Floyd H. Plueckhahn, Plaintiff-appellant, v. Farmers Insurance Exchange, et al., Defendants-appellees, 749 F.2d 241 (5th Cir. 1985)

Plaintiff Floyd Plueckhahn contends that an employment policy of Farmers Group, Inc. prohibiting certain employees from working for Farmers Group, Inc. district managers violates Sec. 1 of the Sherman Antitrust Act. The district court, after a bench trial in which the parties submitted detailed Proposed Findings of Fact and Conclusions of Law, held for the defendants. This Court affirms the district court's decision.

Defendants (Farmers Insurance Exchange, Farmers New World Life Insurance Co., Truck Insurance Exchange, Fire Insurance Exchange, Mid-Century Insurance Co., and Farmers Group, Inc.) are members of the Farmers Insurance Group. The "Farmers Insurance Group" is not itself a legal entity but instead is a name for the group of affiliated insurance companies (the defendants other than Farmers Group, Inc.) which are managed by Farmers Group, Inc. Defendants collectively refer to themselves as the Farmers Insurance Group, selling a variety of types of insurance coverage to the public.¹  Defendants, with the exception of the central management organization of Farmers Group, Inc., are insurance companies engaged in the business of selling insurance. The companies under the central management organization do not compete with one another; nor do they compete with Farmers Group, Inc., the central management organization. In the geographic areas in which they do business, each (with the exception of Farmers Group, Inc.) writes property, casualty, or life insurance which generally is not written by the other.²  Defendant Farmers Group, Inc. is the management company for the defendants and is an insurance holding company. Functioning as a management company, Farmers Group, Inc. is responsible for the development of an agency force and for the sale of insurance coverage within the other five affiliated defendant insurance companies. Farmers Group, Inc. fulfills these responsibilities by means of ten regional offices. Texas is one of those regions, and Austin is the regional office headquarters for Texas.

Plaintiff Floyd Plueckhahn was employed by the Texas regional office of Farmers Group, Inc. on June 12, 1962, and initially he worked on the claims staff of that office. In 1970, he became a Division Agency Manager for the Regional Sales Staff. The sales branch of the regional office is responsible for the marketing of the insurance products of its affiliated companies.³  After Plueckhahn's promotion to one of the five Division Agency Manager positions, his duty was to supervise the District Managers. The District Managers work under an appointment contract. The District Managers consider themselves to be independent businessmen and may have other relationships with insurance companies outside the Farmers Insurance Group system. Although a District Manager does not sell policies himself, he is paid an override on each policy sold by agents under his supervision. The Divisional Agency Managers and Regional Agency Manager have extensive review duties over the District Managers.⁴ 

On January 1, 1978, Plueckhahn was promoted from Division Agency Manager to Regional Agency Manager for the sales staff in the Farmers Group, Inc. office in Austin. Approximately four months later, in April 1978, plaintiff Plueckhahn approached Mr. Oscar Pool, a District Manager of Farmers Group, Inc. in Dallas, Texas, and began negotiating with Mr. Pool to secure employment. Plueckhahn's decision to attempt to work for District Manager Oscar Pool conflicted with a longstanding policy of Farmers Group, Inc. regarding employment by Farmers' District Managers of certain Farmers Group, Inc. employees.⁵  The policy's stated aim was to insure against favoritism by preventing employees in the supervisory regional office from going to work for persons they had previously supervised. Despite this conflict of interest provision, Plueckhahn signed an agreement with Pool on May 26, 1978. That agreement provided that Plueckhahn would begin working for Oscar Pool on July 15, 1978.

Plueckhahn continued to work for Farmers Group, Inc. without telling any of his superiors that he had signed an agreement with Pool. On June 15, 1978, Plueckhahn gave oral notice to Jack Lewis, his immediate supervisor and the Regional Sales Manager of Farmers Group, Inc., that he was resigning effective July 15, 1978, and was moving to Dallas to work for Pool. Based upon the Farmers Group, Inc. policy against transfers, its supervisors made a request to Pool on June 20, 1978, that Pool not hire Plueckhahn. Thereafter, on June 29, 1978, this request was withdrawn by those supervisors. Farmers Group, Inc. then gave permission for Plueckhahn to work for Pool. Between June 20 and June 29, 1978, Pool chose not to hire Plueckhahn and settled his employment contract with him.⁶  Plueckhahn later settled with Pool as to any claims he might have had under the employment contract. Less than a year later, Plueckhahn secured employment with another District Manager in the Farmers Group, Inc. system.

Plueckhahn presented to the district court and argues here that the Farmers Group, Inc. policy violates section 1 of the Sherman Act. 15 U.S.C. § 1. He relies on two theories. The first argues that the defendant companies entered into an illegal combination or conspiracy for the purpose of restraining their employees from employment with District Managers and restraining District Managers from employing Farmers Group, Inc. employees. The second theory is that District Manager Pool and the defendant companies formed an illegal combination or conspiracy to enforce the illegal restraint. Plueckhahn characterizes the restraint to be a horizontal boycott and argues that this Court should imply both an anticompetitive purpose and effect through the per se standard.

This Court must reject Plueckhahn's contentions. The district court did not err in reviewing the alleged restraint under the "rule of reason" standard (rather than the per se standard) and in concluding that any restraint here was reasonable. Hence, even assuming that the defendant companies formed a combination or conspiracy under section 1 of the Sherman Act, the alleged restraint in issue evinces no violation of the antitrust laws.⁷ 

Plueckhahn contends that the alleged restraint is per se illegal. Horizontal combinations requiring a per se analysis are those "agreements among actual competitors which restrain competition at the same level of distribution." Transource International, Inc. v. Trinity Industries, Inc., 725 F.2d 274, 279 (5th Cir. 1984) (emphasis added). In the instant case, the defendant companies competed neither in the selling of insurance nor in the purchasing of Plueckhahn's services. Thus, the district court did not err in applying a rule of reason analysis (rather than a per se standard) to Plueckhahn's first theory of a horizontal combination among the defendant companies.

Nor did the district court err in applying the rule of reason standard when Plueckhahn's second theory was considered. Under that theory, Plueckhahn argues that there was a horizontal combination or conspiracy to enforce the illegal restraint among the defendant companies and Pool. The defendant companies and Pool shared a unity of purpose that forecloses the actual competition necessary to command the per se analysis in this context. Both the defendant companies and Pool shared the legitimate purpose of marketing the products of the Farmers Insurance Group companies; the alleged restraint here served to eliminate conflicts of interest in pursuing that legitimate purpose. In this context, there can be no per se illegality absent horizontal competition. See Blackburn v. Crum & Forster, 611 F.2d 102, 104 (5th Cir.), cert. denied, 447 U.S. 906, 100 S. Ct. 2989, 64 L. Ed. 2d 856 (1980);⁸  Copperweld, --- U.S. at ----, 104 S. Ct. at 2742 (foreclosing section 1 liability entirely since parent and wholly-owned subsidiary, by necessity, have complete unity of interest); Hood, 739 F.2d at 1015 (same).

Moreover, applying the per se rule to the policy here would be destructive of the purpose of both the per se rule and the antitrust laws. This case does not present the classic case of a boycott in which a group of business competitors seeks to benefit economically by excluding other competitors from the market place. See E.A. McQuade Tours, Inc. v. Consolidated Air Tour Manual Committee, 467 F.2d 178, 186-87 (5th Cir. 1972), cert. denied, 409 U.S. 1109, 93 S. Ct. 912, 34 L. Ed. 2d 690 (1973). In the instant case, the conflict of interest policy was found reasonable by the district court. It was enforced by an employer and one of its closely allied independent contractors. Enforcement of the policy has no apparent effect on the labor market for insurance employees outside the Farmers Insurance Group system. Given these circumstances, this case does not fit the classic boycott situation in which the Court may presume (through the per se analysis) that the conduct is a "naked restraint of trade with no purpose except stifling of competition" and in which this Court therefore would conclusively presume the restraint to be unreasonable. See White Motor Co. v. United States, 372 U.S. 253, 263, 83 S. Ct. 696, 702, 9 L. Ed. 2d 738 (1963). See generally ABA Section of Antitrust Law, Antitrust Law Developments (Second) 40-49 (1984).

Consequently, the per se analysis does not apply. The rule of reason standard governs.

Under the rule of reason standard, "the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition." Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49, 97 S. Ct. 2549, 2557, 53 L. Ed. 2d 568 (1977). In determining whether a policy is reasonable, a court may examine such factors as whether the policy serves legitimate business purposes that strengthen competition, whether the policy is drawn narrowly to meet those purposes, and whether the alleged restraint has a substantial adverse effect in the relevant market. See National Society of Professional Engineers v. United States, 435 U.S. 679, 691-92 & n. 17, 98 S. Ct. 1355, 1365, 55 L. Ed. 2d 637 (1978); Chicago Board of Trade v. United States, 246 U.S. 231, 238, 38 S. Ct. 242, 243-44, 62 L. Ed. 683 (1918).

Farmers Group, Inc.'s policy promotes legitimate business concerns that have procompetitive effects. As the trial court found, the Farmers Group, Inc.'s policy does so by preventing both "the appearance of impropriety [and] ... actual impropriety." Amended Findings of Fact & Conclusions of Law No. 22. The reasoning behind this is to prevent conflicts of interest. Since employees in the regional office have extensive supervisory duties over District Managers in such areas as establishing and determining the boundaries of districts, approving agency applications for District Managers, determining quotas and targets for District Managers, and reviewing and evaluating District Managers, it is necessary that these decisions be made on sound business judgment rather than on an effort by a regional employee to "feather his own bed" by favoring a District Manager for whom he may wish to work.

Further, the policy in issue was drawn narrowly to meet this business interest. It applies to only 200 of the total 11,600 Farmers Group, Inc. employees. The policy allowed the affected employee to work for any District Manager outside of the Texas region. It also allowed the affected employee to work for a District Manager in Texas three years after his regional employment had terminated.

Finally, Plueckhahn fails to demonstrate how the policy had a substantial adverse effect on the labor market for insurance company employees. Plueckhahn argues only that the policy interfered with interstate commerce and that the policy applies to more employees than himself. This is insufficient to show the substantial adverse market effect necessary under a rule of reason analysis. The defendant companies' share in purchasing employee services and the availability of other types of work for insurance employees is not demonstrated in the record. All in all, the procompetitive effects clearly outweigh the hypothetical anticompetitive effects.⁹ 

This Court finds that the district court did not err in holding that the conflict of interest provision here to be not unreasonable.

For the foregoing reasons the judgment of the district court is

AFFIRMED.