D&O Liability - District Court Dismisses Antitrust Claims in Insurance Brokerage Multidistrict Litigation
On August 31, 2007, Chief Judge Garrett Brown of the United States District Court for the District of New Jersey issued a Memorandum Opinion (the “Opinion”) in the Insurance Brokerage Antitrust Multidistrict Litigation
(the “MDL”), dismissing with prejudice the claims for antitrust violations under Section 1 of the Sherman Act made against both the broker and insurance company defendants. The ruling applies to both the Commercial
and Employee Benefits complaints. The claims under the RICO Act, ERISA and common law remain pending.
The MDL involves numerous consolidated class actions filed against various insurance brokers and insurance companies. The court previously divided the actions into two groups – one involving commercial property and casualty
insurance (the “Commercial” litigation) and one involving employee benefits insurance plans (the “Employee Benefits” or “EB” litigation). Both the Commercial and the Employee Benefits complaints
allege violations of federal (Section 1 of the Sherman Act) and state antitrust law, the RICO Act, ERISA, and common law arising out of the alleged solicitation and payment of contingent commissions. Plaintiffs allege both a series
of broker-centered conspiracies (the “hub and spoke” conspiracies) and a global conspiracy. More specifically, they allege that defendants employed a two-fold method to minimize competition. First, plaintiffs claim
that, in exchange for the insurers’ payment of contingent commissions to the brokers, the participants in each broker-centered conspiracy agreed that the broker would allocate the bulk of its business to the conspiring insurers,
thus protecting them from having to compete with insurers outside the alleged conspiracy. Second, the same participants agreed to reduce or eliminate competition among the allegedly conspiring insurers as to each “secured
book” of business.
The MDL initially was assigned to Judge Faith Hochberg. After Judge Hochberg recused herself, the matter was reassigned to Chief Judge Brown. Both Judge Hochberg and Judge Brown dismissed plaintiffs’ antitrust and RICO claims
in two previous rounds of pleadings, but allowed the plaintiffs two chances to cure the deficiencies in their pleadings.
In his August 31, 2007 Opinion, Judge Brown relied on Judge Hochberg’s previous ruling that plaintiffs’ antitrust claims are not barred by the McCarran-Ferguson Act. Judge Hochberg had ruled that the alleged conduct
is not sufficiently related to risk-allocation as to constitute the “business of insurance.” Judge Brown explained that Judge Hochberg’s previous ruling was the law of the case and that there had been neither
any factual nor any legal developments in the litigation since that decision that warranted reconsideration of the statutory issue.
The centerpiece of Judge Brown’s Opinion is his conclusion that plaintiffs have not alleged the per se violation they claimed because neither the “hub and spoke”
conspiracies nor the global conspiracy constitutes a horizontal agreement either to divide the brokers’ business and refrain from competition with each other or, after the market initially was consolidated, to ensure that
each participant retained its renewal accounts. The court specifically rejected plaintiffs’ theory of “hub and spoke” conspiracies, noting that “[p]laintiffs face the problem of the ‘rimless wheel.’”
Opinion at 33. According to Judge Brown, plaintiffs had alleged at most “just a series of vertical agreements between brokers and insurers, or a series of acts taken without a common scheme in place.” Id. In this regard, Judge Brown relied on Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007), in which the Supreme Court recently held that an antitrust claim cannot be based solely on allegations of parallel conduct that
is unfavorable to competition without a factual context suggesting an agreement, rather than identical independent action.
Judge Brown also dismissed plaintiffs’ claims of a global conspiracy: “Plaintiffs have not shown that the Insurer Defendants colluded among themselves in the broker-centered conspiracies, and thus it is impossible that
they colluded to further this global agreement as well.”
In the previous round of motions, Judge Brown had issued separate opinions concerning the antitrust and RICO claims, although both of those opinions were issued on April 6, 2007. Accordingly, Judge Brown presumably will issue at
least one additional opinion in which he will address the ERISA and RICO claims.