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No.
00-16163, No. 00-16164, No. 00-16165, No. 00-16182 UNITED
STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
January 9, 2001, Argued and Submitted, San Francisco, California
February 7, 2001, Filed PRIOR
HISTORY: [*1]
Appeals from the United States District Court for the Eastern District of
California. D.C. No. CV-00-00506-WBS. D.C. No. CV-00-00875-WBS. D.C. No.
CV-00-00779-WBS. D.C. No. CV-00-00613-WBS. William B. Shubb, District Judge,
Presiding. DISPOSITION: Preliminary injunction AFFIRMED; REMANDED for further proceedings.
COUNSEL: Frank Kaplan, Alschuler Grossman Stein & Kahan, LLP, Los
Angeles, California, for the defendant-appellant. Kenneth S.
Geller, Mayer, Brown & Platt, Washington, D.C.; Linda Dakin-Grimm and John
C. Ashby, Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California;
Frederick W. Reif, Wilson, Elser, New York, New York, and Timothy P. Grieve,
Stevens & O'Connell LLP, Sacramento, California; and Peter Simshauser,
Skadden, Arps, Slate, Meagher & Flom, LLP, Los Angeles, California, for the
plaintiffs-appellees.
Daniel L. Siegel, Supervising Deputy Attorney General, State of
California, Sacramento, California; Mark B. Stern and Douglas Hallward-Driemeier,
Appellate Staff Civil Division, Department of Justice, Washington, D.C.; David
A. Lash, Bet Tzedek Legal Services, Los Angeles, California; David O. Bucholz,
Department of Justice, Civil Division, Washington, D.C.; and Daniel [*2]
B. Price, Powell, Goldstein, Frazer & Murphy LLP, Washington, D.C., for the
amici curiae. JUDGES: Before: Alfred T. Goodwin, Susan P. Graber, and Richard A. Paez,
Circuit Judges. Opinion by Judge Graber. OPINIONBY: Susan P. Graber OPINION: GRABER, Circuit Judge: Plaintiffs are three insurance companies and one trade organization of insurance companies who do business in California. They sued the California Commissioner of Insurance (Commissioner) seeking declaratory and injunctive relief to bar enforcement of the Holocaust Victim Insurance Relief Act of 1999 (HVIRA), Cal. Ins. Code §§ 13800-13807 (1999). The district court issued a preliminary injunction after ruling that Plaintiffs had established a likelihood of irreparable harm and a probability of success on the merits of the questions whether HVIRA violates the Commerce Clause and whether it violates the federal government's "foreign affairs" power. The Commissioner brings this appeal. We leave the preliminary injunction in place, but for reasons different than those expressed by the district court. FACTUAL AND
PROCEDURAL HISTORY HVIRA requires
insurers that do business in California and that sold insurance policies, in
effect between [*3] 1920 and 1945 (Holocaust-era policies), to
persons in Europe to file certain information about those policies with the
Commissioner. n1 Cal. Ins. Code § 13804(a). The reporting requirement also
applies to insurance companies that do business in California and are
"related" to a company that sold Holocaust-era policies, even if the
relationship arose after the policies were issued. Id. A "related company" is any "parent, subsidiary,
reinsurer, successor in interest, managing general agent, or affiliate company
of the insurer." Id. § 13802(b). HVIRA requires the Commissioner to store the
information in a public "Holocaust Era Insurance Registry." Id. § 13803. The
Commissioner must "suspend the certificate of authority to conduct
insurance business in the state of any insurer that fails to comply" with
HVIRA's reporting requirements. Id. § 13806.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - -
- - - - - - n1 The
information that the insurance companies must provide is: (1) the number of
insurance policies; (2) the holder, beneficiary, and current status of each
policy; and (3) the city of origin, domicile, or address for each policyholder
listed in each policy. Cal. Ins. Code § 13804(a)(1)-(3). In addition, the
insurer must certify that: (1) the proceeds of the policies were paid; or (2)
the beneficiaries or heirs could not be located after diligent search, and the
proceeds were distributed to Holocaust survivors or charities; or (3) a court of
law has certified a plan for distributing the proceeds; or (4) the proceeds have
not been distributed. Id. § 13804(b)(1)-(3). The implementing regulations state that, if
"the insurer states that it has no actual policies to report because the
records are no longer in the possession of the insurer or its related
company(ies), it shall provide a complete explanation of that statement."
Cal. Code Regs. tit. 10, § 2278.2(a) (2000). Any insurer who knowingly files
false information is subject to a penalty of up to $ 5,000. Cal. Ins. Code §
13805. - - - - - - - - -
- - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [*4] Plaintiffs filed
four separate actions against the Commissioner, in which they sought to enjoin
enforcement of HVIRA. The actions were brought by: (1) Gerling Global
Reinsurance Corp. of America and its affiliates (collectively, Gerling), who
are, according to their complaint, "arguably 'affiliated' [with] . . . or
'related to'" two German insurers that issued Holocaust-era policies; (2)
American Insurance Association (AIA), a nonprofit trade association of insurers
whose member-insurers are required to report under HVIRA, and American
Re-insurance Company, a wholly owned subsidiary of a German corporation
"that has investment interests in European insurance companies that do
issue insurance policies"; (3) Winterthur International America Insurance
Company, its affiliates, and numerous other insurance and underwriting companies
(collectively, Winterthur), who are "arguably 'related companies' . . .
with more than forty insurance companies currently located in Europe"; and
(4) Assicurazioni Generali (Generali), an Italian insurance company that issued
Holocaust-era policies and currently does business in California. The district
court determined that the four cases were "related" [*5]
within the meaning of Eastern District of California Local Rule 123(a) and
assigned the cases to the same judge, but did not consolidate them. Plaintiffs sought
declaratory and injunctive relief, claiming that HVIRA violates the Commerce
Clause, the Due Process Clause, the Equal Protection Clause, and the foreign
affairs power. Gerling also asked the court to review two statutes that were
enacted at the same time as HVIRA: (1) California Code of Civil Procedure §
354.5 (1999), which allows California residents to bring claims for the payment
of Holocaust-era insurance policies and extends the statute of limitations on
such claims until December 31, 2010; and (2) California Insurance Code § 790.15
(1999), which requires the Commissioner to suspend the certificate of authority
of any insurer who has failed to pay on valid Holocaust-era policies. The
Commissioner filed a motion to dismiss in which he argued that Gerling did not
have standing to challenge California Code of Civil Procedure § 354.5 or
California Insurance Code § 790.15. The district court granted the motion,
ruling that Gerling had not established an imminent threat of prosecution under
those statutes. Gerling does [*6] not challenge that holding. Plaintiffs all
filed motions for a preliminary injunction. The district court granted their
motions, holding that "plaintiffs have established a probability of success
under the foreign affairs doctrine and the Commerce Clause." The court did
not rule on Plaintiffs' other grounds for relief. The district court also held
that Plaintiffs had established the likelihood of irreparable injury. The Commissioner
timely appealed the district court's orders in all four cases. We have
jurisdiction under 28 U.S.C. § 1292(a)(1). Because these cases all involve the
same legal issues, we consider them together. STANDARD OF
REVIEW We review for
abuse of discretion the grant of a preliminary injunction. FDIC v. Garner,
125 F.3d 1272, 1276 (9th Cir. 1997). A district court abuses its discretion if
it bases its ruling on an erroneous view of the law or on a clearly erroneous
assessment of the evidence. Roe
v. Anderson, 134 F.3d 1400,
1402 (9th Cir. 1998). DISCUSSION A. The Standard for Issuing a Preliminary Injunction "To obtain a
preliminary injunction, a party must establish either: (1) probable success on
the merits [*7] and irreparable injury, or (2) sufficiently serious
questions going to the merits to make the case a fair ground for litigation with
the balance of hardships tipping decidedly in its favor." Baby Tam & Co. v. City of Las Vegas, 154 F.3d 1097, 1100 (9th Cir. 1998). The two alternatives
represent two points on a sliding scale. Roe, 134 F.3d at
1402. The district court held that Plaintiffs' actions fell within the first
category. The Commissioner does not dispute the district court's finding of
irreparable injury; rather, he questions whether the district court abused its
discretion in ruling that Plaintiffs established a probability of success on the
merits. The district
court's reasoning implies that Plaintiffs demonstrated a probability of success
on their claim that HVIRA is unconstitutional on its face. The court did not
make individualized findings of irreparable injury, nor did it discuss either
constitutional claim in the context of a particular Plaintiff. As presented in
this appeal, Plaintiffs' challenges to HVIRA involve issues of law only. B. The Commerce Clause Claim
As noted, the
district court held that Plaintiffs established a probability of [*8]
success that HVIRA violates the Commerce Clause. We disagree and hold that the
district court based its conclusion on an erroneous view of the law. 1. The McCarran-Ferguson Act,
15 U.S.C. §§ 1011-1014 (1945) (McCarran
Act) In United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 553, 88 L. Ed. 1440, 64 S. Ct. 1162 (1944), the
Supreme Court held that the "business of insurance" fell within
Congress' power to regulate interstate commerce. That holding conflicted with
the previous understanding of the relationship between the business of insurance
and the Commerce Clause; before 1944, the Court had implied that the states
could regulate the insurance industry without federal interference. See Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 414-16, 90 L. Ed. 1342, 66 S. Ct. 1142 (1946)
(discussing the history of insurance regulation and the Commerce Clause). The McCarran Act
was Congress' response. Id. Title 15, § 1011 of the McCarran Act states:
Congress
hereby declares that the continued regulation and taxation by the several States
of the business of insurance is in the public interest, and that silence on the
part of [*9] the Congress shall not be construed to impose any
barrier to the regulation or taxation of such business by the several States. Section 1012(a)
provides that the "business of insurance . . . shall be subject to the laws
of the several States which relate to the regulation or taxation of such
business." The phrase "business of insurance" refers to "the
relationship between the insurance company and the policyholder " and
includes "the fixing of rates[,] . . . the selling and advertising of
policies, and the licensing of companies and their agents." SEC v. National Sec., Inc., 393 U.S. 453, 460, 89 S. Ct. 564, 21 L. Ed. 2d 668 (1969)
(citations omitted). 2. The McCarran
Act Applies to HVIRA Plaintiffs argue,
and the district court held, that the McCarran Act does not apply to HVIRA
because it is an impermissible "extraterritorial" regulation, as
discussed by the Supreme Court in FTC v.
Travelers Health Ass'n, 362 U.S. 293,
80 S. Ct. 717, 4 L. Ed. 2d 724 (1960), and by this court in Ace Check Cashing, Inc. v. Aetna Casualty & Surety Co. (In re
Insurance Antitrust Litigation),
938 F.2d 919 (9th Cir. 1991), aff'd
in part, rev'd in part sub nom. Hartford Fire Ins. Co. v. California, 509 U.S. 764, 125 L. Ed. 2d 612, 113 S. Ct. 2891 (1993). [*10]
Neither Travelers nor In re
Insurance applies to the present dispute, however. Travelers and In re
Insurance involved the interpretation of § 1012(b) of the McCarran Act,
which instructs courts not to construe any other federal statute as preempting a
state insurance regulation unless there is a clear statement from Congress to do
so. Section 1012(b) reads in part: "No Act of Congress shall be construed
to invalidate, impair, or supersede any law enacted by any State for the purpose
of regulating the business of insurance . . . unless such Act specifically
relates to the business of insurance[.]" Section 1012(b) also provides that
the Sherman Act, the Clayton Act, and the Federal Trade Commission (FTC) Act do apply to the "business of insurance," but only "to
the extent that such business is not regulated by State law." The Supreme Court
in Travelers and this
court in In re Insurance
held that Congress did not intend to shield an insurance company from federal
regulation if one state expressly regulated an insurance company's conduct, but
the conduct that the federal government sought to regulate occurred in a
different state. In Travelers, a Nebraska statute prohibited Nebraska [*11]
insurance corporations from engaging in unfair trade practices "in any
other state." 362 U.S. at 296. A Nebraska insurance corporation argued that
the Nebraska statute precluded the FTC, under § 1012(b) of the McCarran Act,
from regulating conduct of the insurance corporation that occurred outside
Nebraska. The Supreme Court disagreed, concluding that Congress did not intend
for the "law of a single State [to take] from the residents of every other
State the protection of the" FTC Act. Id. at 298. The Court
observed that Congress had delegated its power to regulate insurance because it
believed that insurance regulation was a local matter. Id. at 302. The
Court reasoned that the insurance company's argument would subvert the McCarran
Act; if one state had a fair-trade statute that purported to regulate
nationwide, an insurance company located there would be free from the reach of
the FTC Act in every other state. The Court's interpretation of 15 U.S.C. §
1012(b) avoided this absurd result. Similarly, in In re Insurance,
this court applied Travelers to reject the notion that Congress intended for the
antitrust law of [*12] a single state to preclude application of the
Sherman Act to insurers' conduct that occurred in other states. In re Insurance,
938 F.2d at 928. We noted that "state insurance schemes do not, and could
not, purport to regulate the bulk of international insurance transactions."
Id. (citation and
internal quotation marks omitted). In neither case
did the court evaluate the constitutionality under the Commerce Clause of the
state act that attempted to regulate "extraterritorially." Instead,
both cases involved statutory interpretation. The courts merely held that,
irrespective of the constitutional limits of a state's power to regulate
extraterritorially, Congress did not intend for the regulatory scheme of one
state to protect the citizens of all other states and thereby eliminate the need
for federal regulation. There is a second
important distinction between the two cited cases and the present dispute: the
difference between HVIRA and the state laws considered in Travelers and In re Insurance.
In those cases, the state laws sought to regulate directly the conduct of an
insurer in another jurisdiction. By contrast, HVIRA seeks only to obtain
information about conduct in [*13] another jurisdiction, without
affecting directly any of that conduct. For those two reasons, neither Travelers
nor In re Insurance answers the question that we face. The district
court's holding that the McCarran Act does not apply to HVIRA also rested on its
belief that HVIRA must be viewed as a part of California's overall plan to force
foreign insurance companies to settle insurance claims with California's
residents. The district court cited HVIRA's legislative findings and
declarations and held that HVIRA encourages the resolution of claims concerning
Holocaust-era policies "through an international process" and thus
attempts to "regulate the decision making authority of European insurance
companies to pay or not to pay claims on European policies." That reasoning
mischaracterizes HVIRA as a matter of law. HVIRA, by its
terms, does not regulate "the decision making authority of European
insurance companies to pay or not to pay claims on European policies" in
any way. HVIRA requires California companies only to provide information about
Holocaust-era insurance policies that they (or any of their affiliates) issued. A second and
separate statute, California Code of Civil Procedure [*14] § 354.5,
allows California residents to bring claims for payment of Holocaust-era
insurance policies. A third statute, California Insurance Code § 790.15,
authorizes the Commissioner to suspend the licenses of insurance companies who
have not paid valid Holocaust-era claims. The district court dismissed Gerling's
action challenging the validity of those two provisions because Gerling lacked
standing. In short, the question of the validity of those two statutes must
remain for another day. It is true that,
by enacting HVIRA, California's legislature intended to help California
residents recover on unpaid policies that were entered into in foreign countries
by giving them access to information. It also is likely that California's
legislature simply intended to protect its residents from insurance companies
that have not paid valid insurance claims. n2 In any event, however, the
legislature's stated purpose in enacting a statute is not dispositive of a
dormant Commerce Clause challenge. The Commerce Clause seeks to prevent
extraterritorial economic "effects," not purposes. See Healy v. Beer Inst.,
491 U.S. 324, 336, 105 L. Ed. 2d 275, 109 S. Ct. 2491 (1989) ("The critical
[*15] inquiry is whether the practical effect of the regulation is
to control conduct beyond the boundaries of the State." Extraterritorial
regulation "is invalid regardless" of the intent of the enacting
legislature.) (emphasis added); Birth Hope Adoption Agency, Inc. v. Arizona Health Care Cost
Containment Sys., 218 F.3d 1040,
1044 (9th Cir. 2000) ("The first step in evaluating state regulatory
measures under the dormant Commerce Clause is to determine whether it regulates
evenhandedly with only incidental effects on interstate commerce, or
discriminates against interstate commerce.") (citations and internal
quotation marks omitted). - - - - - - - - -
- - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n2 The state
requests information from foreign insurers in other contexts, too. For example,
California Insurance Code § 699.5 (1994) requires insurers that are owned,
operated, or controlled by other governments to provide information so that the
Commissioner can determine whether "the insurer is subject to any form of
subsidy that would enable it to compete unfairly with domestic insurers." - - - - - - - - -
- - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [*16] HVIRA's reporting
requirements might force a "related" company of a California business
to search for information, but that is the extent of HVIRA's
"extraterritorial" reach. HVIRA, on its face, does not regulate
foreign insurance policies, or control the substantive conduct of a foreign
insurer, or otherwise affect "the business of insurance " in any other
country. In conclusion,
Congress has expressly delegated to the states the power to regulate insurance,
free from the constraints of the dormant Commerce Clause. The Supreme Court has
noted that the "licensing of companies " is part of the "business
of insurance" and is covered by the McCarran Act. n3 National Sec.,
393 U.S. at 460. HVIRA is a California insurance regulation of California
insurance companies that affects foreign commerce only indirectly. Consequently,
the McCarran Act applies and the dormant Commerce Clause does not. See Benjamin,
328 U.S. at 430-31 (noting that Congress, through the McCarran Act,
"clearly put the full weight of its power behind existing and future state
legislation to sustain it from any attack under the commerce clause to whatever
extent this may be done with the force [*17] of that power behind
it, subject only to the exceptions expressly provided for"). - - - - - - - - -
- - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n3 Plaintiffs
implicitly recognize that HVIRA regulates the "business of insurance."
Seeking information from insurers about their claims-paying record, to be used
in the licensing process, is a form of regulating the business of insurance. - - - - - - - - -
- - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - 3. HVIRA Does Not Impede the Federal Government's Ability to Speak
With "One Voice" on a Matter Affecting Foreign Commerce HVIRA touches on
foreign commerce because of the indirect effect described above. The question
remains whether that fact provides an independent reason to hold that Plaintiffs
have established a probability that HVIRA is unconstitutional. The answer is
"no." The Supreme Court
confronted a similar issue in Barclays
Bank PLC v. Franchise Tax Board,
512 U.S. 298, 129 L. Ed. 2d 244, 114 S. Ct. 2268 (1994). There, the Court
considered whether California's worldwide-reporting tax system violated the
dormant Commerce Clause. The Supreme
Court, after noting that [*18] the California tax was constitutional
under typical dormant Commerce Clause analysis, evaluated whether the tax's
effect on foreign commerce impaired the federal government's ability to speak
with "one voice." Id. at 328. The Court held that it did not. Id. The Court noted
that Congress had considered, and eventually rejected, legislation that would
have precluded state statutes like the one in dispute in Barclays. Id. at 324-28. The
Court reasoned that Congress was willing "to tolerate" the states'
worldwide-reporting tax statutes. Id. at 327. Significantly, the Court then observed that "the
foreign policy of the United States . . . [is] much more the province of the
Executive Branch and Congress than of this Court"; therefore, the foreign
companies' argument that the California statute "is unconstitutional
because it is likely to provoke retaliatory action by foreign governments is
directed to the wrong forum." Id. at 327-28 (citation and internal quotation marks omitted). Similarly, in Wardair Canada, Inc. v. Florida Department of Revenue, 477 U.S. 1, 106 S. Ct. 2369, 91 L. Ed. 2d 1 (1986), the Court
evaluated whether a Florida tax on airline [*19] fuel, which
increased the tax liability of foreign airlines, prevented the federal
government from speaking with "one voice." The Court concluded that
the Florida tax did not violate the Commerce Clause. Id. at 12-13. The
federal government had entered into more than 70 bilateral aviation agreements,
none of which purported to preclude the type of tax enacted by Florida. The Court reasoned: "By
negative implication . . ., the United States has at least acquiesced" in
the type of statute enacted by Florida. Id. at 12. Moreover, "it would turn dormant Commerce Clause
analysis upside down to apply it where the Federal Government has acted, and to
apply it in such a way as to reverse the policy that the Federal Government has
elected to follow. .. . The Federal Government is entitled in its wisdom to act
to permit the States varying degrees of regulatory authority. " Id. (emphasis in
original). Barclays and Wardair
Canada teach that, before we can hold that an otherwise constitutional
state statute n4 that affects foreign commerce is unconstitutional because it
prevents the federal government from speaking with "one voice, " we
must examine whether the federal [*20] government has chosen to permit
the states to act. After conducting that examination, we hold that Congress has
spoken affirmatively in the area of Holocaust-era insurance policies and has
acquiesced in state laws like HVIRA. n5
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - -
- - - - - - n4 In both Barclays and Wardair Canada,
the state statute was "otherwise constitutional" because it did not
discriminate against interstate commerce, while in the present case HVIRA is
"otherwise constitutional" because of the McCarran Act. n5 A much
stronger case for congressional acquiescence exists here than in Wardair Canada
or Barclays. In those
cases, the Court inferred congressional acquiescence by negative implication. In
the present case, however, we need not draw a negative inference from what
Congress did not
say, but can draw a positive inference from what Congress did say in the
Holocaust Act. - - - - - - - - -
- - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - In 1998, Congress
passed the U.S. Holocaust Assets Commission Act of 1998 (Holocaust Act), Pub. L.
105-186, 112 Stat. 611, as amended Pub. L. 106-155, § 2, 113 Stat. 1740 (1999)
[*21] (codified at 22 U.S.C. § 1621 note), in order "to
establish a commission to examine issues pertaining to the disposition of
Holocaust-era assets in the United States . . . and to make recommendations to
the President on further action, and for other purposes." Holocaust Act
Intro. The Holocaust Act instructs the Commission to "conduct a thorough
study and develop a historical record of" certain assets, "if such
assets came into the possession or control of the Federal Government." Id.
§ 3(a)(1). The Commissioner and Amicus the State of California argue that §
3(a)(4), which concerns Holocaust-era insurance policies, is relevant to this
litigation: In carrying out its duties under this Act, the Commission shall
take note of the work of the National Association of Insurance Commissioners
with regard to Holocaust-era insurance issues and shall encourage the National
Association of Insurance Commissioners to prepare a report on the
Holocaust-related claims practices of all insurance companies, both domestic and
foreign, doing business in the United States at any time after January 30, 1933,
that issued any individual life, health, or property -- casualty insurance
[*22] policy to any individual on any list of Holocaust victims . .
. . Id. § 3(a)(4)(A). The report by the National Association of
Insurance Commissioners (NAIC) "should include the following, to the degree
the information is available": (1) the number of policies issued by
insurance companies to victims of the Holocaust; (2) the value of each policy at
the time of issue; (3) the total number of policies, and the dollar amounts,
that have been paid out; and (4) the total present-day value of assets in the
United States of each company. Id. § 3(a)(4)(B). Section 3(a)(3), entitled "Coordination of
Activities," states that the Commission "shall, to the maximum extent
practicable, coordinate its activities with, and not duplicate similar
activities already being undertaken by, private individuals, private entities,
or government entities, whether domestic or foreign." (Emphasis added.) Section 3(b) adds that the
Commission "shall review comprehensively any research by . . . non-Federal government entities, whether domestic or foreign." (Emphasis added.) The Holocaust Act
does not refer in so many words to state legislation as a cause of domestic
governments' undertaking this "research, [*23] " § 3(b),
nor does it explain what "work" of NAIC the Commission is to take
"note" of, § 3(a)(4). There are several reasons, however, why we read
the Holocaust Act to embrace state legislation like HVIRA. NAIC is an
organization of insurance regulators from the 50 states. The Holocaust Act asks
for detailed information on the Holocaust-related claims practices of "all insurance companies,
both domestic and
foreign, doing business in the United States at any time after January 30,
1933. " Id. § 3(a)(4)(A) (emphasis added). This information is to include
data on individual Holocaust-era policies. Id. If Congress was expecting a
detailed report on the claims practices and policies of "foreign"
insurance companies from an organization consisting only of state insurance
regulators, Congress must have expected that the regulators would be acting
pursuant to state law. Congress must also have been aware that, in order to
fulfill the Holocaust Act's broad objectives, state insurance commissioners
might have to require the foreign affiliates of domestic insurance companies to
search a foreign office for information on Holocaust-era policies. Even if Congress'
reference to the "work" of [*24] NAIC is not, by itself,
encouragement of state statutes like HVIRA, Congress was aware that domestic
governmental entities were conducting research into the activities of
Holocaust-era insurers. As noted, § 3(b) of the Holocaust Act requires the
Commission to "review comprehensively any research by . . . non-Federal government entities, whether domestic or foreign" (emphasis added), and §
3(a)(3) requires the Commission to "coordinate its activities" with
those of domestic governmental entities. The legislative
history of the Holocaust Act supports our conclusion that Congress was aware of
the states' efforts to obtain information on Holocaust-era insurance policies.
In 1998, there was a flurry of activity in Congress relating to Holocaust-era
assets. On February 12, 1998, the House Committee on Banking and Financial
Services held a hearing on "The Restitution of Art Objects Seized by the
Nazis from Holocaust Victims and Insurance Claims of Certain Holocaust Victims
and Their Heirs": Hearing Before the House Comm. on Banking & Fin.
Servs., 105th Cong. 131 (Feb. 12, 1998). State Insurance
Commissioners Quackenbush (of California) and Senn (of Washington) testified at
that hearing. [*25] Commissioner Senn noted that she chaired the
NAIC "Holocaust Insurance Issues Working Group," which was
investigating Holocaust-era insurance issues with the help of "state
insurance departments." Id. 1998 WL 65380. She explained that NAIC had requested voluntary
cooperation from the insurance companies but, "if our requests for
cooperation are not satisfied, then the states may begin to exercise
[regulatory] powers." Id. "Congress and the States can work together,"
Commissioner Senn concluded. Id. 105th Cong. at 134. Commissioner Quackenbush added that he had
held hearings in California relating to this issue, and he was "prepared to
revoke [the] certificate of authority, which allows a company to sell insurance
in California, for [any insurance company] and any of its American subsidiaries,
if it fails to " provide information on Holocaust-era policies. Id. at 142. The Chair of the House committee, Representative Leach,
who sponsored the Holocaust Act two months later, noted:
Let me say that because this is an issue of international significance,
there are aspects of the American system that are not widely understood abroad,
and one relates to the Federal [*26] nature of America, particularly
in the insurance arena, the decision of the United States Congress, in
effect, either to devolve or not to assume responsibility for basic insurance
regulation, which gives the States a significant role. And that means that as
two symbolic State insurance commissioners, there's a great deal of authority
that resides in your offices. Id. at 157
(emphasis added). n6 On the basis of the text, context, and history of the
Holocaust Act, we conclude that Congress was aware of the states' involvement in
this area and, at least implicitly, encouraged laws like HVIRA. - - - - - - - - -
- - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n6 Representative
Leach submitted a draft of the bill, H.R. 3662, to the House on April 1, 1998. See 1998 Cong. Q.
3662, 105th Cong., 2d Sess. - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - -
- - - - - - Notwithstanding
the Holocaust Act, Plaintiffs argue, and the district court held, that HVIRA
conflicts with a federal policy relating to "Holocaust victims compensation
efforts" as evidenced by three actions undertaken by the executive branch.
They are: (1) the Foundation [*27] Agreement between Germany and the
United States (Foundation Agreement); (2) the International Commission on
Holocaust Era Insurance Claims (ICHEIC); and (3) the Swiss-US Joint Statement.
The following is a brief summary of each: a. The Foundation Agreement
In December 1999,
the German government and German companies agreed to fund a DM 10 Billion
Foundation to settle Nazi-era claims, in exchange for the voluntary dismissal of
lawsuits that had been filed against German companies. The German government has
agreed to fund the Foundation when all such claims pending in United States
courts have been finally dismissed. On July 17, 2000,
the United States and the German government signed the Foundation Agreement. The
Agreement recognizes "as legitimate the interest German companies have in
all-embracing and enduring legal peace." It also states that "it would
be in the interests of both parties for the Foundation to be the exclusive
remedy and forum for addressing all claims[ ] that have been or may be asserted
against German companies" arising from Nazi-era activities. Foundation
Agreement at 2, 4. The United
States, in Article 2 of the Foundation Agreement, agreed to the following [*28]
in pertinent part: (1) The United States shall, in all cases in which the United
States is notified that a claim described in article 1 (1) has been asserted in
a court in the United States, inform its courts through a Statement of Interest
. . . that it would be in the foreign policy interests of the United States for
the Foundation to be the exclusive remedy and forum for resolving such claims
asserted against German companies . . . and that dismissal of such cases would
be in its foreign policy interest. (2) The United States, recognizing the
importance of the objectives of this agreement, including all-embracing and
enduring legal peace, shall, in a timely manner, use its best efforts, in a
manner it considers appropriate, to achieve these objectives with state and
local governments. Annex B of the Foundation Agreement explains that the United States
will "recommend dismissal" of lawsuits "on any valid legal
ground." Paragraph seven of Annex B recognizes, however, that the
"United States does not suggest that its policy interests concerning the
Foundation in themselves provide an independent legal basis for dismissal, but
will reinforce the point that U.S. policy interests [*29] favor
dismissal on any valid legal ground." b. The ICHEIC
The ICHEIC was
established in 1998 by NAIC in cooperation with several European insurance
companies, European regulators, representatives of nongovernmental
organizations, and the State of Israel. The United States has the status of an
"observer." The ICHEIC is a voluntary, private organization that was
created with the goal of implementing a "just process . . . that will
expeditiously address the issue of unpaid [Holocaust-era] insurance
policies." The ICHEIC creates an "International Commission" that
is charged with initiating an "investigatory process to determine the
current status of those insurance policies . . . for which claims are filed.
" To assess the remaining unpaid insurance policies of Holocaust victims,
"a reasonable review will be made of the participating companies'
files." c. The Swiss-US Joint Statement At the inaugural
meeting of the Swiss-US Joint Economic Commission in January 2000, the two
countries issued a Joint Statement stating that they "have decided to endow
their partnership with a long-lasting perspective, through continued and
institutionalized dialogue." Section 2.4(b) of an "Action Plan"
[*30] annexed to the Joint Statement notes that many Swiss insurance
companies have settled insurance lawsuits, and "U.S. authorities will call
on the U.S. State insurance Commissioners and State legislative bodies to
refrain from taking unwarranted investigative initiatives or from threatening or
actually using sanctions against Swiss insurers." We next consider
the effect of those three actions on the validity of HVIRA. Significantly,
Plaintiffs do not argue that HVIRA is preempted by any of the three. Instead,
Plaintiffs claim that the three actions simply are evidence of a foreign policy
with which HVIRA conflicts. We are not persuaded. First, we
question whether there is in fact any policy conflict between HVIRA, the
enactment of which Congress encouraged in the federal Holocaust Act, and the
executive branch initiatives. HVIRA seeks information for two main purposes:
enabling victims of the Holocaust to know whether they have insurance claims,
and protecting Californians from insurers that have not paid valid claims. The
second purpose conflicts with no federal policy of which we are aware. The first
is consistent with the overall goal of the three initiatives: to resolve
Holocaust-era [*31] claims. In other words, the Holocaust Act, HVIRA,
and the executive branch initiatives share the same policy objective, although
they seek to achieve that policy objective by varying techniques. Second, we note
that two of the executive branch initiatives are country-specific. The German
Foundation Agreement pertains to German insurers. The Swiss-US Joint Statement
pertains to Swiss insurers. That being so, neither of those initiatives governs
with respect to Generali (an Italian insurer) or Winterthur (which apparently
has affiliates throughout Europe). Third, as
Plaintiffs concede, none of the three initiatives has preemptive effect. The
German Foundation Agreement mentions the United States' interest in the
voluntary dismissal of lawsuits against German corporations and, by its terms,
"does not suggest that [the United States' ] policy interests concerning
the Foundation in themselves provide an independent legal basis for
dismissal" of any lawsuit. Foundation Agreement, Annex B, P 7. The ICHEIC
is not an official executive branch action at all; it is a voluntary, private
organization in which the United States has the role of a mere observer. Of the three,
only the Swiss-US [*32] Joint Statement refers specifically to a
policy on gathering information about Holocaust-era insurance policies: the
executive branch "will call on the U.S. State insurance Commissioners and
State legislative bodies to refrain from taking unwarranted investigative
initiatives or from threatening or actually using sanctions against Swiss
insurers." Swiss-US Joint Statement, Action Plan § 2.4(b). That is
hortatory, not mandatory, wording. But even if we were to assume that a conflict
exists between the Holocaust Act and the Swiss-US Joint Statement with regard to
seeking information from Swiss insurers, n7 Congress' action controls in this
instance. Article I, § 8 of the United States Constitution expressly grants
Congress the authority to regulate foreign commerce. Article II, § 2 of the
Constitution grants the executive branch the authority, with the consent of the
Senate, to make treaties but, as noted, the Swiss-US Joint Statement is not a
treaty, and preemption is not an issue here. Plaintiffs' argument that a
"policy interest" found in an executive branch "Joint
Statement" creating an Economic Commission trumps Congress' express
constitutional authority to regulate foreign commerce [*33] is
incorrect. n8 - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - -
- - - - - - n7 It is unclear
from the Swiss-US Joint Statement what "investigative initiatives" by
"State legislative bodies" are considered to be "unwarranted."
(Emphasis added.) By implication, states may seek information if the inquiry is
"warranted." Arguably, the Holocaust Act is a statement from Congress
that statutes like HVIRA are warranted. n8 Cf. Louis Henkin,
Foreign Affairs and the U.S. Constitution 89 (2d ed. 1996) ("Whatever,
then, the President might have authority to do by treaty or other international
agreement, he cannot unilaterally regulate commerce with foreign nations . . .
."). - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - -
- - - - - - In this
connection, Plaintiffs draw our attention to letters in which executive branch
officials argue that HVIRA does conflict with the federal government's policy
concerning Holocaust-era claims. In Barclays, the Supreme Court rejected a similar argument. The plaintiff in Barclays had
pointed to "a series of Executive Branch actions, statements, and amicus
filings . . . that, taken together, . . . constitute [*34] a clear
federal directive proscribing States' use of worldwide combined reporting."
512 U.S. at 328 (citation and internal quotation marks omitted). The Court held
that the executive branch's actions "cannot perform the service for which
[the plaintiff] would enlist them. The Constitution expressly grants Congress,
not the President, the power to 'regulate Commerce with foreign Nations.' "
Id. at 328-29 (quoting U.S. Const. art. I, § 8, cl. 3). In conclusion,
the district court erred when it held that Plaintiffs established a likelihood
of success on the question whether HVIRA violates the Commerce Clause. C. The Foreign Affairs Power
The district
court also held that Plaintiffs established a probability of success on their
claim that HVIRA violates the federal government's power over foreign affairs.
The court reasoned, and Plaintiffs argue, that HVIRA has more than an
"incidental effect on foreign countries" and has the potential to
"disrupt and embarrass" the federal government in the field of foreign
relations. We disagree as a matter of law. 1. Relevant Law
The federal
government's foreign affairs power is not mentioned expressly in the text of
[*35] the Constitution but, rather, is derived from the structure of
the Constitution and the nature of federalism. n9 See generally
Harold G. Maier, Preemption of
State Law: A Recommended Analysis, 83 Am. J.
Int'l L. 832, 836-37 (1989). The power is rarely invoked by the courts; the
Supreme Court has not applied it in more than 30 years, since Zschernig v. Miller,
389 U.S. 429, 19 L. Ed. 2d 683, 88 S. Ct. 664 (1968). - - - - - - - - -
- - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n9 The foreign
affairs power also has been referred to as "dormant foreign relations
preemption." Curtis A. Bradley & Jack L, Goldsmith, Customary International Law as Federal Common Law: A Critique of
the Modern Position, 110 Harv.
L. Rev. 815, 864 (1997); see also Harold Hongju Koh, Is
International Law Really State Law?,
111 Harv. L. Rev. 1824, 1847 (1998).
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - -
- - - - - - The plaintiff in Zschernig challenged
an Oregon probate law that allowed a foreign citizen to inherit from a
decedent's estate only if United States citizens could inherit from a decedent's
estate [*36] in the foreign citizen's country. The Supreme Court had
held in Clark v. Allen, 331 U.S. 503, 517, 91 L. Ed. 1633, 67 S. Ct. 1431 (1947), that a
California probate law with a similar reciprocity provision did not, on its
face, violate the Constitution, because the statute had only "some
incidental or indirect effect in foreign countries." In Zschernig, the Court
refused to reconsider its facial holding in Clark, but held that Oregon's
statute, as applied, was an unconstitutional "intrusion by the State into
the field of foreign affairs which the Constitution entrusts to the President
and the Congress." 389 U.S. at 432-33. The Court in Zschernig pointed,
with disapproval, to many examples of judges' pontificating on the policies of
foreign nations. Id. at 433-34. The Court concluded that "the type of probate law
that Oregon enforces affects international relations in a persistent and subtle
way." Id. at 440. The Court observed that " 'international
controversies of the gravest moment, sometimes even leading to war, may arise
from real or imagined wrongs to another's subjects inflicted, or permitted, by a
government.' " Id. at 441 [*37] (quoting Hines v. Davidowitz,
312 U.S. 52, 64, 85 L. Ed. 581, 61 S. Ct. 399 (1941)). Here, of course, we
address a facial (Clark), not an as-applied (Zschernig) challenge. The parties call
our attention to two more recent cases in which other circuit courts have
confronted a foreign affairs challenge. In National Foreign Trade Council v. Natsios, 181 F.3d 38, 51-52 (1st Cir. 1999), the First Circuit held that a
Massachusetts law that prohibited state agencies from purchasing goods from
companies doing business with a specific country, Burma (the Burma Law),
violated the foreign affairs power, the dormant Commerce Clause, and the
Supremacy Clause. Notably, the Supreme Court affirmed the First Circuit's ruling
that the Burma Law was preempted by federal law under the Supremacy Clause, but
the Court did not rule on the foreign affairs question. Crosby v. National Foreign Trade Council, 530 U.S. 363, 120 S. Ct. 2288, 2294-95 n.8, 147 L. Ed. 2d 352
(2000). In Trojan Technologies, Inc. v. Pennsylvania, 916 F.2d 903 (3d Cir. 1990), a Canadian corporation argued that a
Pennsylvania "Buy American" law violated the foreign affairs power.
[*38] The Third Circuit held that the statute did not violate the
Commerce Clause, the Supremacy Clause, or the foreign affairs power. The court
reasoned that "any state law that involves the state in the actual conduct
of foreign affairs is unconstitutional," but "any action that has only
some incidental or indirect effect in foreign countries" is not. Id. at 913
(citation and internal quotation marks omitted). The court then held that the
"Buy American" statute "exhibits none of the dangers attendant on
the statute reviewed" in Zschernig, because: (1) Pennsylvania's statute provided no opportunity for
state officials to comment on the nature of foreign regimes; (2) the
Pennsylvania statute, on its face, did not single out any particular foreign
country; (3) there was no evidence that the statute had been applied selectively
according to attitudes concerning foreign policy; and (4) there was evidence
that Congress had recently directed its attention to "Buy American"
statutes, but did not take steps to preempt them. n10 Id. at 913-14; see also K.S.B. Technical Sales Corp. v. North Jersey Dist. Water
Supply Comm'n, 75 N.J. 272,
381 A.2d 774, 784 (N.J. 1977) [*39] (holding that New Jersey's
"Buy American" statute did not violate the foreign affairs power
because it did not "result demonstrably in a significant and direct impact
upon foreign affairs"). But see Bethlehem
Steel Corp. v. Board of Comm'rs,
276 Cal. App. 2d 221, 225-27, 80 Cal. Rptr. 800 (Ct. App. 1969) (holding that a
California "Buy American" statute violated the foreign affairs power).
- - - - - - - - -
- - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n10 The Trojan court's
fourth reason echoes the reasoning of the foreign commerce cases, Barclays and Wardair Canada,
discussed, in Part B(3), above.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - -
- - - - - - 2. Zschernig Does Not Apply to HVIRA We are not
persuaded that Zschernig applies to
HVIRA. In Zschernig,
the Oregon probate statute violated the foreign affairs power because, as
applied, it allowed Oregon judges to insult foreign nations. 389 U.S. at 433-35.
In Clark, the Court held that a similar California statute, on its face,
did not violate the Constitution. See
Zschernig, 389 U.S. at 432
(noting that, in Clark, the Court held that "a general reciprocity [*40]
clause did not on its face intrude on the federal domain"). HVIRA regulates
insurance companies that do business in California and are, or are related to,
companies that issued Holocaust-era insurance policies. No Plaintiff is a
foreign government, nor is any Plaintiff owned in whole or in part by a foreign
government; they are, simply, businesses. Unlike the statute considered in Natsios, HVIRA does not refer to any particular country. As in Trojan, there is
no evidence that HVIRA would be applied in a way that would implicate the
diplomatic concerns mentioned in Zschernig. Because Zschernig has been
applied so sparingly, because Clark remains intact, and because the Supreme
Court's foreign commerce cases have taken a different approach (as we discussed
above), we hesitate to apply Zschernig to a facial challenge to state statutes involving "foreign
affairs" (a) but that mainly involve foreign commerce and (b) that are not
directed at a particular country. HVIRA, on its face, involves commerce alone,
and it is not, on its face, directed at any particular foreign country. For
those reasons, we conclude that Zschernig does not govern. D. The Due Process Clause Claim Plaintiffs
Generali [*41] and Winterthur argue that HVIRA violates the
"legislative prong" of the Due Process Clause, which "limits the
power of a forum state to apply its substantive law to factual and legal
situations with which it has little or no contact." Additionally,
Winterthur argues that HVIRA "violates the most basic notions of
fundamental fairness " because it takes "away the licenses of
California insurers for failure to perform tasks that are literally
impossible." Moreover, Winterthur asserts, the reporting requirement is
"arbitrary and irrational." Plaintiffs cite a
recent case, Gerling Global
Reins. Corp. v. Nelson, 123 F. Supp. 2d
1298, 1303-04 (N.D. Fla. 2000), in which the District Court for the Northern
District of Florida held that a Florida Holocaust-era insurance statute violates
the legislative prong of the Due Process Clause. The court noted that, under
Eleventh Circuit precedent, there must be " 'some minimal contact between a
State and the regulated subject before it can, consistently with the
requirements of due process, exercise legislative jurisdiction.' " Id. at 1301
(quoting American Charities for Reasonable Fundraising Reg., Inc. v.
Pinellas County, 221 F.3d 1211,
1216 (11th Cir. 2000)). [*42] It is possible that HVIRA violates the Due Process Clause, but the district court did not reach that issue, and it is not fully developed in the record or in the briefs presented to this court. We leave the preliminary injunction in place in order to give the district court an opportunity to consider whether Plaintiffs are lik |
