This post first appeared on the Securities Arbitration Alert blog. The blog’s editor-in-chief is George H. Friedman, Chairman of the Board of Directors for Arbitartion Resolution Services, Inc.
The Eastern District of Virginia has joined a growing chorus of courts holding that the McCarran-Ferguson Act does not “reverse-preempt” the UN Convention.
The virtually unlimited reach of Federal Arbitration Act (“FAA”) preemption can be checked by a contrary federal statute, such as the McCarran-Ferguson Act, 15 U.S.C. § 1012(b). The Act protects state laws regulating the business of insurance from federal preemption, in effect “reverse-preempting” the FAA: “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 ….” But what if the arbitration-friendly federal statute is not the FAA but the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“UN Convention”)? There is no reverse preemption by the Virginia law barring insurance arbitration, says the Court in Keller North America, Inc. v. Certain Underwriters, No. 4:23cv56 (E.D. Va. Aug. 15, 2023).
Treaty is Not a Law of Congress
Why? Because the UN Convention is a treaty and not an “Act of Congress” as defined by the statute:
“As Defendants highlight … the Fourth Circuit squarely addressed this issue in ESAB Group v. Zurich. Much like Keller argues here, ESAB Group argued that South Carolina’s bar on arbitration agreements in insurance contracts ‘reversed preempted’ the Convention pursuant to the McCarran-Ferguson Act. The Fourth Circuit disagreed, holding that ‘the Convention Act [9 U.S.C. §§ 201-208], as implementing legislation of a treaty, does not fall within the scope of the McCarran Ferguson Act’ because ‘Supreme Court precedent dictates that the McCarran Ferguson Act is limited to legislation within the domestic realm, and prior precedent of the Fourth Circuit and sister circuits supports a narrow reading of the Act.’ Therefore, in keeping with the Fourth Circuit’s holding in ESAB Grp., this Court finds that the McCarran Ferguson Act does not authorize ‘reverse preemption’ of the Convention by § 38.2-312 of the Virginia Code” (citations omitted).
Past Cases with Same Result
We have in the past covered similar cases with similar outcomes. In SAA 2022-03 (Jan. 27), we reported that the Supreme Court had in 2022 declined to review CLMS Management Services Limited Partnership v. Amwins Brokerage of Georgia, LLC, 8 F.4th 1007 (9th Cir. 2021), a case of first impression we reported on in SAA 2021-33 (Sep. 2). There, the Ninth Circuit held: “Article II, Section 3 of the Convention on Recognition and Enforcement of Foreign Arbitral Awards is self-executing, and it requires enforcement of the parties’ arbitration agreement. Because the Convention is not an ‘Act of Congress’ subject to reverse-preemption by the McCarran Ferguson Act, the district court correctly granted defendants’ motion to compel arbitration.” Also, we covered in SAA 2020-31 (Aug. 19) a case to the same effect, J.B. Hunt Transport, Inc. v. Steadfast Insurance Co., 470 F. Supp. 3d 936 (W.D. Ark. 2020). That Court cited with favor McDonnel Group, L.L.C. v. Great Lakes Ins. SE, UK Branch, 923 F.3d 427 (5th Cir. 2019), another case to the same effect we covered in SAA 2019-21 (May 29).
(ed: At this point, we would say this aspect of the law is well-settled.)
