Publications
Green Tree Financial Corp. v. Bazzle (02-634) and American Insurance Assn v. Garamendi (02-722)
Greetings Court fans!
Getting back to Monday, below I summarize below two more opinions. . . .
I’ll begin with Green Tree Financial Corp. v. Bazzle (02-634), a case decided without a majority opinion. A simplified version of the facts: Respondents filed suit against Green Tree, a commercial lender, in South Carolina state court alleging that Green Tree violated South Carolina law when it loaned them money. Respondents moved to certify their claims as a class action and Green Tree moved to compel arbitration. The trial court granted both motions, and so the arbitrator conducted a “class arbitration,” ultimately awarding respondents over $20 million in damages. A state trial court confirmed the award, over Green Tree’s objection that class arbitration was legally impermissible, and the South Carolina Supreme Court ultimately affirmed. According to that court, the arbitration clause was silent with respect to whether it allowed class arbitration, and thus under South Carolina law, the clause would be interpreted to allow class arbitration.
The Supreme Court vacated and remanded. Breyer (in an opinion joined by only Scalia, Souter, and Ginsburg), concluded that the arbitrator, and not the court, should decide whether the contract forbids class arbitration. This issue, according to Breyer, is an issue of contract interpretation, and it is not free from doubt. Because the arbitration clause dictates that any dispute “relating to” the contract should be decided by the arbitrator, any dispute over whether the clause forbids class arbitration should be decided by the arbitrator. Breyer noted that there are certain issues that courts assume the parties intended a court (and not an arbitrator) to decide, but this question does not fall within that narrow category of issues. In this case, thus, the Court remanded for a decision by the arbitrator on whether the clause forbids class arbitration. Stevens provided the fifth vote for vacating and remanding the case, but only because he wanted to make sure there was a controlling judgment of the Court. If he had his way, he would affirm the state court because this case is controlled by state law, and there is nothing in the FAA that would precludes the state court’s decision.
Rehnquist (joined by O’Connor and Kennedy) dissented. According to Rehnquist, the question of how the arbitrator should be selected (the central question bearing on the propriety of class arbitration in this case) is an issue akin to the question of what should be arbitrated, and thus it should be decided by a court. Even though Rehnquist believes that the state court properly decided this issue, he would reverse the court’s judgment as preempted by the FAA. Rehnquist reads the state court’s decision as contravening the express agreement of the parties, and thus the state court failed to enforce the arbitration agreement according to its terms as required by the FAA. Thomas penned a one-paragraph dissent to reiterate his position that the FAA does not apply to proceedings in state courts, and thus it cannot be used to pre-empt a state court’s interpretation of a private arbitration agreement. He would affirm the state court’s judgment.
Turning next to American Insurance Assn v. Garamendi (02-722), in one of the more unusual line-ups for the Term, Souter — joined by Rehnquist, O’Connor, Kennedy, and Breyer — held that a California state law was pre-empted because it intrudes on the federal foreign affairs power. As is well known, the Nazi regime engaged in a calculated campaign of inhumanity against Jews and others during the Holocaust. Beyond genocide and enslavement, the Nazis engaged in the widespread destruction, confiscation, and theft of property belonging to Jews. As specifically relevant to this case, the Nazis, in coordination with the insurance industry and through a variety of strategies, stole the value of insurance policies issued to Jews. The recovery of assets such as these has been a consistent topic of high-level post-WWII diplomacy. In 1998, the International Commission on Holocaust Era Insurance Claims (ICHEIC), a voluntary organization of insurance companies and others, was formed. This commission established procedures for resolving claims to Holocaust-era insurance policies and set aside funds to pay those claims. In 2000, Germany and the United States signed an executive agreement to resolve Holocaust-era claims, in which they agreed, inter alia, that claims on insurance policies should be resolved in conjunction with the ICHEIC. Enter California. In 1999, California passed the Holocaust Victim Insurance Relief Act (HVIRA), which, as relevant here, requires insurance companies doing business in California to disclose the details of any insurance policy issued to people in Europe between 1920 and 1945. Any failure to provide this information results in a suspension of the right to do business in California. Insurance companies sued claiming that HVIRA was unconstitutional, but the Ninth Circuit ultimately rejected their claims.
Today, the Supreme Court reversed. (It’s a long Souter opinion; I’ll try to be brief.) The exercise of foreign affairs is a power that unquestionably belongs to the national government, and there is no challenge to the basic proposition that the executive generally gets to decide national policy in foreign affairs. In the exercise of this power, the executive may sign executive agreements, and there is a long history of executive agreements designed to settle claims of American nationals arising out of “hostilities.” In this case, while there are executive agreements, those agreements do not expressly preempt state law, and so the question is whether the state law conflicts with (or interferes with) the foreign policy embodied in those agreements. This analysis requires, at a minimum, a balancing of conflict with federal foreign policy against the state’s interest in regulation. The federal policy, as understood by Souter, embodies a consistent preference for negotiating with European governments to encourage them to volunteer settlement funds. California, by contrast, adopted a regulatory-sanctions model to compel disclosure. This conflict alone would be enough to preempt state law, but the pre-emption conclusion is buttressed by the weakness of California’s interest in regulating the disclosure of Holocaust-era insurance policies. In sum, HVIRA is preempted because “California seeks to use an iron fist where the President has consistently chosen kid gloves.”
Ginsburg (joined by Stevens, Scalia and Thomas) dissented. Ginsburg does not dispute that the executive has the power to conclude executive agreements and that such executive agreements may preempt contrary state law. She does not find any preemptive power in the executive agreements at issue, however. There is no express preemption provision, and nothing in prior case law to support the sort of implied preemption analysis that the majority adopted. She notes, for example, that the executive agreements do not address disclosure obligations at all. She further notes that part of the majority’s implied preemption analysis rests on statements from executive branch officials, and argues that these types of statements should not be allowed to preempt state law. In sum, while in theory an executive agreement could preempt HVIRA, there is nothing here to support such an analysis. She would uphold the HVIRA.
There is still one more opinion from Monday (to be summarized shortly), and then look for the Court to issue its remaining opinions tomorrow. Until later, thanks for reading.
Sandy
From the Appellate Practice Group at Wiggin & Dana.
For more information, contact Mark Kravitz, Jeff Babbin, or Sandy Glover
at 203-498-4400, or visit our website at www.wiggin.com.