Doe v. Norwest Bank Minnesota, N.A.

___________

No. 96-1763
___________

John Doe; John Roe, on behalf *
of themselves and all others *
similarly situated, *
*
Appellants, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
Norwest Bank Minnesota, N.A., *
a national banking association; *
Voyager Guaranty Insurance *
Company, *
*
Appellees. *

___________

Submitted: December 11, 1996

Filed February 28, 1997
___________

Before BOWMAN and HEANEY, Circuit Judges, and SMITH,1 District Judge.

___________

BOWMAN, Circuit Judge.

John Doe and John Roe brought a class action against Norwest Bank
Minnesota, N.A. (Norwest) and Voyager Guaranty Insurance Company (Voyager),
alleging violations of the usury provisions of the National Bank Act, 12
U.S.C. § 85-86 (1994), the anti-tying provisions of the Bank Holding
Company Act Amendments of 1970, 12 U.S.C. § 1972 (1994), and the Racketeer
Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c) (1994). Doe
settled his

The Honorable Ortrie D. Smith, United States District Judge
for the Western District of Missouri, sitting by designation.
claims and was dismissed from the case. The District Court2 granted
judgment in favor of the defendants on the federal claims and declined to
exercise supplemental jurisdiction over the plaintiffs' state-law claims.
Roe appeals, and we affirm.

I.

Before summarizing the facts, we consider the relevance of Doe's
claim to this case. Although Doe settled his claim and was dismissed from
the case, Roe argues that "Doe's suitability as a class representative
remains in issue." Roe's Br. at 1 n.2. We disagree. This action was
filed on November 3, 1994, and Doe agreed to settle on February 28, 1995.
When Doe apparently had misgivings, the defendants moved the court to
enforce the settlement agreement and dismiss Doe from the case. The
District Court did so, dismissing Doe on September 11, 1995, and Doe has
not appealed that order. Accordingly, Doe is no longer a party to this
action, individually or in his capacity as a class representative.

Of course, the dismissal of Doe did not affect the claim of Roe or
the claims of the unnamed class members in any way. This case remains a
putative class action with Roe as representative. We will therefore
summarize the facts of Roe's claim. In 1989, Roe purchased a pickup truck
from a dealer and entered into an installment contract, granting the dealer
a security interest in the pickup truck. The dealer assigned the contract
to Norwest. Several provisions of the installment contract addressed
insurance on the pickup truck:

The Honorable Michael J. Davis, United States District Judge
for the District of Minnesota, adopting two reports and
recommendations of The Honorable John M. Mason, United States
Magistrate Judge for the District of Minnesota.

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 Insurance on property I [Roe] give as security is required. If
insurance is required, I may buy it through any insurance agent
or company of my choice. . . .

. . .

If you [Norwest] require property insurance, it must cover all
risks of physical damage to the property and the risk that the
vehicle may be lost. . . . I promise to keep the property
insured throughout the term of my loan and to deliver a
certificate of insurance to you that shows I have purchased
insurance of this kind.

. . .

I also agree that, if I fail to keep any required insurance on
the property, you may purchase such insurance for me. I will
immediately repay you for any amounts you spend in purchasing
that insurance, plus interest at the "annual percentage rate"
disclosed on the other side of this contract.

Roe's App. at 135-36. At the same time, Roe signed a document entitled
"Agreement to Provide Accidental Physical Damage Insurance," which read:

I understand that to provide protection from serious financial
loss, should an accident or loss occur, Norwest . . . requires
the collateral securing my loan to be continuously covered with
insurance against the risks of fire, theft, and collision, and
that failure to provide such insurance gives Bank the right to
declare the entire unpaid balance immediately due and payable
or alternatively to purchase coverage for its interest and add
the premium plus interest to the balance. . . .

I further understand and agree to maintain insurance, as
described above, in force during the term of the loan and will
furnish Norwest . . . with a loss payable endorsement upon each
renewal of said insurance.

Norwest's App. at 69.

In February 1993, Norwest notified Roe that it had not received proof
of insurance and warned him that if he failed to provide proof of
insurance, Norwest could exercise its right to

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purchase insurance. Norwest's letter notified Roe that if the bank
purchased insurance, the premium of $902 (for a year of coverage) would be
added to his loan balance. When Roe did not provide proof of insurance,
Norwest purchased insurance from Voyager and added $902 to Roe's balance.
Voyager then sent Roe a certificate of coverage, which indicated that only
Norwest's interest in the vehicle was insured.

When that coverage expired in January 1994, Norwest again warned Roe
that it had not received proof of insurance. The same process was
repeated, and Norwest purchased insurance and added the premium of $549 to
Roe's loan balance. In June 1994, Roe apparently proved to Norwest that
he had procured his own insurance, and Norwest credited his loan with $233,
the unearned portion of the $549 premium. At about the same time, Norwest
added to Roe's loan a charge of $11.60 for interest on the insurance
charge.

As part of its collateral protection insurance program, Norwest has
an umbrella insurance policy with Voyager, pursuant to which Norwest
purchases insurance when borrowers fail to provide their own insurance.
When Norwest purchases insurance from Voyager with respect to a particular
piece of collateral, the insurance covers only Norwest's interest in the
collateral. The coverage, which is otherwise similar to ordinary
comprehensive and collision coverage, is limited to either the damage to
the collateral or the balance of the customer's loan, whichever is smaller
in amount. The umbrella policy also contains two endorsements that are
significant in this case. The first endorsement, entitled "Waiver of
Repossession Requirement," waives the requirement that Norwest repossess
the borrower's vehicle before making a claim. The second, the "Waiver of
Salvage Deduction on Non-Repossession Claims," modifies the policy so that
the amount payable to Norwest on a claim is not reduced by the salvage
value of the borrower's

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vehicle.3 Roe's arguments that insurance charges attributable to these
endorsements were unauthorized form the basis of this action.

The plaintiffs brought this action in federal district court,
asserting claims under the National Bank Act and the Bank Holding Company
Act against Norwest only and a RICO claim against Voyager only. After
permitting discovery and dismissing Doe from the case, the District Court
granted summary judgment to the defendants on the National Bank Act claim
and dismissed the anti-tying and RICO allegations for failure to state a
claim on which relief could be granted. See Doe v. Norwest Bank Minn.,
N.A., 909 F. Supp. 668 (D. Minn. 1995) (order dismissing RICO count). The
court dismissed these federal claims with prejudice and declined to
exercise supplemental jurisdiction over the state-law claims, dismissing
them without prejudice. Roe's appeal challenges the dismissal of the
federal claims.

II.

We address the National Bank Act claim first. Insofar as it is
relevant here, the National Bank Act permits a national bank to charge
"interest at the rate allowed by the laws of the State . . . where the bank
is located . . . and no more." 12 U.S.C. § 85 (1994). Section 86 provides
a federal cause of action for usury against a national bank that "tak[es],
receiv[es], reserv[es], or charg[es] a rate of interest greater than is
allowed by section 85 of this title." 12 U.S.C. § 86 (1994); see also M.
Nahas & Co. v. First Nat'l Bank, 930 F.2d 608, 612 (8th Cir. 1991) (remedy
of § 86

Prior to January 1991, Norwest had a different policy with
Voyager that contained additional endorsements. This policy is not
relevant here. Roe also claims that Norwest imposed an additional
charge for calculating his premium based on the outstanding
principal balance rather than the sum of principal and interest.
However, Norwest introduced undisputed evidence that no such charge
was made to Roe's account because the charge applies only to
simple-interest accounts, which Roe's was not.

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completely preempts state-law usury actions against national banks); Fisher
v. First Nat'l Bank, 548 F.2d 255, 257 (8th Cir. 1977) (interest rate a
national bank may charge is ultimately a question of federal law).

Roe argues that the "unauthorized" charges attributable to the
repossession and salvage waivers, and perhaps the full amount of insurance
charges, should be considered interest with respect to his installment
loan. Norwest argues that charges for insurance are not interest at all,
but even if they were considered interest, the total interest rate on Roe's
loan would be below the allowable cap under Minnesota law. The parties'
experts assumed that all the charges were interest but used different
interpretations of the Federal Reserve's Regulation Z (12 C.F.R. pt. 226
(1996)) to support their conclusions: Roe's expert calculated the interest
rate by amortizing the insurance charges over the period of time from when
they were imposed to the end of the loan term, while Norwest's expert
amortized the insurance charges, like the ordinary interest charges, over
the entire length of the loan. The District Court assumed that all the
insurance charges were interest and approved the calculation method of
Norwest's expert. Because that method resulted in an interest rate below
the maximum allowed by Minnesota law, the court granted summary judgment
to Norwest.

We review a grant of summary judgment de novo, affirming only if the
record, viewed in the light most favorable to the nonmoving party, shows
no genuine issue of material fact and the moving party is entitled to
judgment as a matter of law. See Smith v. City of Des Moines, 99 F.3d
1466, 1468-69 (8th Cir. 1996). We may affirm on any ground supported by
the record. See Phillips v. Marist Soc'y, 80 F.3d 274, 275 (8th Cir.
1996).

We need not resolve the parties' thorny dispute about the correct
interpretation of Regulation Z, nor need we decide the less-complicated
question of the applicable interest-rate cap under

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Minnesota law. Instead, we conclude that collateral protection insurance
premiums charged to a borrower's account do not, as a matter of federal
law, constitute "interest" within the meaning of § 85.4

The Office of the Comptroller of the Currency recently issued an
interpretive ruling regarding the meaning of the term "interest" in § 85.
That ruling reads:

The term "interest" as used in 12 U.S.C. 85 includes any
payment compensating a creditor or prospective creditor for an
extension of credit, making available of a line of credit, or
any default or breach by a borrower of a condition upon which
credit was extended. It includes, among other things, the
following fees connected with credit extension or availability:
numerical periodic rates, late fees, not sufficient funds (NSF)
fees, overlimit fees, annual fees, cash advance fees, and
membership fees. It does not ordinarily include appraisal
fees, premiums and commissions attributable to insurance
guaranteeing repayment of any extension of credit, finders'
fees, fees for document preparation or notarization, or fees
incurred to obtain credit reports.

Interpretive Rulings, 61 Fed. Reg. 4849, 4869 (1996) (to be codified at 12
C.F.R § 7.4001(a)) (emphasis added). Although this ruling is a recent one,
it has already received the imprimatur of the Supreme Court. In Smiley v.
Citibank (S.D.), N.A., 116 S. Ct. 1730 (1996), the Court unanimously held
that the word "interest" in § 85 was ambiguous and that the Comptroller's
judgment as to its meaning was entitled to deference under Chevron U.S.A.
Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984). See
Smiley, 116 S. Ct. at 1732-33. The Court then concluded that the
Comptroller's inclusion of late fees within the meaning of

Roe argues that Norwest has raised this issue for the first
time on appeal. This assertion is patently untrue. See Report and
Recommendation of Dec. 21, 1995, at 4 ("Defendant makes a
compelling argument that [the charges] are not interest for any
purpose.").

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"interest" was a reasonable interpretation of the statute. See id. at
1735. Because the law of South Dakota, Citibank's home state, permitted
banks to charge late fees, the determination that late fees are interest
for National Bank Act purposes put an end to the state-law claims of
Smiley, a California resident. See id. at 1732; Marquette Nat'l Bank v.
First of Omaha Serv. Corp., 439 U.S. 299, 313 (1978) (national bank may
charge interest allowed by its home state even if such interest would not
be allowed to bank in borrower's home state).

In the instant case, we are faced with a slightly different issue.
If we accept the Comptroller's judgment that "premiums and commissions
attributable to insurance guaranteeing repayment of any extension of
credit" are not "interest," and we conclude that the charges involved here
are premiums within that definition, Roe's claim must fail because he
cannot show that Norwest charged "a rate of interest greater than is
allowed by section 85." 12 U.S.C. § 86 (1994) (emphasis added).

We have little difficulty concluding that the Comptroller's
interpretation of "interest" as excluding insurance premiums is reasonable.
The Supreme Court has already determined that "interest," as it is used in
§ 85, is not an unambiguous term. See Smiley, 116 S. Ct. at 1732-33. Our
inquiry, therefore, is whether "the agency's answer is based on a
permissible construction of the statute." Chevron, 467 U.S. at 843.
Certainly the ordinary definition of "interest" does not include insurance
premiums passed along from creditor to debtor. See Black's Law Dictionary
812 (6th ed. 1990) ("Interest is the compensation allowed by law or fixed
by the parties for the use or forbearance of borrowed money."); Smiley, 116
S. Ct. at 1735 (interest is "`compensation which is paid by the borrower
to the lender or by the debtor to the creditor for . . . use [of money]'")
(quoting 1 J. Bouvier, A Law Dictionary 652 (6th ed. 1856)) (alterations
in Smiley). Indeed, we believe it is quite sensible to conclude that such
premiums are not interest

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but rather additions to the principal of the loan, or perhaps separate
extensions of credit entirely. See Kenty v. Bank One, Columbus, N.A., 92
F.3d 384, 393 (6th Cir. 1996). And, as the Court stated in Smiley, it is
"quite possible and rational to distinguish, as the regulation does,"
between charges that are specifically assigned to the expenses of the bank
in undertaking such activities as processing an application, insuring a
loan, or appraising collateral and, on the other hand, charges "that are
assessed for simply making the loan, or for the borrower's default."
Smiley, 116 S. Ct. at 1734. We conclude that the Comptroller's ruling
excluding "premiums and commissions attributable to insurance guaranteeing
repayment of any extension of credit" from the definition of "interest" is
reasonable.

The question remains whether the charges involved here fit within the
Comptroller's definition. Although collateral protection insurance has
produced a substantial body of case law in recent years, we have been
unable to locate any cases addressing the precise issue presented here in
light of Smiley. Cf. Giddens v. Hometown Fin. Servs., 938 F. Supp. 801,
806-07 (M.D. Ala. 1996) (suggesting that insurance premiums are not
interest; holding that case was improperly removed); Kenney v. Farmers
Nat'l Bank, 938 F. Supp. 789, 793-94 (M.D. Ala. 1996) (same). But cf. Moss
v. Southtrust Mobile Servs., Inc., No. CV-95-P-1647-W (N.D. Ala. Sept. 22,
1995) (holding, without discussion of Comptroller's ruling, that
unauthorized premiums are interest and finding state-law claims completely
preempted).5

The opinions in the Kenty case express different views of the
collateral protection insurance in that case. On a motion to
dismiss, the district court held that insurance charges that were
"unauthorized and unnecessary to protect the collateral" could be
considered interest on the loan. See Kenty v. Bank One, Columbus,
N.A., 1992 WL 170605, at *4 (S.D. Ohio Apr. 23, 1992). At the
summary judgment stage, however, the court concluded that state law
imposed no maximum on the allowable interest rate, so that it did
not matter whether any portion of the insurance charges was
considered interest. See Kenty v. Bank One, Columbus, N.A., 1993
WL 592532, at *5 (S.D. Ohio Oct. 25, 1993). The Sixth Circuit saw
Kenty's argument slightly differently, believing Kenty was
complaining about the bank's charging interest on the insurance
charges. That court concluded that the insurance premiums were

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 Roe argues that the charges added to his account are in fact not
premiums attributable to insurance, but rather charges "compensating a
creditor or prospective creditor for . . . [a] default or breach by a
borrower," which would fit them within the Comptroller's definition of
"interest." See 61 Fed. Reg. at 4869. It is true that Norwest charges a
borrower for insurance only after the borrower breaches the covenant to
maintain insurance. But there is a notable difference between a late fee,
which compensates the creditor solely for the effects of the debtor's
default, and an insurance charge, which compensates the creditor for the
cost of protecting its security, a cost the debtor is supposed to bear
anyway. In addition, the limitation of the coverage in this case to the
lesser of the damage to the collateral or the loan balance indicates that
the insurance is designed to guarantee the repayment of the loan.
Accordingly, we believe that these collateral protection insurance premiums
are excluded by the Comptroller's interpretive ruling from the general
category of charges compensating a creditor for a default or breach and
placed in the category of premiums attributable to insurance guaranteeing
the repayment of credit extended.

Roe also argues that even if the basic insurance coverage is not
interest, the allegedly unauthorized aspects of the insurance must be
considered interest. We disagree. The charges related to the waiver of
repossession and waiver of salvage endorsements are not trivial; Roe's
expert calculated that these endorsements accounted for more than thirty
percent of the total premium charged to Roe. But Norwest introduced
undisputed evidence that these endorsements placed Norwest in exactly the
same position in which

themselves loans, and so state law permitted the bank to charge any
amount of interest on the premiums. See 92 F.3d at 393. None of
these opinions addresses the Comptroller's interpretation of § 85.

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it would have been if Roe had purchased a standard Minnesota automobile
insurance policy and named Norwest as loss payee, as the loan agreement
required him to do. In other words, under an ordinary policy in Minnesota,
a lender named as loss payee would not have to repossess a wrecked car in
order to make a claim, and the amount received by the lender would not be
reduced by the salvage value of the car. We therefore see no reason to
treat the charges related to the waiver endorsements any differently from
the basic insurance charge. Although they may be differentiated for
insurance purposes, they are in essence a single package designed to
replicate the coverage Roe should have provided himself.6

In sum, unlike late fees, NSF fees, and the like, the insurance
charges in this case benefitted both creditor and borrower by making it
easier for Roe to repay the loan in case his truck were physically damaged
or stolen. (Roe, after all, would remain liable on the note even if the
collateral were valueless.) Norwest merely passed along to Roe the exact
cost Norwest incurred in procuring insurance that restored it to the same
situation in which it would have been had Roe kept his end of the bargain.
The charges therefore are "premiums . . . attributable to insurance
guaranteeing repayment of [an] extension of credit," and under the
Comptroller's reasonable interpretation of the statute, they are not
"interest." We conclude that the events that form the basis of this cause
of action do not amount to a violation of the National Bank Act.

At times in his brief and at oral argument, counsel for Roe
seemed to be challenging a third endorsement, entitled "Automatic
Coverage," which covers collateral retroactively to the date on
which the borrower's own insurance lapsed. We see no reason to
treat this endorsement any differently from the others, as it also
merely replicates the coverage Roe was contractually obligated to
provide.

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 III.

The District Court dismissed Roe's anti-tying allegations for failure
to state a claim on which relief could be granted. See Fed. R. Civ. P.
12(b)(6). In considering a motion to dismiss, we assume all facts alleged
in the complaint are true, construe the complaint liberally in the light
most favorable to the plaintiff, and affirm the dismissal only if "it
appears beyond a doubt that the plaintiff can prove no set of facts which
would entitle the plaintiff to relief." Coleman v. Watt, 40 F.3d 255, 258
(8th Cir. 1994). Our review is de novo. See id.

The relevant provisions of the Bank Holding Company Act Amendments
of 1970 state as follows:

(1) A bank shall not in any manner extend credit, lease or sell
property of any kind, or furnish any service . . . on the
condition or requirement--

(A) that the customer shall obtain some additional
credit, property, or service from such bank other than a
loan, discount, deposit, or trust service;

. . .

(C) that the customer provide some additional credit,
property, or service to such bank, other than those
related to and usually provided in connection with a
loan, discount, deposit, or trust service.

12 U.S.C. § 1972(1) (1994). The plaintiff in an action under this section
must show that the bank imposed a tie, that the practice was unusual in the
banking industry, that it resulted in an anti-competitive arrangement, and
that it benefitted the bank. See Alpine Elec. Co. v. Union Bank, 979 F.2d
133, 135 (8th Cir. 1992).

Roe alleged two potential ties in his complaint: when he purchased
insurance through the bank, he was required to accept an

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automatic extension of credit to pay for the insurance; and when he
purchased property damage insurance through the bank, he was also required
to purchase additional insurance that was unauthorized and undisclosed.
On appeal, Roe emphasizes that he does not suggest that the purchase of
insurance through the bank was a condition of the extension of credit for
the original loan. See Kenty, 92 F.3d at 395 (where borrower is free to
purchase insurance on open market, insurance is not tied to original loan).

Roe first complains that when he elected to purchase insurance
through the bank rather than from an independent agent--a highly debatable
characterization of the facts, but one we will entertain for purposes of
this motion to dismiss--he found that the only way he was permitted to pay
for the insurance was to have it added to his loan balance, where it bore
interest at the loan rate. But this contention is belied by the language
of the installment agreement itself, which was attached to Roe's complaint
and forms a part of the pleadings: "I MAY PREPAY MY OBLIGATIONS UNDER THIS
AGREEMENT, IN WHOLE OR IN PART, AT ANY TIME WITHOUT PENALTY." Roe's App.
at 135. It is therefore clear that Roe was not required to accept an
automatic extension of credit to pay for the insurance; he could have
tendered payment to Norwest in the amount of the insurance premium (or in
any other amount) at any time. Because Roe's complaint itself demonstrates
that this supposed tie did not exist, this allegation does not state a
claim on which relief could be granted.

The second alleged tie presents a more substantial question. Roe
here argues that when he elected to purchase property damage coverage
through Norwest, he was also required to purchase other unauthorized and
undisclosed coverages. Norwest suggests that we adopt the reasoning of the
Sixth Circuit, which held on nearly identical allegations in Kenty that
because the borrower never agreed to purchase the unauthorized insurance,
that purchase could not have been a "condition or requirement" of the
purchase of the

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authorized insurance, as § 1972(1) requires. See Kenty, 92 F.3d at 395.
In effect, that court held that "a valid breach of contract claim cannot
be converted into an anti-tying claim." Id. We are not sure that we agree
with the reasoning of the Sixth Circuit, particularly in the context of a
motion to dismiss. Fairly read, Roe's complaint alleges that Norwest
provides property damage insurance only if borrowers also pay for other,
unauthorized insurance coverage. It therefore appears that the purchase
of the unauthorized coverage is a "requirement" of the purchase of property
damage coverage, for the latter is not available without the former. We
do not believe that the fact that the unauthorized coverage is undisclosed
should affect this portion of the analysis. Roe's complaint thus alleges
a tie and satisfies the first requirement of an anti-tying claim.

We reach the same result as the Sixth Circuit by another route,
however, for we believe Roe's complaint does not allege an anti-competitive
tie. Unlike a Sherman Act plaintiff, a plaintiff in a § 1972 action need
not show that a tie has anti-competitive effects. See, e.g., Palermo v.
First Nat'l Bank & Trust Co., 894 F.2d 363, 368 (10th Cir. 1990); Davis v.
First Nat'l Bank, 868 F.2d 206, 208 (7th Cir.), cert. denied, 493 U.S. 816
(1989); Parsons Steel, Inc. v. First Ala. Bank, 679 F.2d 242, 245 (11th
Cir. 1982); cf. Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 13-
16 (1984) (Sherman Act tying plaintiff must show that defendant has market
power in tying market and that tie forecloses substantial volume of
commerce). But a § 1972 plaintiff is required to show an anti-competitive
practice, that is, "that the practice results in unfair competition or
could lessen competition." Palermo, 894 F.2d at 368 (emphasis added); see
also Davis, 868 F.2d at 208; Parsons Steel, 679 F.2d at 246.7

We disagree with trial court decisions from within our Circuit
opining that a tie is a per se violation of § 1972. See JST
Properties v. First Nat'l Bank, 701 F. Supp. 1443, 1449 (D. Minn.
1988); Sharkey v. Security Bank & Trust Co., 651 F. Supp.
1231, 1232 (D. Minn. 1987).

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 In this case, Roe has not alleged an anti-competitive practice. In
the market for property damage insurance (the tying market), it is
undisputed that Roe was permitted to purchase from any vendor of his
choice. Roe has alleged nothing from which a factfinder could conclude
that the tie would have any anti-competitive disruption in the tying
market. Nor can there be any anti-competitive result in the tied market,
the market for the unauthorized insurance coverage, for the simple reason
that Roe did not want to purchase such coverage from any vendor. See
Jefferson Parish, 466 U.S. at 16 ("[W]hen a purchaser is `forced' to buy
a product he would not have otherwise bought even from another seller in
the tied-product market, there can be no adverse impact on competition
because no portion of the market which would otherwise have been available
to other sellers has been foreclosed."). When these circumstances are
considered together--that is, Roe can buy basic property damage insurance
anywhere and does not want to buy other coverage at all--it is clear that
Norwest's practice cannot possibly lessen competition. It therefore cannot
be considered an anti-competitive practice. See Palermo, 894 F.2d at 368.
The District Court properly dismissed this allegation for failure to state
a claim.

IV.

Finally, we consider Roe's RICO allegations. The District Court
concluded that Roe failed to state a claim on which relief could be granted
because the application of RICO to the alleged actions of Voyager was
barred by the McCarran-Ferguson Act, 15 U.S.C. § 1012(b) (1994). We agree.

The relevant portion of the McCarran-Ferguson Act provides that "No
Act of Congress shall be construed to invalidate, impair, or supersede any
law enacted by any State for the purpose of

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regulating the business of insurance . . . unless such Act specifically
relates to the business of insurance." 15 U.S.C. § 1012(b) (1994). The
McCarran-Ferguson Act bars the application of a federal statute if (1) the
statute does not specifically relate to the business of insurance; (2) a
state statute has been enacted for the purpose of regulating the business
of insurance; and (3) the federal statute would invalidate, impair, or
supersede the state statute. See Murff v. Professional Med. Ins. Co., 97
F.3d 289, 291 (8th Cir. 1996) (citing United States Dep't of Treasury v.
Fabe, 508 U.S. 491, 501 (1993)).8

The parties agree that RICO does not specifically relate to the
business of insurance. Nor does Roe seriously dispute Voyager's contention
that Minnesota has enacted a comprehensive statutory scheme to regulate the
business of insurance. See Minn. Stat. ch. 59A-72C (1996). The only
substantial question for our review, therefore, is whether the application
of RICO to the activities of Voyager would invalidate, impair, or supersede
Minnesota's insurance laws.

Fairly summarized, Roe's complaint contains two substantive
allegations. First, Roe alleges that Voyager contracted to function as
Norwest's automobile insurance department, sending notices to borrowers
which appeared to be from Norwest and causing

Despite the apparent agreement of the parties to the contrary,
the application of the McCarran-Ferguson Act in this case does not
require a specific conclusion that the allegedly improper
activities of Voyager constituted the "business of insurance."
Fabe recognizes that the three-part test of Union Labor Life Ins.
Co. v. Pireno, 458 U.S. 119, 129 (1982), for determining whether a
particular practice constitutes the business of insurance is
relevant only in cases involving a conflict between state law and
federal antitrust law, a conflict which is the subject of a
separate provision of the McCarran-Ferguson Act. See Fabe, 508
U.S. at 504-05.

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borrowers to be charged for unauthorized insurance coverage.9 Second, Roe
claims that Voyager paid or caused to be paid to Norwest "illegal and
unauthorized kickbacks, rebates, and/or commissions" with respect to the
borrowers' collateral insurance premiums.10 Compl. ¶ 57. All of this
alleged activity, Roe claims, constitutes a massive pattern of racketeering
activity, particularly mail fraud and wire fraud, in violation of 18 U.S.C.
§ 1962(c) (1994).

Voyager argues that the allegedly fraudulent activities with which
it is charged fall squarely within several sections of Minnesota's
insurance laws. See Minn. Stat. §§ 72A.08(2) (1996) (prohibiting payment
of rebate to insured), 72A.20(1) (1996) (prohibiting misrepresentation of
terms of policy issued or to be issued), 72A.20(12)(1) (1996) (prohibiting
misrepresentation of pertinent facts or policy provisions relating to
coverages).

Roe argues that our opinion in First Nat'l Bank v. Taylor, 907
F.2d 775 (8th Cir.), cert. denied, 498 U.S. 972 (1990), holds that
the McCarran-Ferguson Act is inapplicable to a national bank, and
that because he alleges that Voyager was acting as the agent of a
national bank, the Act cannot apply here. We believe Roe misreads
that case, which relies on the conclusion that the bank was
specifically authorized by the National Bank Act to undertake the
insurance-like activity that was the subject of the case. See
Taylor, 907 F.2d at 778-79. In any event, Voyager is an insurance
company and is subject to Minnesota's laws regulating insurance
companies; that it may have been working on behalf of a bank adds
nothing to this analysis.

Evidence in the record on appeal suggests that the actual
goings-on were quite different. Norwest contracts with G.D. Van
Wagenen Company, which is not a party here, to administer the
collateral protection program by verifying whether borrowers have
provided proof of insurance and sending notices to borrowers about
Norwest's right to purchase insurance to protect its collateral.
Van Wagenen is also a Voyager agent and is authorized to place
insurance with Voyager when Norwest purchases it. An affiliate of
Norwest, Norwest Insurance, Inc., which is also not a party to this
suit, serves as the broker for the purchase of the insurance and
receives commissions from Voyager on the premiums. Nevertheless,
for purposes of this motion to dismiss, we must accept Roe's
allegations as true.

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Minnesota law does not provide a private cause of action for violations of
these prohibitions. See Morris v. American Family Mut. Ins. Co., 386
N.W.2d 233, 238 (Minn. 1986). Instead, the Commissioner of Commerce is
empowered to investigate violations, file charges, issue orders, and impose
fines. See Minn. Stat. §§ 72A.201(1), 72A.21, 72A.08(3) (1996). In
certain circumstances, the Commissioner may also obtain injunctive relief
against an insurer. See Minn. Stat. § 72A.25(2)-(3) (1996).

RICO, by contrast, expressly grants treble damages, costs, and
attorney fees to a victorious plaintiff. See 18 U.S.C. § 1964(c) (1994).
Voyager argues that the application of RICO in this case would impair the
operation of Minnesota's administrative remedial system by providing
private plaintiffs with a remedy Minnesota does not provide and affording
plaintiffs a recovery significantly greater than that which the state has
authorized. In particular, Voyager suggests that the possibility of treble
damages and attorney fees would eviscerate the administrative system by
diverting any rational aggrieved policyholder from the Commissioner's
office to federal court. Consequently, Voyager claims, an insurer that
found itself the subject of an inquiry by the Commissioner would be
unlikely to cooperate in the administrative process for fear of prejudicing
its litigation position if a RICO suit should arise later.

The precise degree of impairment of a state statute that is required
to trigger the operation of the McCarran-Ferguson Act is not settled. In
its only opinion to address the question directly, the Supreme Court
concluded that application of the federal securities laws to a merger of
insurance companies would not impair the state's laws protecting
policyholders. See SEC v. National Securities, Inc., 393 U.S. 453, 463
(1969). The Court noted that "Arizona has not commanded something which
the Federal Government seeks to prohibit" but also recognized that the
federal interest was directed toward protecting shareholders, while the
state

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statute was directed toward protecting policyholders. See id. The Court
concluded, "[i]n these circumstances, we simply cannot see the conflict."
Id. In the case at bar, Minnesota has not commanded anything which RICO
would prohibit; in other words, there is no direct conflict between federal
and state law. But, in contrast to National Securities, the federal and
state statutes at issue here are directed toward the same end: the
protection of policyholders and prospective policyholders from fraudulent
insurance practices. The issue presented here, therefore, is whether a
federal statute that is essentially parallel in substance to a state
statute may impair the state statute because of a difference in the
availability and the magnitude of the remedies they provide.

Several courts addressing this question have concluded that the
McCarran-Ferguson Act is not implicated by federal law that is
substantively parallel to state law. See Villafane-Neriz v. FDIC, 75 F.3d
727, 736 (1st Cir. 1996) (Federal Deposit Insurance Act); Nationwide Mut.
Ins. Co. v. Cisneros, 52 F.3d 1351, 1363 (6th Cir. 1995) (Fair Housing
Act), cert. denied, 116 S. Ct. 973 (1996); Merchants Home Delivery Serv.,
Inc. v. Frank B. Hall & Co., 50 F.3d 1486, 1492 (9th Cir.) (RICO), cert.
denied, 116 S. Ct. 418 (1995); NAACP v. American Family Mut. Ins. Co., 978
F.2d 287, 295-97 (7th Cir. 1992) (Fair Housing Act), cert. denied, 508 U.S.
907 (1993); Thacker v. New York Life Ins. Co., 796 F. Supp. 1338, 1342-43
(E.D. Cal. 1992) (RICO). Other courts have disagreed, concluding that the
intrusion of RICO's substantial damage provisions into a state's insurance
regulatory program may so impair the state law as to bar application of
RICO. See Kenty, 92 F.3d at 392 (collateral protection insurance case;
distinguishing Nationwide); Ambrose v. Blue Cross & Blue Shield, 891 F.
Supp. 1153, 1165-68 (E.D. Va. 1995), aff'd, 95 F.3d 41 (4th Cir. 1996)
(unpublished per curiam); Everson v. Blue Cross & Blue Shield, 898 F. Supp.
532, 544 (N.D. Ohio 1994); Wexco Inc. v. IMC, Inc., 820 F. Supp. 194, 203-
04 (M.D. Pa. 1993); LeDuc v. Kentucky Cent. Life Ins. Co., 814 F. Supp.
820,

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829 (N.D. Cal. 1992); Senich v. Transamerica Premier Ins. Co., 766 F. Supp.
339, 341-42 (W.D. Pa. 1990) (collateral protection insurance case).

We find the latter line of cases more persuasive in the RICO context.
As one court has noted, "the remedies available under RICO are among the
most severe ever enacted in a federal civil statute." Ambrose, 891 F.
Supp. at 1166. The state of Minnesota has determined that its insurance
market can best be regulated by the Commissioner's pursuit of fines and
injunctive relief. Congress has expressed its intention to leave the
regulation of the business of insurance to the states unless a federal
statute expressly addresses that subject or the application of a general
federal statute would not invalidate, supersede, or impair a state statute.
Were the question presented here, we might agree with the Sixth and Seventh
Circuits that the federal civil rights statutes do not impair state
insurance regulation. Cf. Murff, 97 F.3d at 292 (application of Age
Discrimination in Employment Act to insolvent insurance company does not
impair state insurance insolvency procedures).11 But Voyager makes a
compelling case that the extraordinary remedies of RICO would frustrate,
and perhaps even supplant, Minnesota's carefully developed scheme of
regulation. We do not read the term "impair" so narrowly as to permit the
conclusion that the McCarran-Ferguson Act does not apply in the
circumstances presented here. See Webster's Third New International
Dictionary 1131 (1981) (defining "impair" as

Although Murff contains language suggesting that impairment
will exist only in the case of a direct conflict between state and
federal law, that language is certainly dictum in light of the
Court's conclusion that application of the ADEA would have a de
minimis effect, at most, on the insolvency proceedings. See Murff,
97 F.3d at 292 (citing Missouri statute giving policyholders
priority over claims of employees). In addition, the ADEA, like
the federal securities laws, is designed to protect parties other
than policyholders. Murff therefore fits well within the framework
of National Securities, see 393 U.S. at 463, and does not control
here.

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"diminish in quantity, value, excellence, or strength; do harm to"). The
District Court correctly held that Roe's RICO allegations failed to state
a claim.

V.

The judgment of the District Court is affirmed.

HEANEY, Circuit Judge, concurring and dissenting.

I concur in Sections III and IV of the court's opinion. I disagree,
however, with the conclusions reached in Section II. I believe the
district court erred in granting summary judgment on the question of
whether the payments that were made were premiums rather than interest
payments. I think this question can only be decided after an evidentiary
hearing by the district court and that we should remand to the district
court to hold such a hearing. If the district court decides after an
evidentiary hearing that the payments are interest payments in whole or in
part, then it must determine whether the payments were usurious. In
reaching this decision, I believe it is clear that the rate of interest
should be computed over the life of the loan rather than over the life of
the agreement.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.

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