The National Association for the Advancement of Colored People v. American Family Mutual Insurance Company

Is redlining in the insurance business a form of racial discrimination violating the Fair Housing Act? "Redlining" is charging higher rates or declining to write insurance for people who live in particular areas (figuratively, sometimes literally, enclosed with red lines on a map). The NAACP, its Milwaukee Branch, and eight of its members contend in this class action that redlining violates the Fair Housing Act, 42 U.S.C. §§ 3601-19, and four other rules of state and federal law when insurers draw their lines around areas that have large or growing minority populations.

Plaintiffs contend that a mortgage loan usually is essential to home ownership, and that lenders are unwilling to provide credit unless the borrower obtains insurance on the house that serves as security for the loan. Higher premiums price some would-be buyers out of the market; a refusal to write insurance excludes all buyers. If insurers redline areas with large or growing numbers of minority residents, that practice raises the cost of housing for black persons and also frustrates their ability to live in integrated neighborhoods. Even if they achieve their goal, they pay extra.

The complaint asserts that American Family Mutual Insurance Company engages in redlining in and near Milwaukee. The district judge concluded that two of plaintiffs' five theories are legally insufficient. See Fed.R.Civ.P. 12(b)(6). Following Mackey v. Nationwide Insurance Cos., 724 F.2d 419, 423-24 (4th Cir.1984), he held that the Fair Housing Act (Title VIII of the Civil Rights Act of 1968) does not apply to the property and casualty insurance business. And he held that Wisconsin would not recognize a private right of action to enforce the antidiscrimination portions of its insurance code. At the conclusion of his oral ruling, the judge entered a partial final judgment on these two theories under Fed.R.Civ.P. 54(b).

Because the district judge dismissed claims under Title VIII and Wisconsin's insurance code in advance of discovery, we must assume that plaintiffs can establish that the defendant intentionally discriminates on account of race. That is, we must assume that the plaintiffs can establish disparate treatment and not just a disparate impact of decisions made on actuarial grounds. The distinction is important not only because the Supreme Court has yet to decide whether practices with disparate impact violate Title VIII, see Huntington v. NAACP, 488 U.S. 15, 109 S.Ct. 276, 102 L.Ed.2d 180 (1988), but also because of the nature of insurance. Insurance works best when the risks in the pool have similar characteristics. For example, term life insurance costs substantially more per dollar of death benefit for someone 65 years old than for one 25 years old, although the expected return per dollar of premium is the same to both groups because the older person, who pays more, also has a higher probability of dying during the term. Auto insurance is more expensive in a city than in the countryside, because congestion in cities means more collisions. Putting young and old, or city and country, into the same pool would lead to adverse selection: people knowing that the risks they face are less than the average of the pool would drop out. A single price for term life insurance would dissuade younger persons from insuring, because the price would be too steep for the coverage offered; the remaining older persons would pay a price appropriate to their age, but younger persons would lose the benefits of insurance altogether. To curtail adverse selection, insurers seek to differentiate risk classes with many variables.

Risk discrimination is not race discrimination. Yet efforts to differentiate more fully among risks may produce classifications that could be generated by discrimination. Recall the dispute, in both courts and journals, whether separate annuity tables for women are sex discrimination. See Arizona Governing Committee v. Norris, 463 U.S. 1073, 103 S.Ct. 3492, 77 L.Ed.2d 1236 (1983); George J. Benston, The Economics of Gender Discrimination in Employee Fringe Benefits: Manhart Revisited, 49 U.Chi.L.Rev. 489 (1982); Lea Brilmayer, et al., Sex Discrimination in Employer-Sponsored Insurance Plans: A Legal and Demographic Analysis, 47 U.Chi.L.Rev. 505 (1980). No insurer openly uses race as a ground of ratemaking, but is a higher rate per $1,000 of coverage for fire insurance in an inner city neighborhood attributable to risks of arson or to racial animus?

A disparate treatment approach assigns burdens of proof and persuasion to the plaintiff, while a disparate impact approach places them on the insurer. Allocation of these burdens is bound to affect many cases, given the difficulty in drawing inferences. For example, a recent study by the Federal Reserve System concluded that black applicants for mortgage loans are more likely to be turned down, holding income constant. Glenn B. Canner & Dolores S. Smith, Home Mortgage Disclosure Act: Expanded Data on Residential Lending, 77 Fed.Res.Bull. 859, 868-76 (1991). Is this attributable to applicants' race, to the fact that they seek loans that are larger multiples of their average wealth, or to difficulties of obtaining insurance that may (or may not) themselves have a racial component? The Federal Reserve reported data on applicants' income but not their wealth or the value of the loans sought, both important variables. The greater the uncertainty in drawing inferences, the more the placement of the burden matters. We mention this not to resolve the question but to make clear that we have not done so by indirection. All we decide is whether the complaint states claims on which the plaintiffs may prevail if they establish that the insurer has drawn lines according to race rather than actuarial calculations.

* Appellate jurisdiction is the first question. Rule 54(b) allows a court to "direct the entry of a final judgment as to one or more but fewer than all of the claims or parties" but does not employ a special meaning of "final". So it does not authorize appeal of decisions that, if made in stand-alone litigation, would not be final. Liberty Mutual Insurance Co. v. Wetzel, 424 U.S. 737, 96 S.Ct. 1202, 47 L.Ed.2d 435 (1976); Horn v. Transcon Lines, Inc., 898 F.2d 589 (7th Cir.1990). Unless the court enters judgment on an entire "claim," or wraps up the case with respect to all claims involving a particular party, Rule 54(b) does not permit an immediate appeal. Steve's Homemade Ice Cream, Inc. v. Stewart, 907 F.2d 364 (2d Cir.1990); FDIC v. Elefant, 790 F.2d 661, 664 (7th Cir.1986); Horn, 898 F.2d at 593-95.

The district judge did not discuss the legal and factual overlap between the two counts being dismissed and the three being retained and did not explain why he viewed them as separate claims. A "claim for relief" seeks redress of a distinct wrong; a distinct legal underpinning differs from a new claim and is not independently appealable. A/S Apothekernes Laboratorium for Specialpraeparater v. I.M.C. Chemical Group, Inc., 725 F.2d 1140, 1142-43 (7th Cir.1984). Yet the district judge appears to have equated theories with claims. He observed that because a trial lay more than a year in the future there was ample time to resolve these two legal disputes on appeal so that all theories could be handled during one trial. This suggests that the judge confused Rule 54(b) with 28 U.S.C. § 1292(b), which permits a court to certify the case for discretionary appeal when interlocutory resolution of important issues could advance the final disposition of the litigation. Because of the mismatch between the district court's stated rationale and the scope of Rule 54(b)--and the apparent overlap of the two dismissed counts with the three retained--our jurisdiction is in doubt.

Plaintiffs' complaint begins with 66 paragraphs and then states five "claims," each of which incorporates these paragraphs and asserts one reason why the conduct is wrongful. The Fair Housing Act and the state insurance code are two. The other three: Wisconsin's Fair Housing Act, 42 U.S.C. § 1981 (the right to be free of racial discrimination in making contracts), and 42 U.S.C. § 1982 (the right to be free of racial discrimination in buying real property). Perhaps the judge was led astray by the structure of the complaint. Identifying legal theories may assist defendants and the court in seeing how the plaintiff hopes to prevail, but this organization does not track the idea of "claim for relief" in the federal rules. Putting each legal theory in a separate count is a throwback to code pleading, perhaps all the way back to the forms of action; in both, legal theory and facts together created a "cause of action." The Rules of Civil Procedure divorced factual from legal aspects of the claim and replaced "cause of action" with "claim for relief" to signify the difference. Bartholet v. Reishauer A.G. (Zurich), 953 F.2d 1073, 1078 (7th Cir.1992). A complaint should limn the grievance and demand relief. It need not identify the law on which the claim rests, and different legal theories therefore do not multiply the number of claims for relief.

One set of facts producing one injury creates one claim for relief, no matter how many laws the deeds violate. Car Carriers, Inc. v. Ford Motor Co., 789 F.2d 589 (7th Cir.1986); Supporters to Oppose Pollution, Inc. v. Heritage Group, 973 F.2d 1320, 1325-27 (7th Cir. Aug. 28, 1992). Plaintiffs could not litigate and lose a suit asserting that American Family's redlining violates Title VIII, pursue another asserting that redlining violates § 1981, and then crank up a third asserting that redlining violates § 1982. If these principles--well understood when dealing with the preclusive effects of judgments--define a "claim" for purposes of Rule 54(b), then this appeal must be dismissed.

Language in some of our cases equates "claim" in Rule 54(b) with "claim" for purposes of res judicata, but as we observed in Olympia Hotels Corp. v. Johnson Wax Development Corp., 908 F.2d 1363, 1367 (7th Cir.1990), this equivalence cannot accommodate the many cases that permit separate appeals of claims and compulsory counterclaims. E.g., Cold Metal Process Co. v. United Engineering & Foundry Co., 351 U.S. 445, 452, 76 S.Ct. 904, 908, 100 L.Ed. 1311 (1956). It follows that two "claims" may arise out of the same transaction for purposes of Rule 54(b), provided that the facts and theories are sufficiently distinct. Buckley v. Fitzsimmons, 919 F.2d 1230, 1237 (7th Cir.1990), remanded, --- U.S. ----, 112 S.Ct. 40, 116 L.Ed.2d 19 (1991), after remand, 952 F.2d 965 (7th Cir.1992). Two legal theories sufficiently distinct that they call for proof of substantially different facts may be separate "claims." Stearns v. Consolidated Management, Inc., 747 F.2d 1105, 1108-09 (7th Cir.1984); Jack Walters & Sons Corp. v. Morton Building, Inc., 737 F.2d 698, 702-03 (7th Cir.1984).

"Sufficiently" and "substantially" are hedges. Ideally the facts and theories separated for immediate appeal should not overlap with those retained; to the extent they do, the court of appeals is "deciding" claims still pending in the district court, and may have to cover the same ground when the district court acts on the residue. A combination of anticipation with overlap leads to wasteful duplication and increases the likelihood of conflict (or error). In disdaining bright lines and asking how much duplication is too much, we enter the zone of shadings traditionally committed to a district judge's discretion. So the Supreme Court emphasized in Curtiss-Wright Corp. v. General Electric Co., 446 U.S. 1, 8-10, 100 S.Ct. 1460, 1464-66, 64 L.Ed.2d 1 (1980).

Although the district judge in our case confused Rule 54(b) with § 1292(b), we do not believe that he abused his discretion in permitting an immediate appeal. American Family stated, in its memorandum concerning appellate jurisdiction, that "the dismissed Fair Housing Act claim, would, if it were viable, be subject to proof under a disparate impact formula, rather than under the 'intentional racial discrimination' test applicable to all the counts remaining in the district court." Huntington and Bellwood v. Dwivedi, 895 F.2d 1521, 152930 (7th Cir.1990), show that this concession may have been imprudent, and American Family has tried to recant. But the parties shared this belief in the district court, and the district judge may well have relied on it when deciding to enter judgment under Rule 54(b). Retraction thus comes too late--not only for purposes of this appeal, but also for the whole case. (Treating American Family's concession as binding on appeal but not back in the district court would create precisely the wasted effort that Rule 54(b) is set against.) We therefore assume that plaintiffs' burden under Title VIII is lighter than their burden under the other legal theories. Different burdens may imply different "claims" even for purposes of preclusion. E.g., Emerald Cut Stones v. United States, 409 U.S. 232, 93 S.Ct. 489, 34 L.Ed.2d 438 (1972); United States v. 89 Firearms, 465 U.S. 354, 104 S.Ct. 1099, 79 L.Ed.2d 361 (1984); cf. United States v. Fonner, 920 F.2d 1330, 1332-33 (7th Cir.1990). Resolving the Title VIII issue in plaintiffs' favor implies that the other legal theories will fall away. If they prevail under Title VIII, they obtain all the relief they seek; if they lose at trial under Title VIII, they necessarily lose on all other theories; either way, there will not be duplicative appellate review. Stearns holds that this is enough, if barely, to justify treating a legal theory as a "claim" for purposes of Rule 54(b).

One additional jurisdictional problem needs attention. American Family insists that there is no case or controversy within the meaning of Article III because none of the plaintiffs has been unable to buy a house. This is strictly a constitutional argument, for the definition of "aggrieved person" in Title VIII, 42 U.S.C. § 3602(i), eliminates any prudential barriers to adjudication. Gladstone, Realtors v. Bellwood, 441 U.S. 91, 98-99, 99 S.Ct. 1601, 1607-08, 60 L.Ed.2d 66 (1979); Havens Realty Corp. v. Coleman, 455 U.S. 363, 372-73, 102 S.Ct. 1114, 1120-21, 71 L.Ed.2d 214 (1982). Congress amended the statute in 1988 to authorize suit by anyone who "believes that [he] will be injured by a discriminatory housing practice that is about to occur", § 3602(i)(2), and unless this statute is unconstitutional several of the plaintiffs (and the NAACP itself, as an organization whose members include many black persons in the housing market) have standing.

After Lujan v. Defenders of Wildlife, --- U.S. ----, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992), any litigant must show how he has been injured. Because this case was dismissed on the pleadings, "general factual allegations of injury resulting from the defendant's conduct may suffice". Id. --- U.S. at ----, 112 S.Ct. at 2137. See also Lucas v. South Carolina Coastal Council, --- U.S. ----, ---- n. 3, 112 S.Ct. 2886, 2892 n. 3, 120 L.Ed.2d 798 (1992). Paragraph 47 of the complaint implies that lack of insurance delayed one of the plaintiffs in closing on a house; delay in obtaining a valuable thing is an injury. So is paying a higher price for insurance or any other good or service. Plaintiffs cannot rest on their pleadings; once jurisdiction is contested (as it had been here) "each element [essential to justiciability] must be supported in the same way as any other matter on which the plaintiff bears the burden of proof". Lujan, --- U.S. at ----, 112 S.Ct. at 2136. If they can prove the essential allegations of the complaint, however, plaintiffs have standing.

Any effort to use federal law to prescribe or penalize the behavior of insurers must reckon with the McCarran-Ferguson Act. Section 2(b) of this statute, 15 U.S.C. § 1012(b), provides: "No 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". American Family is engaged in the business of insurance; plaintiffs complain about how, and at what price, American Family writes (or declines to write) policies of insurance. The McCarran-Ferguson Act establishes a form of inverse preemption, letting state law prevail over general federal rules--those that do not "specifically relate[ ] to the business of insurance." Title VIII does not mention insurance and therefore cannot apply to its endeavors, American Family concludes. Plaintiffs rejoined at oral argument that racial discrimination is not insurance. The Fair Housing Act requires race-blind practices in housing and related services; it does not tell anyone how to write insurance and therefore does not regulate the business of insurance, plaintiffs conclude.

Doubtless there is a difference between the business of insurance and the business of insurers. Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987); Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982); Group Life & Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 230 n. 38, 99 S.Ct. 1067, 1082 n. 38, 59 L.Ed.2d 261 (1979). But it is not helpful to point to a practice forbidden by federal law (here, racial discrimination) and observe that this practice is not itself insurance. Discrimination is not insurance, but then neither is a conspiracy in restraint of trade. By such a maneuver we could declare that the antitrust laws apply with full rigor to the insurance industry; yet the main target of the McCarran-Ferguson Act was United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944), which applied the antitrust laws to insurance. Plaintiffs say that the Fair Housing Act tells American Family how to behave in deciding which risks it will accept, at what price, in its dealings with potential insureds; that is the core of insurance.

A stronger argument appears in plaintiffs' reply brief: that the McCarran-Ferguson Act does not apply to subsequently enacted civil rights statutes. This submission has the support of Spirt v. Teachers Insurance and Annuity Ass'n, 691 F.2d 1054, 1064-66 (2d Cir.1982), vacated on other grounds, 463 U.S. 1223, 103 S.Ct. 3565, 77 L.Ed.2d 1406 (1983), on remand, 735 F.2d 23 (1984), and a few decisions by district courts. The second circuit wrote:

We find, based on the historical context, the legislative history, and judicial interpretations of that history, that Congress, in enacting a statute primarily intended to deal with the conflict between state regulation of insurers and the federal antitrust laws, had no intention of declaring that subsequently enacted civil rights legislation would be inapplicable to any and all of the activities of an insurance company that can be classified as "the business of insurance."

691 F.2d at 1065. Well of course Congress had no intention in the 1940s of curtailing the scope of laws yet to be enacted--indeed, inconceivable at the time. (After southern states regained representation in the Senate following the Civil War, no civil rights laws were enacted until 1957. See 71 Stat. 634.) What Members of Congress may have "intended" in 1945, when Congress enacted a statute limited to the antitrust laws, and 1946, when it extended the McCarran-Ferguson Act to other federal laws, is not, however, the question. We must determine what Congress meant by what it enacted, not what Senators and Representatives said, thought, wished, or hoped. In re Sinclair, 870 F.2d 1340 (7th Cir.1989). Cf. West Virginia University Hospitals, Inc. v. Casey, --- U.S. ----, ---- - ---- & n. 7, 111 S.Ct. 1138, 1147-49 & n. 7, 113 L.Ed.2d 68 (1991); American Hospital Ass'n v. NLRB, --- U.S. ----, ---- - ----, 111 S.Ct. 1539, 1545-46, 113 L.Ed.2d 675 (1991). What Congress passed and the President signed--what the second circuit never quoted--is 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." "No Act of Congress" differs from "no act on the books in 1946" or "no act other than a civil rights statute."

"No Act of Congress" could not be more comprehensive. The McCarran-Ferguson Act creates a rule of construction applicable to all other federal laws, a "plain statement" approach. We had no difficulty applying the Act to subsequent legislation such as the Truth in Lending Act. Lowe v. AARCO-American, Inc., 536 F.2d 1160 (7th Cir.1976). The second circuit posed the wrong question when inquiring whether Congress meant to insulate the insurance business from civil rights laws. Congress did not tie its hands; instead it prescribed the consequences of silence and specificity in other acts past and future. Federal laws that do not conflict with or supersede state rules always apply; federal laws inconsistent with state laws apply when Congress says so directly. Plaintiffs' problem is that Congress did not say so, even obliquely, in the Fair Housing Act.

Spirt and all of the district court decisions reaching a similar conclusion predate Norris, in which four Justices concluded that the McCarran-Ferguson Act applies to Title VII of the Civil Rights Act of 1964. 463 U.S. at 1099-1103, 103 S.Ct. at 3507-09 (Powell, J., joined by Burger, C.J., and Blackmun & Rehnquist, JJ., concurring in part and dissenting in part). The other five Justices found it unnecessary to address the issue. Id. at 1087 n. 17. No Justice disagreed with Justice Powell, then or since. Spirt also predates Pilot Life Insurance, in which all nine Justices concluded that the McCarran-Ferguson Act applies to the Employee Retirement Income Security Act of 1974. Written a decade ago, Spirt might have looked to Mitchum v. Foster, 407 U.S. 225, 92 S.Ct. 2151, 32 L.Ed.2d 705 (1972), which held that 42 U.S.C. § 1983 is specific enough to satisfy the Anti-Injunction Act, 28 U.S.C. § 2283. More recent cases have declined to extend the approach of Mitchum to create other exceptions to § 2283. Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 108 S.Ct. 1684, 100 L.Ed.2d 127 (1988); Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 97 S.Ct. 2881, 53 L.Ed.2d 1009 (1977); Bolingbrook v. Citizens Utilities Co., 864 F.2d 481 (7th Cir.1988); see also Martin H. Redish, The Anti-Injunction Statute Reconsidered, 44 U.Chi.L.Rev. 717 (1977). No Justice has suggested using Mitchum as a model approach to statutes other than § 2283. Perhaps the second circuit will take a new look at Spirt if the problem comes up again. No matter how our colleagues on the east coast would approach the subject today, however, we conclude that Congress should be taken at its word. The Fair Housing Act is an "Act of Congress" that does not "specifically relate[ ] to the business of insurance". It therefore does not "invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance".

Although American Family insists that this conclusion ends the case, it does not. What state law regulating the business of insurance does Title VIII "invalidate, impair, or supersede"? None that we could find. American Family points to two: Wis.Stat. § 101.22(2)(e), which forbids discrimination by casualty insurers on the basis of race, and Wis.Stat. § 628.34(3), which more generally interdicts "unfair discrimination" in the business of insurance. Although American Family insists that it is "of no importance" that "these statutes may not be inconsistent with the Fair Housing Act", this is hard to swallow. Literalism cuts both ways. Cipollone v. Liggett Group, Inc., --- U.S. ----, ----, 112 S.Ct. 2608, 2618, 120 L.Ed.2d 407 (1992) (a preemption clause should be taken seriously, but such a clause also implies the absence of additional grounds of preemption). Having stood on the text to show that the McCarran-Ferguson Act governs the construction of the Fair Housing Act, American Family needs to show that the Fair Housing Act conflicts with state law. Duplication is not conflict.

Undoubtedly there is a sense in which any overlap between state and federal law upsets a balance struck by one of the two legislatures. Gade v. National Solid Wastes Management Ass'n, --- U.S. ----, ---- - ----, 112 S.Ct. 2374, 2385-86, 120 L.Ed.2d 73 (1992). Wisconsin forbids "unfair discrimination" but, as we conclude in Part IV, did not create a private right of action to enforce this prohibition. Laws enforced only by administrative agencies with limited budgets are less potent than laws enforced by both agencies and private litigants. One could say that a federal rule increasing the probability that a state norm will be vindicated (or augmenting the damages assessed in the event of violation) conflicts with a decision by the state that remedies should be limited or rare. It is on reasoning of this sort that the Supreme Court does not allow states to forbid most conduct that is "arguably prohibited" by federal labor laws. San Diego Building Trades Council v. Garmon, 359 U.S. 236, 246, 79 S.Ct. 773, 780, 3 L.Ed.2d 775 (1959). Cf. Luddington v. Indiana Bell Telephone Co., 966 F.2d 225, 228-29 (7th Cir.1992).

Principles of labor law do not transfer to other subjects, however. Garmon and similar opinions rest on a concl