Supreme Court of the United States

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1 Team 6 In The Supreme Court of the United States Ashford & Haley, Petitioner, v. David Hale, Respondent. No February 28, 2011 On Writ of Certiorari to the Supreme Court of the State of Radnor Brief for Respondent in Opposition

2 TABLE OF CONTENTS Table of Authorities...3 Questions Presented 4 Statement of Jurisdiction.4 Summary of the Argument..5 Statement of the Facts.7 Argument I. The Radnor Rules of Appellate Procedure adhere to the Fourteenth Amendment Due Process requirements of creating an equitable access to the courts, void of arbitrary and capricious limitations. A. Petitioner has no constitutional right to appeal their punitive damages B. Rules did not limit judicial discretion to hear case C. State does not create an arbitrary or capricious method of access to court II. The McCarran-Ferguson Act reverse preempts the Federal Arbitration Act in a case involving an arbitration agreement by the rehabilitator of an insolvent insurer because the state law was enacted to regulate the business of insurance. A. The RIRA is aimed at protecting or regulating the relationship between insurer and insured. B. The RIRA comports with the purpose of the McCarran-Ferguson Act. Conclusion

3 TABLE OF AUTHORITIES Cases: Able v. Bacarisse, 131 F.3d 1141 (5th Cir. 1998)...5, 9 American Bankers Ins. Co. of Fla. v. Inman, 436 F.3d 490 (5th Cir. 2006).6, 14 Burns v. Ohio, 360 U.S. 252 (1959).11 Douglas v. California, 372 U.S. 353 (1963).....5, 11 Gilmer v. Interstate/Johnson Lane Co., 500 U.S. 20 (1991) 13 Honda Motor Co. v. O Berg, 512 U.S. 415 (1994) 10, 11 McKane v. Durston, 153 U.S. 684 (1894)..5, 9 Munich American Reinsurance Co. v. Crawford, 141 F.3d 585 (5th Cir. 1998)..17, 18, 19 Murff v. Prof l Med. Ins. Co., 97 F.3d 289 (8th Cir. 1996)..17 Ohio ex rel. Bryant v. Akron Metropolitan Park Dist., 281 U.S. 74 (1930)...9 Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1 (1991) Paul v. Virginia, 75 U.S. 168 (1869) 19 Prudential Ins. Co. v. Benjamin, 328 U.S. 408 (1946).20 Rinaldi v. Yeager, 384 U.S. 305 (1966)..11, 12 S.E.C. v. Nat l Sec., Inc., 393 U.S. 453 (1969).14 St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531 (1978)...19 Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119 (1982)...14 United States v. Fabe, 508 U.S. 491 (1993)...16, 17, 18, 19 United States v. MacCollom, 426 U.S. 317 (1976)...10 United States v. South-Eastern Underwriters Assn., 322 U.S. 533 (1944).18, 19 U.S. CONST. AMEND. X U.S. CONST. AMEND. XIV U.S. CONST. ART. VI, CL U.S.C ET SEQ. 15 U.S.C. 1012(B) 28 U.S.C.A. 1257(a). Statutes: 3

4 QUESTIONS PRESENTED I. SHOULD THE RADNOR RULES OF APPELLATE PROCEDURE MANDATE SPECIAL JUDICIAL REVIEW FOR PARTIES ASSESSED PUNITIVE DAMAGES FOR EGREGIOUS NEGLIGENT BEHAVIOR? II. SHOULD THE McCARRAN-FERGUSON ACT REVERSE PREMPT THE FEDERAL ARBITRATION ACT INVOLVING A SUIT BETWEEN THE REHABILITATOR OF AN INSOLVENT INSURER AND A NEGLIGENT AND FRAUDULENT FIRM? STATEMENT OF JURISDICTION The jurisdiction of this court is invoked under 28 U.S.C.A. 1257(a). Since the Petitioners are asking the validity of the Radnor Rules of Appellate Procedure in accordance to the Fourteenth Amendment s Due Process Clause and the effect of federal legislation on state law, this Court has the ability to hear the case. 4

5 SUMMARY OF THE ARGUMENT The Radnor Supreme Court exercised its discretion in declining the Petitioner s review request, within the confines of the Fourteenth Amendment. I. The Federal Fourteenth Amendment does not grant a right to an appeal. McKane v. Durston, 153 U.S. 684, 687 (1894). The Petitioners constitutional rights are limited to having a trial within the confines of the due process laws. Able v. Bacarisse, 131 F.3d 1141, 1143 (5th Cir. 1998). In this case, the pure discretionary Radnor Supreme Court reviewed both the Petitioner s request and Respondent s opposition to review the lower court s decisions. The Supreme Court, in its statutory authority, declined to hear the case. This Court held it impermissible to create an arbitrary or capricious access to appellate courts. See Douglas v. California, 372 U.S. 353, 357 (1963). Radnor s Rules of Appellate Procedure establish the same rules for all who seek access to the Supreme Court, without regard to wealth or other position that may distinguish parties. Furthermore, the Court states in the last clause factors it uses in deciding to accept a case. The type of punishment for wrongdoing does not automatically grant you the ability to appeal. Similar to those sentenced to death for capital crimes, a punitive damages judgment for egregious actions does not guarantee any entity an appeal. The State provides or declines that privilege. II. For the McCarran-Ferguson Act to preempt a federal law three requirements must be met. The Federal Arbitration Act ( FAA ) does not specifically relate to the business of insurance so the first requirement is met. 15 U.S.C. 1012(b). In regards to the third requirement, applying the FAA to enforce the contract between both parties would invalidate the Radnor Insurance Rehabilitation Act ( RIRA ) and accordingly the third requirement is met. The questionable 5

6 issue is the second requirement of the Act; whether the state law was enacted to regulate the business of insurance. American Bankers Ins. Co. of Fla. v. Inman, 436 F.3d 490, 493 (5th Cir. 2006). The RIRA was enacted for the purpose of regulating the business of insurance because it is aimed at protecting or regulating the relationship between insurer and insured and in essence is regulating the business of insurance. S.E.C. v. Nat l Sec., Inc., 393 U.S. 453, 460 (1969). Additionally, the RIRA also complies with the purpose of the McCarran-Ferguson Act, which was broadly to give support to the existing and future state systems for regulating and taxing the business of insurance. United States v. Fabe, 508 U.S. 491, 500 (1993). 6

7 STATEMENT OF THE FACTS At the conclusion of a bench trial, the Marshall Circuit Court found prominent law firm Ashford & Haley ( Petitioner ) liable of negligence, breach of fiduciary duty, fraud and deception. The Court then assessed compensatory damages and due to the egregious nature of their actions, punitive damages. The State of Radnor, Department of Insurance took over Allegiance Health Insurance Co. ( Allegiance ), after discovering the company s financial statements filed with the State contained material errors. (pg. 3). In addition, the company disclosed that it was unable to remain in compliance with the State and worse, it was insolvent. (pg. 3). Petitioner provided accounting and consulting services to Allegiance. (pg.4). As Commissioner of the Department, Respondent exercised his statutorily granted powers and began a rehabilitation proceeding for the company. (pg. 3). Through the investigation and rehabilitation process, Respondent discovered that Petitioner made the material errors in Allegiance s statements. (pg.4). Petitioner intentionally misstated facts in order to preserve relationships with a company in which both entities were involved ( Simple Wisdom ). (pg.4). Petitioner designed a financial model from the mutual company, stating 2007 health insurance premium increases would cover future costs. (pg.4). Despite their assertions, Petitioner and Simple Wisdom acknowledged via private conversations this was not the case. (pg.4). In reality, stable premium prices would cause significant losses to Allegiance. (pg.4). Upon conclusion of his investigation and with the authority in the Radnor Rehabilitation Act, Respondent filed suit against Petitioner in Marshall Circuit Court. (pg. 5). The Act grants 7

8 exclusive jurisdiction to the Circuit Court, and voids any previous venue arrangement. (pg. 5). In addition, the Circuit held that the McCarran-Ferguson Act provided federal authority to hear the case. (pg. 6). At the conclusion of the trial, the Court awarded Respondent $2,000,000 in compensatory damages and $10,000,000 in punitive damages because of the serious professional misconduct...and Ashford & Haley s failure to prevent the actions. (pg. 6). In response to the nationwide economic crisis, Radnor attempted to reduce its spending. (pg. 2). As part of that effort, the Radnor legislature decided to eliminate the State s intermediate appellate court. (pg. 2). The Radnor Supreme Court responded, changed the appellate rules to make the Court purely discretionary, but increased the amount of cases it heard from 300 to 800, the year after the change. (pg. 2) Petitioner unsuccessfully sought the Radnor Supreme Court to appeal punitive damage award, and the court s decision on their motion to compel arbitration. (pg.6). 8

9 ARGUMENT I. The Radnor Rules of Appellate Procedure adhere to the Fourteenth Amendment Due Process requirements of creating an equitable access to the courts, void of arbitrary and capricious limitations. A. The Federal Constitution does not grant a right to appeal The Fourteenth Amendment s Due Process clause does not grant a right to appeal. McKane v. Durston, 153 U.S. 684, 687 (1894) (stating a review by an appellate court is not a necessary element of due process of law ). See also Ohio ex rel. Bryant v. Akron Metropolitan Park Dist., 281 U.S. 74, 80 (1930) ( the right of appeal is not essential to due process ). Upon establishing an appellate process, the State must meet Fourteenth Amendment due process standards. Able v. Bacarisse, 131 F.3d 1141, 1143 (5th Cir. 1998). Although this Court established the standard of review and criteria to determine whether the punitive damages are constitutional, the Court has refused to mandate such a review by state appellate courts. Petitioner has no constitutional right to appeal their punitive damages. This court has held for over a century that the federal constitution does not grant a right to appeal, for criminal or civil parties. McKane, supra at 687. States, therefore, establish their local court system through their Tenth amendment powers, as they deem necessary. U.S. Const. amend. X. Due to these two propositions, the Petitioner s federal constitution rights ended along with the trial. Through the creation of an appellate court, Radnor gave unsuccessful parties the ability to appeal. Nonetheless, the ability is conditional, not on specific aspects of the claim, but rather on how the case aligns with Radnor s Supreme Court s particular parameters. Similar to Virginia, New Hampshire and West Virginia, Radnor established a pure discretionary Supreme Court without an intermediate court. Granting this appeal would strip Radnor of its constitutional 9

10 power to create its court system as well as also overturn over 100 years of precedent, in creating a right of appeal. Persons convicted of capital crimes are not guaranteed an appeal by the due process clause. McKane, supra. Similar to punitive damages, sentences of death are mostly for deterrence and example-making purposes for the rest of the community. That is where the parallels end. It is possible that a punitive damage would bankrupt a company or person, however, the Supreme Court has already parameters for excessive damages. However, if persons facing death do not have a federal right to appeal, the due process clause cannot then grant an appeal for those assessed monetary damages. Even if, arguendo, this Court would compare criminal punishment to civil penalty, punitive damages would not equate to a death sentence. Therefore, if the Radnor Supreme Court, using its discretion and refuses to hear a death penalty case remains within Due Process confines, refusing to hear an appeal for punitive damages does not violate the Due Process violation. B. Rules did not limit judicial discretion to hear case Unlike the Oregon Rules of Appellate Procedure, Radnor Supreme Courts can review all cases including those with punitive damages judgments. In Honda Motor Co. v. O Berg, 512 U.S. 415 (1994), the Supreme Court decided the Oregon rules deprived the car manufacturer of its constitutional rights to due process. The Oregon Constitution restricted judicial review of punitive damages to when the court could definitively state a lack of evidence to support such damages. Id. at 427. Oregon Supreme Courts could also review improper jury instructions and other errors during the trial. Id. The State s constitution strictly prohibited a party from contesting the amount of the award alone. Id. 10

11 The issue in O Berg does not control in this case. The Radnor Supreme Court is open to all who should contest a judgment in their case, criminal or civil. Unlike the Oregon Constitution, the Rules do not constrain the Supreme Court judges ability to hear specific cases. The first clause of the rules indicates that parties to civil and criminal trials are available to seek appeal. The last clause of the rules place parties on notice of some of the factors the court weighs in granting or declining review. Unlike the Oregon Constitution where it goes outside the confines of the due process clause by creating a barrier for those assessed punitive damages to seek the court system, Radnor Rules does not establish such a line. Justice Stevens concern centered on possible arbitrariness of the jury s decision-making process, and complete deprivation of rights. The judge served as jury in this case, thus decreasing the potential circumventing of the law. Moreover, U.S. Justice Department statistics show, a bench trial is less likely to award punitive damages, and in so doing, they are typically less than $1 million dollars. Instead of a potential juror misconstruing the law and the instructions given to it, the judge as fact finder has resources available to ensure top knowledge of the law. Moreover, the judge has more incentive than the accuracy of this particular case to ensure he strictly follows the law. C. State does not create an arbitrary or capricious method of access to court The Radnor Supreme Court s Rules of Appellate Procedure comply with the due process clause, as they do not create an arbitrary and capricious method of access. An appellate process must provide open and equal access to courts, free of unreasoned distinctions. Rinaldi v. Yeager, 384 U.S. 305, 310 (1966). Most notably, the unconstitutional distinction is when indigent and wealthy citizens have vastly unequal access. See Douglas v. California, 372 U.S. 353,

12 (1963); Burns v. Ohio, 360 U.S. 252 (1959) (holding that indigent defendants are entitled to counsel for first right to appeal). Due process hinges on fairness between the State and the people. Radnor Rules of Appellate Procedure clearly indicate criteria for selecting cases to hear. Unlike the issue in Rinaldi, the Radnor rules do not create greater difficulty in accessing the courts for one group versus another. The court below awarding punitive damages to the State does not place the Petitioner at a disadvantage in the appellate process. The procedural rules do not require any monetary fee to petition the court, nor do they grant special rules for civil parties in comparison to criminal cases. A judgment of punitive damages does not warrant an automatic override the Court s discretionary distinction. Radnor Rules of Appellate Procedure give citizens the opportunity to seek an appeal with the Supreme Court. Unlike the many instances where this Court struck down the procedure for inequity between citizens, Radnor Procedure gives the same rules for each potential appellant. Similar to Virginia 1, New Hampshire and West Virginia, Radnor Supreme Court is a pure discretionary court. All parties are on sufficient notice to the requirements of filing for an appeal to the Court. None of the procedural requirements places different segments of the community in at a disadvantage, monetary or otherwise. In fact, a year after the legislation changed, the Supreme Court increased the amount of cases it heard by 250%. Therefore, the procedural rules adhere to the due process clause s mandate of open and equitable access to the court. Mandating Radnor s Supreme Court review each case with potential constitutional violations would erode 1 Virginia s Supreme Court allows a right to appeal only in death penalty, State Corporation Commission and disbarment of attorney cases. 12

13 the very purpose of the appellate court s condensation. Should the State Supreme Court decline to review a case such as this, the party is not without appellate remedy. This Court previously held that due process is satisfied so long as the judge utilizes his discretion within reasonable constraints. Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 20 (1991). In Haslip, the court below found that a worker for the insurance company intentionally failed to submit payment to a third-party health insurance company. Id. at 6. As a result, the third party insurance company cancelled the health insurance for a group of municipal workers, thereby causing one to pay out of pocket for her hospitalization. Id. The Alabama Circuit Court instructed the jury the punitive damages were to punish the defendant protect the public by [deterring] the defendant and others from doing such wrong in the future. Should you award punitive damages, in fixing the amount, you must take into consideration the character and the degree of the wrong Id. at 6 n.1. This Court held that the Alabama Circuit court s jury instructions did not deprive the company of their due process rights though awarding over four times the amount in punitive damages. Id. at 24. The lower court s rationale used for awarding punitive damages fit the factors used in Haslip. The judge sitting at trier of fact, did not need to establish the law as it pertains to punitive damages. Using applicable state and federal law regarding punitive damages, the judge determined the appropriate sanctions for the egregious conduct performed by the Petitioner s agents. During the reading of their decision, the Court stated that they awarded damages to sanction those who participated and to deter the company from partaking in similar conduct. From the statement made during the announcement of the verdict, the judge made his decision with consideration of the fourteenth amendment. 13

14 Therefore, since the appellate rules fall within the strictures of the Fourteenth Amendment s due process clause, Respondent s respectfully request this court to uphold the Radnor Supreme Court s decision to refuse the Petitioner s appeal. II. The McCarran-Ferguson Act reverse preempts the Federal Arbitration Act in a case involving an arbitration agreement by the rehabilitator of an insolvent insurer because the state law was enacted for the purpose of regulating the business of insurance. Federal law such as the Federal Arbitration Action ( FAA ) generally preempts conflicting state law; however, the McCarran-Ferguson Act provides an exception to this rule for state laws governing the insurance industry. See U.S. Const. art. VI, cl. 2. See also 15 U.S.C The FAA permits a party to file a motion to compel arbitration when an opposing party has failed, neglected, or refused to comply with an arbitration agreement. Gilmer v. Interstate/Johnson Lane Co., 500 U.S. 20, 25 (1991). The McCarran-Ferguson Act provides that [n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance unless such Act specifically relates to the business of insurance. 15 U.S.C. 1012(b). Under the McCarran-Ferguson Act, a state law reverse preempts federal law only if: (1) the federal statute does not specifically relate to the business of insurance; (2) the state law was enacted for the purpose of regulating the business of insurance; and (3) the federal statutes operates to invalidate, impair, or supersede the state law. American Bankers Ins. Co. of Fla. v. Inman, 436 F.3d 490, 493 (5th Cir. 2006). For the McCarran-Ferguson Act to preempt a federal law three requirements must be met. In regards to the first requirement, there is no doubt that the FAA does not specifically relate to the business of insurance as it is a broad provision that compels arbitration in all private disputes involving interstate commerce, except as the McCarran-Ferguson Act emphasized, in regulation of the business of insurance. 15 U.S.C. 1012(b). Additionally, application of the FAA to 14

15 enforce section 22 of the contract between Ashford & Haley and Allegiance would invalidate the Radnor Insurance Rehabilitation Act ( RIRA ); accordingly, the third requirement of the Act is also satisfied. Accordingly, the issue to be resolved involves the second requirement of the Act. The RIRA was enacted for the purpose of regulating the business of insurance because it is aimed at protecting or regulating the relationship between insurer and insured. This Court has also articulated three factors to be considered in determining what constitutes the business of insurance as articulated in Union Labor Life Ins. Co. v. Pireno. The Pireno factors include: first, whether the practice has the effect of transferring or spreading a policyholder's risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry. Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982). This Court has stated that none of these factors are determinative, but careful examination may lead to the conclusion that a state law regulates the business of insurance. Id. This Court also noted that state law aimed at protecting or regulating the relationship between insurer and insured are laws regulating the business of insurance. S.E.C. v. Nat l Sec., Inc., 393 U.S. 453, 460 (1969). A. The RIRA is aimed at protecting or regulating the relationship between insurer and insured. The Supreme Court clarified what regulating the business of insurance meant in a 1969 case involving the merger of two Arizona insurance companies. Id. Statutes aimed at protecting or regulating th[e] relationship [between insurer and insured], directly or indirectly, are laws regulating the 'business of insurance. Id. at 460. The opinion emphasized that the 15

16 focus of the McCarran-Ferguson Act, no matter the exact scope of the statute, was on the relationship between the insurance company and the policyholder. Id. In 1993 the Supreme Court supplanted the rule established in S.E.C., concluding that while the business of insurance was mostly involved with the performance of an insurance contract, the broad category of laws enacted for the purpose of regulating the business of insurance consists of laws that possess the end, intention, or aim of adjusting, managing, or controlling the business of insurance. United States v. Fabe, 508 U.S. 491, (1993). In Fabe, this Court held that the Ohio priority statute [procedure for the liquidation of an insolvent insurance company], to the extent that it regulates policyholders, is a law enacted for the purpose of regulating the business of insurance. Id. at 508. The Court found that the preference accorded by Ohio to the expenses of administering the insolvency proceeding is reasonably necessary to further the goal of protecting policyholders. Id. at 509. The statute possessed the end, intention, or aim of adjusting, managing, or controlling the business of insurance in that it fit into the broad category of laws enacted for the purpose of regulating business. Id. at They also determined the purpose of the Ohio statute and concluded that a statute that distributes the insolvent insurer s assets to policy holders in preference to other creditors is identical to the primary purpose of the insurance company itself: the payment of claims made against policies. Id. at The RIRA is aimed at regulating and protecting the relationship between insurer and insured because the rehabilitation proceeding is reasonably necessary to further the goal of protecting policyholders. In a case such as the present one, a rehabilitation proceeding is necessary to restore justice regarding an insolvent insurance company and purported wrongdoing. Like Fabe, this statutory provision was necessary to fully protect policyholders. In 16

17 this case, Allegiance s financial statements contained material errors due to misstatements by Ashford & Haley. They projected that future claims would be covered when this was not the case. This negligence, breach of fiduciary duty, fraud, and deception affected other Allegiance policyholders and implementation of the statute would ensure that they were protected. Additionally, it fits into the broad category that was articulated in Fabe and if it does not constitute the end of managing or controlling the business of insurance, it certainly constitutes an intention or aim. If this rehabilitation process does not directly affect the insurer and the insured, then it surely has an indirect affect. Consequently, following the logic of Fabe, the RIRA which aimed to vest jurisdiction proceedings in the Marshall Circuit Court in order to rehabilitate an insolvent insurer is identical to the primary purpose of the insurance company, the payment of claims made against policies. The Fifth Circuit went beyond Fabe in 1998 concluding that state laws governing insurance company delinquency proceedings reverse preempt the FAA under the McCarran- Ferguson Act. Munich American Reinsurance Co. v. Crawford, 141 F.3d 585, 587 (5th Cir. 1998). In Munich, the Oklahoma Insurance Commissioner, liquidator of the insolvent company refused to submit to arbitration. Id. at 587. The Fifth Circuit reversed the judgment of the district court, which compelled the Commissioner to arbitrate, stating: The specific provisions of the statute at issue here-vesting exclusive original jurisdiction of delinquency proceedings in the Oklahoma state court are laws enacted clearly for the purpose of regulating the business of insurance. These provisions give the state court the power to decide all issues relating to disposition of an insolvent insurance company s assets Id. at In accordance with the statute, the court noted that, the proceedings [wer]e intended to be the sole and exclusive method of liquidating, rehabilitating, reorganizing, or conserving the insurance company. Id. at 591. The Insurance Commissioner, acting as 17

18 receiver of the estate, was directed to take immediate possession of the insurance company s assets and the statute further outlined comprehensive procedures for the resolution and prioritization of claims against the company. Id. The 5th Circuit reasoned that at least two of the three Pireno factors suggested that this comprehensive liquidation and rehabilitation scheme, viewed in entirety, regulates the business of insurance. Id. at 592. Firstly, it is integral to the relationship between the insurance company and policyholders, for both parties to be aware of the fact that in the event of insolvency, the insurance company will be liquidated in an organized fashion. Id. Secondly, the statute at issue is limited only to the insurance industry, and does not apply to insolvent companies generally, but only insolvent insurance companies. Id. The 5th Circuit noted that in Munich there was a special relationship that contributed significantly to the orderly liquidation or rehabilitation of the insurance company and the adjudication of claims against it. Id. at 593. While the reinsurer s argued that the statute consolidated all claims, including those of creditors other than policyholders, was not a law enacted for the purpose of regulating the business of insurance, the court turned to Fabe for guidance. Id. They reminded that Fabe found that the Ohio statute dealing with insolvency preferences for administrative expenses was reasonably necessary to the goal of protecting policyholders. Id. (quoting Fabe, U.S. at 509). They ultimately held that granting the state court ultimate control over all issues related to the insolvent insurance company s liquidation and rehabilitation is aimed at protecting the relationship between the insurance company and its policy holders. Id. See also Murff v. Prof l Med. Ins. Co., 97 F. 3d 289, 291 (8th Cir. 1996): We conclude that the Missouri statute purporting to stay all actions against an insolvent insurer is a law regulating the business of insurance. It protects policy 18

19 holders because it preserves the assets of the insolvent insurer s estate, thereby enhancing the ability of an insolvent insurance company to perform its contractual obligations. The RIRA was enacted for the purpose of regulating business. Like Munich, the RIRA vested exclusive original jurisdiction of rehabilitation proceedings in the Marshall circuit court. The facts of Munich are strikingly similar to this case. Both cases involved an insurance commissioner taking over an insolvent insurance company and predicating rehabilitation proceedings. Like Munich, at least two of the Pireno factors are present. It is crucial to the relationship between Allegiance and any of its policyholders for both parties to know that in the event of insolvency, the company will be rehabilitated in an organized manner. Secondly, the RIRA is limited only to the insurance industry and governs rehabilitation proceedings arising only out of insurance disputes. While Petitioners will argue that an ordinary tort suit between the rehabilitator of an insolvent insurer and its accountant (Carolyn Roland, Ashford & Haley) is outside of the purview of regulating the business of insurance, Fabe should be kept in mind. Applying the same reasoning that this Court did in 1993, while the accountant cannot be considered the insurer or the insured, her actions played a crucial role in the wrongdoing to Allegiance policyholders, none of which is insignificant or indistinguishable from the analysis considered in Fabe. All things considered, the persuasiveness of the Pireno factors should grant the state the ability to control all issues related to Agency s rehabilitation, which the court in Munich determined, was aimed at protecting the relationship between the insurer and insured and enough to constitute regulating the business of insurance. B. The RIRA comports with the purpose of the McCarran-Ferguson Act. Congress enacted the McCarran-Ferguson Act in response to this Court s decision in United States v. South-Eastern Underwriters Assn. Fabe, 508 U.S. at 499. Prior to that decision, 19

20 the overwhelming sentiment was that issuing a policy of insurance is not a transaction of commerce. Id. (quoting Paul v. Virginia, 75 U.S. 168, 183 (1869)). Accordingly, the States enjoyed a virtually exclusive domain over the insurance industry. Id. (quoting St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 539 (1978)). The emergency of an interconnected and interdependent national economy, however, prompted a more expansive jurisprudential image of interstate commerce. Id. Eventually, this brought about inquiry into the insurance industry and in South-Eastern Underwriters, this Court held that an insurance company that conducted a substantial part of its business across state lines was engaged in interstate commerce Id. The result was uproar from the states as they saw this as encroachment on their power to tax and regulate insurance. Id. Congress moved quickly to ensure the supremacy of the states and restore peace in the realm of insurance regulation. Id. at 500. Within a year of the South- Eastern Underwriters decision, they enacted the McCarran-Ferguson Act. The purpose of the Act was clear after the second section. See 15 U.S.C. 1012(b). This Court observed shortly after the passage of the Act, obviously Congress purpose was broadly to give support to the existing and future state systems for regulating and taxing the business of insurance. Fabe, 508 U.S. at 500 (quoting Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 429 (1946)). Congress achieved this purpose by declaring expressly and affirmatively that state taxation and regulation of insurance shall be in the control of the several states. Id. The RIRA fits within the broad power Congress articulated to support state systems for regulating and taxing the business of insurance and therefore comports with the purpose of the McCarran-Ferguson Act. A plain reading of section 2(b) of the Act shows that the RIRA fits clearly within the expressed and affirmative power Congress gave the states in regards to insurance regulation and taxation. While Petitioners may argue that the RIRA does not deal 20

21 directly with the business of insurance, the statute does not make any exceptions regarding this matter. Since the purpose of the act was to give broad control to the states, their point is both irrelevant and misplaced. CONCLUSION Wherefore, the Respondents respectfully request this Court uphold the Radnor Supreme Court s denial of Petitioner s Request. 21