One of the more interesting decisions — at least to me — issued by the Supreme Court of Appeals of West Virginia during its last term is Princeton Ins. Agency, Inc. v. Erie Ins. Co., 2009 WL 4020269 (W.Va. 2009), which involved an insurance company’s termination of its business relationship with an insurance agency, and the agency’s corresponding allegations that the insurer committed antitrust violations.
Kevin Webb and his insurance agency, Princeton Insurance Agency, had had an agency agreement with various Erie Insurance Group entities since the early 1990s. In 2002, Webb’s agency established a relationship with a new agency known as Princeton Insurance Associates, which sold insurance on behalf of multiple insurers, but not Erie.
Thereafter, Erie alleged that it began to experience a decline in the profitability and quality of its products that Webb’s agency was underwriting, which prompted Erie to question whether it should continue its relationship with the agency. Erie also suspected that Webb’s agency was directly business to the new agency.
Erie attempted to learn how much business the new agency had written with State Auto, which Erie suspected was receiving a disproportionate amount of the new agency’s business. Webb refused to produce the production reports for State Auto, although during a meeting with an Erie representative, he did scribble on a napkin a figure representing policy sales by the new agency on State Auto’s behalf. A few months later, Erie terminated its contract with Webb and his agency under a termination clause that allowed either party to end the arrangement with 90-days notice.
Webb and the agency sued Erie and several of its affiliates and alleged that the parties’ agency agreement violated public policy; that Erie violated the West Virginia Unfair Trade Practices Act by requesting confidential information (the production reports); and that Erie violated the West Virginia Antitrust Act by improperly restraining trade. The Circuit Court of Mercer County dismissed the public policy count, which left the UTPA and antitrust claims for the jury’s consideration.
The jury found for the defendants on the UTPA claim, but returned a verdict for the plaintiffs on the antitrust claim for $1,411,429 in compensatory damages and the same amount in punitive damages. The opinion does not describe how or why, but the circuit court vacated the punitive damage award and trebled the compensatory damages, which resulted in an award to the plaintiffs of $4,233,627.
Erie appealed the circuit court’s denial of its motions for judgment as a matter of law and other issues, which the Supreme Court of Appeals reviewed under a de novo standard. The court, in its unanimous per curiam opinion, identified the threshold issue as whether Erie’s termination of the agency agreement with Webb and his agency constituted an antitrust violation.
Because the plaintiff had alleged a restraint of trade under West Virginia law, the court looked at federal law for a discussion of the elements for a restraint of trade claim under Section 1 of the Sherman Act: (1) concerted action by the defendants; (2) that produced anticompetitive effects within the relevant product and geographic markets; (3) that the concerted actions were illegal; and (4) that the plaintiff was injured as a proximate result of the concerted action.
The court focused on the concerted action requirement, as discussed by the Supreme Court of the United States in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984). Copperweld held that the unilateral actions of a single corporation cannot constitute concerted action for a Section 1 violation. If a corporation’s subsidiary is wholly-owned or, if less than wholly-owned, the amount of control exercised by the parent is significant:
… Erie argues that its corporate structure precludes the element of concerted action required to establish a restraint of trade in violation of state antitrust law. The parent company of the Erie Insurance Group — Erie Indemnity — owns 100% of Erie Insurance Company and Erie Insurance Property and Casualty. With regard to Erie Family Life Insurance, Erie Indemnity owns 21.6% and Erie Insurance Exchange owns 53.5%. Because Erie Indemnity is the attorney-in-fact for the policyholders of the Erie Insurance Exchange, Erie maintains that Erie Indemnity has complete legal control over Erie Insurance Exchange.
The court found that the trial court erred in relying on the fact that Erie Family Life was not a wholly-owned subsidiary, without examining whether, under Erie’s corporate structure, its various companies "were sufficiently independent of each other to prevent them from serving a unified corporate interest."
As a result, the circuit court erred in failing to grant the defendants’ motions:
It is axiomatic that a corporation acts only through its officers, agents, and employees and that a corporation cannot conspire with its own employees. Because all of Erie’s employees were employed by Erie Indemnity, Erie argues that the requisite plurality of actors necessary to create an actionable conspiracy under West Virginia Code § 47-18-3(a) is missing. We agree.
Thus, the defendants were legally incapable of conspiring with each other, and the plaintiffs failed to satisfy the requirement of concerted action.
The court then quickly dispensed with the plaintiffs’ argument in the alternative that the defendants made Webb a part of their conspiracy to illegally restrain trade when they pressured him to provide State Auto production figures. Although the trial court had found that Webb was part of the conspiracy, the Supreme Court of Appeals held that Erie had the right to ask Webb whether certain sales were going to State Auto, and so Webb providing the sales figure to Erie was not an illegal act that supported an antitrust violation.
Finally, the court addressed whether the plaintiffs had sustained an antitrust injury, assuming that they had been able to establish a violation of antitrust law. There are two approaches to proving an unreasonable restraint on trade: per se and the rule of reason. Per se violations are what they sound like: violations that are so obvious that they do not require study of the industry. The more typical type, though, is "the rule of reason," which requires the plaintiff to show how the alleged conduct adversely affected competition in the relevant geographic area.
The plaintiffs attempted to prove their injury by showing a loss in income, but that is not sufficient: "Given that the consumer is the focus of anticompetitive conduct, it is fatal to Appellees’ claim that they failed to introduce any evidence of how competition within the relevant insurance market was harmed."
Here’s what you need to remember about damages resulting from an alleged antitrust violation: if the alleged damages can occur without the alleged anticompetitive conduct, then the damages are not antitrust damages.
Because the damages Appellees asserted were solely attributable to lost income and thus damages that could have been sustained whenever the agency agreement was terminated independent of any anticompetitive conduct, those alleged damages were not antitrust damages.