author: Justice O’Connor Justice Marshall,

text:
    FEDERAL DEPOSIT INSURANCE CORPORATION v. PHILADELPHIA GEAR CORP.
    No. 84-1972.
    Argued March 4, 1986
    Decided May 27, 1986

      O’Connor, J., delivered the opinion of the Court, in which Burger, C. J., and Brennan, White, Powell, and Stevens, JJ., joined. Marshall, J., filed a dissenting opinion, in which Blackmun and Rehnquist, JJ., joined, post, p. 440.

      Charles A. Rothfeld argued the cause for petitioner. With him on the briefs were Solicitor General Fried, Assistant Attorney General Willard, Deputy Solicitor General Wallace, and John C. Murphy, Jr.

      Gerald F. Slattery, Jr., argued the cause and filed a brief for respondent.

       Briefs of amici curiae urging reversal were filed for the American Bankers Association et al. by John L. Warden and Stanley F. Farrar; for the Council on International Banking, Inc., by Bud G. Holman; for the National Association of Bond Lawyers by Daniel 0. Mahoney; and for the U. S. Conference of Mayors et al. by Benna Ruth Solomon and Joyce Holmes Benjamin.

        George W. Miller and Dennis J. Lehr filed a brief for William H. Allen et al. as amici curiae urging affirmance.

   Justice O’Connor

delivered the opinion of the Court.

We granted certiorari to consider whether a standby letter of credit backed by a contingent promissory note is insured as a “deposit” under the federal deposit insurance program. We hold that, in light of the longstanding interpretation of petitioner Federal Deposit Insurance Corporation (FDIC) that such a letter does not create a deposit and, in light of the fact that such a letter does not entrust any noncontingent assets to the bank, a standby letter of credit backed by a contingent promissory note does not give rise to an insured deposit.

I

Orion Manufacturing Corporation (Orion) was, at the time of the relevant transactions, a customer of respondent Philadelphia Gear Corporation (Philadelphia Gear). On Orion’s application, the Penn Square Bank, N. A. (Penn Square) issued a letter of credit for the benefit of Philadelphia Gear in the amount of $145,200. The letter of credit provided that a draft drawn upon the letter of credit would be honored by Penn Square only if accompanied by Philadelphia Gear’s “signed statement that [it had] invoiced Orion Manufacturing Corporation and that said invoices have remained unpaid for at least fifteen (15) days.” App. 25. Because the letter of credit was intended to provide payment to the seller only if the buyer of the invoiced goods failed to make payment, the letter of credit was what is commonly referred to as a “standby” or “guaranty” letter of credit. See, e. g., 12 CFR § 337.2(a), and n. 1 (1985) (defining standby letters of credit and mentioning that they may “‘guaranty’ payment of a money obligation”). A conventional “commercial” letter of credit, in contrast, is one in which the seller obtains payment from the issuing bank without looking to the buyer for payment even in the first instance. See ibid, (distinguishing standby letters of credit from commercial letters of credit). See also Verkuil, Bank Solvency and Guaranty Letters of Credit, 25 Stan. L. Rev. 716, 717-724 (1973); Arnold & Bransilver, The Standby Letter of Credit — The Controversy Continues, 10 U.C.C.L.J. 272, 277-279 (Spring 1978).

On the same day that Penn Square issued the standby letter of credit, Orion executed an unsecured promissory note for $145,200 in favor of Penn Square. App. 27. The purpose of the note was listed as “Back up Letter of Credit.” Ibid. Although the face of the note did not so indicate, both Orion and Penn Square understood that nothing would be considered due on the note, and no interest charged by Penn Square, unless Philadelphia Gear presented drafts on the standby letter of credit after nonpayment by Orion. 751 F. 2d 1131, 1134 (CA10 1984). See also Tr. of Oral Arg. 32.

On July 5, 1982, Penn Square was declared insolvent. Petitioner FDIC was appointed its receiver. Shortly thereafter, Philadelphia Gear presented drafts on the standby letter of credit for payment of over $700,000 for goods delivered before Penn Square’s insolvency. The FDIC returned the drafts unpaid. 751 F. 2d., at 1133-1134.

Philadelphia Gear sued the FDIC in the Western District of Oklahoma. Philadelphia Gear alleged that the standby letter of credit was an insured deposit under the definition of “deposit” set forth at 12 U. S. C. § 1813(0(1), and that Philadelphia Gear was therefore entitled to $100,000 in deposit insurance from the FDIC. See 12 U. S. C. § 1821(a)(1) (setting forth $100,000 as the maximum amount generally insured by the FDIC for any single depositor at a given bank). In apparent hopes of obtaining additional funds from the FDIC in the latter’s capacity as receiver rather than as insurer, respondent also alleged that terms of the standby letter of credit allowing repeated reinstatements of the credit made the letter’s total value more than $145,200.

The District Court held that the total value of the standby letter of credit was $145,200, App. B to Pet. for Cert. 20a, 28a-30a; that the letter was an insured deposit on which the FDIC was hable for $100,000 in deposit insurance, id., at 37a-43a; and that Philadelphia Gear was entitled to prejudgment interest on that $100,000, id., at 43a. The FDIC appealed from the District Court’s ruling that the standby letter of credit backed by a contingent promissory note constituted a “deposit” for purposes of 12 U. S. C. § 1813(0(1) and its ruling that Philadelphia Gear was entitled to an award of prejudgment interest. Philadelphia Gear cross-appealed from the District Court’s ruling on the total value of the letter of credit.

The Court of Appeals for the Tenth Circuit reversed the District Court’s award of prejudgment interest, 751 F. 2d, at 1138-1139, but otherwise affirmed the District Court’s decision. As to the definition of “deposit,” the Court of Appeals held that a standby letter of credit backed by a promissory note fell within the terms of 12 U. S. C. § 1813(Z)(l)’s definition of “deposit,” and was therefore insured. Id., at 1134-1138. We granted the FDIC’s petition for certiorari on this aspect of the Court of Appeals’ ruling. 474 U. S. 918 (1985). We now reverse.

II

Title 12 U. S. C. § 1813(0(1) provides:

“The term ‘deposit’ means—
“(1) the unpaid balance of money or its equivalent received or held by a bank in the usual course of business and for which it has given or is obligated to give credit, either conditionally or unconditionally, to a commercial . . . account, or which is evidenced by ... a letter of credit or a traveler’s check on which the bank is primarily liable: Provided, That, without limiting the generality of the term ‘money or its equivalent,’ any such account or instrument must be regarded as evidencing the receipt of the equivalent of money when credited or issued in exchange for checks or drafts or for a promissory note upon which the person obtaining any such credit or instrument is primarily or secondarily liable . . . .”

Philadelphia Gear successfully argued before the Court of Appeals that the standby letter of credit backed by a contingent promissory note constituted a “deposit” under 12 U. S. C. § 1813(0(1) because that letter was one on which the bank was primarily liable, and evidenced the receipt by the bank of “money or its equivalent” in the form of a promissory note upon which the person obtaining the credit was primarily or secondarily liable. The FDIC does not here dispute that the bank was primarily liable on the letter of credit. Brief for Petitioner 7, n. 7. Nor does the FDIC contest the fact that the backup note executed by Orion is, at least in some sense, a “promissory note.” See Tr. of Oral Arg. 7 (remarks of Mr. Rothfeld, representing the FDIC) (“It was labeled a note. It can be termed a note”). The FDIC argues rather that it has consistently interpreted § 1813(0(1) not to include standby letters of credit backed only by a contingent promissory note because such a note represents no hard assets and thus does not constitute “money or its equivalent.” Because the alleged “deposit” consists only of a contingent liability, asserts the FDIC, a standby letter of credit backed by a contingent promissory note does not give rise to a “deposit” that Congress intended the FDIC to insure. Under this theory, while the note here may have been labeled a promissory note on its face and may have been a promissory note under state law, it was not a promissory note for purposes of the federal law set forth in 12 U. S. C. § 1813(Z)(1). See D’Oench, Duhme & Co. v. FDIC, 315 U. S. 447, 456 (1942) (holding that liability on a promissory note acquired by the FDIC is a federal question); First National Bank v. Dickinson, 396 U. S. 122, 133-134 (1969) (holding that federal law governs the definition of branch banking under the McFadden Act).

The Court of Appeals quite properly looked first to the language of the statute. See Florida Power & Light Co. v. Lorion, 470 U. S. 729, 735 (1985); United States v. Yermian, 468 U. S. 63, 68 (1984). Finding the language of the proviso in § 1813(Z)(1) sufficiently plain, the Court of Appeals looked no further. But as the FDIC points out, the terms “letter of credit” and “promissory note” as used in the statute have a federal definition, and the FDIC has developed and interpreted those definitions for many years within the framework of the complex statutory scheme that the FDIC administers. The FDIC’s interpretation of whether a standby letter of credit backed by a contingent promissory note constitutes a “deposit” is consistent with Congress’ desire to protect the hard earnings of individuals by providing for federal deposit insurance. Since the creation of the FDIC, Congress has expressed no dissatisfaction with the FDIC’s interpretation of “deposit”; indeed, Congress in 1960 adopted the FDIC’s regulatory definition as the statutory language. When we weigh all these factors together, we are constrained to conclude that the term “deposit” does not include a standby letter of credit backed by a contingent promissory note.

A

Justice Holmes stated that, as to discerning the constitutionality of a federal estate tax, “a page of history is worth a volume of logic.” New York Trust Co. v. Eisner, 256 U. S. 345, 349 (1921). Although the genesis of the Federal Deposit Insurance Act may not be quite so powerful a substitute for legal analysis, that history is worthy of at least a page of recounting for the light it sheds on Congress’ purpose in passing the Act. Cf. Watt v. Alaska, 451 U. S. 259, 266 (1981) (“The circumstances of the enactment of particular legislation may persuade a court that Congress did not intend words of common meaning to have their literal effect”).

When Congress created the FDIC, the Nation was in the throes of an extraordinary financial crisis. See generally F. Allen, Since Yesterday: The Nineteen-Thirties in America 98-121 (1940); A. Schlesinger, The Crisis of the Old Order 474-482 (1957). More than one-third of the banks in the United States open in 1929 had shut their doors just four years later. Bureau of the Census, Historical Statistics of the United States: Colonial Times to 1970, pt. 2, pp. 1019, 1038 (1976). In response to this financial crisis, President Roosevelt declared a national banking holiday effective the first business day after he took office. 48 Stat. 1689. Congress in turn responded with extensive legislation on banking, including the laws that gave the FDIC its existence.

Congress’ purpose in creating the FDIC was clear. Faced with virtual panic, Congress attempted to safeguard the hard earnings of individuals against the possibility that bank failures would deprive them of their savings. Congress passed the 1933 provisions “[i]n order to provide against a repetition of the present painful experience in which a vast sum of assets and purchasing power is ‘tied up.’” S. Rep. No. 77, 73d Cong., 1st Sess., 12 (1933) (emphasis added). The focus of Congress was therefore upon ensuring that a deposit of “hard earnings” entrusted by individuals to a bank would not lead to a tangible loss in the event of a bank failure. As the chairman of the relevant Committee in the House of Representatives explained on the floor:

“[T]he purpose of this legislation is to protect the people of the United States in the right to have banks in which their deposits will be safe. They have a right to expect of Congress the establishment and maintenance of a system of banks in the United States where citizens may place their hard earnings with reasonable expectation of being able to get them out again upon demand. . . .
“[The purpose of the bill is to ensure that] the community is saved from the shock of a bank failure, and every citizen has been given an opportunity to withdraw his deposits. . . .
“The public . . . demand of you and me that we provide a banking system worthy of this great Nation and banks in which citizens may place the fruits of their toil and know that a deposit slip in return for their hard earnings will be as safe as a Government bond.” 77 Cong. Rec. 3837, 3838, 3840 (1933) (remarks of Rep. Steagall).

See also id., at 3913 (remarks of Rep. Keller) (“[We must make] it absolutely certain that . . . any and every man, woman, or child who puts a dollar in any bank can absolutely know that he will under no circumstances lose a single penny of it”); id., at 3924 (remarks of Rep. Green) (“It is time that we pass a law so secure that when a man puts his money in a bank he will know for sure that when he comes back it will be there”). To prevent bank failure that resulted in the tangible loss of hard assets was therefore the focus of Congress’ effort in creating deposit insurance.

Despite the fact Congress revisited the deposit insurance statute in 1935, 1950, and 1960, these comments remain the best indication of Congress’ underlying purpose in creating deposit insurance. The Reports on the 1935 amendments presented the definition of “deposit” without any specific comment. See H. R. Rep. No. 742, 74th Cong., 1st Sess., 2 (1935); S. Rep. No. 1007, 74th Cong., 1st Sess., 2-4 (1935); H. R. Conf. Rep. No. 1822, 74th Cong., 1st Sess., 44 (1935). The floor debates centered around changes in the Federal Reserve System made in the same bill, not on deposit insurance. See, e. g., 79 Cong. Rec. 6568-6577, 6651-6660 (1935). Indeed, in light of the fact that instruments denominated “promissory notes” seem at the time to have been considered exclusively uncontingent, see, e. g., 16 Fed. Res. Bull. 520 (1930) (Regulation A) (defining promissory note as an “unconditional promise ... to pay [a sum certain in dollars] at a fixed or determinable future time”) (emphasis added); Gilman v. Commissioner, 53 F. 2d 47, 50 (CA8 1931) (“The form of these [contingent] instruments referred to as ‘promissory notes’ is very unusual”), it is unlikely that Congress would have had occasion to refer expressly to contingent notes such as the one before us here even if Congress had turned its attention to the definition of “deposit” when it first enacted the provision treating “money or its equivalent.”

The legislative history of the 1950 amendments is similarly unhelpful, as one would expect given that the relevant provisions were reenacted but unchanged. See S. Rep. No. 1269, 81st Cong., 2d Sess., 2-3 (1950); H. R. Rep. No. 2564, 81st Cong., 2d Sess., 5-6 (1950). The Committee Reports on the 1960 amendments likewise give no indication that the amendments’ phrasing was meant to effect any fundamental changes in the definition of deposit; those Reports state only that the changes are intended to bring into harmony the definitions of “deposit” used for purposes of deposit insurance with those used in reports of condition, and that the FDIC’s rules and regulations are to be incorporated into the new definition. See H. R. Rep. No. 1827, 86th Cong., 2d Sess., 3, 5 (1960); S. Rep. No. 1821, 86th Cong., 2d Sess., 7, 10 (1960). See also 106 Cong. Rec. 14794 (1960) (discussing pre-1960 scheme).

Congress’ focus in providing for a system of deposit insurance — a system that has been continued to the present without modification to the basic definition of deposits that are “money or its equivalent” — was clearly a focus upon safeguarding the assets and “hard earnings” that businesses and individuals have entrusted to banks. Congress wanted to ensure that someone who put tangible assets into a bank could always get those assets back. The purpose behind the insurance of deposits in general, and especially in the section defining deposits as “money or its equivalent,” therefore, is the protection of assets and hard earnings entrusted to a bank.

This purpose is not furthered by extending deposit insurance to cover a standby letter of credit backed by a contingent promissory note, which involves no such surrender of assets or hard earnings to the custody of the bank. Philadelphia Gear, which now seeks to collect deposit insurance, surrendered absolutely nothing to the bank. The letter of credit is for Philadelphia Gear’s benefit, but the bank relied upon Orion to meet the obligations of the letter of credit and made no demands upon Philadelphia Gear. Nor, more importantly, did Orion surrender any assets unconditionally to the bank. The bank did not credit any account of Orion’s in exchange for the promissory note, and did not treat its own assets as increased by its acceptance of the note. The bank could not have collected on the note from Orion unless Philadelphia Gear presented the unpaid invoices and a draft on the letter of credit. In the absence of a presentation by Philadelphia Gear of the unpaid invoices, the promissory note was a wholly contingent promise, and when Penn Square went into receivership, neither Orion nor Philadelphia Gear had lost anything except the ability to use Penn Square to reduce Philadelphia Gear’s risk that Philadelphia Gear would go unpaid for a delivery of goods to Orion.

B

Congress’ actions with respect to the particular definition of “deposit” that it has chosen in order to effect its general purpose likewise lead us to believe that a standby letter of credit backed by a contingent promissory note is not an insurable “deposit.” In 1933, Congress amended the Federal Reserve Act to authorize the creation of the FDIC and charged it “to insure . . . the deposits of all banks which are entitled to the benefits of [FDIC] insurance.” §8, Banking Act of 1933, ch. 89, 48 Stat. 168. Congress did not define the term “deposit,” however, until the Banking Act of 1935, in which it stated:

“The term ‘deposit’ means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obligated to give credit to a commercial, checking, savings, time or thrift account, or which is evidenced by its certificate of deposit, and trust funds held by such bank whether retained or deposited in any department of such bank or deposited in another bank, together with such other obligations of a bank as the board of directors [of the FDIC] shall find and shall prescribe by its regulations to be deposit liabilities by. general usage . . . .” §101, Banking Act of 1935, ch. 614, 49 Stat. 684, 685-686.

Less than two months after this statute was enacted, the FDIC promulgated a definition of “deposit,” which provided in part that “letters of credit must be regarded as issued for the equivalent of money when issued in exchange for . . . promissory notes upon which the person procuring [such] instruments is primarily or secondarily liable.” See 12 CFR §301.1(d) (1939) (codifying Regulation I, rule 1, Oct. 1, 1935), revoked after incorporation into statutory law, 12 CFR 234 (Supp. 1962).

In 1950, Congress revisited the provisions specifically governing the FDIC in order to remove them from the Federal Reserve Act and place them into a separate Act. See Act of Sept. 21, 1950, ch. 967, 64 Stat. 874. The new provisions did not modify the definition of “deposit.” In 1960, Congress expanded the statutory definition of “deposit” in several categories, and also incorporated the regulatory definition that the FDIC had employed since 1935 into the statute that remains in force today. See swpra, at 430 (quoting current version of statute).

At no point did Congress disown its initial, clear desire to protect the hard assets of depositors. See supra, at 432-435. At no point did Congress criticize the FDIC’s longstanding interpretation, see infra, at 438, that a standby letter of credit backed by a contingent promissory note is not a “deposit.” In fact, Congress had reenacted the 1935 provisions in 1950 without changing the definition of “deposit” at all. Compare 49 Stat. 685-686 with 64 Stat. 874-875. When the statute giving rise to the longstanding interpretation has been reenacted without pertinent change, the “congressional failure to revise or repeal the agency’s interpretation is persuasive evidence that the interpretation is the one intended by Congress.” NLRB v. Bell Aerospace, 416 U. S. 267, 275 (1974). See Zenith Radio Corp. v. United States, 437 U. S. 443, 457 (1978). Indeed, the current statutory definition of “deposit,” added by Congress in 1960, was expressly designed to incorporate the FDIC’s rules and regulations on “deposits.” As Committees of both Houses of Congress explained the amendments: “The amended definition would include the present statutory definition of deposits, and the definition of deposits in the rules and regulations of the Federal Deposit Insurance Corporation, [along] with . . . changes [in sections other than what is now §1813(0(1)].” H. R. Rep. No. 1827, 86th Cong, 2d Sess., 5 (1960) (emphasis added); S. Rep. No. 1821, 86th Cong., 2d Sess., 10 (1960) (same). Congress, therefore, has expressly incorporated into the statutory scheme the regulations that the FDIC devised to assist it in determining what constitutes a “deposit” within the statutory scheme. Under these circumstances, we must obviously give a great deal of deference to the FDIC’s interpretation of what these regulations do and do not include within their definition of “deposit.”

C

Although the FDIC does not argue that it has an express regulation excluding a standby letter of credit backed by a contingent promissory note from the definition of “deposit” in 12 U. S. C. § 1813(0(1), that exclusion by the FDIC is nonetheless longstanding and consistent. At a meeting of FDIC and bank officials shortly after the FDIC’s creation, a bank official asked whether a letter of credit issued by a charge against a customer’s account was a deposit. The FDIC official replied:

“ Tf your letter of credit is issued by a charge against a depositor’s account or for cash and the letter of credit is reflected on your books as a liability, you do have a deposit liability. If, on the other hand, you merely extend a line of credit to your customer, you will only show a contingent liability on your books. In that event no deposit liability has been created.’” Transcript as quoted in FDIC v. Irving Trust Co., 137 F. Supp. 145, 161 (SDNY 1955).

Because Penn Square apparently never reflected the letter of credit here as a noncontingent liability, and because the interwoven financial instruments at issue here can be viewed most accurately as the extension of a line of credit by Penn Square to Orion, this transcript lends support to the FDIC’s contention that its longstanding policy has been to exclude standby letters of credit backed by contingent promissory notes from 12 U. S. C. § 1813(Z)(l)’s definition of “deposit.”

The FDIC’s contemporaneous understanding that standby letters of credit backed by contingent promissory notes do not generate a “deposit” for purposes of 12 U. S. C. § 1813(i)(l) has been fortified by its behavior over the following decades. The FDIC has asserted repeatedly that it has never charged deposit insurance premiums on standby letters of credit backed by contingent promissory notes, and Philadelphia Gear does not contest that assertion. See Tr. of Oral Arg. 42. Congress requires the FDIC to assess contributions to its insurance fund at a fixed percentage of a bank’s “deposits” under 12 U. S. C. §1813(0(1). See 12 U. S. C. §§ 1817(a)(4), (b)(1), (b)(4)(A). By the time that this suit — the first challenge to the FDIC’s treatment of standby letters of credit backed by contingent promissory notes — was brought, almost $100 billion in standby letters of credit was outstanding. See Board of Governors of the Federal Reserve System, Annual Statistical Digest 71 (1983); FDIC, 1983 Statistics on Banking (Table 110F). The FDIC’s failure to levy premiums on standby letters of credit backed by contingent promissory notes therefore clearly demonstrates that the FDIC has never considered such letters to reflect deposits.

Although the FDIC’s interpretation of the relevant statute has not been reduced to a specific regulation, we conclude nevertheless that the FDIC’s practice and belief that a standby letter of credit backed by a contingent promissory note does not create a “deposit” within the meaning of 12 U. S. C. § 1813(0(1) are entitled in the circumstances of this case to the “considerable weight [that] should be accorded to an executive department’s construction of a statutory scheme it is entrusted to administer.” Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 844 (1984). As we have stated above, the FDIC’s interpretation here of a statutory definition adopted wholesale from the FDIC’s own regulation is consistent with congressional purpose, and may certainly stand.

Ill

Philadelphia Gear essentially seeks to have the FDIC guarantee the contingent credit extended to Orion, not assets entrusted to the bank by Philadelphia Gear or by Orion on Philadelphia Gear’s behalf. With a standard “commercial” letter of credit, Orion would typically have unconditionally entrusted Penn Square with funds before Penn Square would have written the letter of credit, and thus Orion would have lost something if Penn Square became unable to honor its obligations. As the FDIC concedes, deposit insurance extends to such a letter of credit backed by an uncontingent promissory note. See Tr. of Oral Arg. 8 (statement of Mr. Rothfeld, representing the FDIC) (“If this note were a fully uncontingent negotiable note that were not limited by any side agreements, it would be a note backing a letter of credit within the meaning of the statute”). See also id., at 17-18. But here, with a standby letter of credit backed by a contingent promissory note, Penn Square was not in possession of any of Orion’s or Philadelphia Gear’s assets when it went into receivership. Nothing was ventured, and therefore no insurable deposit was lost. We believe that, whatever the relevant State’s definition of “letter of credit” or “promissory note,” Congress did not by using those phrases in 12 U. S. C. § 1813(Z)(1) intend to protect with deposit insurance a standby letter of credit backed only by a contingent promissory note. We thus hold that such an arrangement does not give rise to a “deposit” under 12 U. S. C. § 1813(0(1).

Accordingly, the judgment of the court below is reversed, and the case is remanded for further proceedings consistent with this opinion.

Reversed and remanded.

Justice Marshall,

with whom Justice Blackmun and Justice Rehnquist join,

dissenting.

There is considerable common sense backing the Court’s opinion. The standby letter of credit in this case differs considerably from the savings and checking accounts that come most readily to mind when one speaks of an insured deposit. Nevertheless, to reach this common-sense result, the Court must read qualifications into the statute that do not appear there. We recently recognized that even when the ingenuity of businessmen creates transactions and corporate forms that were perhaps not contemplated by Congress, the courts must enforce the statutes that Congress has enacted. See Board of Governors, FRS v. Dimension Financial Corp., 474 U. S. 361, 373-375 (1986). Congress unmistakably provided that letters of credit backed by promissory notes constitute “deposits” for purposes of the federal deposit insurance program, and the Court’s attempt to draw distinctions between different types of letter of credit transactions forces it to ignore both the statute and some settled principles of commercial law. Here, as in Dimension, the inflexibility of the statute as applied to modern financial transactions is a matter for Congress, not the FDIC or this Court, to remedy.

It cannot be doubted that the standby letter of credit in this case meets the literal definition of a “deposit” contained in 12 U. S. C. § 1813(i)(l). It is “a letter of credit ... on which the bank is primarily liable . . . issued in exchange for ... a promissory note upon which [Orion] is primarily or secondarily liable.” The Court, however, holds that the note in this case, whether or not it is a promissory note under the Uniform Commercial Code (UCC) and Oklahoma law, is not a promissory note for purposes of the Federal Deposit Insurance Act. We should assume, absent convincing evidence to the contrary, that Congress intended for the term “promissory note” to derive its meaning from the ordinary sources of commercial law. I believe that there is no such evidence in this case.

The Court justifies its restrictive reading of the term “promissory note” in large part by arguing that Congress would not have wanted to include in that term any obligation that was not the present equivalent of money. The keystone of the FDIC’s arguments, and of the Court’s decision, is that Orion did not entrust “money or its equivalent” to the bank. The note in this case, however, was the equivalent of money, and the Court’s reading of Congress’ intent is therefore largely irrelevant.

FDIC concedes, as it must; that Congress has determined that a promissory note generally constitutes money or its equivalent. Moreover, that statutory definition comports with economic reality. Promissory notes typically are negotiable instruments and therefore readily convertible into cash. The FDIC argues, and the Court holds, that the promissory note in this case is “contingent” and therefore not the equivalent of money. However, while the FDIC argues strenuously that Orion’s note is not a promissory note in the usual sense of the word, one could more plausibly state that it is not a “contingent” obligation in the usual sense of that word. On its face the note is an unconditional obligation of Orion to pay the holder $145,200 plus accrued interest on August 1, 1982. It sets out no conditions that would affect the negotiability of the note, and therefore is fully negotiable for purposes of the UCC, U.C.C. §3-104(1) (1977); Okla. Stat., Tit. 12A, §3-104(1) (1981).

The Court therefore misses the point when it states that at the time of the original banking Acts, the term “promissory note” was not understood to include a contingent obligation. Ante, at 434. The note at issue in this case is an unconditional promise to pay, and satisfies all the requisites of a negotiable promissory note, either under the UCC or the common law as it existed in the 1930’s. The only contingencies attached to Orion’s obligation arise out of a separate contract. As to such contingencies, the law was well settled long before 1930:

“[I]n order to make a note invalid as a promissory note, the contingency to avoid it must be apparent, either upon the face of the note, or upon some contemporaneous written memorandum on the same paper; for, if the memorandum is not contemporaneous, or if it be merely verbal in each case, whatever may be its effect as a matter of defence between the original parties, it is not deemed to be a part of the instrument, and does not affeet, much less invalidate, its original character.” J. Thorndike, Story on Promissory Notes 34 (7th ed. 1878) (footnotes omitted).

It is far from a matter of semantics to state that while Orion and the bank may have an oral understanding concerning the bank’s treatment of Orion’s note, that note itself is unconditional and equivalent to money. The Court correctly observes that the bank would have breached its oral contract had it attempted to sue on the note; nevertheless, Orion would have had separately to plead and prove a breach of contract in that case, because parol evidence that the contract between the parties differed from the written instrument would have been inadmissible in the bank’s action to collect the debt. See American Perforating Co. v. Oklahoma State Bank, 463 P. 2d 958, 962-963 (Okla. 1970). Similarly, should the note have found its way into the hands of a third party, Orion would have had no choice but to honor it, again being left with only the right to sue the bank for breach of the oral contract. Orion’s entrustment of the note to the bank was not, therefore, completely risk free.

The risk taken on by Orion may not differ substantially from the risk assumed by one who hands over money to the bank to guarantee repayment of funds paid out on a letter of credit. The bank typically undertakes to put such cash collateral into a special account, where it never enters into the general assets of the bank. See U.C.C. §5-117, comment (1977). Should the bank cease operations, the customer will enjoy a preference in bankruptcy, entitling it to receive its money back before general unsecured creditors of the bank are paid. U.C.C. §5-117; Okla. Stat., Tit. 12A, §5-117 (1981). Like Orion, then, that hypothetical customer has little to fear absent misconduct by the bank or a third party. If the federal deposit insurance program should not protect Philadelphia Gear, therefore, it probably should not protect any holder of a letter of credit, whether commercial, standby, funded, or unfunded. That, however, is clearly a matter for Congress to determine.

While the Court purports to examine what Congress meant when it said “promissory note,” in fact the Court’s opinion does not rest on any special attributes of Orion’s note. Rather, the Court rules that when an individual entrusts a negotiable instrument to a bank, that instrument is not “money or its equivalent” for purposes of § 1813(0(1) so long as the bank promises not to negotiate it or collect on it until certain conditions are met. That is a proviso that Congress might have been well advised to include in the Act, but did not. I therefore dissent.

       We would have a very different case if the conditions put upon Orion’s obligation to the bank were reflected on the face of the note, as they were in Allen v. FDIC, 599 F. Supp. 104 (ED Tenn. 1984), appeal pending, No. 85-5003 (CA6), a case raising the same issue as the present one. Because such a note is not negotiable, it is much more plausible to argue that Congress would not have considered it “money or its equivalent.” The note in this case, however, is in no sense a contingent note.

       It seems odd that Philadelphia Gear’s status as an insured depositor should depend on the terms of the repayment agreement between Orion and the bank. Ordinarily, Philadelphia Gear would be indifferent to the agreement between Orion and the bank, and might not even be aware of the terms of that agreement. The Court, therefore, is not necessarily bringing greater rationality to this area of the law by creating distinctions between types of letters of credit for purposes of federal deposit insurance coverage.


source: Caselaw Access Project

author: Per Curiam.

license: Public Domain

text:
    PUBLIC SERVICE COMMISSION OF MARYLAND v. CHESAPEAKE & POTOMAC TELEPHONE COMPANY OF MARYLAND
    No. 84-1362.
    Argued January 13, 1986
    Decided May 27, 1986

      Kirk J. Emge argued the cause and filed briefs for petitioner.

      Jack D. Smith argued the cause for the Federal Communications Commission as amicus curiae urging reversal. With him on the brief were Acting Solicitor General Fried, Deputy Solicitor General Wallace, Christopher J. Wright, Daniel M. Armstrong, and Jane E. Mago.

      D. Michael Stroud argued the cause for respondent. With him on the brief were J. William Sarver, Mark J. Mathis, and Daniel I. Prywes.

       A brief of amici curiae urging reversal was filed for the State of California et al. by Janice E. Kerr, J. Calvin Simpson, Mark E. Fogelman, Ellen S. LeVine, Joseph I. Lieberman, Attorney General of Connecticut, William B. Gundling, Peter J. Jenkelunas, and Phyllis E. Lemell, Assistant Attorneys General, Howard C. Davenport, Wiliam S. Bilenky, Philip Stoffregen, Patrick Nugent, William Paul Rodgers, Jr., Jack Shreve, Stephen L. Skipper, Robert Waldrum, Joseph G. Donahue, William E. Furber, John K. Keane, Jr., Frank J. Kelley, Attorney General of Michigan, Louis J. Caruso, Solicitor General, Don L. Keskey and Leo H. Friedman, Assistant Attorneys General, Lynda S. Mounts, Brian Moline, Ellyn Elise Crutcher, Michael R. Fontham, and Marshall B. Brinkley.

      A brief of amici curiae urging affirmance was filed for American Telephone and Telegraph Co. et al. by Michael Boudin, Thomas J. Reiman, Vincent L. Sgrosso, W. Preston Granbery, and John B. Messenger.

   Per Curiam.

We vacate the judgment of the Court of Appeals for the Fourth Circuit and remand for further proceedings consistent with the opinion in Louisiana Public Service Comm’n v. FCC, ante, p. 355.

It is so ordered.

Justice Powell and Justice O’Connor took no part in the consideration or decision of this case.


author: Justice White

text:
    FEDERAL TRADE COMMISSION v. INDIANA FEDERATION OF DENTISTS
    No. 84-1809.
    Argued March 25, 1986
    Decided June 2, 1986

      White, J., delivered the opinion for a unanimous Court.

      Marcy J. K. Tiffany argued the cause for petitioner. With her on the briefs were Solicitor General Fried, Assistant Attorney General Ginsburg, Ernest J. Isenstadt, David C. Shonka, and L. Barry Costilo.

      Bruce W. Graham argued the cause for respondent. With him on the brief was Ronald K. Fowler.

       Briefs of amici curiae urging reversal were filed for the American Association of Retired Persons by Alfred Miller and Steven S. Honigman; for the Health Insurance Association of America by Joe Sims and Edwin R. Soeffing; and for the Washington Business Group on Health by Stephan E. Lawton.

      Briefs of amici curiae urging affirmance were filed for the American College of Radiology by Reuben L. Hedlund and James A. Chemey; for the American Dental Association by Peter M. Sfikas; for the American Medical Association by Benjamin W. Heineman, Jr., Carter G. Phillips, Newton N. Minow, and Jack R. Bierig; and for the Physicians and Surgeons Association of Massachusetts, Inc., by Robert D. Paul and Donald B. Gould.

   Justice White

delivered the opinion of the Court.

This case concerns commercial relations among certain Indiana dentists, their patients, and the patients’ dental health care insurers. The question presented is whether the Federal Trade Commission correctly concluded that a conspiracy among dentists to refuse to submit x rays to dental insurers for use in benefits determinations constituted an “unfair method of competition” in violation of §5 of the Federal Trade Commission Act, 38 Stat. 719, as amended, 15 U. S. C. §45 (1982 ed. and Supp. II).

I

Since the 1970’s, dental health insurers, responding to the demands of their policyholders, have attempted to contain the cost of dental treatment by, among other devices, limiting payment of benefits to the cost of the “least expensive yet adequate treatment” suitable to the needs of individual patients. Implementation of such cost-containment measures, known as “alternative benefits” plans, requires evaluation by the insurer of the diagnosis and recommendation of the treating dentist, either in advance of or following the provision of care. In order to carry out such evaluation, insurers frequently request dentists to submit, along with insurance claim forms requesting payment of benefits, any dental x rays that have been used by the dentist in examining the patient as well as other information concerning their diagnoses and treatment recommendations. Typically, claim forms and accompanying x rays are reviewed by lay claims examiners, who either approve payment of claims or, if the materials submitted raise a question whether the recommended course of treatment is in fact necessary, refer claims to dental consultants, who are licensed dentists, for further review. On the basis of the materials available, supplemented where appropriate by further diagnostic aids, the dental consultant may recommend that the insurer approve a claim, deny it, or pay only for a less expensive course of treatment.

Such review of diagnostic and treatment decisions has been viewed by some dentists as a threat to their professional independence and economic well-being. In the early 1970’s, the Indiana Dental Association, a professional organization comprising some 85% of practicing dentists in the State of Indiana, initiated an aggressive effort to hinder insurers’ efforts to implement alternative benefits plans by enlisting member dentists to pledge no.t to submit x rays in conjunction with claim forms. The Association’s efforts met considerable success: large numbers of dentists signed the pledge, and insurers operating in Indiana found it difficult to obtain compliance with their requests for x rays and accordingly had to choose either to employ more expensive means of making alternative benefits determinations (for example, visiting the office of the treating dentist or conducting an independent oral examination) or to abandon such efforts altogether.

By the mid-1970’s, fears of possible antitrust liability had dampened the Association’s enthusiasm for opposing the submission of x rays to insurers. In 1979, the Association and a number of its constituent societies consented to a Federal Trade Commission order requiring them to cease and desist from further efforts to prevent member dentists from submitting x rays. In re Indiana Dental Assn., 93 F. T. C. 392. Not all Indiana dentists were content to leave the matter of submitting x rays to the individual dentist. In 1976, a group of such dentists formed the Indiana Federation of Dentists, respondent in this case, in order to continue to pursue the Association’s policy of resisting insurers’ requests for x rays. The Federation, which styled itself a “union” in the belief that this label would stave off antitrust liability, immediately promulgated a “work rule” forbidding its members to submit x rays to dental insurers in conjunction with claim forms. Although the Federation’s membership was small, numbering less than 100, its members were highly concentrated in and around three Indiana communities: Anderson, Lafayette, and Fort Wayne. The Federation succeeded in enlisting nearly 100% of the dental specialists in the Anderson area, and approximately 67% of the dentists in and around Lafayette. In the areas of its strength, the Federation was successful in continuing to enforce the Association’s prior policy of refusal to submit x rays to dental insurers.

In 1978, the Federal Trade Commission issued a complaint against the Federation, alleging in substance that its efforts to prevent its members from complying with insurers’ requests for x rays constituted an unfair method of competition in violation of §5 of the Federal Trade Commission Act. Following lengthy proceedings including a full evidentiary hearing before an Administrative Law Judge, the Commission ruled that the Federation’s policy constituted a violation of § 5 and issued an order requiring the Federation to cease and desist from further efforts to organize dentists to refuse to submit x rays to insurers. In re Indiana Federation of Dentists, 101 F. T. C. 57 (1983). The Commission based its ruling on the conclusion that the Federation’s policy of requiring its members to withhold x rays amounted to a conspiracy in restraint of trade that was unreasonable and hence unlawful under the standards for judging such restraints developed in this Court’s precedents interpreting §1 of the Sherman Act. E. g., Chicago Board of Trade v. United States, 246 U. S. 231 (1918); National Society of Professional Engineers v. United States, 435 U. S. 679 (1978). The Commission found that the Federation had conspired both with the Indiana Dental Association and with its own members to withhold cooperation with dental insurers’ requests for x rays; that absent such a restraint, competition among dentists for patients would have tended to lead dentists to compete with respect to their policies in dealing with patients’ insurers; and that in those areas where the Federation’s membership was strong, the Federation’s policy had had the actual effect of eliminating such competition among dentists and preventing insurers from obtaining access to x rays in the desired manner. These findings of anticompetitive effect, the Commission concluded, were sufficient to establish that the restraint was unreasonable even absent proof that the Federation’s policy had resulted in higher costs to the insurers and patients than would have occurred had the x rays been provided. Further, the Commission rejected the Federation’s argument that its policy of withholding x rays was reasonable because the provision of x rays might lead the insurers to make inaccurate determinations of the proper level of care and thus injure the health of the insured patients: the Commission found no evidence that use of x rays by insurance companies in evaluating claims would result in inadequate dental care. Finally, the Commission rejected the Federation’s contention that its actions were exempt from antitrust scrutiny because the withholding of x rays was consistent with the law and policy of the State of Indiana against the use of x rays in benefit determination by insurance companies. The Commission concluded that no such policy existed, and that in any event the existence of such a policy would not have justified the dentists’ private and unsupervised conspiracy in restraint of trade.

The Federation sought judicial review of the Commission’s order in the United States Court of Appeals for the Seventh Circuit, which vacated the order on the ground that it was not supported by substantial evidence. 745 F. 2d 1124 (1984). Accepting the Federation’s characterization of its rule against submission of x rays as merely an ethical and moral policy designed to enhance the welfare of dental patients, the majority concluded that the Commission’s findings that the policy was anticompetitive were erroneous. According to the majority, the evidence did not support the finding that in the absence of restraint dentists would compete for patients by offering cooperation with the requests of the patients’ insurers, nor, even accepting that finding, was there evidence that the Federation’s efforts had prevented such competition. Further, the court held that the Commission’s findings were inadequate because of its failure both to offer a precise definition of the market in which the Federation was alleged to have restrained competition and to establish that the Federation had the power to restrain competition in that market. Finally, the majority faulted the Commission for not finding that the alleged restraint on competition among dentists had actually resulted in higher dental costs to patients and insurers. The third member of the Court of Appeals panel concurred in the judgment solely on the ground that there was insufficient proof that cooperation with insurers was an element of dental services as to which dentists would tend to compete.

We granted certiorari, 474 U. S. 900 (1985), in order to consider the Commission’s claim that in vacating the Commission’s order the Court of Appeals misconstrued applicable principles of antitrust law and “‘misapprehended or grossly misapplied’ the substantial evidence test,” American Textile Manufacturers Institute, Inc. v. Donovan, 452 U. S. 490, 523 (1981) (citation omitted). We now reverse.

II

The issue is whether the Commission erred in holding that the Federation’s policy of refusal to submit x rays to dental insurers for use in benefits determinations constituted an “unfair method of competition,” unlawful under §5 of the Federal Trade Commission Act. The question involves review of both factual and legal determinations. As to the former, our review is governed by 15 U. S. C. § 45(c), which provides that “[t]he findings of the Commission as to the facts, if supported by evidence, shall be conclusive.” The statute forbids a court to “make its own appraisal of the testimony, picking and choosing for itself among uncertain and conflicting inferences.” FTC v. Algoma Lumber Co., 291 U. S. 67, 73 (1934). Rather, as under the essentially identical “substantial evidence” standard for review of agency factfinding, the court must accept the Commission’s findings of fact if they are supported by “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” Universal Camera Corp. v. NLRB, 340 U. S. 474, 477 (1951); see also Beneficial Corp. v. FTC, 542 F. 2d 611, 616 (CA3 1976), cert. denied, 430 U. S. 983 (1977).

The legal issues presented — that is, the identification of governing legal standards and their application to the facts found — are, by contrast, for the courts to resolve, although even in considering such issues the courts are to give some deference to the Commission’s informed judgment that a particular commercial practice is to. be condemned as “unfair.” See FTC v. Sperry & Hutchinson Co., 405 U. S. 233 (1972); Atlantic Refining Co. v. FTC, 381 U. S. 357, 367-368 (1965); FTC v. Cement Institute, 333 U. S. 683, 720 (1948). The standard of “unfairness” under the FTC Act is, by necessity, an elusive one, encompassing not only practices that violate the Sherman Act and the other antitrust laws, see FTC v. Cement Institute, supra, at 689-695, but also practices that the Commission determines are against public policy for other reasons, see FTC v. Sperry & Hutchinson Co., 405 U. S., at 244. Once the Commission has chosen a particular legal rationale for holding a practice to be unfair, however, familiar principles of administrative law dictate that its decision must stand or fall on that basis, and a reviewing court may not consider other reasons why the practice might be deemed unfair. See id., at 245-250; cf. SEC v. Chenery Corp., 318 U. S. 80 (1943). In the case now before us, the sole basis of the FTC’s finding of an unfair method of competition was the Commission’s conclusion that the Federation’s collective decision to withhold x rays from insurers was an unreasonable and conspiratorial restraint of trade in violation of §1 of the Sherman Act, 26 Stat. 209, as amended, 15 U. S. C. § 1. Accordingly, the legal question before us is whether the Commission’s factual findings, if supported by evidence, make out a violation of Sherman Act § 1.

Ill

The relevant factual findings are that the members of the Federation conspired among themselves to withhold x rays requested by dental insurers for use in evaluating claims for benefits, and that this conspiracy had the effect of suppressing competition among dentists with respect to cooperation with the requests of the insurance companies. As to the first of these findings there can be no serious dispute: abundant evidence in the record reveals that one of the primary reasons — if not the primary reason — for the Federation’s existence was the promulgation and enforcement of the so-called “work rule” against submission of x rays in conjunction with insurance claim forms.

As for the second crucial finding — that competition was actually suppressed — the Seventh Circuit held it to be unsupported by the evidence, on two theories. First, the court stated that the evidence did not establish that cooperation with requests for information by patients’ insurance companies was an aspect of the provision of dental services with respect to which dentists would, in the absence of some restraint, compete. Second, the court found that even assuming that dentists would otherwise compete with respect to policies of cooperating or not cooperating with insurance companies, the Federation’s policy did not impair that competition, for the member dentists continued to allow insurance companies to use other means of evaluating their diagnoses when reviewing claims for benefits: specifically, “the IFD member dentists allowed insurers to visit the dental office to review and examine the patient’s x rays along with all of the other diagnostic and clinical aids used in formulating a proper course of dental treatment.” 745 F. 2d, at 1143.

Neither of these criticisms of the Commission’s findings is well founded. The Commission’s finding that “[i]n the absence of . . . concerted behavior, individual dentists would have been subject to market forces of competition, creating incentives for them to . . . comply with the requests of patients’ third-party insurers,” 101 F. T. C., at 173, finds support not only in common sense and economic theory, upon both of which the FTC may reasonably rely, but also in record documents, including newsletters circulated among Indiana dentists, revealing that Indiana dentists themselves perceived that unrestrained competition tended to lead their colleagues to comply with insurers’ requests for x rays. See App. to Pet. for Cert. 289a, 306a-308a. Moreover, there was evidence that outside of Indiana, in States where dentists had not collectively refused to submit x rays, insurance companies found little difficulty in obtaining compliance by dentists with their requests. 101 F. T. C., at 172. A “reasonable mind” could conclude on the basis of this evidence that competition for patients, who have obvious incentives for seeking dentists who will cooperate with their insurers, would tend to lead dentists in Indiana (and elsewhere) to cooperate with requests for information by their patients’ insurers.

The Commission’s finding that such competition was actually diminished where the Federation held sway also finds adequate support in the record. The Commission found that in the areas where Federation membership among dentists was most significant (that is, in the vicinity of Anderson and Lafayette) insurance companies were unable to obtain compliance with their requests for submission of x rays in conjunction with claim forms and were forced to resort to other, more costly, means of reviewing diagnoses for the purpose of benefit determination. Neither the opinion of the Court of Appeals nor the brief of respondent identifies any evidence suggesting that the Commission’s finding that the Federation’s policy had an actual impact on the ability of insurers to obtain the x rays they requested was incorrect. The lower court’s conclusion that this evidence is to be discounted because Federation members continued to cooperate with insurers by allowing them to use more costly — indeed, prohibitively costly — methods of reviewing treatment decisions is unpersuasive. The fact remains that the dentists’ customers (that is, the patients and their insurers) sought a particular service: cooperation with the insurers’ pretreatment review through the forwarding of x rays in conjunction with claim forms. The Federation’s collective activities resulted in the denial of the information the customers requested in the form that they requested it, and forced them to choose between acquiring that information in a more costly manner or forgoing it altogether. To this extent, at least, competition among dentists with respect to cooperation with the requests of insurers was restrained.

IV

The question remains whether these findings are legally sufficient to establish a violation of § 1 of the Sherman Act— that is, whether the Federation’s collective refusal to cooperate with insurers’ requests for x rays constitutes an “unreasonable” restraint of trade. Under our precedents, a restraint may be adjudged unreasonable either because it fits within a class of restraints that has been held to be “per se” unreasonable, or because it violates what has come to be known as the “Rule of Reason,” under which the “test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition.” Chicago Board of Trade v. United States, 246 U. S., at 238.

The policy of the Federation with respect to its members’ dealings with third-party insurers resembles practices that have been labeled “group boycotts”: the policy constitutes a concerted refusal to deal on particular terms with patients covered by group dental insurance. Cf. St. Paul Fire & Marine Insurance Co. v. Barry, 438 U. S. 531 (1978); Paramount Famous Lasky Corp. v. United States, 282 U. S. 30 (1930). Although this Court has in the past stated that group boycotts are unlawful per se, see United States v. General Motors Corp., 384 U. S. 127 (1966); Klor’s, Inc. v. Broadway-Hale Stores, Inc. 359 U. S. 207 (1959), we decline to resolve this case by forcing the Federation’s policy into the “boycott” pigeonhole and invoking the per se rule. As we observed last Term in Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U. S. 284 (1985), the category of restraints classed as group boycotts is not to be expanded indiscriminately, and the per se approach has generally been limited to eases in which firms with market power boycott suppliers or customers in order to discourage them from doing business with a competitor — a situation obviously not present here. Moreover, we have been slow to condemn rules adopted by professional associations as unreasonable per se, see National Society of Professional Engineers v. United States, 435 U. S. 679 (1978), and, in general, to extend per se analysis to restraints imposed in the context of business relationships where the economic impact of certain practices is not immediately obvious, see Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U. S. 1 (1979). Thus, as did the FTC, we evaluate the restraint at issue in this case under the Rule of Reason rather than a rule of per se illegality.

Application of the Rule of Reason to these facts is not a matter óf any great difficulty. The Federation’s policy takes the form of a horizontal agreement among the participating dentists to withhold from their customers a particular service that they desire — the forwarding of x rays to insurance companies along with claim forms. “While this is not price fixing as such, no elaborate industry analysis is required to demonstrate the anticompetitive character of such an agreement.” National Society of Professional Engineers, supra, at 692. A refusal to compete with respect to the package of services offered to customers, no less than a refusal to compete with respect to the price term of an agreement, impairs the ability of the market to advance social welfare by ensuring the provision of desired goods and services to consumers at a price approximating the marginal cost of providing them. Absent some countervailing procompetitive virtue — such as, for example, the creation of efficiencies in the operation of a market or the provision of goods and services, see Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., supra; Chicago Board of Trade, supra; cf. National Collegiate Athletic Assn. v. Board of Regents of Univ. of Okla., 468 U. S. 85 (1984)—such an agreement limiting consumer choice by impeding the “ordinary give and take of the market place,” National Society of Professional Engineers, supra, at 692, cannot be sustained under the Rule of Reason. No credible argument has been advanced for the proposition that making it more costly for the insurers and patients who are the dentists’ customers to obtain information needed for evaluating the dentists’ diagnoses has any such procompetitive effect.

The Federation advances three principal arguments for the proposition that, notwithstanding its lack of competitive virtue, the Federation’s policy of withholding x rays should not be deemed an unreasonable restraint of trade. First, as did the Court of Appeals, the Federation suggests that in the absence of specific findings by the Commission concerning the definition of the market in which the Federation allegedly restrained trade and the power of the Federation’s members in that market, the conclusion that the Federation unreasonably restrained trade is erroneous as a matter of law, regardless of whether the challenged practices might be impermissibly anticompetitive if engaged in by persons who together possessed power in a specifically defined market. This contention, however, runs counter to the Court’s holding in National Collegiate Athletic Assn. v. Board of Regents of Univ. of Okla., supra, that “[a]s a matter of law, the absence of proof of market power does not justify a naked restriction on price or output,” and that such a restriction “requires some competitive justification even in the absence of a detailed market analysis.” Id., at 109-110. Moreover, even if the restriction imposed by the Federation is not sufficiently “naked” to call this principle into play, the Commission’s failure to engage in detailed market analysis is not fatal to its finding of a violation of the Rule of Reason. The Commission found that in two localities in the State of Indiana (the Anderson and Lafayette areas), Federation dentists constituted heavy majorities of the practicing dentists and that as a result of the efforts of the Federation, insurers in those areas were, over a period of years, actually unable to obtain compliance with their requests for submission of x rays. Since the purpose of the inquiries into market definition and market power is to determine whether an arrangement has the potential for genuine adverse effects on competition, “proof of actual detrimental effects, such as a reduction of output,” can obviate the need for an inquiry into market power, which is but a “surrogate for detrimental effects.” 7 P. Areeda, Antitrust Law ¶ 1511, p. 429 (1986). In this case, we conclude that the finding of actual, sustained adverse effects on competition in those areas where IFD dentists predominated, viewed in light of the reality that markets for dental services tend to be relatively localized, is legally sufficient to support a finding that the challenged restraint was unreasonable even in the absence of elaborate market analysis.

Second, the Federation, again following the lead of the Court of Appeals, argues that a holding that its policy of withholding x rays constituted an unreasonable restraint of trade is precluded by the Commission’s failure to make any finding that the policy resulted in the provision of dental services that were more costly than those that the patients and their insurers would have chosen were they able to evaluate x rays in conjunction with claim forms. This argument, too, is unpersuasive. Although it is true that the goal of the insurers in seeking submission of x rays for use in their review of benefits claims was to minimize costs by choosing the least expensive adequate course of dental treatment, a showing that this goal was actually achieved through the means chosen is not an essential step in establishing that the dentists’ attempt to thwart its achievement by collectively refusing to supply the requested information was an unreasonable restraint of trade. A concerted and effective effort to withhold (or make more costly) information desired by consumers for the purpose of determining whether a particular purchase is cost justified is likely enough to disrupt the proper functioning of the price-setting mechanism of the market that it may be condemned even absent proof that it resulted in higher prices or, as here, the purchase of higher priced services, than would occur in its absence. National Society of Professional Engineers v. United States, 435 U. S. 679 (1978). Moreover, even if the desired information were in fact completely useless to the insurers and their patients in making an informed choice regarding the least costly adequate course of treatment — or, to put it another way, if the costs of evaluating the information were far greater than the cost savings resulting from its use — the Federation would still not be justified in deciding on behalf of its members’ customers that they did not need the information: presumably, if that were the case, the discipline of the market would itself soon result in the insurers’ abandoning their requests for x rays. The Federation is not entitled to pre-empt the working of the market by deciding for itself that its customers do not need that which they demand.

Third, the Federation complains that the Commission erred in failing to consider, as relevant to its Rule of Reason analysis, noncompetitive “quality of care” justifications for the prohibition on provision of x rays to insurers in conjunction with claim forms. This claim reflects the Court of Appeals’ repeated characterization of the Federation’s policy as a “legal, moral, and ethical policy of quality dental care, requiring that insurers examine and review all diagnostic and clinical aids before formulating a proper course of dental treatment.” 745 F. 2d, at 1144. The gist of the claim is that x rays, standing alone, are not adequate bases for diagnosis of dental problems or for the formulation of an acceptable course of treatment. Accordingly, if insurance companies are permitted to determine whether they will pay a claim for dental treatment on the basis of x rays as opposed to a full examination of all the diagnostic aids available to the examining dentist, there is a danger that they will erroneously decline to pay for treatment that is in fact in the interest of the patient, and that the patient will as a result be deprived of fully adequate care.

The Federation’s argument is flawed both legally and factually. The premise of the argument is that, far from having no effect on the cost of dental services chosen by patients and their insurers, the provision of x rays will have too great an impact: it will lead to the reduction of costs through the selection of inadequate treatment. Precisely such a justification for withholding information from customers was rejected as illegitimate in the National Society of Professional Engineers case. The argument is, in essence, that an unrestrained market in which consumers are given access to the information they believe to be relevant to their choices will lead them to make unwise and even dangerous choices. Such an argument amounts to “nothing less than a frontal assault on the basic policy of the Sherman Act.” National Society of Professional Engineers, supra, at 695. Moreover, there is no particular reason to believe that the provision of information will be more harmful to consumers in the market for dental services than in other markets. Insurers deciding what level of care to pay for are not themselves the recipients of those services, but it is by no means clear that they lack incentives to consider the welfare of the patient as well as the minimization of costs. They are themselves in competition for the patronage of the patients — or, in most cases, the unions or businesses that contract on their behalf for group insurance coverage — and must satisfy their potential customers not only that they will provide coverage at a reasonable cost, but also that that coverage will be adequate to meet their customers’ dental needs. There is thus no more reason to expect dental insurance companies to sacrifice quality in return for cost savings than to believe this of consumers in, say, the market for engineering services. Accordingly, if noncompetitive quality-of-service justifications are inadmissible to justify the denial of information to consumers in the latter market, there is little reason to credit such justifications here.

In any event, the Commission did not, as the Federation suggests, refuse even to consider the quality-of-care justification for the withholding of x rays. Rather, the Commission held that the Federation had failed to introduce sufficient evidence to establish such a justification: “IFD has not pointed to any evidence — or even argued — that any consumers have in fact been harmed by alternative benefits determinations, or that actual determinations have been medically erroneous.” 101 F. T. C., at 177. The evidence before the Administrative Law Judge on this issue appears to have consisted entirely of expert opinion testimony, with the Federation’s experts arguing that x rays generally provide an insufficient basis, standing alone, for dental diagnosis, and the Commission’s experts testifying that x rays may be useful in assessing diagnosis of and appropriate treatment for a variety of dental complaints. Id., at 128-132. The Commission was amply justified in concluding on the basis of this conflicting evidence that even if concern for the quality of patient care could under some circumstances serve as a justification for a restraint of the sort imposed here, the evidence did not support a finding that the careful use of x rays as a basis for evaluating insurance claims is in fact destructive of proper standards of dental care.

In addition to arguing that its conspiracy did not effect an unreasonable restraint of trade, the Federation appears to renew its argument, pressed before both the Commission and the Court of Appeals, that the conspiracy to withhold x rays is immunized from antitrust scrutiny by virtue of a supposed policy of the State of Indiana against the evaluation of dental x rays by lay employees of insurance companies. See Brief for Respondent 25-26, and n. 10. Allegedly, such use of x rays by insurance companies — even where no claim was actually denied without examination of an x ray by a licensed dentist — would constitute unauthorized practice of dentistry by the insurance company and its employees. The Commission found that this claim had no basis in any authoritative source of Indiana law, see 101 F. T. C., at 181-183, and the Federation has not identified any adequate reason for rejecting the Commission’s conclusion. Even if the Commission were incorrect in its reading of the law, however, the Federation’s claim of immunity would fail. That a particular practice may be unlawful is not, in itself, a sufficient justification for collusion among competitors to prevent it. See Fashion Originators’ Guild of America, Inc. v. FTC, 312 U. S. 457, 468 (1941). Anticompetitive collusion among private actors, even when its goal is consistent with state policy, acquires antitrust immunity only when it is actively supervised by the State. See Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U. S. 48, 57 (1985). There is no suggestion of any such active supervision here; accordingly, whether or not the policy the Federation has taken upon itself to advance is consistent with the policy of the State of Indiana, the Federation’s activities are subject to Sherman Act condemnation.

V

The factual findings of the Commission regarding the effect of the Federation’s policy of withholding x rays are supported by substantial evidence, and those findings are sufficient as a matter of law to establish a violation of § 1 of the Sherman Act, and, hence, § 5 of the Federal Trade Commission Act. Since there has been no suggestion that the cease- and-desist order entered by the Commission to remedy this violation is itself improper for any reason distinct from the claimed impropriety of the finding of a violation, the Commission’s order must be sustained. The judgment of the Court of Appeals is accordingly

Reversed.

       A presentation made in 1974 by Dr. David McClure, an Association official and later one of the founders of respondent Indiana Federation of Dentists, is revealing as to the motives underlying the dentists’ resistance to the provision of x rays for use by insurers in making alternative benefits determinations:
      “The problems associated -with third party programs are many, but I believe the ‘Indiana Plan’ [i. e., the policy of refusing to submit x rays] to be sound and if we work together, we can win this battle. We are fighting an economic war where the very survival of our profession is at stake.
      “How long can some of the leaders of dentistry in other states be so complacent and willing to fall into the trap that is being set for us. If only they would take the time, to see from whence come the arrows that are heading in our direction. The Delta Dental Plans have bedded down with the unions and have been a party to setting up the greatest controls that any profession has ever known in a free society. . . .
      “The name of the game is money. The government and labor are determined to reduce the cost of the dental health dollar at the expense of the dentist. There is no way a dental service can be rendered cheaper when the third party has to have its share of the dollar.
      “Already we are locked into a fee freeze that could completely control the quality of dental care, if left on long enough.” FTC Complaint Counsel’s Trial Exhibit CX 372A, F, App. 104.

       Respondent no longer makes any pretense of arguing that it is immune from antitrust liability as a labor organization.

       Because we find that the Commission’s findings can be sustained on this basis, we do not address the Commission’s contention that the Federation’s activities can be condemned regardless of market power or actual effect merely because they constitute a continuation of the restraints formerly imposed by the Indiana Dental Association, which allegedly had market power throughout the State of Indiana.

       It is undisputed that lay claims examiners employed by insurance companies have no authority to deny claims on the basis of examination of x rays; rather, initial screening of x rays serves only as a means of identifying cases that merit further scrutiny by the licensed dentists serving as consultants to the insurers. Any recommendation that benefits be denied or a less expensive course of treatment be pursued is based on the professional judgment of a licensed dentist that the materials available to him— x rays, claim forms, and whatever further diagnostic aids he chooses to consult — are sufficient to indicate that the treating dentist’s recommendation is not necessary to the health of the patient. There is little basis for concluding that, where such a divergence of professional judgment exists, the treatment recommendation made by the patient’s dentist should be assumed to be the one that in fact represents the best interests of the patient.