In 2002, the Agency established a relationship with a newly-created insurance
agency known as the Princeton Insurance Associates (Insurance Associates). The Agency
permitted Insurance Associates to operate out of its Princeton, West Virginia, offices and to
utilize its staff. A significant portion of the new agency's business resulted from the transfer
by Rita Kidd, an Insurance Associates' stockholder, of her book of business with State Auto.
While Insurance Associates sold insurance on behalf of multiple insurers, it did not sell any
Erie insurance products.
Erie relates that shortly after the Agency and Insurance Associates undertook their business relationship, it began to experience a steep decline in both the profitability and quantity of the Erie insurance products that the Agency was underwriting. To illustrate, Erie introduced evidence at trial that by the end of 2003, personal automobile applications had declined by 73%; the number of commercial automobile policies had declined by 79%; and commercial property and casualty applications had declined by 78%. Based on these declines plus the Agency's purported losses of over 4.3 million dollars during the preceding decade, (See footnote 4) Erie began to examine whether it should continue its relationship with the Agency. Of additional concern, was Erie's hunch that the Agency was steering business to Insurance Associates.
In an attempt to discover whether the Agency was diverting business through
its affiliation with Insurance Associates, Erie sought to obtain the production reports of
Insurance Associates for sales of State Auto policies during May to September of 2003. This
occurred through email communications sent by Erie employee Charles Fletcher (See footnote 5) and a
meeting between Mr. Fletcher and Kevin Webb that occurred on October 15, 2003, at a
Princeton restaurant. While Mr. Webb did not produce the requested production reports
during the restaurant meeting, he did scribble one production number relative to State Auto
policies on a napkin that he tendered to Mr. Fletcher. Following this meeting, Mr. Fletcher
left a voice mail on Kevin Webb's answering machine repeating his demand for the
production reports. By letter dated November 5, 2003, Kevin Webb advised Erie that it
would not be tendering the State Auto production reports.
By letter dated March 12, 2004, Erie terminated its contract with the Agency and with Mr. Webb, pursuant to a termination clause in the agency agreement that permitted either party to end the arrangement with ninety-days notice. (See footnote 6) Appellees do not dispute that proper notice was given by Erie prior to the termination. They similarly do not contend that Erie failed to live up to its obligations under the agreement with regard to the payment of any commissions that were owed to Appellees. After the subject agreement was terminated, Erie continued to conduct business in the area through two other independent insurance agents. And the Agency continued to underwrite insurance products for State Auto, Zurich, SAFE, Progressive, Dairyland, Assured Health, and Blue Cross/Blue Shield.
Appellees instituted a cause of action against Erie, alleging that the agency
agreement was terminated in violation of public policy; that Erie violated the West Virginia
Unfair Trade Practices Act (See footnote 7) by requesting confidential information; and that Erie violated
the West Virginia Antitrust Act (See footnote 8) by improperly restraining trade. As the public policy claim
was dismissed by the trial court, the only claims that proceeded to trial were based on alleged
violations of the Antitrust Act and statutory prohibitions against disclosing private consumer
The jury returned a defense verdict regarding Appellees' claim that Erie had disclosed private consumer information. The jury found, however, that Erie's termination of the agency agreement with Appellees was an unreasonable restraint of trade in violation of state antitrust law. The jury awarded Appellees $1,411,209 in compensatory damages and the same amount in punitive damages. The trial court vacated the award of punitive damages but trebled the compensatory damage award, entering judgment against Erie in the amount of $4,233, 627. Through this appeal, Erie seeks relief from the trial court's decisions to deny its various motions for judgment as a matter of law, (See footnote 9) arguing that Appellees failed to allege and demonstrate an antitrust injury.
We apply a de novo standard of review to the grant or denial of a pre-verdict or post-verdict motion for judgment as a matter of law. After considering the evidence in the light most favorable to the nonmovant party, we will sustain the granting or denial of a pre-verdict or post-verdict motion for judgment as a matter of law when only one reasonable conclusion as to the verdict can be reached. See Syl. Pt. 3, Brannon v. Riffle, 197 W.Va. 97, 475 S.E.2d 97 (1996).
209 W.Va. at 745, 551 S.E.2d at 667. With this standard in mind, we proceed to determine whether the trial court committed error in denying Erie's motion for judgment as a matter of law.
Copperweld established that the unilateral actions of a single enterprise are immune from the coverage of section one despite any corresponding restraint on trade. As an example of unilateral conduct, the Court pointed to agreements among corporate officers. The officers of a single firm are not separate economic actors pursuing separate economic interests, so agreements among them do not suddenly bring together economic power that was previously pursuing divergent goals. Applying that reasoning, the Court held that agreements between a parent corporation and its wholly owned subsidiary are not concerted actions for purposes of section one. The Court noted that a parent and its subsidiary always have a unity of interest so the law's concern with a sudden joining of independent interests is not present in such a case.
Oksanen, 945 F.2d at 703 (citations omitted).
Of critical importance in Copperweld was the Supreme Court's recognition that the form of an enterprise's structure is not the cynosure to antitrust liability. (See footnote 14) Stressing the need to look beyond the corporate structure to the underlying realities, the Supreme Court articulated:
Antitrust liability should not depend on whether a corporate
subunit is organized as an unincorporated division or a wholly
owned subsidiary. A corporation has complete power to maintain
a wholly owned subsidiary in either form. The economic, legal,
or other considerations that lead corporate management to
choose one structure over the other are not relevant to whether
the enterprise's conduct seriously threatens competition. . . . [A]
corporation may adopt the subsidiary form of organization for
valid management and related purposes. Separate incorporation
may improve management, avoid special tax problems arising
from multistate operations, or serve other legitimate interests.
Especially in view of the increasing complexity of corporate
operations, a business enterprise should be free to structure itself
in ways that serve efficiency of control, economy of operations,
and other factors dictated by business judgment without
increasing its exposure to antitrust liability. [T]here is nothing
inherently anticompetitive about a corporation's decision to create
a subsidiary. . . .
Copperweld, 467 U.S. at 772-73 (emphasis supplied). Underscoring this point, the Court remarked: [i]f antitrust liability turned on the garb in which a corporate subunit was clothed, parent corporations would be encouraged to convert subsidiaries into unincorporated divisions. Id. at 773.
Because the ruling in Copperweld was limited to determining that a corporation and its wholly-owned subsidiary cannot conspire for purposes of the concerted action requirement of section one, (See footnote 15) a degree of uncertainty concerning its application to cases that involve non-wholly owned subsidiaries remains. See Fraser v. Major League Soccer, LLC, 284 F.3d 47, 56 (1st Cir. 2002) (stating that what the Supreme Court has never decided is how far Copperweld applies to more complex entities and arrangements that involve a high degree of corporate and economic integration but less than that existing in Copperweld itself). When presented with cases in which there is less than 100% control over a subsidiary, federal courts have looked to the amount of control the parent company has over its subsidiary, examining, in view of the principles enunciated in Copperweld, whether there is a unity of purpose which essentially forecloses the risk of anticompetitive conspiracy. See, e.g., Coast Cities Truck Sales v. Navistar Int'l Transport Co., 912 F.Supp. 747, 765-66 (D. N.J. 1995) (concluding that parent company's varying ownership of 70% to 100% of subsidiary dealcors' voting shares created unity of interest); Bell Atlantic v. Hitachi Data Sys. Corp., 849 F.Supp. 702, 706-07 (N.D. Cal. 1994) (finding parent corporation legally incapable of conspiring in violation of section 1 based on 80% ownership of subsidiary); Rosen v. Hyundai Group (Korea), 829 F.Supp. 41, 45 n.6 (E.D. N.Y. 1993) (concluding that parent corporation's ownership of 80% of subsidiary's stock where one managing director owned additional 20% demonstrated complete unity of interest); Novatel Commun., Inc. v. Cellular Tel. Supply, Inc., 1986 WL 798475 at *9 (N.D. Ga. 1986) (reasoning that 51% ownership by parent corporation of subsidiary's stock assured parent of full control over subsidiary, thereby precluding concerted action requirement of section 1); see also American Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 224 (4th Cir. 2004) (relying on unity of interest analysis to view health care panel physicians as corporate agents incapable of conspiring with health insurance company).
Faced with allegations of concerted activity between a parent company and a non-wholly owned subsidiary, (See footnote 16) the Court in Siegel Transfer, Inc. v. Carrier Express, Inc., 54 F.3d 1125 (3rd Cir. 1995), framed the fundamental question presented in Copperweld as whether an agreement between a parent and its wholly owned subsidiary represents the conduct of one economic actor or two. 54 F.3d at 1132. Reasoning that the Supreme Court had encouraged the courts to analyze the substance, not the form, of economic arrangements, the Court determined in Siegel Transfer that the companies involved were, in substance, one economic unit, incapable of an antitrust conspiracy under Copperweld. 54 F.3d at 1132-33. In an attempt to merge the reasoning of both Copperweld and Siegel Transfer, the following standard has been proposed where subsidiaries are not wholly owned:
Copperweld and Siegel Transfer thus teach that § 1 of the Sherman Act focuses on concerted activity among otherwise independent actors. Courts examining the substance, rather than the form of the economic arrangement, may initially engage in a bright-line analysis of whether a subsidiary is wholly owned. However, if the subsidiary is not wholly owned, the court's inquiry does not end there. Instead, a court must next determine whether the parent and subsidiary are inextricably intertwined in the same corporate mission, are bound by the same interests which are affected by the same occurrences, and exist to accomplish essentially the same objectives. For example, a parent that does not wholly own a subsidiary but nevertheless asserts total dominion over its actions, by way of management control, contractual obligations, economic incentives, or otherwise, is probably incapable of conspiring with that subsidiary for purposes of § 1 of the Sherman Act.
Coast Cities Truck Sales, 912 F.Supp. at 765 (citation omitted).
Looking to the high court's analysis in Copperweld, 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%. (See footnote 17) 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. (See footnote 18) See Bell Atlantic, 849 F.Supp. at 706 (reasoning that parent and subsidiary over which parent has legal control cannot conspire to restrain trade because they share a unity of interest and common corporate consciousness). Combining the 21.6% that Erie Indemnity owns with the 53.5% that Erie Insurance Exchange owns, Erie argues that its parent corporation effectively owns over 75% of the stock in Erie Family Life Insurance. To support its position that the parent company had a complete unity of interest with its subsidiaries and with the Erie Insurance Exchange, Erie cites to evidence adduced at trial demonstrating the wholly unified manner in which the various Erie companies were operated and controlled.
Both Mr. Webb and Mr. Fletcher testified at trial that Erie's various insurance products were grouped together for purposes of sales and management. The fact that Erie's insurance products are organized through separate subsidiaries did not translate into distinct treatment for sales purposes. The same insurance agent could sell, pursuant to applicable licensing laws and contractual agreement, any of Erie's products. In like manner, Erie's managers supervised the sales of all the various Erie products in a heterogeneous fashion.
In furtherance of its position that the Erie subsidiaries operated in a unified manner with a singular economic objective of promoting Erie products, Erie cites the fact that all of its corporate employees are employed by Erie Indemnity. None of its subsidiaries or the Erie Insurance Exchange have any employees. The issuance of a single letter to terminate sales by Appellees of all Erie insurance products indicates, according to Erie, that a unitary corporate decision was made on behalf of all the Erie insurance companies. As further proof
of a singular corporate focus, Erie relates that none of its companies compete with each other concerning the sales of its various insurance products. (See footnote 19)
To reach its determination that the Erie corporations were capable of concerted activity for purposes of antitrust law, the trial court looked to the fact that Erie Family Life was not a wholly-owned subsidiary. (See footnote 20) Critically, there was no examination regarding the facts of Erie's corporate structure to determine whether the various Erie companies were sufficiently independent of each other to prevent them from serving a unified corporate interest. See Williams v. I.B. Fischer Nevada, 999 F.2d 445, 447 (9th Cir. 1993) (To be capable of conspiring, corporate entities must be 'sufficiently independent of each other'). Similarly, there was no analysis of whether the Erie corporations and the Erie Insurance Exchange have unified economic objectives and the same corporate purpose and whether the Erie companies are closely knit and mutually dependent. Coast Cities Truck Sales, 912 F.Supp. at 765. All the trial court did was to summarily conclude with no accompanying analysis that there was substantial evidence that those defendants were separate economic actors, and not merely a single firm.
By looking solely to the issue of subsidiary ownership, the trial court overlooked the predicate tenet upon which Copperweld is based: employees of the same company cannot conspire with each other within the meaning of antitrust law. In Gray v. Marshall County Board of Education, 179 W.Va. 282, 367 S.E.2d 751 (1988), this Court adopted the language of Copperweld, holding in syllabus point one:
The officers of a single firm are not separate economic
actors pursuing separate economic interests, so agreements among
them do not suddenly bring together economic power that was
previously pursuing divergent goals; accordingly, officers or
employees of the same firm do not provide the plurality of actors
imperative for an actionable conspiracy under W.Va. Code, 47-
179 W.Va. at 282, 367 S.E.2d at 751 (emphasis supplied). It is axiomatic that a corporation acts only through its officers, agents, and employees (See footnote 21) and that a corporation cannot conspire with its own employees. (See footnote 22) Because all of Erie's employee 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. With regard to Appellees' claims that the Erie companies conspired in violation of West Virginia Code § 47-18-3(a), we conclude that these companies were legally incapable of conspiring with each other. Consequently, Appellees failed to meet their burden of demonstrating concerted action between two legally distinct entities. See Oksanen, 945 F.2d at 702.
As an alternative to alleging a wholly internal corporate conspiracy, Appellees sought to make Mr. Webb a part of the conspiracy. Whereas the alleged internal conspiracy involved the various Erie companies agreeing to cease doing business with Appellees, (See footnote 23) an alternative conspiracy alleged by Appellees was that by successfully pressuring Mr. Webb to tender State Auto production figures Mr. Webb became part of a conspiracy to illegally restrain trade. See Perma Life Mufflers, Inc. v. Internat'l Parts Corp., 392 U.S. 134 (1968) (recognizing that antitrust plaintiff can be part of combination necessary to establish antitrust claim). In concluding that Mr. Webb was part of a conspiracy to illegally restrain trade, the trial court cited the napkin tendered by Mr. Webb during his October 2003 restaurant meeting with Mr. Fletcher which contained a figure representing policy sales by Insurance Associates on State Auto's behalf. Besides the napkin, the judge relied upon a tape recorded telephone call between Mr. Carl Olian, Erie's district sales manager, and Mr. Webb on December 16, 2003, during which Mr. Olian expressed his concern that State Auto was getting more of the new business that walked through the doors of the Agency's office. (See footnote 24) Referencing the napkin and the telephone recording, the trial court opined in its order of May 27, 2008, that this evidence proves the inclusion of the Plaintiff Kevin Webb into the combination or conspiracy to reduce business going to State Auto Insurance Companies.
Without addressing whether Appellees would have standing to recover alleged economic injury for antitrust injury sustained by State Auto, we do not agree with the trial court's conclusion that Mr. Webb was a co-conspirator within the meaning of antitrust law. The tendering of the napkin with production information related to State Auto sales was not an illegal act, under antitrust law or otherwise. Mr. Webb testified that he had provided similar production information concerning Erie sales to State Auto and that this was customary within the industry. As an intended benefactor of the agency agreement, Erie had the clear right to inquire of Mr. Webb whether policy sales that previously went to it were now going to State Auto. The fact that the agency agreement could be terminated by either party with ninety days notice indicates that whenever either Erie or Appellees determined that the arrangement was not economically advantageous, the agreement would be discontinued. See Balaklaw v. Lovell, 14 F.3d 793, 799 (2nd Cir. 1994) (discussing previous rejection of antitrust challenge to an anesthesiology contract in part because the parties were free at the end of any six-month period to terminate the agreement, observing that such arrangements may actually encourage, rather than discourage, competition because the incumbent and other, competing anesthesiology groups have a strong incentive continually to improve the care and prices they offer in order to secure the exclusive positions). And that is exactly what happened in this case: Erie simply determined that a continued relationship with Appellees was no longer commercially reasonable.
Just as there was no evidence of concerted action between the Erie companies, there was also no evidence of concerted action within the meaning of antitrust law between Mr. Webb and Erie. Neither the napkin nor the telephone recording is persuasive of Mr. Webb's participation in an illegal conspiracy under antitrust law. See Monsanto Co. v. Spray- Rite Serv. Corp., 465 U.S. 752, 764 (1984) (requiring specific evidence of plaintiff's acquiescence or agreement tending to prove a conscious commitment to a common scheme designed to achieve an unlawful objective to prove that antitrust plaintiff is part of conspiracy). As we recognized in Gray, the gravamen of a W.Va. Code, 47-18-3(a) antitrust violation is a conspiracy. 179 W.Va. at 286, 367 S.E.2d at 754-55. Appellees' failure to demonstrate the requisite element of concerted action is fatal to their attempt to prove an antitrust claim.
In antitrust cases, a plaintiff must prove injury of the type the
antitrust laws were intended to prevent and that flows from that
which makes defendants' acts unlawful. In other words, because
antitrust law aims to protect competition, not competitors, [a
court] must analyze the antitrust injury from the viewpoint of the
consumer. An antitrust plaintiff must prove that challenged
conduct affected the prices, quantity or quality of goods or
services, not just his own welfare.
87 F.3d at 641 (citations omitted and emphasis supplied); accord Tal v. Hogan, 453 F.3d 1244, 1258 (10th Cir. 2006) (observing that the primary concern of the antitrust laws is the corruption of the competitive process, not the success or failure of a particular firm).
To demonstrate an antitrust injury, a plaintiff must show that the concerted action imposed an unreasonable restraint on trade. See Business Elec. Corp. v. Sharp Elec. Corp., 485 U.S. 717, 723 (1988) (recognizing that Sherman Act was intended to prohibit only unreasonable restraints of trade). As the Fourth Circuit explained in Oksanen, a plaintiff cannot demonstrate the unreasonableness of a restraint merely by showing that it caused him an economic injury. 945 F.2d at 708. Elaborating, the Court in Oksanen stated:
[T]he fact that a hospital's decision caused a disappointed
physician to practice medicine elsewhere does not of itself
constitute an antitrust injury. If the law were otherwise, many a
physician's workplace grievance with a hospital would be
elevated to the status of an antitrust action. To keep the antitrust
laws from becoming so trivialized, the reasonableness of a
restraint is evaluated based on its impact on competition as a
whole within the relevant market.
Id. at 708 (emphasis supplied).
There are two approaches to demonstrating an unreasonable restraint on trade: per se and the rule of reason. Per se violations are comprised of those acts that the law views as so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality such as group boycotts and price-fixing agreements. National Soc'y of Prof'l Engineers v. U.S., 435 U.S. 679, 692 (1978). Only where the economic effects of the restraint are clear, however, can a per se violation exist. See Oksanen 945 F.2d at 708; accord Cogan v. Harford Mem'l Hosp., 843 F.Supp. 1013, 1018-19 (D. Md. 1994). The case alleged by Appellees does not fall into a per se category. In what constitutes the bulk of antitrust claims, the plaintiff has to demonstrate under the rule of reason approach specifically how the alleged conspiratorial conduct adversely affected competition in the relevant geographic market. See Oksanen, 945 F.2d at 709; see also Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 31 (1984) (noting that absent showing of actual adverse effect on competition, respondent cannot make out a case under the antitrust laws); Estate Const. Co. v. Miller & Smith Holding Co., 14 F.3d 213, 222 (4th Cir. 1994) (recognizing that mechanical assertion of Sherman Act grounds without evidence of market power and restraint of trade is fatal to antitrust claim).
Erie argues that Appellees failed to introduce any evidence of either the relevant
geographic market or the adverse effects on competition that resulted from the alleged
conspiratorial conduct. Without evidence of what share of the insurance market that Erie had
in Mercer County, assuming that to be the relevant geographic area, there is no way to
determine whether Erie possess[ed] the market power necessary to significantly restrain
trade. Oksanen, 945 F.2d at 709. To attempt to prove antitrust injury solely by loss of
income, as Appellees did in this case, is insufficient. Appellees were required to show injury
to competition in the form of increased cost, reduced supply of services, or harm to the . . .
[policyholders]. Patel v. Scotland Mem'l Hosp., 1995 WL 319213 at p.5 (M.D. N.C. 1995), aff'd 91 F.3d 132 (4th Cir. 1996). As the Court reasoned in Oksanen, the plaintiff, as an
individual competitor may have been hurt by the hospital's decision to revoke his privileges,
but there is no evidence that competition as a whole in the relevant market has been harmed.
945 F.2d at 709 (emphasis supplied). 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. See NYNEX Corp. v. Discon,
Inc., 525 U.S. 128, 135 (1998) (stating that antitrust plaintiff must prove that defendant's
conduct caused antitcompetitive harm not just to a single competitor, but to the competitive
process, i.e., to competition itself). As the Third Circuit reasoned in Mathews, because
orthopedic services are still readily available to consumers in the Lancaster area from a large
and ever-increasing number of providers, the evidence d[id] not support the existence of an antitrust injury. 87 F.3d at 641.
Numerous courts have concluded that actions brought as antitrust violations often involve nothing more than personal economic injury. See, e.g., Patel, 1995 WL 319213 at 5; Cogan, 843 F.Supp. at 1020 (Stated simply, Cogan's position is that he has been harmed as an individual competitor. He has not shown that the defendants' activities adversely impacted price, quality or output of medical services offered to consumers.); Balaklaw, 822 F.Supp. at 899 (stating that allegations of anti-competitive injury are, in reality, merely injury to the plaintiff of a personal nature). The harsh reality of the business world was summarized in Konik v. Champlain Valley Physicians Hosp., 733 F.2d 1007 (2nd Cir. 1984): It is the nature of competition that at some point there are winners and losers, and the losers are excluded. Id. at 1015. And, as Justice Richard Neely aptly stated in Gray, antitrust laws are not designed to deter all the evils known to modern commercial life; rather, they are designed to deter one specific evil_namely anti-competitive, conspiratorial economic behavior. 179 W.Va. at 288, 367 S.E.2d at 757.
Just as Appellees failed to prove an actionable conspiracy under antitrust law, they similarly failed to demonstrate an antitrust injury. If the damages alleged in an antitrust case could occur despite the alleged anticompetitive conduct, then the damages are not
antitrust damages. Brunswick, 429 U.S. at 488. 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. (See footnote 25) See id. The record in this case confirms that Appellees failed to introduce evidence to prove that competition among insurers in the relevant geographic market was harmed as a result of the termination of the agency agreement. At best, Appellees demonstrated a personal economic injury. Patel, 1995 WL 319213 at 5. As discussed above, the antitrust laws are not aimed at protecting individual competitors from sustaining economic loss. [I]f the alleged conspiracy did not restrain competition . . . there can be no resulting antitrust violation. Newman v. Universal Pictures, 813 F.2d 1519, 1522 (9th Cir. 1987). Because Appellees failed to prove anticompetitive harm of the ilk governed by the antitrust laws, (See footnote 26) they have failed to demonstrate their entitlement to recovery under West Virginia Code § 47-18-3. (See footnote 27) Accordingly, Erie was entitled to judgment as a matter of law.
Based on the foregoing, the decision of the Circuit Court of Mercer County is reversed.