American General Insurance Co

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IN THE MATTER OF AMERICAN GENERAL INSURANCE COMPANY, ET AI: DISMISSAL ORDER, AND OPINION IN REGARD TO ALLEGED VIOLATION OF SEC. 7 OFTHE CLAYTON ACT Dockets847. Complaint June 17, J.97I-Dismissal Order, April 21, 1981 On remand from the Ninth CircuitCourtofAppeals, 589 2d 462; the Commission has determined to dismiss the June, 1971 complaint which alleged.that the effect . of American General' Insurance Co. s .1969 . acquisition of Fidelity . & Deposit Co. . of Maryland would be to decrease competition in thftfidelity and surety bond markets: The Commission in dismissing the complaint held that ifw6uldIiot be in the publicinterest to impose an order, at this late date, on respondent no longer doing business iri the relevant market. FINAL ORDER This matter has been heard by the Commission on remand from the Court of Appeals upon the. appeals . of complaint counsel and respondent from the initial decision Hndupori briefs and oral argument in support of and in opposition to the appeals- For the reasons stated in the accompanying Opinion, the Commission has determined to sustain . respondent' s appeal.. Complaint . counsel' appeal is denied. The motion to supplement the record fied by complaint counsel is granted. The motion to dismiss filed by respondent is granted- Accordingly, It is ordered, That the complaint is dismissed- OPINION OF THE COMMISSION By PITOFSKY Commissioner:

This case is before us on remand from the Ninth Circuit after an appeal of a cease and desist order issued by the Commission OIl June , 1977- For the reasons set forth in this opinion, the Commission has determined to dismiss the complaint The history of this proceeding is long and tortuous- .The complaint was issued on June 17, 1971, challenging the July 1, 1969 acquisition by American General Insurance Company of Fideliy & Deposit Company of Maryland (F&D). Various interlocutory proceedings followed, including an /unsuccessful district court. action fied respondent to enjoin the Commission from proceeding ""ith the case; American General Insurance Co- v. FTC, 359 F- Supp. 887 (S_D. Tex- . CompJahlt. Initial Deision, Opinion and Final Order previously published at 89 F. C. 557. 9pi 97-YTD 1973), affd, 496 F_2d 197 (5th Cir- 1974). The initial decision was issued in August of 1975, and respondent was ordered by the Administrative Law Judge to divest F&D- Both sides appealed from the findings of the ALJ, and the Commission affirmed the initial decision in 1977- Because of the participation of Commissioner Coller in both the earlier interlocutory action (as General Counsel) and the Commission decision, the Ninth Circuit reversed and remanded the case to the CO!Jmissionv- FTC, 589 F_2d 462 (9th Cir- 1979)-American General Insurance Co- After the remand, the Commission reopened the proceeding and invited briefs from the parties on how to proceed- We now have before us, in addition to the original briefs filed with the Commission in connection with the appeal from the initial decision, a supplemental appeal brief from complaint counsel, an opposition thereto, a motion to dismiss from respondent and complaint counsel' s opposition to that motion- The Commission s 1977 decision found American General's acquisition of F&D to be an unlawful horizontal acquisition that substantially lessened competition in the fidelity and surety bond markets- American General Insurance Co- , 89 F- G 545 (1977)- After the close of the record in the Commission proceeding, respondent significantly altered the nature of its presence in the relevant products markets- In 1976, respondent terminated most of its own bonding business, other than that conducted by F&D-' Subsequently, in 1979, American General ended the rest of its business in the bond markets except for the bonds written by F&D_' Finally, in December of 1980 American General sold F&D to two Swiss companies, and thereby withdrew entirely from the relevant product markets- Respondent has now moved to dismiss the complaint on the ground that the case has become moot because divestiture of F&D, as ordered by the Commission in 1977, has been accomplished- Alternatively, respondent contends that it would not be in the public interest for the Commission to enter an order against it- Complaint counsel oppose dismissal of the case, arguing that it is not moot because they believe that further relief, beyond the divestiture of F&D, is warranted.

We agree with complaint counsel that the case is not moot Under the case law cited by both parties, a case is not moot if a controversy , Affdavit uf B.J. Bremennann, Jr. , May 2, 1980 at 1. This affdavit was entered into the record by order of October6 191m.

, Idat2 , Affdavit of Flack, January 30, 1981. We hereby reopen the n cord and receive this affdavit into evidence.

AMERICAN GENERAL INt)UltANC cu. 1 I\L. 339 Opinion remains to be resolved, even if the controversy involves only tb question of appropriate relief' Here, there obviously remains such a controversy- Further, as reiterated by the Supreme Court in the case relied upon by respondent, the mere voluntary cessation of illegal conduct (i_ e- divestiture of an unlawfully acquired company) "does not deprive the tribunal of power to hear and determine the case '" Indeed, there may be a public interest in having the legality of the abandoned practices settled- ' We do not believe that a company should be permitted to escape the imposition of a Commission cease and desist order, once it has reaped the fruits of an jl1legal acquisition, by sellng- off the acquired company- We are much more sympathetic to respondent's argument that it is not in the public interest to enter an order against American General Complaint counsel would have us impose further relief arguing that such relief is necessary to restore the market to the competitive conditions prevailing before the acquisition of F&D- To this end, they argue that the Commission should impose a ten-year ban on acquisitions by respondent of any fidelity or surety underwriter without prior Commission approval (Supplemental Appeal Brief at 7)- Such a ban was contained in the Commission s previous order, and they argue it is necessary because it is likely that American General will make future anticompetitive acquisitions. Complaint counsel' s second request is more complicated- They have asked the Commission to require American General to divest to F&D the earnings and capital it took from it after the acquisition (Supplemental Appeal Brief at 8)- According to complaint counsel, American General has taken approximately $41 milion from F&D in the form of a special dividend from capital and surplus ($20 millon), and quarterly dividends equal to F&D's earnings ($21 million). Complaint counsel assert that since a bond company needs liquid assets, it is necessary to return this money so that F&D can be an effective competitor- The same relief was requested by complaint counsel when this case was before the Commission in 1977, and it was denied- We do not believe that it is in the public interest to enter an order against American General Weare not convinced that there is a reasonable likelihood that American General wil reenter the . United Slates v, Conclmlrated Phl ;J!hate Exporl Ass n. 393 U.S. 199 203 (1968); Walling v. Helmerich & Payne, Inc.,:!2::I U.S. 37 43 (1944) UniledSlatesv. WT. Grant Co., 345 U.S. 629. 632(1953). ld. at 632 , Complaint counsel have moved to supplement the record with an SEC fiing submitted by American Genera! indicati"g its intention to purchiise some shares of The St. Paul Companies, Inc" a competitar of American Genera! in the relevant product markets. We hereby grant the matian to. reopen the record, and receive the Schedule 13D intoevidcncc Opinion - 97 TTCrelevant market, nor do we have reason to believe that if they do the reentry would be anticompetitive- With regard to the divestiture of the earnings, we do not believe that any relevant circumstances have changed since our first denial of the request for the earnings divestiture- Complaint counsel have not shown that F&D's competitive viability has been impaired because it lacks suffcient liquid assets.

Because we do not believe it is in the public interest to impose an order at this late date on a respondent no longer doing business in the relevant markets, respondent's motion to dismiss is granted- .U.......",.J.L nJ.L, U, U... 0"0 343 Complaint