. Plaintiff asserts that by exploiting information gained through their access to the confidential records, the agents have been contacting the insureds under United Republic whole life policies now administered by plaintiff. Plaintiff contends that the agents, together with United Presidential and U.R.L., have conspired to induce United Republic policyholders to replace their policies with those from United Presidential and other insurance companies. According to the complaint, the agents have been falsely informing the policyholders that their United Republic policies are no longer valid because plaintiff, along with United Republic and LACOP, are no longer in business.

 Plaintiff asserts that as a result of the alleged conspiracy, and the unlawful and unfair anticompetitive acts, defendants have illegally restrained plaintiff's competition and have induced numerous customers to replace existing policies with those issued by United Presidential and other companies. Plaintiff claims that despite its demands upon United Presidential to terminate the foregoing activities, United Presidential willfully and intentionally continues to allow its agents to engage in anticompetitive activities.

 The present action is related to American Standard Life and Accident Insurance Co. v. United Presidential Life Insurance Co., No. 88-0879 (M.D. Pa.), a case originally filed in the United States District Court for the Western District of Oklahoma and transferred here by order of that court, in which the plaintiff asserted substantially the same claims against thirteen defendants, some of whom are defendants in this action. *fn2" Certain defendants in the Oklahoma action filed a motion to dismiss the antitrust count of the Oklahoma complaint for failure to state a claim, to dismiss the entire action for lack of personal jurisdiction, and to transfer the action to this court on the basis of forum non conveniens. Although the Oklahoma court found the antitrust count legally sufficient to state a claim under the federal antitrust laws, it dismissed the complaint against all defendants except United Presidential and Ronald Garloff for lack of personal jurisdiction. The Oklahoma court then transferred the case to this district and, on June 21, 1988, the Clerk of Court, pursuant to Fed. R. Civ. P. 55(a), entered the default of defendant Garloff, who had not actively defended the action while it was in Oklahoma. On June 15, 1988, the plaintiff filed the instant lawsuit and on July 29, 1988, defendants filed the motions currently under consideration.

 Discussion

 We will set forth initially the governing standards for the various motions filed. In deciding the motions to dismiss pursuant to Rule 12(b)(6), the court must construe the complaint most favorably to the plaintiff and accept as true all the well-pleaded allegations therein. Commonwealth Bank & Trust Co., N.A. v. Russell, 825 F.2d 12 (3d Cir. 1987). The court should draw reasonable factual inferences in the plaintiff's favor and dismiss only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 746, 96 S. Ct. 1848, 1853, 48 L. Ed. 2d 338, 345 (1976) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80, 84 (1957)). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686, 40 L. Ed. 2d 90, 96 (1974).

 The motions to strike are governed by Fed. R. Civ. P. 12(f), which provides, in pertinent part, as follows:

 
(f) Motion to Strike. Upon motion made by a party before responding to a pleading . . . the court may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.

 Rule 12(f) should be strictly construed. Motions to strike generally are viewed with disfavor and rarely are granted Chiropractic Cooperative Ass'n. v. Am. Medical Ass'n, 617 F. Supp. 264 (E.D. Mich. 1985).

 A motion for judgment on the pleadings is appropriate when the material facts are undisputed and judgment may be entered merely by considering the contents of the pleadings. General Foods Corp. v. General Foods, Inc., 496 F. Supp. 307 (D. V.I. 1979), aff'd without opinion, 659 F.2d 1066 (3d Cir. 1981) (table).

 We note that despite the procedural disparities, the defendants' motions and arguments in support thereof are virtually identical. Accordingly, the following discussion will pertain to all defendants unless otherwise specified.

 A. Exemption under the McCarran-Ferguson Act For the Business of Insurance or, Alternatively, Failure to State a Claim under Federal Antitrust Laws.

 Defendants' first contend that Count I of the complaint, the antitrust claim, should be dismissed because the alleged activities of the defendants are exempt from the federal antitrust laws under the McCarran-Ferguson Act. 15 U.S.C. §§ 1011, et seq. The McCarran-Ferguson Act provides an exemption from federal antitrust laws to defendants who are able to demonstrate that a challenged activity is: 1) part of the business of insurance; 2) regulated by state law; and 3) not an agreement or act to boycott, coerce or intimidate. Grant v. Erie Insurance Exchange, 542 F. Supp. 457, 461 (M.D. Pa. 1982), aff'd without opinion, 716 F.2d 890 (3d Cir.) (table), cert. denied, 464 U.S. 938, 104 S. Ct. 349, 78 L. Ed. 2d 314 (1983). Assuming, without deciding, that defendants are able to establish the second and third prongs of the test outlined above, they fail to meet their burden with regard to the first prong.

 In SEC v. National Securities, Inc., 393 U.S. 453, 89 S. Ct. 564, 21 L. Ed. 2d 668 (1969), the Supreme Court concluded that the "business of insurance" for the purposes of the McCarran-Ferguson Act involves primarily the relationship between the insurer and the policyholder. After reviewing the history of this exempting legislation, the Court stated as follows:

 
Congress was concerned with the type of state regulation that centers around the contract of insurance . . . . The relationship between insurer and insured, the type of policy which could be issued, its reliability, interpretation, and enforcement - these were the core of the "business of insurance". . . . Whatever the exact scope of the statutory term, it is clear where the focus was - it was on the relationship between the insurance company and the policyholder.

 393 U.S. at 460, 89 S. Ct. at 568-69, 21 L. Ed. 2d at 676 (brackets added). The Court provided further guidance for determining whether a particular practice is part of the "business of insurance" within the meaning of the Act in Group Life & Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 99 S. Ct. 1067, 59 L. Ed. 2d 261 (1979). In Royal Drug Co., the Supreme Court identified three criteria for making that determination:

 
First, whether the practice has the effect of transferring or spreading a policyholder's risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third; whether the practice is limited to entities within the insurance industry. Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119, 129, 102 S. Ct. 3002, 3009, 73 L. Ed. 2d 647, 656 (1982) (summarizing Royal Drug) (brackets added) (emphasis omitted).

 Determination of whether defendants' alleged conduct is exempt "depends largely upon how one defines the 'practice'" which is being challenged. FTC v. Manufacturers Hanover Consumer Services, Inc., 567 F. Supp. 992, 994 (E.D. Pa. 1983). Defendants' argue that the practice is merely the sale of new insurance policies to plaintiff's policyholders. If so, then defendants are correct that their conduct is part of the business of insurance. See Owens v. Aetna Life & Casualty Co., 654 F.2d 218 (3d Cir.), cert. denied, 454 U.S. 1092, 102 S. Ct. 657, 70 L. Ed. 2d 631 (1981). But we must look to the gravamen of the complaint. See Feinstein v. Nettleship Co., 714 F.2d 928, 932 (9th Cir. 1983), cert. denied, 466 U.S. 972, 104 S. Ct. 2346, 80 L. Ed. 2d 820 (1984); Manufacturers Hanover, supra. In doing so, we conclude that defendants' innocuous characterization of the alleged conduct is incomplete. Assuming, as we must, the veracity of plaintiff's allegations, the complaint charges defendants with unlawfully using confidential information and policyholder lists to get plaintiff's customers to switch their business to defendants. We cannot conclude that this constitutes the "business of insurance" within the meaning of McCarran-Ferguson in light of the Royal Drug criteria.

 The first Royal Drug criterion favors plaintiff because risk transfer or spreading is absent from the challenged practice. Of course, it could be argued that risk transfer has taken place here because defendants have transferred the risk originally undertaken by plaintiff to the defendant insurance companies. But Royal Drug and Pireno dealt with the risk transfer from the insured to the insurance company, not between two insurers. See Pireno, supra, 458 U.S. at 130-31, 102 S. Ct. at 3009-10, 73 L. Ed. 2d at 656-57, in which the Supreme Court spoke of the relevant spreading and transfer of risk as occurring between the policyholder and the company.

 The remaining criteria also favor plaintiff. The shifting of business from one insurance company to another is not an integral part of the policy relationship between the insurer and the insured. And the practice of unlawfully using a competitor's confidential information and customer lists is not limited to the insurance industry. See Insurance Board v. Muir, 819 F.2d 408 (3d Cir. 1987) (when entities outside the insurance industry also provide similar administrative services in connection with ...


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