ESAB Grp., Inc. v. Zurich Ins. PLC

• Decision Date: 09 July 2012
• Docket Number: Nos. 11–1243,11–1655.,s. 11–1243
• Citation: 685 F.3d 376
• Parties: ESAB GROUP, INCORPORATED, Plaintiff–Appellant, v. ZURICH INSURANCE PLC, Defendant–Appellee, and Arrowood Indemnity Company; Liberty Mutual Insurance Company; Trygg–Hansa Forsakrings AB; Zurich Insurance Company, Defendants. ESAB Group, Incorporated, Plaintiff–Appellee, v. Zurich Insurance PLC, Defendant–Appellant, and Arrowood Indemnity Company; Liberty Mutual Insurance Company; Trygg–Hansa Forsakrings AB; Zurich Insurance Company, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

685 F.3d 376

ESAB GROUP, INCORPORATED, Plaintiff–Appellant,

v.ZURICH INSURANCE PLC, Defendant–Appellee,andArrowood Indemnity Company; Liberty Mutual Insurance Company; Trygg–Hansa Forsakrings AB; Zurich Insurance Company, Defendants.

ESAB Group, Incorporated, Plaintiff–Appellee,

v.Zurich Insurance PLC, Defendant–Appellant,andArrowood Indemnity Company; Liberty Mutual Insurance Company; Trygg–Hansa Forsakrings AB; Zurich Insurance Company, Defendants.

Nos. 11–1243, 11–1655.

United States Court of Appeals, Fourth Circuit.

Argued: May 17, 2012.

Decided: July 9, 2012.

ARGUED:Mark William Mosier, Covington & Burling, LLP, Washington, D.C., for Appellant/Cross–Appellee. Richard Mancino, Willkie, Farr & Gallagher, LLP, New York, New York, for Appellee/Cross–Appellant. ON BRIEF:Andrew A. Ruffino, Covington & Burling LLP, New York, New York; Mark W. Buyck, Jr., Willcox, Buyck & Williams, PA, Florence, South Carolina; William F. Greaney, Covington & Burling, LLP, Washington, D.C., for Appellant/Cross–Appellee. J. Boone Aiken, III, Aiken, Bridges, Elliott, Tyler & Saleeby, PA, LLP, Florence, South Carolina; Benjamin P. McCallen, Willkie, Farr & Gallagher, LLP, New York, New York; Joseph G. Davis, Willkie, Farr & Gallagher, LLP, Washington, D.C., for Appellee/Cross–Appellant.

Before WILKINSON, DIAZ, and FLOYD, Circuit Judges.

Affirmed by published opinion. Judge FLOYD wrote the opinion, in which Judge WILKINSON and Judge DIAZ concurred. Judge WILKINSON wrote a separate concurring opinion.

OPINION

FLOYD, Circuit Judge:

The Supreme Court has long recognized the importance of preserving the United States' ability to “speak with one voice” in regulating foreign commerce. Michelin Tire Corp. v. Wages, 423 U.S. 276, 285, 96 S.Ct. 535, 46 L.Ed.2d 495 (1976); see also Japan Line, Ltd. v. Cnty. of L.A., 441 U.S. 434, 448–49 & n. 14, 99 S.Ct. 1813, 60 L.Ed.2d 336 (1979). Appellant/Cross–Appellee ESAB Group, Inc., urges us to allow the various views of the states to replace the federal government's singular voice regarding commercial arbitration of insurance disputes in foreign tribunals. Specifically, ESAB Group contends that South Carolina law “reverse preempts” federal law—namely, a treaty and its implementing legislation—pursuant to the McCarran–Ferguson Act, a federal statute directed at protecting state insurance regulations from implied preemption by federal domestic commerce legislation. See Am. Ins. Ass'n v. Garamendi, 539 U.S. 396, 428, 123 S.Ct. 2374, 156 L.Ed.2d 376 (2003). We find such a reading of the pertinent law untenable. For this reason, we affirm as to the district court's exercise of subject-matter jurisdiction, and we find no error in the district court's order compelling arbitration.¹

We likewise reject the arguments of Appellee/Cross–Appellant Zurich Insurance PLC (ZIP) that the district court erred in exercising personal jurisdiction over it and in remanding nonarbitrable claims to state court. Finding both parties' appeals to be without merit, we affirm.

I.

This appeal presents a complex question regarding the intersection of a treaty and federal and state statutory law. For this reason, we first provide an overview of the applicable law before discussing the factual background.

A.

In 1944, to the shock of observers and commentators, the Supreme Court held that insurance was subject to federal regulation under the interstate commerce clause. See United States v. S.-E. Underwriters Ass'n, 322 U.S. 533, 552–53, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). “Prior to that decision, it had been assumed ... that the issuance of an insurance policy was not a transaction in interstate commerce and that the States enjoyed a virtually exclusive domain over the insurance industry.” St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 538–39, 98 S.Ct. 2923, 57 L.Ed.2d 932 (1978). Accordingly, the likelihood developed that, through implied preemption, federal statutes enacted to govern domestic commerce would oust states from insurance regulation.

In 1945, in response to South–Eastern Underwriters, Congress enacted the McCarran–Ferguson Act, 15 U.S.C. §§ 1011–1015, to restore the states' preeminent position in insurance regulation. See U.S. Dep't of Treasury v. Fabe, 508 U.S. 491, 500, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993); Life Partners, Inc. v. Morrison, 484 F.3d 284, 292 (4th Cir.2007). Typically, of course, the Supremacy Clause of the United States Constitution requires that a state law yield to a conflicting federal law. SeeU.S. Const. art. VI, cl. 2; Kurns v. R.R. Friction Prods. Corp., ––– U.S. ––––, 132 S.Ct. 1261, 1266, ––– L.Ed.2d –––– (2012). The McCarran–Ferguson Act, however, “transformed the legal landscape by overturning the normal rules of pre-emption.” Fabe, 508 U.S. at 507, 113 S.Ct. 2202.

The Act first declares that congressional silence “shall not be construed to impose any barrier” to state regulation or taxation of the business of insurance. 15 U.S.C. § 1011. It further provides 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, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance.” Id. § 1012(b). Thus, McCarran–Ferguson authorizes “reverse preemption” of generally applicable federal statutes by state laws enacted for the purpose of regulating the business of insurance. See Safety Nat'l Cas. Corp. v. Certain Underwriters at Lloyd's, London, 587 F.3d 714, 720 (5th Cir.2009) (en banc), cert. denied,––– U.S. ––––, 131 S.Ct. 65, 178 L.Ed.2d 22 (2010).

B.

While Congress acted to preserve the states' dominance in insurance regulation, it moved to federalize policy regarding arbitration. In 1925, Congress enacted the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1–16, which established a liberal federal policy in favor of the enforcement of arbitration agreements in maritime and commercialcontracts. See CompuCredit Corp. v. Greenwood, ––– U.S. ––––, 132 S.Ct. 665, 668–69, 181 L.Ed.2d 586 (2012). Although the original version of the FAA protected the enforceability of domestic arbitration agreements, it did not ensure that courts would enforce agreements to arbitrate in foreign tribunals or awards granted by such tribunals. For this, the United States entered into a multilateral treaty guaranteeing the reciprocal enforcement of such arbitration agreements and awards.

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention), adoptedJune 10, 1958, 21 U.S.T. 2517 (entered into force with respect to the United States Dec. 29, 1970), was crafted during a 1958 United Nations conference. See Leonard V. Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1059–60 (1961).

The Convention obligates signatories (1) to recognize and enforce written agreements to submit disputes to foreign arbitration and (2) to enforce arbitral awards issued in foreign nations. See id. arts. I–III. Article II of the Convention describes signatories' responsibilities with respect to the enforcement of foreign arbitration agreements as follows:

1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

....

3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

Id. art. II. Article III addresses signatories' obligations to enforce foreign arbitral awards. It states that “[e]ach Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles.” Id. art. III. In contrast with Article II, Article III omits an express instruction to courts to enforce these awards.

The United States, although a participant in the drafting conference, did not immediately accede to the Convention. See Quigley, supra, at 1059–60, 1074. Rather, the Senate gave its advice and consent to accession in 1968, and President Nixon approved the accession in September 1970. Presidential Proclamation on the United States of America's Accession to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Presidential Proclamation), 1970 WL 104417, at *5 (Dec. 11, 1970). The Convention entered into force in the United States on December 29, 1970.²Id.

According to contemporaneous legislative materials, this delay occurred because “the American delegation [to the drafting conference] felt certain provisions of the [C]onvention were in conflict with some of our domestic laws.” S. Exec. Rep. No. 90–10, at 1 (1968). Thus, the President and Congress believed that “[c]hanges in the Federal Arbitration Act (title 9 of the United States Code) [were] required before the United States bec[ame] party to the [C]onvention.” Id. at 2; see alsoH.R.Rep. No. 91–1181 (1970), reprinted in 1970 U.S.C.C.A.N. 3601, 3602 (“Even though the Convention was approved in October 1968, the instrument of accession will not be deposited until [chapter 2 of the FAA] is enacted into law.”). Specifically, a representative of the State Department's Office of the Legal Advisor requested changes to the United States Code “to insure the coverage of the [FAA] extends to all cases arising under the treaty and some changes in Federal civil procedure to take...