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UNITED STATES v. CHICAGO TITLE AND TRUST COMPANY

June 10, 1965

UNITED STATES OF AMERICA, PLAINTIFF,
v.
CHICAGO TITLE AND TRUST COMPANY, AND KANSAS CITY TITLE INSURANCE COMPANY, DEFENDANTS.



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 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.
  679]).'
    "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 ...

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