Antitrust - Total Benefits Planning Agency Inc. v. Anthem Blue Cross & Blue Shield, No. 1:05cv519, 2006 WL 2612996 (S.D. Ohio Sept. 8, 2006)
Introduction
On September 8, 2006, the United States District Court for the Southern District of Ohio (Western Division) held that the plaintiffs stated a per se violation of Section 1 of the Sherman
Act, 15 U.S.C. §1, by alleging that the defendants engaged in a vertical boycott of the plaintiffs. Total Benefits Planning Agency Inc. v. Anthem Blue Cross & Blue Shield, No. 1:05cv519, 2006 WL 2612996 (S.D.
Ohio Sept. 8, 2006). In reaching its conclusion, the court also held that the plaintiffs’ antitrust claim is not exempt under the McCarran-Ferguson Act, 15 U.S.C. §§ 1012(b), 1013(b), because the challenged
conduct was an “agreement to or act of boycott” within the meaning of the McCarran-Ferguson Act.
Alleged Antitrust Behavior
The plaintiffs in Total Benefits are an insurance agency and four of its licensed agents that sell health and life insurance to individuals and businesses. The plaintiffs created a strategy for controlling healthcare
expenses, called the “Total Benefits Strategy” (“TBS”) which utilizes “a 51-year old federal tax law to refinance healthcare costs by raising deductibles on existing group insurance policies and
administering benefits through a medical expense reimbursement plan.” Id. at *1 (citation omitted). The TBS also provides an option to shift utilization from group policies and insure certain employees,
spouses and dependents under individual policies. According to the plaintiffs, the TBS has saved businesses in Ohio , Indiana and Kentucky 20% or more on their health insurance costs without a reduction in benefits. The
plaintiffs alleged that Anthem Blue Cross and Blue Shield, Anthem Life Insurance Company, Inc., Anthem Health Plans of Kentucky, Inc. and Anthem Insurance Company, Inc. (the “Anthem Defendants”) had concerns that the
TBS was not in the best interests of the Anthem Defendants or the more traditional insurance agencies, including co-defendant Cornerstone Broker Insurance Services Agency, Inc. (“Cornerstone”), and threatened to terminate
the plaintiffs’ appointments to sell Anthem insurance products if the plaintiffs continued to employ the strategy. The plaintiffs continued using the TBS and Anthem terminated their appointments.
The plaintiffs then sued the Anthem Defendants and Cornerstone alleging that the defendants engaged in a conspiracy to boycott the plaintiffs by (1) defaming and libeling the TBS to third parties, including insurance agencies, agents,
businesses and consumers, claiming that the TBS is illegal and unethical; (2) coercing certain insurance agents not to conduct business with the plaintiffs by threatening to “blacklist” the agents and cancel their contracts
with Anthem and/or Cornerstone; (3) coercing and threatening the plaintiffs to unlawfully dissuade the plaintiffs from promoting the TBS; and (4) “blacklisting” the plaintiffs within the insurance industry and otherwise
organizing a boycott of the plaintiffs and the products and services offered by the plaintiffs. The Anthem Defendants and Cornerstone each filed a motion to dismiss claiming that the plaintiffs did not satisfy the pleading requirements
for an antitrust claim, and, even if they had, the plaintiffs’ antitrust claim is exempt under the McCarran-Ferguson Act.
The District Court
Although the parties had not briefed the issue, the court began its analysis by determining whether the plaintiffs’ claims should be analyzed under the per se rule or under the rule of reason approach. The court
noted the Sixth Circuit’s instruction that courts must distinguish between horizontal restraints that involve direct competitors and vertical restraints that generally involve entities that are upstream or downstream of each
other in the market chain. Id. at *3 (citing Expert Masonry, Inc. v. Boone County, Ky., 440 F.3d 336, 344-45 (6th Cir. 2006)). The court also discussed Com-Tel, Inc. v. DuKane Corp., 669 F.2d
407, 412 (6th Cir. 1982), where the Sixth Circuit reasoned that even though interbrand competition is the primary concern of antitrust law, intrabrand competition is still an antitrust concern where vertical restrictions provide
no benefits to interbrand competition. Total Benefits, at *3. Com-Tel involved a manufacturer that pressured its dealers into not selling the manufacturer’s product to the plaintiff. The
Sixth Circuit applied the per se rule after finding that the manufacturer’s conduct “must be viewed as a horizontal attempt to exclude a competitor on the horizontal level and to restrict intrabrand competition
without an offsetting benefit to interbrand competition.” Com-Tel, 669 F.2d at 412.
According to the Total Benefits court, although the plaintiffs’ allegation that the Anthem Defendants had refused to deal with the plaintiffs can be deemed a vertical boycott, to which the per se rule
generally does not apply, the court found that the Anthem Defendants’ alleged coercion of any insurance agent that conducted business with the plaintiffs had the same anticompetitive effect that the per se rule as
applied to group boycotts was intended to prevent because it was essentially an intrabrand restriction caused by a horizontal attempt to exclude the plaintiffs on the horizontal level without a benefit to interbrand competition.
Id.
The court then considered the defendants’ argument that the McCarran-Ferguson Act (the “Act”) exempted the challenged conduct from antitrust regulation. The court set forth the three prerequisites to exemption
from antitrust liability under the Act as: “(1) the challenged action must constitute the business of insurance …; (2) must be regulated by state law; and (3) the conduct must not be an agreement to or act of boycott
within the meaning of [the Act].” Id. at *4 (citation omitted). The court reviewed Supreme Court precedent relating to the Act and noted that its legislative history “evidenced an intent to prevent
insurance companies and agents from ‘blacklisting’ and imposing other sanctions against competitors or agents.” Id. (citation omitted). Further, the court noted that “the Supreme Court
further defined the term ‘boycott’ by explaining that a boycott occurs when, in order to coerce a target into certain terms on one transaction, parties refuse to engage in other, unrelated or collateral transactions
with the target.” Id. (citing Hartford Fire Ins. v. Cal., 509 U.S. 764, 801-03 (1993)). The court concluded that the plaintiffs’ allegation of a group boycott against them by the defendants
and the defendants’ alleged refusal to deal with the plaintiffs to stop the plaintiffs from offering the strategy for controlling healthcare costs demonstrated that the defendants’ conduct was not exempted by the Act
from antitrust scrutiny. Id.
Conclusion
The Total Benefits court’s decision as to McCarran-Ferguson Act exemption was unremarkable, but its decision, sua sponte, to apply the per se rule to the plaintiffs’ antitrust allegations
must have been a pleasant surprise to the plaintiffs and a shock to defendants.