Stephens v. National Distillers and Chemical Corp.
| Decision Date | 11 January 1996 |
| Docket Number | No. 717,D,717 |
| Parties | Don W. STEPHENS, Commissioner of Insurance of the Commonwealth of Kentucky in his capacity as Liquidator of Delta America Re Insurance Company, Plaintiff-Appellant, v. NATIONAL DISTILLERS AND CHEMICAL CORPORATION, A Foreign Corporation now known as Quantum Chemical Corporation; Robert Edward Norton, an individual; John Francis Salisbury; Hugh C. Brewer, III, an individual; Richard F. Maynes, an individual; Terrence J. Reilly, an individual; Ramsey E. Joslin, an individual; Roger W. Hill, Jr., an individual; John C. Adlin, an individual; F. Donald Brigham, an individual; Thomas W. Bullitt, an individual; Leonard Briggs Marshall, an individual; Arion Insurance Company, Ltd., A Foreign Corp.; Assubel Accidents Et Dommages, A Foreign Corp.; Atlantica Cia National De Seguros, A Foreign Corporation; Brasil Compania De Seguros, A Foreign Corporation; Caisse Mutuelle D'Assurances Et De Prevoyance, A Foreign Corporation; Ca De Seguros Orinoco, A Foreign Corporation; CaJa National De Ahorro Y Seguro, A Foreign Corporation; Canadian Union Insurance Company, A Foreign Corporation; Central Reinsurance Corporation, A Foreign Corporation; China Insurance Company, Ltd., also known as Chung Kuo Insurance, A Foreign Corporation; Chiyodafire & Marine Insurance Co. Ltd., A Foreign Corporation; CIA Internacional De Seguros, A Foreign Corporation; Compagnia De Assicurazioni Di Milano, A Foreign Corporation; C.A. Reaseguradora Internacional Del Orinoco, A Foreign Corporation; Compania Bandeirante De Seguros Gerais, A Foreign Corporation; Folksamerica Reinsurance Company, A Foreign Corporation; Fuji Fire & Marine Insurance Co. Ltd., A Foreign Corporation; Hassneh Insurance Co. of Israel, Ltd., A Foreign Corporation; Insurance Company of the USSR. Ltd. (Ingosstrakh, Ssr, Upravienie), A Foreign Corporation; Korean Reinsurance Corporation, A Foreign Corporation; Kyoei Mutual Fire & Marine Insurance Company, Ltd., A Foreign Corporation; La Providence I.A.R.D. Groupe Presence, A Foreign Corpora |
| Court | U.S. Court of Appeals — Second Circuit |
W. Henry Jernigan, Jr., Lexington, KY (William F. Costigan, John P. McConnell, Costigan & Berns, P.C., New York, City on the brief), for Appellant.
Larry W. Thomas, Cameron & Hornbostel, New York City (Gregory J. Bendlin, of counsel), for Appellee Grupo de Empresas Seguradoras Brasileiras.
David S. Sheiffer, Wilson, Elser, Moskowitz, Edelman & Dicker, New York City (Perry Kreidman, of counsel), for Appellee Instituto de Resseguros do Brazil, A Foreign Corporation.
Before: MAHONEY, LEVAL, and CALABRESI, Circuit Judges.
The Foreign Sovereign Immunities Act (FSIA), 1 "sets forth the sole and exclusive standards to be used in resolving questions of sovereign immunity raised by foreign states before Federal and State courts in the United States." H.R.Rep. No. 94-1487, 94th Cong., 2d Sess. (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6610. The Supreme Court has described the FSIA as a "comprehensive set of legal standards," Verlinden B.V. v. Central Bank of Nig., 461 U.S. 480, 488, 103 S.Ct. 1962, 1968, 76 L.Ed.2d 81 (1983), preempting other laws purporting to set forth different rules for suits against foreign sovereigns. See Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 437-38, 109 S.Ct. 683, 690, 102 L.Ed.2d 818 (1989).
The McCarran-Ferguson Act, 15 U.S.C. Secs. 1011-1012, which "transformed the legal landscape by overturning the normal rules of preemption," United States Dep't of Treasury v. Fabe, --- U.S. ----, ----, 113 S.Ct. 2202, 2211, 124 L.Ed.2d 449 (1993), expresses In the case before us, we are asked to reconcile the demands of these seemingly inconsistent laws.
an equally firm congressional intent to leave regulation of the insurance industry primarily to the states. The McCarran-Ferguson Act 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 ... unless such Act specifically relates to the business of insurance." 15 U.S.C. Sec. 1012(b).
Between 1974 and 1983, Delta America Re Insurance Company (Delta), a Kentucky reinsurance company with its principal place of business in New York, provided reinsurance on various property and casualty risks. Delta in turn obtained reinsurance on those risks from several other insurers, known in the insurance industry as retrocessionaires. Among those retrocessionaires were several foreign companies who claimed to be covered by sovereign immunity under the FSIA; they are the appellees in this dispute.
In 1986, Delta was declared insolvent. Appellant, the Commissioner of Insurance of the Commonwealth of Kentucky, who served as Liquidator for Delta, brought this action to recover balances allegedly due from the appellees and other retrocessionaires. The suit started in the Kentucky state courts and was removed to federal court by the appellees pursuant to 28 U.S.C. Sec. 1441(d) and Sec. 1603 (the FSIA). Initially, the District Court for the Eastern District of Kentucky remanded the matter to the state courts, but the appellees successfully appealed the jurisdictional question to the Court of Appeals for the Sixth Circuit. See In re Delta Am. Re Ins. Co., 900 F.2d 890 (6th Cir.), cert. denied sub. nom. Wright v. Arion Ins. Co., 498 U.S. 890, 111 S.Ct. 233, 112 L.Ed.2d 193 (1990). A prior motion to transfer venue to the Southern District of New York was then revived and granted under 28 U.S.C. Sec. 1404(a).
When the case arrived in the Southern District, the Liquidator demanded that the retrocessionaires post security to cover any potential judgment, as provided in New York Insurance Law Sec. 1213(c)(1)--which mandates that out-of-state insurers post security (or obtain a license) in order to be allowed to participate in court proceedings in New York. 2 The retrocessionaires moved to be relieved of the obligation to post security.
Magistrate Judge Kathleen A. Roberts recommended that all the retrocessionaires be required to post security, except for the appellees, whom she determined were foreign sovereign retrocessionaires. These foreign sovereign retrocessionaires were to be exempted from the security requirement because of the prohibition against attachments of foreign property found in Sec. 1609 of the FSIA. The Magistrate Judge's report rejected the Liquidator's claims (1) that the "pre-answer security" requirement of New York Insurance Law Sec. 1213(c)(1) was not an "attachment" and was therefore not covered by Sec. 1609 of the FSIA, and (2) that, even if it were, the McCarran-Ferguson Act precluded the application of the FSIA's bar in this context.
The appellants objected to the Magistrate Judge's Order and Opinion in the District Court. But the District Court (John S. Martin, Jr., Judge ) adopted the bulk of the report, and specifically the Magistrate Judge's determination that the foreign sovereign retrocessionaires were to be free from the state-law security requirement. 3
On appeal, the Liquidator contests those components of the Magistrate Judge's report (as adopted by the District Court) that found (1) that the security requirement was a prohibited "attachment" under Sec. 1609 of the FSIA, and (2) that the McCarran-Ferguson Act did not preclude application of the FSIA.
Passed by Congress in 1976, the FSIA governs all "claims of immunity in every civil action against a foreign state or its political subdivisions, agencies, or instrumentalities." Verlinden, 461 U.S. at 488, 103 S.Ct. at 1968. Among the provisions defining the contours for permissible actions against foreign sovereigns, Sec. 1609 of the FSIA states:
Subject to existing international agreements to which the United States is a party at the time of enactment of this Act the property in the United States of a foreign state shall be immune from attachment arrest and execution except as provided in sections 1610 and 1611 of this chapter.
Since the exceptions in Secs. 1610-1611 are not applicable in this context, and no international agreement is at issue, the initial dispute about the applicability of this provision of the FSIA turns on whether New York's prejudgment security constitutes a forbidden "attachment" of the appellees' property.
The Magistrate Judge, relying heavily on this court's decision in S & S Machinery Co. v. Masinexportimport, 706 F.2d 411, 418 (2d Cir.) (dissolving an injunction that prohibited the negotiation of letters of credit by a foreign sovereign), cert. denied, 464 U.S. 850, 104 S.Ct. 161, 78 L.Ed.2d 147 (1983), held that the pre-answer security requirement is an attachment. In S & S Machinery we explained that the "FSIA would become meaningless if courts could eviscerate its protections merely by denominating their restraints as injunctions against the...
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