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United States District Court, Northern District of Illinois, E. D

June 10, 1965


The opinion of the court was delivered by: Robson, District Judge.

The Government moved, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for a partial summary judgment striking the First Defense of defendant Chicago Title and Trust Company*fn1 that is predicated on the McCarran-Ferguson Act*fn2 (15 U.S.C. § 1011 et seq.), which it asserts renders inapplicable § 7 of the Clayton Act*fn3 (15 U.S.C. § 18). The Chicago Title, an Illinois corporation, licensed to do business only in Illinois, acquired substantially all (over 90%) of the stock of the Kansas City Title Insurance Company,*fn4 a Missouri corporation, in August, 1961. It is this acquisition which the Government seeks to nullify because its effect may be substantially to lessen competition, in violation of § 7, by eliminating competition and potential competition between Chicago Title and Kansas City Title, and between the latter and other companies controlled by Chicago Title. Chicago Title had previously acquired the Title Insurance Corporation of St. Louis,*fn5 and the Title Guaranty Company of Wisconsin.*fn6 The Government maintains there is no genuine issue of fact in view of the proceedings in Missouri, and the affidavits filed in support hereof and the respective state statutes.

It is the Government's contention that the McCarran Act did not, and was never intended to delegate to the States the power to legislate extraterritorially as to § 7 type violations. Further, even though the McCarran Act could be so construed, the States here involved have not so legislated, so that § 7 remains applicable. Nor would legislation comparable to Sherman Act provisions, which do exist in some states, be sufficient to fulfill the McCarran Act requisites. If federal legislation is to be displaced by state regulation, the latter must cover the "same ground" as the federal legislation.

The Government's motion for partial summary judgment challenges the legality of Chicago Title's acquisition of the stock of Kansas City Title as being violative of § 7. The defense of Chicago Title is that § 7 is rendered inapplicable to the business of insurance by the McCarran Act, and the respective state's statutes passed pursuant to that Act's authorization.

Primarily, the controversy revolves around congressional intent in the enactment of the McCarran Act, and its proviso that the Clayton Act should be applicable "to the business of insurance to the extent that such business is not regulated by State law." (Italics supplied.) If the subject of insurance is touched upon by state legislation, but there is no provision quite comparable to § 7 of the Clayton Act, is the business of insurance nevertheless deemed legislated upon within the intent of the proviso?

This cause was instituted in the Western District of Missouri, Western Division, November 9, 1962, by the United States of America against the Chicago Title and Kansas City Title, and removed here, pursuant to 28 U.S.C. § 1406(a), on a finding that Chicago Title does not transact business in Missouri. The instant motion for partial summary judgment was filed May 13, 1964, and was fully and ably brief and orally argued by the respective parties. The complaint alleges that the Chicago Title, an Illinois corporation with its principal office in Chicago, and Kansas City Title, a Missouri corporation, with its principal office in Kansas City, Missouri, are title insurance companies. The statistics pertaining to the title insurance business are set forth below,*fn8 showing the position held by Chicago Title and the interstate impact of the business.

The § 7 offense charged is the acquisition by the Chicago Title of substantially all the capital stock of Kansas City Title, which in premium income was the eighth largest title insurance company in the United States, and, in 1960, had premium income of over $3,800,000; it was licensed to write title insurance in 25 states*fn9 and the District of Columbia, and had branch offices in Arkansas, Tennessee, Mississippi, Colorado, Maryland and North Carolina. It had arrangements with over 300 local agents and was writing insurance in ten states in which the Chicago Title and its subsidiaries were writing title insurance. It maintained agency arrangements with 45 independent abstract companies in Missouri. Kansas City Title and St. Louis Title had, between them, 70% of the title insurance business in Missouri and agency arrangements with 90 of the 111 independent abstract companies in Missouri, those abstractors generally writing exclusively for them. In 1960, the income of Kansas City Title from title insurance premium on insurance written in Missouri amounted to approximately $814,000 of a total of $1,613,000. Kansas City Title had a branch office in Milwaukee, Wisconsin, in 1961, and agency arrangements with 11 independent abstract companies in Wisconsin. Kansas City Title and Wisconsin Title had, between them, agency arrangements with 40 of the total of 58 independent abstract companies in Wisconsin. Chicago Title, Kansas City Title and Wisconsin Title had over 70% of the title insurance business in Wisconsin.

The asserted effect of the acquisition of Kansas City Title by Chicago Title allegedly may be substantially to lessen competition or tend to create a monopoly in the writing of title insurance, including reinsurance, in violation of § 7 by eliminating competition and potential competition between Kansas City Title and Chicago Title, and companies it controls. Further, protecting Chicago Title's monopoly could foreclose Kansas City Title from competing therefor. Defendants have secured control over most of the title insurance business in Missouri and Wisconsin and their domination will tend toward the elimination of competition there. Finally, the concentration of control over title insurance business achieved by Chicago Title will tend to suppress competition and potential competition in all areas where it and its subsidiaries write title insurance.

In support of its motion, the Government cites the depositions of three successive Superintendents of Insurance of Missouri from 1947 to date, which stated that they knew of no Missouri statute or regulation regulating the acquisition by a foreign title insurance company of the stock of a domestic title insurance company.

The Government prays that Chicago Title's acquisition of Kansas City Title be adjudged in violation of § 7 and that it be required to dispose completely of its stock interest therein and enjoined from reacquiring same, and be enjoined, pursuant to § 15 of the Clayton Act (15 U.S.C. § 25), from ever acquiring an interest in another title insurance company without prior authority of this court.

The First Defense which the Government seeks stricken by a partial summary judgment is predicated on Chicago Title's asserted exemption from federal regulation, by virtue of the McCarran Act, in that there is "continuous and pervasive" state regulation of the title insurance business, requiring a state license to do business in each state. It asserts Kansas City Title can get a renewal of that license only if it complies with the state's regulations. Chicago Title cites the Revised Statutes of Missouri, Chs. 374, 375, 379, 381 and 416, V.A.M.S., requiring a specified paid-up capital stock and a deposit with the state; provision for reasonableness of title insurance risk rates, and the statute (§ 381.200) further states that nothing in the Act was intended to prohibit or discourage reasonable competition. Another provision prohibits transferring the business of the insurer or entering into any transaction which has the effect of merging its business in the business of another organization without approval of the Superintendent of Insurance of Missouri or violating any other law of Missouri, and among the other laws of Missouri is a comprehensive state antitrust law, which empowers the state court to issue an injunction to liquidate the insurer. Chicago Title also cites the Wisconsin statutes (Chs. 133, 200, 201, 207, 209 and 212), which regulate title insurance business. Before Chicago Title made its offer to acquire the stock of Kansas City Title, it supplied the regulatory authorities of Missouri, Wisconsin and Illinois with the relevant facts and requested them to rule on the legality of the proposed acquisition and it is stated in the First Defense that each of them ruled favorably thereon.

Chicago Title urges that Missouri and Wisconsin, in 1947, each responded to the moratorium provided by the McCarran Act by supplementing their existing antitrust laws with new legislation regulating the business of insurance which adopts the "public utility approach" of rate regulation.

The court concludes that the Government's motion for partial summary judgment should be granted, striking Chicago Title's First Defense predicated on the McCarran Act. It so concludes for these reasons:

(1) While the Congressional Record reveals the discussion of the senators which indicates their intention to have the Act applicable to combinations affecting interstate commerce, where unregulated by state law, it was their understanding that the Act was subject to constitutional limitation of due process theretofore stated in the prior controlling Supreme Court decisions.*fn10 Nor, presumably, could Congress empower states to act in contravention of those limitations.

(2) The Supreme Court decisions*fn11 after the McCarran Act would also indicate the inability of states to affect matters extraterritorially.

(3) The respective states here involved have not acted pursuant to the McCarran Act empowering them to legislate on insurance matters, in that they do not have a provision precisely comparable to § 7 proscribing acquisition of stock of another corporation. It is not sufficient that a state have legislated on other insurance or antitrust matters.

(4) The allegations in the pleadings, affidavits, and depositions would indicate there is no genuine issue of fact that the action of defendant would at least tend substantially to lessen competition violative of § 7.

The Government argues that "A State law, to meet the requirements of `regulation' under the McCarran Act, must be enforcible by a State through the exercise of its own powers. * * * Travelers Health Association v. Federal Trade Commission, 298 F.2d 820 (C.A.8, 1962)." Also, as divestiture, which is sought in this case, is the usual, most appropriate and effective remedy for a violation of § 7 (United States v. E. I. du Pont de Nemours & Co. et al., 366 U.S. 316, 81 S.Ct. 1243, 6 L.Ed.2d 318 (1961)), no state regulation would be effective to displace § 7 under the McCarran Act unless the state had the power to provide for an equivalent remedy and had the means for its enforcement against Chicago Title. As Chicago Title has immunized itself from suit in all states but Illinois, no law of any other state could, under the McCarran Act, exempt the acquisition by Chicago Title of Kansas City Title from the operation of § 7. The Government also asserts that Sherman Act type legislation by the states is not comparable to § 7 in that the latter is aimed at incipient combinations for which there is not the requirement of certainty or actuality of injury.

It is pointed out by the Government that Illinois has no law re stock acquisitions similar to § 7. Its only act regulating title insurance is 73 Ill.Rev.Stat. 1963 §§ 478-483. (The Insurance Code is expressly made not applicable to title insurance companies.) It is contended that the Act is aimed at maintaining solvency of the title companies and not the regulation of acquisition of stock. The approval of the Director of Financial Institutions of Illinois of the stock acquisition of Kansas City Title was not sought. Similarly, Chapter 381, Mo.Rev. Stat. 1959 pertains to the maintenance of reserves and the powers of the Superintendent of Insurance to assure compliance, but there is nothing pertaining to the acquisition by a foreign corporation of stock in a domestic title insurance corporation.

The Government maintains that Chicago Title's acquisition of Kansas City Title had an effect in at least ten other states — a "multistate impact" — and no one state has the power by its regulations to sanction the acquisition in any other state; and of the 12 states, only four: Arkansas, Georgia, Louisiana and Virginia, have any antitrust statutes similar to § 7 although most of them have provisions similar to the Sherman Act. Even as to the four states having some kind of statute pertaining to stock acquisition, since Chicago Title is not licensed to do business in those states, there could be no enforcement of the state statutes and therefore the McCarran Act exemption from the operation of § 7 cannot obtain (Travelers Health Association v. Federal Trade Commission, 298 F.2d 820 (8th Cir. 1962)).

In Chicago Title's motion to dismiss, filed in the transferor district, it stated that it did not transact business in Missouri. The basis of the Kansas City Title's motion to dismiss was that the § 7 charge is that Chicago Title made the acquisition of the stock, and not the Kansas City Title and therefore there is not, and can be no charge against Kansas City Title.

The affidavit of Paul W. Goodrich, president of Chicago Title, stated Chicago Title was qualified to transact business only in the State of Illinois, and not in the State of Missouri. The affidavit goes on to state that some of its stock was exchanged*fn12 for the stock of Kansas City Title and in that way acquired substantially all of its stock. Chicago Title is not qualified under the Revised Statutes of Missouri §§ 381.010 to 381.200, and has not made the deposits with the Missouri Superintendent of Insurance as required by § 381.030. An "additional" affidavit of Mr. Goodrich states that Chicago Title files an income tax return only for itself, reporting thereon the dividends it receives from Kansas City Title. Further, the assets of the latter company do not appear on Chicago Title's balance sheet, except that its stock is an asset.

To maintain its position that Missouri has legislated on the subject matter here involved, Chicago Title points out that under the Missouri law (§ 381.040 Revised Statutes of Missouri), each title insurer is required to file a very detailed annual report which includes questions as to whether the title insurer owns stock in other title insurers, and as to the ownership of the stock of the reporting title insurer. It reports its exact volume of business in each of the fifty states and its corporate relationships.

The title insurance law requires the Superintendent of Insurance to make comprehensive examinations and hold hearings to satisfy himself that each insurer is complying with the requirements of the law, and may revoke a license if he finds to the contrary.

Chicago Title cites the fact that it made full submission of the facts to the insurance commissioners in all 27 states in which Kansas City Title is qualified to do business. No objection was heard from any of them. The Missouri Superintendent of Insurance, after a conference, in writing informed Chicago Title that it had "no objection to the transaction." The Wisconsin Insurance Superintendent replied: "The proposed exchange is acceptable to this department."

Chicago Title lays great stress upon the Missouri decision of State of Missouri v. International Harvester Co. of America, 237 Mo. 369, 141 S.W. 672, affirmed 234 U.S. 199, 34 S.Ct. 859, 58 L.Ed. 1276 (1914), in which the State of Missouri brought quo warranto proceedings against a Wisconsin company, licensed to do business in Missouri, but which had been absorbed by a New Jersey corporation that was not licensed to do business in Missouri. The state court was affirmed in its ruling excluding the Wisconsin corporation from its corporate rights, under Missouri law, and that its property be forfeited or deemed confiscated or it be fined. The Government in distinguishing this decision points out that Missouri's action was against the foreign corporation licensed to do business there, and not against the foreign corporation not licensed to do business, which is the essence of § 7. And, in fact, there are no Missouri or Wisconsin statutes granting supervisory power over stock acquisitions by a non-licensed foreign corporation.

In answer, the Government points out that the Missouri court noted that inasmuch as the New Jersey company, not being a party to the suit, could not be subjected to a fine, and not being within the state, was not subject to expulsion, and could only be reached by affecting its representative in the state. Chicago Title, the Government asserts, maintains that Kansas City Title is not its agent, and it has no agent in Missouri. Similarly, under the State ex inf. Barker v. Armour Packing Co. case, 265 Mo. 121, 176 S.W. 382, the state's action was directed against companies licensed to do business in the state, which had transferred their stock to a foreign company not licensed in the state.

I. The Congressional Debate. There was much congressional debate on the passage of the McCarran Act, which would indicate that Sen. Pepper at least was cognizant of the "vexing"*fn13 problem this case presents, and he was adamant in his persistence to get an answer as to whether the Act meant to confer on the states the power to legislate in respect to interstate aspects of insurance antitrust agreements, which the Clayton and Sherman Acts would prohibit.

A careful reading of the complete Congressional Record pertaining to the Act would indicate that it was the intent of Congress to permit state legislation, during the three-year moratorium, on all matters, even those covered by the Clayton and Sherman Acts, with the three exceptions of coercion, boycott or intimidation. That was Sen. Ferguson's express understanding. However, Sen. O'Mahoney probably believed that state legislation would be circumscribed by the federal antitrust laws. Sen. McCarran also felt that states which enacted laws in violation of the federal antitrust laws would do so at their "own hazard," and stressed that the Act was circumscribed by prior Supreme Court decisions.

Sen. O'Mahoney stated in response to Sen. Pepper's detailed question in respect to the Act and state legislation re the federal antitrust acts, at 1480:

    "I take it that the Senator is apprehensive
  lest a statute passed by a State attempting to
  give validity to a private agreement to regulate
  would be recognized under this language. I think
  it would not, because on page 351 of the same
  case, Parker against Brown, I find this language
  from the Supreme Court:

    "`True, a State does not give immunity to those
  who violate the

  Sherman Act by authorizing them to violate it, or
  by declaring that their action is lawful
  (Northern Securities Co. v. United States,
  193 U.S. 197, 332, 344-347 [24 S.Ct. 436, 48 L.Ed.

    "Therefore I have no doubt in my own mind that no
  State, under the terms of the conference report,
  could give authority to violate the Sherman
  antitrust law." (Italics supplied.)

Further excerpts from the Congressional Record, which sustain the court's conclusion as to the probable congressional intent in passing the McCarran Act, are set forth in the margin.*fn14

Sen. McCarran issued a word of caution at the very beginning of the consideration stating, at 1442, of the Congressional Record:

    "It is not the intention of Congress in the
  enactment of this legislation to clothe the States
  with any power to regulate or tax the business of
  insurance beyond that which they had been held to
  possess prior to the decision of the United States
  Supreme Court in the Southeastern Underwriters
  Association case. * * [Y]our committee is of the
  opinion that we should provide for the continued
  regulation * * * of insurance by the States,
  subject, always, however, to the limitations set
  out in the controlling decisions of the United
  States Supreme Court. * * *"*fn15 (Italics

  While it cannot be said there was a clear "meeting of the minds" of the senators on the import of the McCarran Act, it is apparent that most of the speakers intended that the states be given power to legislate during the moratorium period even as to topics covered by the Sherman, Clayton, and Federal Trade Commission Acts, with the exception of the three specified matters: duress, boycott, or intimidation, at least so far as they constitutionally could do so.

The specification of certain exemptions from the application of those Acts negates the conclusion that other exemptions were intended.*fn16 Furthermore, it would seem the purpose of the McCarran Act would be futile and purposeless if it were not meant to empower the states to legislate to some extent in the fields of the Sherman and Clayton Acts.

However, it seems reasonably clear that the Federal Acts were to obtain in those cases where the states did not take advantage of the privilege granted them to legislate on those subjects. The very manner of phrasing, affirmatively, that the Federal Acts "shall be applicable" to the extent that the "business of insurance * * * is not regulated by State law," would indicate a positive intention of Congress to have those acts continue in control.

There is an interesting law review note on the instant problem in 46 Minn. L.Rev. 1088, "Applications of Federal Antitrust Laws to the Insurance Industry" wherein this conclusion was reached, at 1110:

    "The McCarran Act provides two routes by which
  the insurance industry may be subject to federal
  antitrust regulation. The first requires a
  showing that the states have not regulated within
  the meaning of section 2(b). Since
  `regulation' requires more than mere `legislation,'
  state laws pre-empt federal antitrust laws only
  where it is demonstrated that the state laws also
  provide for enforcement. Whether the question is
  one of jurisdictional competence to regulate, as in
  the case of the unauthorized foreign insurer, or
  whether the question is one of sufficient statutory
  coverage of the field, as in the case of Clayton
  Act violations, the requirement of effective state
  regulation determines federal jurisdiction."
  (Italics supplied.)

It is also said in the article, at 1093-1097:

    "The proviso to section 2(b) limits the
  application of federal antitrust laws to the
  business of insurance `to the extent that such
  business is not regulated by State law.

  * * * Since the Act gives no indication of what
  constitutes state regulation, the Act's
  underlying policies must be examined to ascertain
  its meaning.

    "The McCarran Act was designed to continue
  state regulation of the insurance business.
  Congress determined that the states were better
  equipped than the federal government to regulate
  the insurance industry because of their proximity
  to the local insurance industry's problems and
  because of their experience and expertness in
  regulating the industry. Nonetheless, Congress
  did seek to place some limitation on the
  preeminent position given state regulation. By
  providing that federal antitrust laws were still
  applicable to the extent that the states failed
  to regulate, Congress apparently sought to
  balance its protection of state regulation with
  the requirement that there be complete regulation
  (whether state or federal). Maintenance of a
  balance between these interests would seem to
  require that federal antitrust laws should be
  pre-empted only if a state's insurance laws (1)
  cover the subject matter, (2) regulate the subject
  matter to the extent state power permits, and (3)
  provide for effective administration of the laws
  applying to the subject matter."

    "On the other hand, the Supreme Court has
  recognized that some types of state legislation
  may fail to constitute state regulation because
  the subject matter may not be open to effective

    "The Supreme Court's approach in FTC v.
  Travelers Health Ass'n seems to be the better
  view. The Court indicated that section 2(b)
  pre-empts the federal law only if the subject
  matter is within the state's jurisdictional power
  and if the state insurance law provides for
  effective administration. The insurance industry
  constitutes a substantial segment of the national
  economy; obviously, it alone should not be
  allowed to operate outside of both state and
  federal antitrust laws."

    "Even if a state's laws are effectively
  administered, there may be some areas which the
  state cannot `regulate' and which, therefore, may
  not be exempt from the federal antitrust laws.
  Because there are effective limits on the state's
  power, the state may lack the power to assert its
  jurisdiction over `foreign' insurance companies and
  thus fall short of the McCarran Act's requirement
  of `regulation.' This jurisdictional disability,
  therefore, may determine whether the state can
  effectively regulate an insurer and, thus, whether
  federal antitrust laws apply." (Italics supplied.)

II. The Supreme Court Decisions after the McCarran Act. The United States Supreme Court has clearly indicated that the McCarran Act did not intend to confer upon the individual states the right to legislate extraterritorially so far as the Federal Trade Commission Act*fn17 was concerned and held that no state regulation could operate "to displace this federal law" except by the state in which the practice had its "impact." The McCarran Act was not intended to permit a single state to take "from the residents of every other State the protection of the * * * Act." (Federal Trade Commission v. Travelers Health Association, 362 U.S. 293, 80 S.Ct. 717 (1960))

That case involved a Nebraska company selling health insurance, licensed only in Nebraska and Virginia, and transacting business with residents of every state. Nebraska had a statute proscribing unfair methods of competition by residents of Nebraska "in any other state." The Federal Trade Commission had entered a cease and desist order against the company's practices, which order the Court of Appeals set aside, and in turn was vacated by the Supreme Court. The Supreme Court said, 362 U.S. at 296, 80 S.Ct. at 719:

    "The court [of Appeals] concluded that `[w]ith
  every activity of the [respondent], * * * subject
  to the supervision and control of the Director of
  Insurance of Nebraska, we think that the
  [respondent's] practices in the solicitation of
  insurance by mail in Nebraska or elsewhere
  reasonably and realistically cannot be held to be
  unregulated by State law.' The court accordingly
  decided that the Commission was `without
  authority to regulate the practices of the
  [respondent] in soliciting insurance.'"

The Supreme Court quoted from its prior opinion in Federal Trade Commission v. National Casualty Co., 357 U.S. 560, at 564, 78 S.Ct. at 1262, saying (362 U.S. 293, at 297, 80 S.Ct. 717, at 720):

    "The Court expressed no view as to `the intent
  of Congress with regard to interstate insurance
  practices which the States cannot for
  constitutional reasons regulate
  effectively. * * *'" (Italics supplied.)

The court continued, at 297-299, at 720 of 80 S.Ct.:

    "* * * Rather, we are asked to hold that The
  McCarran-Ferguson Act operates to oust the
  Commission of jurisdiction by reason of a single
  State's attempted regulation of its domiciliary's
  extraterritorial activities. But we cannot believe
  that this kind of law of a single State takes from
  the residents of every other State the protection
  of the Federal Trade Commission Act. In our opinion
  the state regulation which Congress provided should
  operate to displace this federal law means
  regulation by the State in which the deception is
  practiced and has its impact." (Italics supplied.)

Again, the Supreme Court said, at 300-302, at 721 of 80 S.Ct.:

    "* * * Yet, from that somewhat limited debate,
  as well as the earlier debate in both Houses as
  to the effect of the Sherman and Clayton Acts, it
  is clear that Congress viewed state regulation of
  insurance solely in terms of regulation by the
  law of the State where occurred the activity
  sought to be regulated. There was no indication of
  any thought that a State could regulate activities
  carried on beyond its own borders.

    "Thus the report on the original House bill
  stated: `It is not the intention of Congress in
  the enactment of this legislation to clothe the
  States with any power to regulate or tax the
  business of insurance beyond that which they had
  been held to possess prior to the decision of the
  United States Supreme Court in the Southeastern
  Underwriters Association case.'

    "* * * The three Senate conferees * * *
  repeatedly emphasized that the provision did not
  authorize state regulation of extraterritorial
  activities. * * * Typical is the following
  statement by Senator O'Mahoney: `When the
  moratorium period passes, the Sherman Act,
  the Clayton Act, and the Federal Trade Commission
  Act come to life again in the field of interstate
  commerce, and in the field of interstate
  regulation. Nothing in the proposed law would
  authorize a State to try to regulate for other
  States, or authorize any private group or
  association to regulate in the field of interstate
  commerce.' 91 Cong.Rec.1483.

    "Not only this specific legislative history,
  but also a basic motivating policy behind the
  legislative movement that culminated in the

  of the McCarran-Ferguson Act serve to confirm the
  conclusion that when Congress provided that the
  Federal Trade Commission Act would be displaced to
  the extent that the insurance business was
  `regulated' by state law, it referred only to
  regulation by the State where the business
  activities have their operative force. One of the
  major arguments advanced by proponents of leaving
  regulation to the States was that the States were
  in close proximity to the people affected by the
  insurance business and, therefore, were in a better
  position to regulate that business than the Federal
  Government. * * * Such a purpose would hardly be
  served by delegating to any one State sole
  legislative and administrative control of the
  practices of an insurance business affecting the
  residents of every other State in the Union. * * *

    "* * * [T]he impediments, contingencies, and
  doubts which constitutional limitations might
  create as to Nebraska's power to regulate any given
  aspect of extraterritorial activity serve only to
  confirm the reading we have given to § 2(b) of the
  Act." (Italics supplied.)

After remand from the Supreme Court, it was held in Travelers Health Association v. Federal Trade Commission, 298 F.2d 820 (8th Cir. 1962), that the Federal Trade Commission had jurisdiction to regulate advertising sent by a Nebraska insurer into other states, where 48 states did not possess ample means to regulate the advertising on the basis of their own law, even though the insurer's business was subject to regulation by Nebraska, and another state in which it was licensed to solicit and write insurance. The court said, at 823 of 298 F.2d:

    "* * * On the opinions of the Supreme Court in
  the present case and in the National Casualty
  case, however, it is, we think, apparent that,
  under the McCarran-Ferguson Act, the situation
  cannot be regarded as `regulated by State law',
  except in terms of each state's sovereignty and of
  its having on this basis legislative provision
  possessing the character of regulation and capable
  of being enforced through the exercise of its own

    "To the extent, therefore, that a state, for
  control of the acts of Travelers Health
  Association to be effected as to it, must depend
  on any provisions, instrumentalities or
  processes of another state, we believe that its
  situation cannot, within the McCarran-Ferguson Act,
  be held to be `regulated by State law'. The state
  must itself be legally able to do, through its own
  provisions, instrumentalities and processes,
  everything that is necessary to the effecting of
  control as to its situation." (Italics supplied.)

The court further said, at 825 of 298 F.2d:

    "To summarize — our holding here rests on the
  basis that, for forty-eight of the states to be
  able to exercise ultimate legal compulsion against
  Travelers Health Association in attempted
  regulation, they must resort to the statutes,
  instrumentalities and processes of another state
  (Nebraska) for effectuation of their orders,
  decrees and judgments; they must convert those
  decrees and judgments into decrees and judgments of
  such other state; and they further must invoke that
  state's auxiliary processes for effectuation of
  such decrees and judgments, in the status of
  products of the courts of that state and not of
  their own. Thus, we do not believe it is possible
  to say that as to these states the Association's
  advertising is `regulated by State law', within the
  concept which it seems to us that term implies, of
  being able to control by local power and means."
  (Italics supplied.)

In State Board of Insurance et al. v. Todd Shipyards Corp., 370 U.S. 451, 82 S.Ct. 1380, 8 L.Ed.2d 620 (1962), a New York corporation did business and owned real and personal property in Texas. It sued to recover taxes levied and collected by Texas on insurance covering its property in Texas. All the transactions pertaining to the insurance took place outside of Texas. The insurers were domiciled in London and were not licensed in Texas and did no business and had no office or agents in Texas. The insurance was bought and issued in New York and the premiums thereon and claims thereunder were payable in New York. It was held that in the light of the history and provisions of the McCarran Act the Texas tax on these wholly out-of-state transactions was invalid. The Supreme Court quoted from Senator McCarran's statement, at 456 of 370 U.S., at 1383 of 82 S.Ct.:

    "* * * `[W]e give to the States no more powers
  than those they previously had, and we take none
  from them.' * * *

    "So, while Congress provided * * * that the
  insurance business `shall be subject to the laws
  of the several States which relate to the
  regulation or taxation of such business,' it
  indicated without ambiguity that such state
  `regulation or taxation' should be kept within
  the limits set by * * * [three Supreme Court

    "The power of Congress to grant protection to
  interstate commerce against state regulation or
  taxation * * * or to withhold it * * * is so
  complete that its ideas of policy should

The case of Federal Trade Commission v. National Casualty Co.,
357 U.S. 560, 78 S.Ct. 1260 (1958), recognized the limitations of the McCarran Act, stating, at 564 of 357 U.S., at 1262 of 78 S.Ct.:

    "* * * Whatever may have been the intent of
  Congress with regard to interstate insurance
  practices which the States cannot for
  constitutional reasons regulate effectively, that
  intent is irrelevant in the cases before us."
  (Italics supplied.)

In United States v. Philadelphia National Bank et al., 374 U.S. 321, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963), § 7 of the Clayton Act was held applicable to bank mergers despite the Bank Merger Act of 1960. The court stated, inter alia, at 348, 83 S.Ct. at 1733:

    "* * * It is settled law that
  `[i]mmunity from the antitrust laws is not lightly
  implied.' * * * This canon of construction, which
  reflects the felt indispensable role of antitrust
  policy in the maintenance of a free economy, is
  controlling here. For there is no indication in the
  legislative history to the 1950 amendment of § 7
  that Congress wished to confer a special
  dispensation upon the banking industry * * *."
  (Italics supplied.)

Quite recently, in a District Court case: Maryland Casualty Company v. American General Insurance Company, 232 F. Supp. 620 (1964), Finding of Fact No. 2, stated (¶ 71,188 CCH 1964 Trade Cases):

    "No regulation of the proposed acquisition of
  control of Maryland or its agencies under Texas or
  Maryland statutes can be adequate or effective
  because of territorial limitations of Texas and
  Maryland regulation. Texas and Maryland statutes do
  not provide for adequate or effective regulation of
  the proposed acquisition of control of Maryland or
  its agencies and there is no such regulation
  thereunder as precludes this suit under the
  antitrust laws." (Italics supplied.)

In Brown Shoe Co., Inc. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962), the Government brought suit to enjoin consummation of a merger of two corporations on the ground that its effect might be substantially to lessen competition or to tend to create a monopoly in the production, distribution and sale of shoes, in violation of § 7. The Supreme Court affirmed the District Court's finding that the merger would increase concentration in the shoe industry, eliminate one of the corporations as a substantial competitor in the retail field, and establish a manufacturer-retailer relationship which would deprive all but the top firms in the industry of a fair opportunity to compete, and that, therefore, it probably would result in a further substantial lessening of competition and an increased tendency toward monopoly.

The court said, at 316 et seq., 82 S.Ct. at 1519:

    "First, there is no doubt that Congress did
  wish to `plug the loophole' and to include within
  the coverage of the Act the acquisition of assets
  no less than the acquisition of stock.

    "Second, by the deletion of the
  `acquiring-acquired' language in the original
  text, it hoped to make plain that § 7 applied not
  only to mergers between actual competitors, but
  also to vertical and conglomerate mergers whose
  effect may tend to lessen competition in any line
  of commerce in any section of the country.

    "Third, it is apparent that a keystone in the
  erection of a barrier to what Congress saw was
  the rising tide of economic concentration, was
  its provision of authority for arresting mergers
  at a time when the trend to a lessening of
  competition in a line of commerce was still in
  its incipiency. * * *

    "Fifth, at the same time that it sought to
  create an effective tool for preventing all
  mergers having demonstrable anticompetitive
  effects, Congress recognized the stimulation to
  competition that might flow from particular

In Pan American World Airways, Inc. v. United States,
371 U.S. 296, 83 S.Ct. 476, 9 L.Ed.2d 325 (1963), it was held that despite the Civil Aeronautics Act and the Federal Aviation Act that, at 305 and 307, at 482 of 83 S.Ct.:

    "We, therefore, refuse to hold that there are no
  antitrust violations left to the Department of
  Justice to enforce. (Italics supplied.)

    "The legislative history was reviewed in
  [citing case] * * *, the Court concluding that
  `unfair competition was that practice which
  destroys competition and establishes
  monopoly.' * * * `All three statutes [the Sherman
  and Clayton Acts and § 5] seek to protect the
  public from abuses arising in the course of
  competitive interstate and foreign trade.'"

Earlier, and with a somewhat less federally slanted view of the McCarran Act, the Supreme Court said in Prudential Insurance Company v. Benjamin, 328 U.S. 408, at 429, 66 S.Ct. 1142, at 1155, 90 L.Ed. 1342 (1946):

    "Obviously Congress' purpose was broadly to
  give support to the existing and future state
  systems for regulating and taxing the business of
  insurance. This was done in two ways. One was by
  removing obstructions which might be thought to
  flow from its own power, whether dormant or
  exercised, except as otherwise expressly provided
  in the Act itself or in future legislation. The
  other was by declaring expressly and
  affirmatively that continued state regulation and
  taxation of this business is in the public
  interest and that the business and all who engage
  in it `shall be subject to' the laws of the
  several states in these respects."

III. Effect of State Legislation. The background for consideration of the effect of state legislation is found in the statement of Sen. McCarran in the Congressional Record, at 1443:

    "* * * [T]he States may, if they see fit to do
  so, enact legislation for the purpose of
  regulation. If they do enact such legislation, to
  the extent that they regulate they will have
  taken the business of insurance in the respective
  States out from under the Sherman Antitrust

  Act, the Clayton Act. * * * If * * * the States
  do not enact legislation for regulatory purposes,
  then on January 1, 1948, the Sherman Act, the
  Clayton Act * * * will become immediately

    "It [the Supreme Court] put it [insurance]
  squarely under the Sherman Act, the Clayton
  Act. * * The pending bill is for the
  purpose * * * that the business of insurance
  shall not be interfered with by any Federal power
  under * * * the Clayton Act. * * * So during the
  period of moratorium the various States
  themselves may take steps to regulate the
  business of insurance."

    "[I]f in the meantime the States themselves had
  regulated the business of insurance, the * * *
  Clayton Act * * * would not become effective."

Senator Pepper on that point stated, at 1478:

    "[N]owhere in the * * * bill is there any
  authority to the States to prevent the
  applicability of the Sherman Act and the Clayton
  Act after 3 years to the business of insurance in
  the states."

Chicago Title stresses the fact that both Missouri and Wisconsin have the "public utility approach" in respect to insurance rates, which assures reasonable rates to the public and a reasonable margin of profit for the company, thereby achieving the same objective which the antitrust acts achieve by fostering competition. It says that the utility approach is even more advantageous in that it does not result in wasteful insolvencies. Statutory provisions of that nature constitute "regulation" within the McCarran Act constituting a pre-emption by the states of the field, and precluding the applicability of the Clayton Act. (California League of Ind. Ins. Pro. v. Aetna Cas. & S. Co., 175 F. Supp. 857 (S.D.Cal. 1959); Miley v. John Hancock Mutual Life Insurance Co., 148 F. Supp. 299 (D.Mass. 1957)).

The Court believes that this position beclouds the issue. Concededly the states in those instances have "regulated" insurance and such regulation is within the McCarran Act and therefore without the Federal ambit. The instant case is one where the states have not so acted, comparably to § 7, even though in one respect their "public utility approach" may accomplish the same end as antitrust regulation. The Federal Government has decided competition is healthy economics and that intent is not necessarily satisfied because one of its ends is achieved by another means.

That view is also pertinent to defendant's great reliance on the early Missouri decisions,*fn18 which reveal a power in that state to censure an insurance company to the point of extinction, which power would be applicable to Kansas City Title, and therefore is tantamount to regulating the foreign owner, Chicago Title, which is not found in the jurisdiction. The exercise of that drastic club on the resident company would benefit the policyholders in the dissolved company very little, as compared to stopping the contemplated action in its tracks before injury is done.

The statute of Missouri imposes some regulations on title insurance companies, deposit of securities, reports, etc. Conceding, as Chicago Title argues, that the Missouri statute, § 416.010 prohibiting "agreements * * * in restraint of trade" and § 416.040 prohibiting "arrangements * * * which tend to lessen * * * competition," encompass title insurance companies, nevertheless, they do not cover Chicago Title's absentee acts, nor could they be enforced against Chicago Title. The affidavits of successive Missouri Superintendents of Insurance state they know of no Missouri statute regulating the Chicago Title transaction here involved.*fn19

Illinois, while having a law regulating title insurance,*fn20 has no act comparable to § 7. It is expressly not within the insurance code.*fn21 The Illinois antitrust statute has been construed not to apply to combinations with parties outside the state,*fn22 or to the business of insurance.*fn23

There is an outline of the respective statutes of other states involved in this acquisition in the supporting brief. A reading of those provisions would indicate their inapplicability to the instant transaction.

The court does not view the "reasonable rate" statute of Missouri*fn24 or Wisconsin,*fn25 though it be "indisputably regulation of the very heart of the business of title insurance," to be of the same nature as § 7's provision, although the "forces of competition set prices." It is one factor therein. With or without competition state regulation of prices is effective.

IV. Effect of Acquisition as Lessening Competition. There would seem to be little question that the effect of Chicago Title's acquisition of Kansas City Title, in view of the principles applicable to the facts herein alleged, "may be substantially to lessen competition, or to tend to create a monopoly" in a "section of the country." Chicago Title's stature in the nation and in Illinois, its relative volume of business, its territorial coverage, as heretofore detailed, its past company acquiring program, all indicate that the acquisition here assailed would fall within the ban of the Clayton Act.

It is asserted by the Government that in ten out of the eleven states here involved, Chicago Title is accused of controlling ten per cent or more of the total title insurance. In Missouri and Wisconsin, the acquisition resulted in control of over sixty-five per cent of the title insurance business, eighteen per cent in Louisiana, thirty-nine per cent in Kansas and sixty-six per cent in Arkansas.

In discussing the statutory test as to whether the effect of a merger "`may be substantially to lessen competition' `in any line of commerce in any section of the country,'" the court in United States v. Philadelphia National Bank, 374 U.S. 321, at 357, 83 S.Ct. 1715, at 1738, 10 L.Ed.2d 915, said:

    "The proper question to be asked in this case
  is not where the parties to the merger do
  business or even where they compete, but where,
  within the area of competitive overlap, the
  effect of the merger on competition will be
  direct and immediate."

It further said, at 362, 83 S.Ct. at 1741:

    "It requires not merely an appraisal of the
  immediate impact of the merger upon competition,
  but a prediction of its impact upon competitive
  conditions in the future; this is what is meant
  when it is said that the amended § 7 was intended
  to arrest anticompetitive tendencies in their

  It continued, at 363, 83 S.Ct. at 1741:

    "This intense congressional concern with the
  trend toward concentration warrants dispensing,
  in certain cases, with elaborate proof of market
  structure, market behavior, or probable
  anticompetitive effects. Specifically, we think
  that a merger which produces a firm controlling
  an undue percentage share of the relevant market,
  and results in a significant increase in the
  concentration of firms in that market is so
  inherently likely to lessen competition
  substantially that it must be enjoined in the
  absence of evidence clearly showing that the
  merger is not likely to have such anticompetitive

In United States v. El Paso Natural Gas Co. et al.,
376 U.S. 651, 84 S.Ct. 1044, 12 L.Ed.2d 12 (1964), the Federal Government filed suit under § 7 charging that the acquisition by a natural gas company, then the sole out-of-state supplier to California, of the stock and assets of another gas company, one of the two major interstate pipelines serving the trans-Rocky Mountain states, which had made some efforts to enter the California market "may be substantially to lessen competition." The court held that the words "may be substantially to lessen competition" in § 7 manifests Congress' concern with probabilities and not with either certainties or ephemeral possibilities.

The force of the Sherman Act on the insurance business was dwelt upon in United States v. South-Eastern Underwriters Assn., 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944), which holding of applicability called forth the McCarran Act.

The motion of the Government for a partial summary judgment is granted, and the Government is directed to submit an appropriate draft order within ten days.

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