On August 16, the Third Circuit Court of Appeals issued its long-awaited decision in the In re Insurance Brokerage Antitrust Litigation, reversing Judge Brown’s dismissal of the case and breathing new life into plaintiffs’ class action antitrust conspiracy claims. While the Court’s 200-page opinion agrees with Judge Brown’s decision to dismiss most of plaintiffs’ claims, the Court reversed the lower court on the issue of whether plaintiffs had adequately pled a conspiracy between Marsh and the insurers with whom it had entered into contingent commission agreements. As to that claim, plaintiffs’ allegation that those insurers had also agreed not to compete for each other’s incumbent business with Marsh were supported by sufficient factual allegations to satisfy the requirements of Twombly (unlike plaintiffs’ other claims) and had to be reinstated. Accordingly, unless an en banc panel of the Third Circuit disturbs the Court’s ruling, or the defendants can persuade the Supreme Court to review the decision (which seems unlikely), the defendants will soon be returning to the District of New Jersey to resume discovery and further litigation.
The case, as all will recall, arises from the New York Attorney General’s “contingent commission” investigation. After the Attorney General filed a civil complaint alleging that Marsh had “solicited rigged bids for insurance contracts, and received improper contingent commission payments in exchange for steering its clients to a select group of insurers,” numerous private parties filed federal class action complaints making similar allegations. The cases were ultimately consolidated for resolution before Judge Brown in the District of New Jersey.
In October of 2006, the District Court granted defendants’ motion to dismiss plaintiffs’ claims, rejecting defendants’ argument that the challenged conduct was exempt under the McCarran- Ferguson Act, but finding that plaintiffs’ allegations lacked the requisite factual specificity required to state a claim. After plaintiffs’ amended pleadings still failed to satisfy the requirements of Twombly, at least in Judge Brown’s view, in August of 2007 Judge Brown dismissed plaintiffs’ claims with prejudice. It was from this ruling that plaintiffs appealed.
With respect to the McCarran ruling, the Third Circuit panel agreed with Judge Brown in all respects, finding that defendants’ conduct was not exempt from antitrust scrutiny. Echoing Judge Brown’s conclusion, the Third Circuit held that defendants’ alleged conduct did not constitute “the business of insurance,” a necessary requirement for McCarran protection, because defendants’ alleged agreements did not “have the effect of transferring or spreading a policyholder’s risk.” Instead, the Court held that plaintiffs’ allegations, properly construed, did not concern whether or to what extent a prospective insurance purchaser would transfer risk to an insurer, but merely to which insurer that risk would be transferred. Accordingly, the Court stated: “We believe a horizontal agreement not to compete for renewal business, at least as alleged here, is not within the scope of activities exempted by the McCarran-Ferguson Act.”
Having passed the McCarran hurdle, the Court next considered whether plaintiffs’ claims were, in fact, plausible, as required by Twombly. After acknowledging that antitrust jurisprudence “limits the range of permissible inferences from ambiguous evidence,” and that in support of a claim of conspiracy a plaintiff must allege some “further circumstance” that “points to a meeting of the minds,” the Court concluded that “Here, the bid-rigging allegations supply the requisite ‘further circumstance.’” Specifically, the Court held that plaintiffs’ complaints provided detailed allegations concerning an agreement among the insurers working with Marsh to furnish uncompetitive sham bids on policies in order to facilitate the steering of business to other Marsh insurer partners, on the understanding that the other insurers would later reciprocate. This “bid rotation,” the Court held, if proven, would be a naked restraint of trade subject to per se condemnation. Accordingly, plaintiffs’ claim of a Marsh-centered bid rigging conspiracy (but not the less detailed claims of a “global conspiracy” among all brokers and insurers, or the other alleged conspiracies controlled by the brokers other than Marsh), passed muster under Twombly and would be reinstated.
Somewhat ironically, Marsh settled all claims in the litigation during the time in which plaintiffs’ appeal was pending before the Third Circuit. Thus, despite the Court’s ruling, Marsh will not be a party as the case returns to Judge Brown for further proceedings. For the other defendants, however, the time and expense associated with this litigation begins again, and will likely continue for the foreseeable future.