the restraint. Id. Only if the court finds that the restraint lacks any redeeming virtue will the court apply per se analysis to it. Id.
Defendants assert that their justification for the termination of the MFP was that the MFP was unprofitable. Further, they assert that their justification for having HCSC notify MFP subscribers was that Illinois law required Blue Cross-WI to offer conversion coverage upon termination of the MFP. The court finds that these justifications remain in dispute; Plaintiffs argue that the reasons Defendants offer are a mere pretext for stifling competition. Because a genuine issue of material fact remains as to the Defendants' reasons for terminating the MFP, the court refuses to decide at this juncture whether per se analysis should apply, and therefore denies Plaintiffs' motion for partial summary judgment.
The Agreement Requirement
Defendants argue that summary judgment should be granted in their favor because 1) Plaintiffs have not established the existence of an agreement in violation of Section 1 of the Sherman Act; 2) Plaintiffs lack standing; and 3) the conduct at issue in this suit is exempt from the Sherman Act because of the state action doctrine, and because of the McCarren-Ferguson Act. First, the court rejects Defendants' assertion that Plaintiffs have not established the existence of a restraining agreement. Although Section 1 requires that an agreement be proven, it need not be proven by direct evidence of an express agreement. Interstate Circuit, Inc. v. U.S., 306 U.S. 208, 226, 83 L. Ed. 610, 59 S. Ct. 467 (1939). Evidence of a conspiracy is rarely proven directly, and is often proven by circumstantial evidence.
Although Defendants flatly assert that they never agreed to allocate markets or to boycott Plaintiffs, this assertion does not rule out the possibility that Defendants agreed to some action which had one or both of these effects. Defendants argue that HCSC did not need Blue Cross-WI's assent or agreement to terminate its servicing of the MFP for Blue Cross-WI. Even if this is true, it is irrelevant; the Sherman Act prohibits parties from combining or agreeing to actions which result in a restraint of trade, even if one or both of the parties could have taken these actions unilaterally.
The Supreme Court has recently defined what an antitrust plaintiff must show to survive a motion for summary judgment: "that the inference of conspiracy is reasonable in light of the competing inferences of independent action or collusive action that could not have harmed [the plaintiff]." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). Here, Plaintiffs have offered, as evidence of a restraining agreement, documents which present the reasonable inference that Defendants agreed to the decision to terminate the MFP, which was an insurance plan competing with an insurance plan of HCSC.
Defendant HCSC, in its brief in support of its motion for summary judgment, refers to two of the documents Plaintiffs offer: a letter, dated July 8, 1986, from Mr. Oschman (of Blue Cross-WI) to Mr. Oakes (of HCSC) which mentions "our agreement," and a document entitled "Memorandum of Understanding" which speaks of the "understanding" of Blue Cross-WI regarding the termination of the MFP. Plaintiffs' brief in support of its motion for partial summary judgment, Exhibits 2 and 3. The court finds that these and other documents which Plaintiffs have offered as evidence, described in the Background section of this Order, present an inference of conspiracy which is reasonable in light of the competing inferences that Defendants acted independently, or that Defendants' actions could not have harmed Plaintiffs.
To establish standing in an antitrust action, plaintiffs must show that they have suffered antitrust injury, and that are the proper parties to bring suit. Southwest Suburban Bd. of Realtors, Inc. v. Beverly Area Planning Ass'n, 830 F.2d 1374, 1377 (7th Cir. 1987). Plaintiffs must show that their injury was the direct consequence of the alleged antitrust violation, that the extent of their injury is determinable and not speculative, and that recovery by them will not duplicate potential recovery by other plaintiffs. Campbell v. Wells Fargo Bank, N.A., 781 F.2d 440, 443 (5th Cir.), cert. denied, 476 U.S. 1159, 90 L. Ed. 2d 721, 106 S. Ct. 2279 (1986). The directness of the alleged injury, the presence of an improper motive for the conduct alleged and the manageability of resulting litigation are factors favoring the grant of antitrust standing. International Television Prods. Ltd. v. Twentieth Century-Fox Television Div. of Twentieth Century-Fox Film Corp., 622 F. Supp. 1532, 1537 (S.D.N.Y. 1985).
The Supreme Court addressed the question of the proximity necessary for antitrust standing in Blue Shield of Virginia v. McCready, 457 U.S. 465, 73 L. Ed. 2d 149, 102 S. Ct. 2540 (1982). The Court stated that 1) a physical and economic nexus must exist between the alleged violation and the plaintiff's harm; and 2) the injury must be of the type with which Congress was concerned in allowing a private right of action for antitrust violations through Section 4 of the Clayton Act, 15 U.S.C. § 15 (1988). McCready, 457 U.S. at 478. To have antitrust standing, a plaintiff need not allege that the injury suffered reflects the direct, intended anticompetitive effect; in other words, the plaintiff need not be the target of the alleged conduct. Donahue v. Pendleton Woolen Mills, Inc., 633 F. Supp. 1423, 1431-32 (S.D.N.Y. 1986). It is sufficient that the plaintiff participated in some relevant way in the part of the market endangered by the alleged antitrust violation. Id. at 1432.
None of the named plaintiffs was an employee of either defendant. Rather, Plaintiffs GAMI and Zupan acted as agents for Defendant Blue Cross-WI. The Agent Agreement reveals that Defendant Blue Cross-WI possessed little right to control Plaintiffs' actions. Thus, it appears that Plaintiffs were independent contractors for rather than employees of Blue Cross-WI. Further, the Agent Agreement itself specifically denies that Plaintiff GAMI was an employee of Blue Cross-WI. Plaintiffs' complaint, filed August 3, 1988, Exhibit A.
The Seventh Circuit held that merely derivative injuries suffered by employees, officers, shareholders, and creditors of an injured company do not confer antitrust standing. Southwest Suburban Bd. of Realtors, Inc. v. Beverly Area Planning Ass'n, 830 F.2d 1374, 1378 (7th Cir. 1987). However, Plaintiffs' alleged injuries in this case are direct rather than derivative. Each Plaintiff claims a loss of commissions which are directly traceable to the termination of the MFP. Even though Plaintiffs Zupan, M.H.B., Inc., and Sam Smail did not earn these commissions except by purchasing rights to them, their loss, if proven, is a direct result of the termination of the MFP. Further, Plaintiffs are not "employees of an injured company." Even though Plaintiffs allege that Plaintiff Zupan was a sub-agent of Plaintiff GAMI, Defendants have not alleged that Zupan was GAMI's employee. Rather, without identifying specific Plaintiffs, Defendants assert that because Plaintiffs were sales agents for Blue Cross-WI, Plaintiffs should be viewed as employees and therefore denied standing. Because Defendants have not alleged that Plaintiffs are employees of an injured company, but of a coconspirator company, Blue Cross-WI, the Southwest Suburban rule is inapplicable, and the court will not deny Plaintiffs standing.
The court finds that a critical issue remains in dispute: whether there was an agreement between Defendants to terminate the MFP. Because the MFP was a product competing with Defendant HCSC, such an agreement might have the effect or the purpose of suppressing competition. Thus, this disputed issue is material to this action, and the court therefore denies Defendants' motions for summary judgment.
Applicability of Antitrust Laws
Finally, Defendants argue that federal antitrust laws do not apply to Plaintiffs' claim, because of the state action doctrine and the McCarren-Ferguson Act. The state action doctrine exempts from antitrust scrutiny all alleged restraints of trade which are clearly expressed as state policy, where the state policy is actively supervised by the state. California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 105, 63 L. Ed. 2d 233, 100 S. Ct. 937 (1980). Defendants contend that Blue Cross-WI's consent to HCSC's letter offering insurance coverage to MFP subscribers was simply compliance with Illinois law, and that the state action doctrine is therefore applicable.
However, HCSC's offer of insurance to MFP subscribers is not the only conduct at issue here; it is only one aspect of the alleged agreement to terminate the MFP. Although Illinois has established a commission to supervise insurance companies, that alone is insufficient to bring the state action doctrine into play. The Illinois law requiring conversion coverage is not at issue; it is relevant only in that Defendants argue that it justifies HCSC's offer of insurance coverage to MFP subscribers. Defendants have not identified any state policy which permits or forbids the alleged conduct: two insurers agreeing to terminate a policy of one of them. Therefore, the state action doctrine is inapplicable, and the court rejects Defendants' argument that their conduct is exempt from antitrust scrutiny on the basis of that doctrine.
The McCarren-Ferguson Act exempts from antitrust laws practices which are the "business of insurance," are regulated by state law, and are not in the form of coercion, intimidation, or boycott. 15 U.S.C. §§ 1012(b), 1013(b) (1988). The criteria relevant to determining whether a practice is the business of insurance within the meaning of the Act are 1) whether the practice has the effect of transferring or spreading a policyholder's risk; 2) whether the practice is an integral part of the policy relationship between the insurer and the insured; and 3) whether the practice is limited to entities within the insurance industry. Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129, 73 L. Ed. 2d 647, 102 S. Ct. 3002 (1982). None of these criteria alone is necessarily determinative. Id.
Although the alleged conduct concerned two insurance companies and thus met the third criteria of Union Labor, the first two criteria are not satisfied. The first criteria concerns the shifting of risk between the insurer and the insured, id. at 130, and not between two insurers, as Defendants argue. There has been no showing that termination of the MFP shifted the MFP subscribers' risk from the subscribers to either Defendant, or vice versa. Further, the termination of the MFP was not an "integral part" of the policy relationship between MFP subscribers and either Defendant. It was simply an end to the policy relationship between MFP subscribers and Blue Cross-WI. The key relationship at issue is that between Blue Cross-WI and HCSC; the relationship between Defendants and policyholders is secondary. The conduct at issue is the agreement between the two Defendant insurers, which the court finds is not the "business of insurance" within the meaning of the McCarren-Ferguson Act. Therefore, the court need not, and will not decide whether this action meets the Act's other two requirements for exemption. The court hereby rejects Defendants' argument that the McCarren-Ferguson Act exempts this action from the antitrust laws.
Plaintiffs' Motion to Amend Complaint
Plaintiffs ask the court for leave to amend their amended complaint to add as a party plaintiff Garot-Anderson Agencies, Inc., and to add pendent state court claims. Plaintiffs assert, and Defendants have not denied, that current plaintiff Garot-Anderson Marketing, Inc. (GAMI) is a wholly-owned subsidiary of Garot-Anderson Agencies, Inc. In order to avoid the risk of duplicative lawsuits, the court finds it reasonable and prudent to allow Plaintiffs to add Garot-Anderson Agencies, Inc. as a party plaintiff.
Plaintiffs also seek to amend their amended complaint by adding Counts III, IV, V, and VI, which are now pending in state court in Whiteside County, Illinois. These counts assert a right to relief for intentional interference with contract, intentional and malicious interference with contract, breach of contract, and breach of trust.
The issue of pendent jurisdiction arises when the original plaintiff sues the original defendant on a federal claim and a related state claim. A federal court has the power to exercise pendent jurisdiction over state claims which arise from the same nucleus of operative facts as federal claims. United Mine Workers of America v. Gibbs, 383 U.S. 715, 725, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966). Exercising pendent jurisdiction is left to the discretion of federal courts, and they may consider judicial economy, convenience, and fairness to litigants in deciding whether to hear pendent state claims. Id. at 726.
The counts that Plaintiffs ask to add to their amended complaint seek recovery from Defendants Blue Cross-WI and HCSC, and they relate to the termination of the MFP, and the Agent Agreement between Plaintiffs' predecessor in interest and Defendant Blue Cross-WI's predecessor in interest. The claims stated in these four counts arise from the same core of operative facts as the claims set forth in Plaintiffs' amended complaint before this court. Therefore, this court has power to exercise pendent jurisdiction over Plaintiffs' four counts now pending in state court. Because the same evidence, witnesses, and parties are involved, judicial economy, convenience, and fairness interests will be served by this court hearing Plaintiffs' state claims. Accordingly, the court grants Plaintiffs leave to amend their amended complaint by adding Counts III, IV, V, and VI.
For the reasons set forth herein, the court grants both Defendants' motions to dismiss Plaintiffs' claim for violation of Section 2 of the Sherman Act, for failure to state a claim upon which relief can be granted. The court, on its own motion, grants Plaintiffs leave to amend their amended complaint to allege a Section 2 violation. The court denies Plaintiffs' motion for partial summary judgment, denies both Defendants' motions for summary judgment, and grants Plaintiffs' motion to amend complaint by adding a party plaintiff and adding pendent state claims.