To be Argued by:
PETER D. KEISLER
(Time Requested: 20 Minutes)
APL-2014-00271
New York County Clerk’s Index Nos. 102187/11, 651960/11 and 652366/10
Court of Appeals
of the
State of New York
In the Matter of the Application of
MONARCH CONSULTING, INC., ELITE MANAGEMENT, INC., BRENTWOOD TELEVISION
FUNNIES, INC., PROFESSIONAL EMPLOYER OPTIONS, INC., RECURRENT SOFTWARE
SOLUTIONS, AHILL, INC., THE ACCOUNTING GROUP, LLC and PES PAYROLL, IA, INC.,
Respondents,
For an Order and Judgment Staying the Arbitration Commenced by
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,
on behalf of itself and each of the related insurers that provided
insurance coverage to Petitioners,
Appellant.
Index No. 102187/11
———————————————————————————
(For Continuation of Caption See Reverse Side of Cover)
REPLY BRIEF FOR APPELLANT NATIONAL UNION
FIRE INSURANCE COMPANY OF PITTSBURGH, PA
Andrew W. Stern
Nicholas P. Crowell
Eamon P. Joyce
Benjamin F. Burry
SIDLEY AUSTIN LLP
787 Seventh Avenue
New York, New York 10019
Tel.: (212) 839-5300
Fax: (212) 839-5399
Peter D. Keisler
(admitted pro hac vice)
Paul J. Zidlicky
(admitted pro hac vice)
SIDLEY AUSTIN LLP
1501 K Street, N.W.
Washington, DC 20005
Tel.: (202) 736-8000
Fax: (202) 736-8711
Attorneys for Appellant National Union Fire
Insurance Company of Pittsburgh, PA
Dated: May 26, 2015
In the Matter of the Arbitration between
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,
on behalf of itself and each of the related insurers that provided
coverage to Respondents,
Appellant,
– against –
PRIORITY BUSINESS SERVICES, INC., f/k/a INLAND VALLEY STAFFING SERVICES,
f/k/a MAINTENANCE MATCH, INC., d/b/a PRIORITY STAFFING,
Respondent.
Index No. 651960/11
———————————————————————————
In the Matter of the Application of
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,
on behalf of itself and each of the related insurers that provided
insurance coverage to Respondent,
Appellant,
– against –
SOURCE ONE STAFFING, LLC,
Respondent.
Index No. 652366/10
DISCLOSURE STATEMENT PURSUANT TO RULE § 500.1(f)
Pursuant to Rule 500.1 of the Rules of the Court of Appeals, National Union
Fire Insurance Company of Pittsburgh, PA (“National Union”) respectfully
submits this disclosure of interest, which remains unchanged from that in National
Union’s Opening Brief.
National Union is a subsidiary of AIG Property Casualty U.S., Inc., which is
a subsidiary of AIG Property Casualty Inc., which is a subsidiary of AIUH LLC,
which is a subsidiary of American International Group, Inc. American
International Group, Inc. common stock is listed on the New York Stock Exchange
(NYSE: AIG) as well as the Tokyo Stock Exchange.
National Union discloses the following subsidiaries:
AIG Home Loan 1, LLC
AIG Lodging Opportunities, Inc.
AIGGRE 6037 Investor LLC
AIGGRE Bridges/Angeline Investor, LLC
AIGGRE Cherry Creek Investor, LLC
AIGGRE Columbia Pike, LLC
AIGGRE Dunwoody Investor, LLC
AIGGRE Gardens Investor, LLC
AIGGRE LSU Baton Rouge LLC
AIGGRE Maple LLC
AIGGRE Market Street LLC
AIGGRE Park Central LLC
AIGGRE Retail Investor II LLC
AIGGRE Vista LLC
Akita, Inc.
American International Overseas Association
DS Acquisition JV, LLC
DS Acquisition Property Owner, LLC
ii
Franco Investment I Corp.
Franco Investment II Corp.
Marlwood Commercial, Inc.
Mt. Mansfield Company, Inc.
National Union Fire Insurance Company of Vermont
Ridgeway Universal S.A.
Spruce Peak Realty, LLC
Stowe Mountain Holdings, Inc.
Stowe Mountain Club, LLC
Stowe Mountain Lodge, LLC
National Union discloses its affiliates in a Supplemental Disclosure that
follows the Conclusion section of this brief.
iii
TABLE OF CONTENTS
Page
DISCLOSURE STATEMENT PURSUANT TO RULE § 500.1(F) ......................... i
TABLE OF AUTHORITIES ..................................................................................... v
REPLY STATEMENT .............................................................................................. 1
ARGUMENT ............................................................................................................. 8
I. THE FAA CONTROLS THE THRESHOLD ISSUE OF WHO MUST
DECIDE A CHALLENGE TO THE ENFORCEABILITY OF THE
AGREEMENTS THAT COMPEL ARBITRATION. ......................................... 8
A. Because Respondents Seek To Avoid Arbitration Based On A
Challenge That Affects The Entire Payment Agreement
Containing The Arbitration Provision, That Challenge Is For
Arbitrators To Decide Under The FAA. ............................................. 11
1. Respondents’ Arguments Confirm That The Basis Of
Their Challenge To Arbitration Is Directed At The
Payment Agreements On The Whole. ...................................... 13
2. Respondents Cannot Avoid Arbitration Based On A
Challenge To The Payment Agreements By Arbitrarily
Limiting The Relief They Purport To Seek. ............................. 20
3. Respondents’ Arguments That Courts, Not Arbitrators,
Must Decide The California Insurance Law Issues
Relevant To Enforceability Reflect Hostility To
Arbitration That The Law Prohibits. ......................................... 23
B. In All Events, Respondents’ Challenge To Enforceability
Should Be Resolved In Arbitration Because There Is “Clear
And Unmistakable” Evidence That The Parties Agreed To
Arbitrate Arbitrability. ........................................................................ 26
C. The FAA Is Not Rendered “Unenforceable On A ‘Public
Protection’ Basis.” ............................................................................... 31
II. THE MCCARRAN-FERGUSON ACT DOES NOT DISPLACE THE FAA ON
THE ISSUE WHETHER ARBITRATORS DECIDE IF THE ARBITRATION
PROVISIONS IN THE PAYMENT AGREEMENTS ARE
ENFORCEABLE. ............................................................................................... 33
iv
A. Respondents Have No Persuasive Response To Federal Court
Cases Holding That The FAA Is Not Reverse-Preempted By
The McCarran-Ferguson Act In States With Insurance Statutes
Like The California Statute At Issue Here. ......................................... 36
B. The California Authorities Upon Which Respondents Rely Fail
To Support Their Argument That The McCarran-Ferguson Act
Displaces The FAA Rules Here. ......................................................... 43
C. Respondents Are Mistaken In Asserting That The McCarran-
Ferguson Act Must Displace The FAA Because The FAA
Otherwise Would Hinder The Goals Of The California
Insurance Law. .................................................................................... 47
III. RESPONDENTS’ ARGUMENTS ABOUT THE MERITS OF THE
ENFORCEABILTY DISPUTE ARE PROPERLY RESOLVED BY THE
ARBITRATORS. ................................................................................................ 53
CONCLUSION ........................................................................................................ 61
SUPPLEMENTAL DISCLOSURE PURSUANT TO RULE § 500.1(F) .............. xii
v
TABLE OF AUTHORITIES
Page(s)
CASES
In re Arbitration Between Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v.
Personnel Plus, Inc., 954 F. Supp. 2d 239 (S.D.N.Y. 2013) ........................ 35–37
Asdourian v. Araj,
696 P.2d 95 (Cal. 1985) ...................................................................................... 55
AT&T Techs., Inc. v. Commc’ns Workers of Am.,
475 U.S. 643 (1986) .............................................................................................. 4
Auto. Funding Grp., Inc. v. Garamendi,
7 Cal. Rptr. 3d 912 (Cal. Ct. App. 2003) ...................................................... 59–60
Bell v. Farmers Ins. Exch.,
9 Cal. Rptr. 3d 544 (Cal. Ct. App. 2004) ............................................................ 59
Benihana, Inc. v. Benihana of Tokyo, LLC,
--- F.3d ---, 2015 WL 1903587 (2d Cir. Apr. 28, 2015) ................................. 4, 30
Broughton v. Cigna,
988 P.2d 67 (Cal. 1999) ...................................................................................... 24
Buckeye Check Cashing, Inc. v. Cardegna,
546 U.S. 440 (2006) .....................................................................................passim
Cable Connection, Inc. v. DIRECTV, Inc.,
190 P.3d 586 (Cal. 2008) ................................................................................ 8, 24
In re CBI Holding Co., Inc.,
529 F.3d 432 (2d Cir. 2008) ............................................................................... 41
Ceradyne, Inc. v. Argonaut Ins. Co.,
No. G039873, 2009 WL 1526071 (Cal. Ct. App. June 2, 2009) .................passim
Citigroup, Inc. v. Abu Dhabi Inv. Auth.,
776 F.3d 126 (2d Cir. 2015) ............................................................................... 13
vi
Comm’r of Internal Revenue v. Estate of Bosch,
387 U.S. 456 (1967) ............................................................................................ 41
Corcoran v. Ardra Ins. Co.,
156 A.D.2d 70 (1st Dep’t 1990) ......................................................................... 47
Doctor’s Assocs., Inc. v. Casarotto,
517 U.S. 681 (1996) ............................................................................................ 46
Doe v. City of Los Angeles,
169 P.3d 559 (Cal. 2007) .................................................................................... 51
Fardig v. Hobby Lobby Stores Inc.,
No. SACV 14-00561 JVS, 2014 WL 4782618 (C.D. Cal. Aug. 11, 2014)........ 33
In re Fermaglich (Levine),
41 A.D.2d 70 (3d Dep’t 1973) ............................................................................ 36
Franco v. Arakelian Enters., Inc.,
184 Cal. Rptr. 3d 501 (Cal. Ct. App. 2015) .................................................. 32–33
Fredericksburg Care Co. v. Perez,
--- S.W.3d ---, 2015 WL 1035343 (Tex. Mar. 6, 2015) ............................... 42–43
Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20 (1991) ........................................................................................ 24–25
Green Tree Fin. Corp.-Ala. v. Randolph,
531 U.S. 79 (2000) ........................................................................................ 24–25
Grove Lumber & Bldg. Supply, Inc. v. Argonaut Ins. Co.,
No. SA CV 07-1396 AHS, 2008 WL 2705169 (C.D. Cal. July 7, 2008) .... 37, 40
Hamilton Life Ins. Co. of N.Y. v. Republic Nat’l Life Ins. Co.,
408 F.2d 606 (2d Cir. 1969) ......................................................................... 33–34
Homesite Ins., Inc. v. Dhaliwal,
A131226, 2012 WL 1354528 (Cal. Ct. App. Apr. 19, 2012) ............................. 50
Howsam v. Dean Witter Reynolds, Inc.,
537 U.S. 79 (2002) ........................................................................................ 13, 27
vii
Humana Inc. v. Forsyth,
525 U.S. 299 (1999) .....................................................................................passim
Imbler v. PacifiCare of Cal., Inc.,
126 Cal. Rptr. 2d 715 (Cal. Ct. App. 2002) ........................................................ 46
Iskanian v. CLS Transp. Los Angeles, LLC,
327 P.3d 129 (Cal. 2014) .............................................................................. 31–32
Kong v. Allied Prof’l Ins. Co.,
750 F.3d 1295 (11th Cir. 2014) .................................................................... 12, 35
In re Lucas,
269 P.3d 1160 (Cal. 2012) .................................................................................. 59
Lynch v. Cruttenden & Co.,
22 Cal. Rptr. 2d 636 (Cal. Ct. App. 1993) .................................................... 22–23
Madden v. Kaiser Found. Hosps.,
552 P.2d 1178 (Cal. 1976) .................................................................................. 24
Malek v. Blue Cross of Cal.,
16 Cal. Rptr. 3d 687 (Cal. Ct. App. 2004) .......................................................... 55
McKnight v. Chicago Title Ins. Co.,
358 F.3d 854 (11th Cir. 2004) ............................................................................ 35
Milan Express Co. v. Applied Underwriters Captive Risk Assurance Co.,
590 F. App’x 482 (6th Cir. 2014) ....................................................................... 28
Miller v. Nat’l Fid. Life Ins. Co.,
588 F.2d 185 (5th Cir. 1979) .............................................................................. 35
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614 (1985) .......................................................................................... 6–9
In re Monarch Consulting, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa.,
123 A.D.3d 51 (1st Dep’t 2014) ..................................................................passim
In re Mut. Reinsurance Bureau v. Great Plains Mut. Ins. Co.,
969 F.2d 931 (10th Cir. 1992) ............................................................................ 35
viii
Nat’l Fuel Gas Supply Corp. v. FERC,
811 F.2d 1563 (D.C. Cir. 1987) .......................................................................... 60
In re Nat’l Union Fire Ins. Co. of Pittsburgh v. St. Barnabas Cmty. Enters., Inc.,
48 A.D.3d 248 (1st Dep’t 2008) ......................................................................... 12
In re N.Y. City Transit Auth. v. Transp. Workers Union of Am.,
Local 100, AFL-CIO, 99 N.Y.2d 1 (2002) ......................................................... 26
Nitro-Lift Techs., LLC v. Howard,
133 S. Ct. 500 (2012) ............................................................................................ 8
NORCAL Mut. Ins. Co. v. Newton,
100 Cal. Rptr. 2d 683 (Cal. Ct. App. 2000) ........................................................ 57
N.Y. Rapid Transit Corp. v. City of N.Y.,
275 N.Y. 258 (1937) ........................................................................................... 36
Ortiz v. Hobby Lobby Stores, Inc.,
No. 2:13-CV-01619, 2014 WL 4961126 (E.D. Cal. Oct. 1, 2014) .................... 33
PaineWebber Inc. v. Bybyk,
81 F.3d 1193 (2d Cir. 1996) ............................................................................... 30
POET, LLC v. Cal. Air Res. Bd.,
160 Cal. Rptr. 3d 69 (Cal. Ct. App. 2013) .......................................................... 59
Preston v. Ferrer,
552 U.S. 346 (2008) ........................................................................................ 9, 13
Prima Paint Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395 (1967) .....................................................................................passim
In re Prinze,
38 N.Y.2d 570 (1976) ........................................................................................... 4
Rent-A-Center, West, Inc. v. Jackson,
561 U.S. 63 (2010) .......................................................................................passim
Rodriguez de Quijas v. Shearson/Am. Express, Inc.,
490 U.S. 477 (1989) ............................................................................................ 24
ix
Schreiber v. K-Sea Transp. Corp.,
81 N.Y.2d 623 (2007) ......................................................................................... 26
S. Cal. Edison Co. v. Peevey,
74 P.3d 795 (Cal. 2003) ...................................................................................... 60
Sheen v. Lorre,
No. SC111794, 2011 WL 2349074 (Cal. Super. Ct. June 15, 2011) ................. 57
Smith v. PacifiCare Behavioral Health of Cal., Inc.,
113 Cal. Rptr. 2d 140 (Cal. Ct. App. 2001) .................................................. 45–46
In re Smith Barney Shearson Inc. v. Sacharow,
91 N.Y.2d 39 (1997) ..................................................................................... 29, 30
Sphere Drake Ins. Ltd. v. Clarendon Nat’l Ins. Co.,
263 F.3d 26 (2d Cir. 2001) ................................................................................. 12
St. Paul Fire & Marine Ins. Co. v. Courtney Enters., Inc.,
270 F.3d 621 (8th Cir. 2001) .......................................................................passim
Standard Sec. Life Ins. Co. of N.Y. v. West,
267 F.3d 821 (8th Cir. 2001) .............................................................................. 35
State Dep’t of Transp. v. James River Ins. Co.,
292 P.3d 118 (Wash. 2013) ................................................................................ 35
State Farm Mut. Auto. Ins. Co. v. Quackenbush,
91 Cal. Rptr. 2d 381 (Cal. Ct. App. 1999) .......................................................... 59
In re Sthran,
327 S.W.3d 839 (Tex. App. 2010) ...................................................................... 42
Tittle v. Enron Corp.,
463 F.3d 410 (5th Cir. 2006) .............................................................................. 12
Utica Mut. Ins. Co. v. Gulf Ins. Co.,
306 A.D.2d 877 (4th Dep’t 2003) ....................................................................... 12
VRG Linhas Aereas S.A. v. MatlinPatterson Global Opportunities
Partners II L.P., 717 F.3d 322 (2d Cir. 2013) .................................................... 27
x
Wootten v. Fisher Invs., Inc.,
688 F.3d 487 (8th Cir. 2012) .............................................................................. 28
Yamaha Corp. of Am. v. State Bd. of Equalization,
960 P.2d 1031 (Cal. 1998) ............................................................................ 58–60
STATUTES
Federal Arbitration Act, 9 U.S.C. § 2 ................................................................ 12, 31
McCarran-Ferguson Act, 15 U.S.C. § 1012(b) .................................................... 5, 34
Cal. Health & Safety Code § 1363.1 ....................................................................... 45
Cal. Ins. Code § 1858.6 ............................................................................................ 60
Cal. Ins. Code § 11658 ......................................................................................passim
Cal. Ins. Code § 11658.5 .............................................................................. 50, 51, 56
Cal. Lab. Code § 2698 et seq. .................................................................................. 32
Ga. Code Ann. § 9-9-2 ............................................................................................. 49
Kan. Stat. Ann. § 5-401 ........................................................................................... 49
Ky. Rev. Stat. Ann. § 417.050 ................................................................................. 49
La. Rev. Stat. Ann. § 22:868 .................................................................................... 49
Mo. Rev. Stat. § 435.350 ......................................................................................... 49
Mont. Code Ann. § 27-5-114 ................................................................................... 49
Neb. Rev. Stat. § 25-2602.01 ................................................................................... 49
P.R. Laws Ann. tit. 26 § 1119 .................................................................................. 49
S.C. Code Ann. § 15-48-10 ...................................................................................... 49
S.D. Codified Laws § 21-25A-3 .............................................................................. 49
Tex. Civ. Prac. & Rem. Code Ann. § 74.451 .................................................... 42–43
Tex. Ins. Code Ann. art. 5.57 ................................................................................... 42
xi
Wash. Rev. Code Ann. § 48.18.200 ......................................................................... 49
OTHER AUTHORITIES
Adir Int’l, LLC v. Travelers Indem. Co. of Conn.,
No. BC575513 (Cal. App. Dep’t Super. Ct.),
Complaint filed Mar. 13, 2015............................................................................ 18
In re Arbitration Between Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v.
Personnel Plus, Inc., 954 F. Supp. 2d 239 (S.D.N.Y. 2013),
Docket Entries (reproduced at Reply Compendium RC-8–22) .................... 39–40
Nicholas P. Roxborough, New York Ruling Adds Transparency In California
Workers’ Comp Market, 92 Ins. J. 22 (Nov. 17, 2014), available at
http://www.insurancejournal.com/magazines/features/2014/11/17/346551.
htm ...................................................................................................................... 18
St. Paul Fire and Marine Ins. Co. v. Courtney Enters., Inc.,
270 F.3d 621 (8th Cir. 2001),
Brief for Appellant, 2000 WL 35543809 ........................................................... 42
Sen. Committee on Judiciary, Analysis of Assembly Bill No. 2490
(2009-2010 Reg. Sess.) as amended May 20, 2010 (June 29, 2010) ................. 54
REPLY STATEMENT
The threshold and dispositive issue in this case is who must decide whether
the agreements to arbitrate contained in the broader Payment Agreements are
enforceable as a matter of California insurance law. That is the issue that divided
the majority and dissenting opinions below. Respondents contend that a court
must resolve their challenge to the Payment Agreements on the merits before an
arbitrator can be permitted to address the parties’ dispute. For that reason, their
argument requires that the court address the merits of their underlying challenges
to the Payment Agreements under California insurance law.
In contrast, National Union has shown that the Federal Arbitration Act
(“FAA”) requires an arbitrator to assess whether the parties’ dispute is subject to
arbitration and that California insurance law does not suggest a different result.
For that reason, National Union addressed first that the FAA requires an arbitrator
to decide the narrow issue of whether the arbitration agreements are enforceable,
and then showed that allowing the arbitrator to apply California insurance law to
determine enforceability would not invalidate, impair, or supersede California
insurance law.
National Union explained at the outset that the United States Supreme Court
repeatedly has held that under the FAA, a challenge to arbitration based on a
“‘ground that directly affects the entire agreement’” must be resolved by
2
arbitrators. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 70 (2010) (quoting
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006)). Further,
National Union explained that the basis for Respondents’ challenge—the failure to
file the Payment Agreements—applies to the Payment Agreements on the whole,
not merely the arbitration provisions contained therein. Opening Br. 29–39.
Separately, National Union further showed that, even if Respondents’
challenge were directed solely at the arbitration provision and not at the Payment
Agreements—and it is not—the First Department’s decision still would be wrong
because (1) the parties “clearly and unmistakably” agreed that arbitrators would
resolve any disputes, including those as to “arbitrability,” e.g., A-174; and
(2) effect must be given to that agreement. See, e.g., Rent-A-Center, 561 U.S. at 69
n.1 (internal quotation and citation omitted); Opening Br. 43–45. In doing so,
National Union explained that the agreements to arbitrate here state expressly that
the arbitrators have “exclusive jurisdiction over the entire matter in dispute,
including any question as to its arbitrability.” E.g., A-174; see Opening Br. 44–45.
Respondents’ Brief largely evades the threshold question regarding who
must decide enforceability. See Resp. Br. 58–65 (eventually and briefly discussing
what the FAA requires here). At the outset of their brief, Respondents
acknowledge, albeit implicitly, that it is necessary first to determine what the FAA
requires to assess whether those requirements are displaced, through application of
3
the McCarran-Ferguson Act, by California insurance law. Id. at 4 (arguing that
analysis of FAA controls whether “the [McCarran-Ferguson] argument should . . .
even be reached”) (emphasis added). Nevertheless, Respondents devote the bulk
of their brief to arguing their positions on the substantive requirements of the
California insurance law, which they contend trump the FAA through operation of
the McCarran-Ferguson Act. See id. at 29–58. Consistent with the First
Department’s erroneous McCarran-Ferguson Act holding, Respondents argue that
this Court should decide (1) whether California insurance law required the
Payment Agreements to be filed with the California Department of Insurance
(“CDI”); and (2) if so, whether the appropriate remedy for non-filing is to void the
arbitration clauses within the Payment Agreements. Id. at 29–48. In doing so,
Respondents bypass the question of whether an arbitrator or a court should assess
the enforceability of the arbitration agreement. They do so because the FAA
makes clear that the arbitrator, and not a court, should resolve this issue, and
because California insurance law does not remotely suggest a different approach
on the threshold issue of who should decide the arbitrability of Respondents’
claims.
First, as National Union demonstrated, by limiting its inquiry to who decides
the threshold arbitration question, a court need not address the merits of the
underlying dispute—here, whether California insurance law required the Payment
4
Agreements to be filed and, if so, the remedy for failure to file—to determine
whether the dispute is subject to arbitration. Opening Br. 39, 57 & n.15, 62
(collecting authority, including AT&T Techs., Inc. v. Commc’ns Workers of Am.,
475 U.S. 643 (1986)). As the Second Circuit reiterated weeks ago, where parties
have agreed to arbitrate, “a court has ‘no business weighing the merits of the
claims.’” Benihana, Inc. v. Benihana of Tokyo, LLC, --- F.3d ---, 2015 WL
1903587, at *11 (2d Cir. Apr. 28, 2015) (brackets omitted) (quoting AT&T Techs.,
475 U.S. at 650); cf. In re Prinze, 38 N.Y.2d 570, 574 (1976) (recognizing that the
CPLR’s arbitration provision “admonishes that ‘the court shall not consider
whether the claim with respect to which arbitration is sought is tenable, or
otherwise pass upon the merits of the dispute’”). Under Respondents’ mistaken
view, however, courts would be required to resolve the merits of the parties’
underlying dispute before a case could be submitted to arbitration.
Second, by leapfrogging the issue of who should decide whether
Respondents’ challenge is subject to arbitration, Respondents violate the settled
FAA rule that an arbitration provision is severable from the rest of the contract in
which it is contained. See, e.g., Rent-A-Center, 561 U.S. at 70–71; Buckeye, 546
U.S. at 445; Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–
04 (1967). Under that standard, when a contract containing an arbitration clause is
5
challenged as being invalid, the arbitrator, rather than a court, decides whether the
agreement is enforceable. Buckeye, 445 U.S. at 448–49.
Third, the McCarran-Ferguson Act does not alter these conclusions because
application of the FAA on the issue of who decides whether the agreements to
arbitrate are enforceable would not “invalidate, impair, or supersede any law
enacted by any State for the purpose of regulating the business of insurance[.]” 15
U.S.C. § 1012(b); see Humana Inc. v. Forsyth, 525 U.S. 299, 304–05 (1999)
(analyzing the requirements of the federal RICO statute’s remedies provisions in
order to determine whether the McCarran-Ferguson Act applied and displaced
those federal provisions and concluding it did not). The only aspect of the FAA at
issue is the requirement that the arbitrator, rather than a court, assess challenges to
the validity of an agreement containing an arbitration clause when the challenge is
based on grounds applicable to the entire agreement.
Properly viewed from this perspective, this appeal is straightforward.
Respondents have made no discrete challenge to the arbitration provision itself, nor
do they contest that the basis for their challenge applies equally to the Payment
Agreements on the whole. Indeed, Respondents’ Brief repeatedly acknowledges
that the basis for their objection to arbitration is that the Payment Agreements were
not filed with the Workers’ Compensation Insurance Rating Bureau (“WCIRB”) or
6
approved by the CDI.
1
Under the FAA, the arbitrator, and not a court, should
resolve (1) whether the Payment Agreements were required to be filed under
California law; and (2) if so, whether the arbitration provisions should be enforced
under California law. See Rent-A-Center, 561 U.S. at 70–71.
Respondents’ brief avoids this threshold issue of who decides because
nothing in California insurance law prohibits an arbitrator from assessing, under
California law, whether the Payment Agreements are enforceable. As such, the
FAA does not invalidate, impair, or supersede the California insurance law. To the
contrary, National Union fully recognizes that the arbitrators will apply the very
California insurance law provisions over which the parties disagree on the merits.
See Opening Br. 50–51; see also id. at 16 (explaining that by agreeing to
arbitration “‘a party does not forgo the substantive rights afforded by the statute’”
1
See, e.g., Resp. Br. 2 (“These Payment Agreements contain arbitration provisions, but National
Union never submitted them to the WCIRB. Thus, the CDI never reviewed or approved the
Payment Agreements.”); id. at 7 (“Payment Agreements [were] withheld from California
regulatory authorities”); id. (“unfiled Payment Agreements”); id. at 39 (same); id. at 44 (same);
id. at 16 (“National Union did not submit . . . Payment Agreements to the WCIRB and . . . the
WCIRB never approved [the] Payment Agreements”); id. at 27 (“side agreements – just like
National Union’s Payment Agreements – must be filed”); id. at 31 (“The Payment Agreements
Are Endorsements That Must Be Filed”) (emphasis omitted); id. at 31–32 (“The Appellate
Division readily and correctly held that the Payment Agreements were endorsements, which had
to be filed under the California Filing Statute.”) (internal citation omitted); id. at 33 (“[T]he
Payment Agreements substantially modify the parties’ obligations and therefore constitute policy
endorsements.”); id. at 37 (complaining that National Union placed the arbitration clauses “in
unfiled Payment Agreements rather than in the filed Policies”); id. at 40 (“The CDI Requires
That The Payment Agreements Be Filed As A Pre-Condition To Endorsing An Arbitration
Provision.”) (emphasis omitted); id. at 40 (“CDI views the Payment Agreement as . . . void if not
filed”); id. at 69 (“It is undisputed that National Union failed to file its Payment
Agreements . . . .”).
7
(quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,
628 (1985)). As such, the FAA acts “in aid” of the substantive California
insurance law. Humana, 525 U.S. at 303. Respondents do not and cannot cite any
case in which a court has held that the FAA’s procedural rules for resolving who
decides a challenge to enforceability of an arbitration agreement invalidate, impair,
or supersede substantive state insurance laws in states, like California, that
embrace arbitration as a valuable alternative for resolving insurance-related
disputes. See, e.g., St. Paul Fire & Marine Ins. Co. v. Courtney Enters., Inc., 270
F.3d 621, 625 (8th Cir. 2001).
Respondents ask the Court to substitute its judgment on an issue of
substantive California insurance law for that of the arbitrators by resolving the
merits of the parties’ underlying dispute. Respondents urge such an approach
based on unwarranted hostility to arbitration, which the United States Supreme
Court has soundly rejected. Respondents assert that “arbitration is unlikely to
produce a trier of fact and law that has the neutrality one expects in a judge of the
trial courts of general jurisdiction in a state of the sophistication of California,” and
urge that arbitration “is unlikely to result in . . . consideration of universally
applicable tenets of contract and equity law.” Resp. Br. 38 n.11. But under
California law and the FAA, “we are well past the time when judicial suspicion of
the desirability of arbitration and of the competence of arbitral tribunals inhibited
8
the development of arbitration as an alternative means of dispute resolution.”
Mitsubishi Motors, 473 U.S. at 626–27; accord Cable Connection, Inc. v.
DIRECTV, Inc., 190 P.3d 586, 592 (Cal. 2008). The Court should reject
Respondents’ invitations to revive such suspicions and to call into question the
competence of the arbitrators provided for in contracts repeatedly signed by
Respondents’ sophisticated executives, or to have the courts “assume[] the
arbitrator’s role by” assessing whether the agreements in question are enforceable.
Nitro-Lift Techs., LLC v. Howard, 133 S. Ct. 500, 503 (2012) (per curiam).
ARGUMENT
I. THE FAA CONTROLS THE THRESHOLD ISSUE OF WHO MUST
DECIDE A CHALLENGE TO THE ENFORCEABILITY OF THE
AGREEMENTS THAT COMPEL ARBITRATION.
As set forth in the Opening Brief, the FAA governs who must decide
whether the parties’ underlying dispute is subject to arbitration. See Opening Br.
1–4, 29–34, 43–45. Those procedural rules require that an arbitrator address
Respondents’ challenge to arbitration for two independent reasons:
(1) Respondents’ basis for seeking to avoid arbitration unquestionably affects the
entirety of the Payment Agreements, see id. at 2, 34–43; and (2) the parties clearly
and unmistakably contracted to have arbitrators decide all disputes, expressly
including those regarding arbitrability, id. at 43–45.
9
Respondents, however, miscast National Union’s showing about what the
FAA requires in this case. Respondents insist that National Union argues
“fundamentally that the California regulatory scheme is pre-empted by the Federal
Arbitration Act,” Resp. Br. 3, and that “the FAA overrides California’s
requirements for filing and pre-approval of arbitration provisions in insurance
agreements,” id. at 8.
2
That is not National Union’s position. On the contrary,
National Union has repeatedly acknowledged that the arbitrators will apply the
same California insurance laws that Respondents ask this Court to apply in this
appeal. See, e.g., Opening Br. 50 (“Indeed, the arbitrators, like a court, would
address (i) whether the Payment Agreements are insurance policies or
endorsements that must be filed under [California Insurance Code] Section 11658,
and (ii) if so, whether the appropriate remedy for failure to file is to set aside the
agreement to arbitrate while enforcing the Payment Agreements’ other terms.”); id.
at 39, 44–45. Respondents’ argument fundamentally misunderstands that “[b]y
agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights
afforded by the statute; it only submits to their resolution in an arbitral . . . forum.”
Preston v. Ferrer, 552 U.S. 346, 359 (2008) (quoting Mitsubishi, 473 U.S. at
2
See also, e.g., id. at 24 (claiming that National Union argued “that the FAA preempts the
California Insurance Code”); id. at 51 (“National Union continues to suggest that FAA pre-
emption jurisprudence compels enforcement of the arbitration provisions in the Payment
Agreements . . . .”).
10
628).
3
The arbitrators would apply California insurance law to determine whether
Respondents should be permitted to avoid arbitration of these disputes.
The issue before the Court is not whether the FAA displaces the substantive
requirements of California insurance law, but whether the First Department
violated the FAA when it failed to recognize that arbitrators must resolve
Respondents’ challenge to arbitration by applying California’s substantive
requirements. The arbitrators thus should be permitted to address the issue of
enforceability for two independent reasons: (A) Respondents’ challenge to
enforceability—which applies to the Payment Agreements as a whole, not merely
the arbitration clause itself—is one that the FAA presumes should be resolved
through arbitration; and (B) irrespective of the basis for Respondents’ challenge,
the parties “clearly and unmistakably” agreed to have arbitrators resolve all
challenges to the enforceability of the arbitration provisions, including arbitrability
disputes that, absent such an agreement, presumptively would be decided by courts
under the FAA.
3
Respondents offer no response to National Union’s showings that California insurance law
disputes are arbitrated under the FAA. See Opening Br. 51–52, 58–61 (collecting authority).
11
A. Because Respondents Seek To Avoid Arbitration Based On A
Challenge That Affects The Entire Payment Agreement Containing
The Arbitration Provision, That Challenge Is For Arbitrators To
Decide Under The FAA.
National Union’s Opening Brief showed that the United States Supreme
Court repeatedly has held that the FAA requires arbitrators to decide an objection
to arbitration that rests “‘on a ground that directly affects the entire agreement’” in
which an arbitration provision is contained, Rent-A-Center, 561 U.S. at 70 (quoting
Buckeye, 546 U.S. at 444), rather than an objection directed “‘specifically [to] the
validity of the agreement to arbitrate.’” Id.; see Buckeye, 546 U.S. at 445–46
(challenge must be “to the arbitration clause itself” to be considered by a court);
Prima Paint, 388 U.S. at 403–04 (contrasting claims that a “contract generally”
was induced by fraud from those in which only an “arbitration clause itself” was so
induced); Opening Br. 32–34. As such, the FAA mandates that arbitrators must
decide enforceability of arbitration even if the arbitrators ultimately might
conclude that the contract containing the arbitration provision is unenforceable.
Rent-A-Center, 561 U.S. at 71; see, e.g., Buckeye, 546 U.S. at 445, 448–49; Prima
Paint, 388 U.S. at 402; Opening Br. 40–41.
Respondents contend that “none of the [FAA] cases cited by National Union
involve[s] challenges to state regulation of insurance [or] address[es] the
applicability of McCarran-Ferguson.” Resp. Br. 51. That is both irrelevant and
incorrect. The FAA applies in the same manner to all contracts involving interstate
12
commerce that provide for arbitration. See 9 U.S.C. § 2. Thus, how the FAA
applies to the issue of “who decides” a challenge to arbitration is separate from any
inquiry whether the application of the FAA would invalidate, impair, or supersede
state insurance law under the McCarran-Ferguson Act. In any event, National
Union’s Opening Brief identified cases applying the FAA in the insurance context.
See, e.g., Kong v. Allied Prof’l Ins. Co., 750 F.3d 1295, 1303–04 (11th Cir. 2014).
And there are many more cases to the same effect. See, e.g., Sphere Drake Ins.
Ltd. v. Clarendon Nat’l Ins. Co., 263 F.3d 26, 33–34 (2d Cir. 2001) (applying
Prima Paint and holding that dispute involving insurance contract was subject to
arbitration); Tittle v. Enron Corp., 463 F.3d 410, 418 n.7 (5th Cir. 2006) (FAA
governed dispute involving “an insurance policy providing liability insurance to
insureds in a number of different states”); In re Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa. v. St. Barnabas Cmty. Enters., Inc., 48 A.D.3d 248, 249 (1st Dep’t
2008) (applying Buckeye and Prima Paint and holding that workers’ compensation
insurance contract dispute was subject to arbitration); Utica Mut. Ins. Co. v. Gulf
Ins. Co., 306 A.D.2d 877, 878–79 (4th Dep’t 2003) (“The FAA . . . applies to any
contract involving interstate commerce[.] Because insurance transactions
constitute commerce within the meaning of the Commerce Clause, it is beyond
dispute that the Agreement at issue is a contract involving interstate . . .
commerce.”) (internal citations omitted).
13
National Union further demonstrated that Respondents’ legal challenge is
directed at the Payment Agreements as a whole. See Opening Br. 34–43.
Respondents argue that California Insurance Code Section 11658 required National
Union to file the Payment Agreements with the CDI—not merely the arbitration
clause therein. See id. at 35. That ground for opposing arbitration is based on a
challenge directed at the entirety of the Payment Agreements, not a specific or
“discrete challenge” to the arbitration provision. Rent-A-Center, 561 U.S. at 84
(quoting Preston, 552 U.S. at 354). Indeed, this is not a case in which there is a
dispute (1) whether National Union and Respondents agreed to the terms of the
arbitration clause; (2) whether the terms of the arbitration clause are fundamentally
unfair or unconscionable; or (3) whether the arbitration clause is broad enough to
apply to this particular controversy. In those “narrow circumstance[s],” a court,
not an arbitrator, decides arbitrability as a “gateway matter,” Howsam v. Dean
Witter Reynolds, Inc., 537 U.S. 79, 83–84 (2002); see Citigroup, Inc. v. Abu Dhabi
Inv. Auth., 776 F.3d 126, 129 (2d Cir. 2015) (applying Howsam, 537 U.S. at 83–
84), but none of them is present here.
1. Respondents’ Arguments Confirm That The Basis Of Their
Challenge To Arbitration Is Directed At The Payment
Agreements On The Whole.
Respondents’ arguments confirm that the arbitrators should decide their
contention that the Payment Agreements needed to be filed. Respondents accuse
14
National Union of “blatantly mischaracteriz[ing] Respondents’ challenge to the
arbitration demand as an attack on the validity of the Payment Agreements as a
whole, rather than opposition to the enforcement of the arbitration provisions
alone,” because, as a remedy, Respondents state that they wish the Court to
invalidate only the arbitration clause. Resp. Br. 62–63; id. at 65 (contending
National Union “misrepresent[s] the record”). The opposite is true: (1) National
Union acknowledged the distinction that Respondents sought to draw, but
demonstrated that it was immaterial; (2) all five justices below agreed that the basis
of Respondents’ challenge to arbitration affected and would likewise void each
Payment Agreement; (3) Respondents rely on provisions of the Payment
Agreements other than the arbitration clauses as the predicate for their argument
that the Payment Agreements were required to be filed; and (4) Respondents have
publicly contended that failure to file a “side agreement” (i.e., the Payment
Agreement) warrants invalidation of the entire “side agreement.”
First, National Union’s Opening Brief recognized that although the basis for
Respondents’ challenge was that “the Payment Agreements, which contained the
arbitration provision that they seek to avoid, were illegal as a matter of California
law because the Payment Agreements were not filed with the CDI,” Opening Br.
36, Respondents’ current requested “remedy . . . for their challenge to the Payment
Agreements as a whole is invalidation of only the arbitration provision within the
15
Payment Agreements,” id. at 39 (emphasis in original). National Union
demonstrated that the remedy sought was irrelevant, because the salient inquiry
under the FAA is whether Respondents’ attack on arbitration is based on a ground
that “directly affects the entire agreement.” Id. at 41 (quoting Rent-A-Center, 561
U.S. at 70); see id. at 39–43; see also infra § I.A.2 (discussing remedy).
Second, the First Department’s majority opinion confirms that Respondents’
arbitration challenge rests on a ground that affects the entirety of the Payment
Agreements. In the second sentence of its opinion, the majority ruled: “[w]e find
that . . . the side agreements [i.e., the Payment Agreements], along with the
arbitration clauses contained in them, are not enforceable because the insurer failed
to file them with the [WCIRB] and the [CDI].” A-14 (emphasis added).
Respondents ignore this ruling. They do so despite that National Union repeatedly
quoted this ruling in demonstrating the basis for Respondents’ challenge. See
Opening Br. 26, 36, 38. And they do so notwithstanding that the dissent
highlighted that “[e]ven the majority’s reasoning is based on a conclusion that
because the Payment Agreements as a whole are unenforceable, the arbitration
provisions contained therein are likewise unenforceable.” A-56 (Gische, J.,
dissenting) (quoted in Opening Br. 28).
4
4
Nonetheless, Respondents assail National Union for relying on similar language in the First
Department’s opinion to support its position that “‘Respondents’ sole ground for avoiding
arbitration was that the Payment Agreements as a whole were not filed with the CDI,’” Resp. Br.
16
Third, Respondents’ brief confirms National Union’s prior showings.
Respondents’ argument for avoiding arbitration is that each Payment Agreement,
which Respondents term an “insurance policy or endorsement,” is void ab initio.
Resp. Br. 30 (if “not filed, it ‘shall not be issued’ until it is filed”) (emphasis in
original); id. at 31 (“Unfiled side agreements are ineffective in this context.”); see
also supra at 6 n.1 (collecting similar statements). Respondents’ argument that the
Payment Agreements should have been submitted to the CDI for approval hinges
not on the inclusion of an agreement to arbitrate, but on other substantive
provisions in the Payment Agreements. See Resp. Br. 31–32. Respondents
contend, for instance, that the Payment Agreements include a “plethora of
substantive insurance provisions . . . , including National Union’s right after an
insured’s default to change the terms of the insurance plans to non-deductible with
consequent higher premium payments, and adding to the payment obligation any
payment made by National Union to a claimant.” Id. at 32 (citing Monarch, 123
A.D.3d at 68). They argue that the Payment Agreements “‘alter[ed] large and
important parts of the policies’ scheme’” thereby making them policy
63 (quoting Opening Br. 29–30 (citing A-31 [Monarch Consulting, Inc. v. Nat’l Union Fire Ins.
Co. of Pittsburgh, PA, 123 A.D.3d 51, 63 (1st Dep’t 2014)])) (emphasis in original), because
National Union allegedly did not note that the First Department acknowledged that Respondents
did not seek to void the Payment Agreements as a remedy, id. (citing A-30 [Monarch, 123
A.D.3d at 63]). That is incorrect. National Union addressed this point in showing that an
arbitration rule that turns on the remedy sought, not the basis for the challenge, is contrary to the
Supreme Court cases. Opening Br. 39–43. Respondents offer no justification for ignoring the
relevant language in the second sentence of the opinion, and it is Respondents, not National
Union, that selectively read the First Department’s majority opinion.
17
“endorsements” and, as such, Respondents contend that California law required the
Payment Agreements to be filed with the CDI. Id. (quoting Monarch, 123 A.D.3d
at 69); see id. at 31 (“the Payment Agreements were endorsements, which had to
be filed”) (internal citation omitted); id. at 33 (“the Payment Agreements
substantially modify the parties’ obligations and therefore constitute policy
endorsements”).
5
Plainly, Respondents’ objection to arbitration is based on a
challenge to, and affects, the Payment Agreements as a whole.
6
Fourth, Respondents’ statements in other fora confirm that their argument
about the gerrymandered remedy they seek here is little more than a gimmick. For
5
In this Court, Respondents for the first time suggest that their decisions to execute the Payment
Agreements were forced or compelled. See Resp. Br. 21, 37, 44. Respondents do not now—and
never have—contested arbitration on the grounds that their decisions to execute the Payment
Agreements were coerced. None of Respondents has ever argued that these contracts, let alone
the arbitration provisions themselves, were procedurally or substantively unfair, none has ever
intimated that they did not fully understand the provisions, and none has ever suggested that it
did not freely and voluntarily execute the agreements. Indeed, Respondents are large,
sophisticated companies that paid millions of dollars in premiums each year in exchange for
workers’ compensation insurance. National Union was just one of more than 400 workers’
compensation insurance carriers in California’s competitive $123 billion insurance marketplace.
Respondents chose National Union. Each Respondent’s top executives (in all cases, the CEO,
CFO, and/or President) executed the Payment Agreements and addenda. Although any claim of
coercion would be meritless, any such claim would confirm that Respondents’ complaints are
about the Payment Agreements as a whole, not the discrete arbitration provisions. See Resp. Br.
37 (“By placing the arbitration requirements in unfiled Payment Agreements rather than in the
filed Policies, National Union is attempting to force its policyholders to arbitrate, inter alia, their
premium disputes.”); id. at 21 (“As part of the insurance program, National Union required
Source One to enter into a Payment Agreement”); id. at 44 (“the Payment Agreements that
National Union compelled the Respondents to sign in order to obtain insurance coverage”).
6
After relying on provisions in the Payment Agreements that have nothing to do with arbitration
to argue that Insurance Code Section 11658’s filing requirement is triggered, Resp. Br. 31–36,
Respondents then do a complete about-face to argue that the Payment Agreements on the whole,
including the provisions that triggered the filing requirement, should nonetheless remain in
place while nullifying only the arbitration provisions.
18
instance, Respondents’ counsel has stated elsewhere that the logical effect of the
First Department’s ruling is to invalidate every unfiled “side agreement” that
contains an arbitration clause: “Beyond mandatory arbitration, the decision also
potentially renders financial terms in these side agreements unenforceable—terms
covering add-on fees for medical bill review, nurse case managers and other cost
containment services provided by the carrier as well as collateral requirement
conditions and how claims are handled.” Nicholas P. Roxborough, New York
Ruling Adds Transparency In California Workers’ Comp Market, 92 Ins. J. 22
(Nov. 17, 2014), available at http://www.insurancejournal.com/magazines/
features/2014/11/17/346551.htm.
Similarly, counsel for Respondents recently filed a lawsuit in California state
court seeking “to have all side agreements declared void and unenforceable
because of [the insurer’s] failure to comply with Insurance Code § 11658 and other
similar statutes concerning endorsements and agreements that modify workers
compensation policies in California.” Adir Int’l, LLC v. Travelers Indem. Co. of
Conn., No. BC575513 (Cal. App. Dep’t Super. Ct.), Complaint filed Mar. 13,
2015, at ¶ 86 (emphasis added) (excerpted at Reply Compendium RC-5).
As National Union pointed out, this is precisely what Priority Business
originally urged when it plainly stated, “Priority challenges the validity of the
Payment Agreements as a whole.” A-96; see also Opening Br. 25 n.7 (quoting
19
Priority’s argument (A-96) that “the Payment Agreements, and the arbitration
provision contained in them . . . are thus unenforceable as violating public
policy”).
7
Further, Respondents’ brief here eventually echoes Priority Business’s
arguments below. See Resp. Br. 68. Respondents argue that “it is against the
public policy of California for a workers’ compensation policy or endorsement to
be issued to any employer unless filed for approval.” Id. (incorporating by
reference “express[ions] supra” why the policy or endorsements were required to
be filed). They then contend that “National Union’s decision not to file its
endorsements violates a law established for a public reason,” and therefore “[t]he
endorsement is unenforceable.” Id.
8
7
Respondents now dispute this fact, arguing that “Priority [] challenged below only the validity
of the arbitration provision, and not the entire Payment Agreement.” Resp. Br. 64 (citing RA-
292, 298–301). Respondents’ quotations are to the same brief Justice Kornreich pointed to in
holding that “[c]ontrary to Priority’s assertions in oral argument,” Priority “challenges the
validity of the Payment Agreements as a whole.” A-96. Indeed, the very pages Respondents cite
from Priority’s briefs confirm that they challenge the validity of the Payment Agreements as a
whole. See, e.g., RA-297 (“Because the PAs and the arbitration provisions therein are
unenforceable under California law, National Union’s petition must be dismissed . . . .”); RA-
299 (“National Union cannot show that the Payment Agreements were filed with the WCIRB as
part of the Program, let alone approved as in keeping with California public policy, and are thus
unenforceable under California law.”); RA-301 (“The Payment Agreements, and the arbitration
provisions contained in them, violate California Insurance Code Section 11658 and are thus
unenforceable as violating public policy.”) (emphases added to all quotations).
8
Consistent with their artificial focus on remedy, in one sentence Respondents state that
“National Union’s present attempt to enforce its unfiled and unapproved arbitration endorsement
must, therefore, be denied.” Resp. Br. 68 (emphasis added). But it is clear from the remainder
of their brief that Respondents contend that every Payment Agreement on the whole constitutes
an endorsement, see supra at 15–17 (discussing Resp. Br. 30–32); supra at 6 n.1, thus the
argument they make is in no way limited to the arbitration clause.
20
2. Respondents Cannot Avoid Arbitration Based On A Challenge
To The Payment Agreements By Arbitrarily Limiting The
Relief They Purport To Seek.
Respondents contend that their challenge to the Payment Agreements as a
whole provides a basis for avoiding arbitration under the FAA so long as the
remedy they request of this Court “is limited to seeking to excise the arbitration
provision.” Resp. Br. 60 (“The choice as to what to seek to invalidate is that of the
party seeking relief.”); id. at 65 (“Respondents’ challenge . . . lies solely against the
enforceability of the arbitration provisions of the Payment Agreements . . . .
Whether the other provisions of the Payment Agreements would also stand or fall
is simply irrelevant to that issue.”).
First, as addressed above, this argument is contrary to Supreme Court
precedent, which holds that arbitrators should decide a challenge to enforceability
if the “basis of challenge” or “ground” for challenging arbitration “directly affects
the entire agreement.” See Rent-A-Center, 561 U.S. at 70–71; Buckeye, 546 U.S.
at 444–46; Prima Paint, 388 U.S. at 403–04.
Second, Respondents’ proposed exception would swallow the well-
established rule that challenges to the legality of agreements containing arbitration
clauses should be decided by arbitrators. See, e.g., Prima Paint, 388 U.S. at 403–
04. Under Respondents’ argument, however, a party always could avoid
arbitration by (1) challenging the legality of an agreement containing an arbitration
21
provision; but (2) limiting the proposed remedy to invalidation of the arbitration
agreement.
Third, if remedy alone were determinative of whether an arbitrator or a court
must resolve a challenge to arbitration, then Rent-A-Center would have come out
the other way. There, as Respondents acknowledge, the entirety of the contract in
question was an arbitration agreement. Resp. Br. 62 n.14. The party objecting to
arbitration sought a remedy of voiding “the entire arbitration agreement,” Rent-A-
Center, 561 U.S. at 73 (emphasis in original), not vitiating any other contracts
between the parties. Nonetheless, because the basis for the objector’s challenge
affected the arbitration agreement as a whole, not the specific provision of the
arbitration agreement that delegated the particular dispute to arbitration, the Court
held that an arbitrator was to decide it. See id. at 72–76.
Fourth, the Supreme Court in Buckeye also rejected the argument that who
decides a challenge to arbitration turns on the remedy sought. There, the United
States Supreme Court reversed the Florida Supreme Court’s holding that whether a
challenge to arbitration should be resolved by arbitrators or a court turned on
whether the remedy for a contract that was illegal under Florida law was to make it
“void or voidable.” 546 U.S. at 446. In doing so, the Buckeye court reiterated that
Prima Paint “expressly disclaimed any need to decide what state-law remedy was
available.” Id. (emphasis added) (citing Prima Paint, 388 U.S. at 400 n.3).
22
Finally, Respondents are incorrect in suggesting that Lynch v. Cruttenden &
Co., 22 Cal. Rptr. 2d 636 (Cal. Ct. App. 1993), could mandate a different outcome.
See Resp. Br. 61. In Cruttenden, securities brokers fraudulently induced plaintiff,
who had only a ninth grade education, to sign documents containing arbitration
clauses by telling plaintiff “that the documents did not affect legal rights and it was
not necessary that they be read.” 22 Cal. Rptr. 2d at 638. Cruttenden turned on the
nature of plaintiff’s challenge to the arbitration agreement rather than the remedy
the challenging party sought. Specifically, Cruttenden explained that “[i]n contrast
to the instant case there was no allegation in Prima Paint that a party was misled as
to the existence or effect of the arbitration clause. Here, it is alleged the parties
were misled as to the very existence of the arbitration clause.” Id. at 641. In this
case, by contrast, Respondents do not contest that they had knowledge of and
understood the arbitration provisions. Respondents are sophisticated businesses
whose top executives repeatedly executed the Payment Agreements, see Opening
Br. 12 & n.2, which conspicuously provided for arbitration, id. at 13–14. Insofar
as the Cruttenden court suggested that a challenge would be for a court to decide
even if the alleged “misrepresentation may go to some or even all of the clauses of
the contract as well as the arbitration clause,” 22 Cal. Rptr. 2d at 641 (citing Prima
Paint) (quoted in Resp. Br. 61), (1) that quoted language predates and is
irreconcilable with Rent-A-Center and Buckeye, which confirm that a challenge to
23
arbitration is to be decided by an arbitrator if the basis for challenge “affects the
entire agreement.” Rent-A-Center, 561 U.S. at 70 (quoting Buckeye, 546 U.S. at
444), and, in all events, (2) Cruttenden is a state court case interpreting the FAA
and thus entitled to no deference in its interpretation of federal law by this Court,
see infra at 40–41 n.15 (explaining that state court decisions interpreting federal
law are not owed deference).
3. Respondents’ Arguments That Courts, Not Arbitrators, Must
Decide The California Insurance Law Issues Relevant To
Enforceability Reflect Hostility To Arbitration That The Law
Prohibits.
Respondents’ arguments against arbitration also should be rejected because
they fundamentally conflict with the FAA’s animating principles. Respondents
contend that “National Union seeks to be able to try to enforce all its supposed
claims under its Policies and Payment Agreements by way of arbitration, while
avoiding the risk that California courts will hold it to the requirements of contract
law.” Resp. Br. 38. That is demonstrably untrue because, as shown, National
Union acknowledges that the requirements of contract law and California
insurance law will be applied in arbitration. Moreover, Respondents’ argument
rests on an offensive hostility to arbitration generally. Respondents suggest that
arbitration’s rules are fundamentally flawed and that arbitrators lack competence,
“sophistication,” “experience,” “neutrality,” and are unfit to “consider[] . . . tenets
of contract and equity law.” Id. at 38 n.11; contra Opening Br. 64 & n.21
24
(collecting authority recognizing the value of arbitrators with specialized expertise,
which the arbitration provisions in the Payment Agreements require for potential
arbitrators).
Such attacks on arbitration are why Congress enacted the FAA. The FAA’s
“purpose was to reverse the longstanding judicial hostility to arbitration
agreements that had existed at English common law and had been adopted by
American courts, and to place arbitration agreements upon the same footing as
other contracts.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991);
accord Broughton v. Cigna, 988 P.2d 67, 72–73 (Cal. 1999). Therefore, the
United States Supreme Court has repeatedly “rejected generalized attacks on
arbitration that rest on ‘suspicion of arbitration as a method of weakening the
protections afforded in the substantive law to would-be complainants.’” Green
Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 89–90 (2000) (quoting Rodriguez
de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 481 (1989)); see also, e.g.,
Gilmer, 500 U.S. at 30. The California Supreme Court likewise has done so. See,
e.g., Cable Connection, 190 P.3d at 592; Madden v. Kaiser Found. Hosps., 552
P.2d 1178, 1183 (Cal. 1976) (en banc) (rejecting “cases from other states which
date from an era of judicial hostility to arbitration” because “[t]hat judicial era has
long since receded into a remote past”).
25
Respondents evidence the same hostility to arbitration, albeit in more polite
terms, by insisting that courts should decide enforceability here because the dispute
involves the application of California insurance law. See, e.g., Resp. Br. 39
(invoking “California’s prerogative to regulate its own insurance practices”); id. at
44 (relying on “the special competency of the CDI”); id. at 50 (accusing National
Union of “tak[ing] this regulatory oversight away from the CDI under the guise of
the FAA”). Respondents’ suggestion that arbitrators are not competent to apply
California insurance law is wrong. As the Supreme Court has explained, “even
claims arising under a statute designed to further important social policies may be
arbitrated because ‘“so long as the prospective litigant effectively may vindicate
[his or her] statutory cause of action in the arbitral forum,”’ the statute serves its
functions.” Green Tree, 531 U.S. at 90 (citations omitted) (emphasis added).
Courts, including this Court, have consistently enforced agreements to arbitrate
where the disputes implicate laws that serve important public and social policies.
See, e.g., Gilmer, 500 U.S. at 27 (discussing the “important social policies”
furthered by the Age Discrimination in Employment Act and holding that “[w]e do
not perceive any inherent inconsistency between those policies [], and enforcing
agreements to arbitrate age discrimination claims”); id. at 28 (“The Sherman Act,
the Securities Exchange Act of 1934, RICO, and the Securities Act of 1933 all are
designed to advance important public policies” and “claims under those statutes are
26
appropriate for arbitration.”); Schreiber v. K-Sea Transp. Corp., 81 N.Y.2d 623,
629 (2007) (FAA’s “federal policy favoring the arbitration of disputes . . . is
applicable even to claims arising under protective statutes”); In re N.Y. City Transit
Auth. v. Transp. Workers Union of Am., Local 100, AFL-CIO, 99 N.Y.2d 1, 9
(2002) (“The legislative authority to ‘manage, control and direct’ the operation of
New York City’s public transportation system for the ‘convenience and safety of
the public’ does not translate into a statutory prohibition against some
relinquishment to arbitrators of the final say in safety matters when they arise in
the context of employee discipline.”).
B. In All Events, Respondents’ Challenge To Enforceability Should Be
Resolved In Arbitration Because There Is “Clear And Unmistakable”
Evidence That The Parties Agreed To Arbitrate Arbitrability.
Even if the basis for Respondents’ challenge to arbitration meant that it
presumptively would be resolved by a court under the FAA—and it does not, see
supra § I.A—the FAA allows parties to agree that arbitrators, rather than a court,
should resolve a challenge to arbitrability. Rent-A-Center, 561 U.S. at 69–71 &
n.1 (explaining that, under the FAA, parties “can agree to arbitrate ‘gateway’
questions of ‘arbitrability’”); see Opening Br. 17–18. Here, the arbitration
provision in the Payment Agreements reflects “clear and unmistakable” evidence
that the parties agreed that arbitrators would decide any such challenge to
enforceability. See Opening Br. 43–45. Respondents’ Brief miscomprehends the
27
governing law and National Union’s showing that the parties clearly and
unmistakably agreed to allow an arbitrator to decide any challenge to arbitration.
See Resp. Br. 58–60.
As shown above and explained in the Opening Brief, where a contract
contains an arbitration provision, the FAA creates a presumption that certain types
of challenges to arbitration are decided by arbitrators, whereas other types of
challenges are presumptively decided by a court. See Opening Br. 17–18, 34–35,
43–44.
9
Under the FAA, however, parties can agree to arbitrate issues that, in the
absence of such agreement, presumptively would be resolved by a court. Rent-A-
Center, 561 U.S. at 68-70 & n.1 (“parties can agree to arbitrate ‘gateway’
questions of ‘arbitrability,’” if they provide “clear and unmistakeable” evidence of
an agreement to do so) (quoted in Opening Br. 17). Thus, even if Respondents’
challenge to enforceability were not presumptively for an arbitrator to decide under
the FAA—and it is, supra § I.A—the FAA independently allows parties to agree to
have arbitrators, rather than courts, resolve such disputes. See id.
Here, the Payment Agreements the parties executed reflect their agreement
that arbitrators will have “exclusive jurisdiction over the entire matter in dispute,
9
See, e.g., Howsam, 537 U.S. at 84 (“‘“procedural” questions which grow out of the dispute and
bear on its final disposition’ are presumptively not for the judge, but for an arbitrator, to decide,”
such as whether one completed steps of a grievance procedure that “are prerequisites to
arbitration”) (emphasis in original) (citation omitted); VRG Linhas Aereas S.A. v.
MatlinPatterson Global Opportunities Partners II L.P., 717 F.3d 322, 325 n.2 (2d Cir. 2013)
(“‘“questions of arbitrability” is a term of art’” that applies to disputes “over the arbitration
agreement’s scope”) (emphasis in original) (citation omitted).
28
including any question as to its arbitrability.” E.g., A-174 (emphasis added). This
provision is exactly the type of express agreement to “arbitrate arbitrability” that
the United States Supreme Court and the federal courts of appeals have held is
sufficient to empower arbitrators to decide a challenge to arbitration no matter
what its basis. See, e.g., Rent-A-Center, 561 U.S. at 68–69 & n.1; Milan Express
Co. v. Applied Underwriters Captive Risk Assurance Co., 590 F. App’x 482, 484–
85 (6th Cir. 2014) (provision, similar to the one here, stating “‘[a]ll disputes
between the parties relating in any way to . . . enforceability of this Agreement . . .
shall be . . . finally determined exclusively by binding arbitration’” constituted clear
and unmistakable evidence that the parties intended arbitrators to resolve questions
of arbitrability) (emphasis supplied by the court omitted); Wootten v. Fisher Invs.,
Inc., 688 F.3d 487, 493–94 (8th Cir. 2012) (holding that challenge specific to
arbitration provision as void against public policy was subject to resolution by
arbitration because the arbitration provision stated that “[a]ny dispute” including
“the scope and applicability of the agreement to arbitrate . . . shall be determined
by arbitration,” and therefore constituted “a clear and unmistakable expression of
the parties’ intent to leave the question of arbitrability to an arbitrator”) (internal
quotation marks omitted, applying Rent-A-Center); id. (“[W]here the parties agree
to arbitrate the enforceability of the arbitration agreement, federal courts must
allow the arbitrator to determine that threshold issue first.”) (citing Rent-A-Center).
29
Respondents argue that there is not clear and unmistakable evidence here
because venue provisions in addenda to the Payment Agreements provide “that
‘any action or proceeding concerning arbitrability, including motions to compel or
to stay arbitration, may be brought only in a court of competent jurisdiction in the
City, County and State of New York.’” Resp. Br. 58. Respondents assert that this
language “unambiguously assigns the Court exclusive jurisdiction over
arbitrability.” Id. That is wrong. The venue provision is in no way inconsistent
with the parties’ agreement that the arbitrators would resolve any issue of
arbitrability. Of course, there would be no way to compel or stay arbitration
except to do so in court. The provision Respondents cite simply provides that such
judicial actions must be brought in a court in the City, County, and State of New
York. A-178.
Furthermore, the language in the Payment Agreements is at least as clear as
that discussed in In re Smith Barney Shearson Inc. v. Sacharow, 91 N.Y.2d 39
(1997), upon which Respondents rely. Resp. Br. 58. In Smith Barney Shearson,
this Court held that an arbitration agreement providing that “any and all
controversies . . . shall be determined by arbitration” “evince[d] the parties’ intent
to submit issues of arbitrability to the arbitrators.” 91 N.Y.2d at 46. Following the
Second Circuit’s application of the “clear and unmistakable” rule, this Court held
that the “any and all controversies” language of the agreement to be “inclusive,
30
categorical, unconditional and unlimited” and that “[t]he words ‘any and all’ are
elastic enough to encompass disputes over whether a claim is timely and whether a
claim is within the scope of arbitration.” Id. (quoting PaineWebber Inc. v. Bybyk,
81 F.3d 1193, 1199 (2d Cir. 1996)). Indeed, applying Smith Barney Shearson, the
Second Circuit has recognized that “‘even absent an express contractual
commitment of the issue of arbitrability to arbitration, a referral of “any and all”
controversies reflects such a “broad grant of power to the arbitrators” as to
evidence the parties’ clear “inten[t] to arbitrate issues of arbitrability.”’”
Benihana, --- F.3d ---, 2015 WL 1903587, at *9 (citing, inter alia, Smith Barney
Shearson, 91 N.Y.2d at 43, 46).
Here, as discussed, the arbitration provision not only vests the arbitrators
with jurisdiction over the “entire matter in dispute,” but it specifically provides that
“any question as to its arbitrability” is for the arbitrators to decide. E.g., A-174. In
doing so, the arbitration provisions reflect “clear and unmistakable” evidence that
the parties agreed to arbitrate irrespective of the basis for the challenge to
arbitration. Thus, even if this Court were to hold that Respondents’ objection to
arbitration ordinarily would be decided by a court under the FAA (which it should
not), see supra § I.A, in the alternative, National Union should prevail because the
“clear and unmistakable” language of the Payment Agreements’ arbitration
31
provisions means that they must be “enforced according to their terms.” A-53
(Gische, J., dissenting).
C. The FAA Is Not Rendered “Unenforceable On A ‘Public Protection’
Basis.”
Respondents argue, based on the California Supreme Court’s decision in
Iskanian v. CLS Transportation Los Angeles, LLC, 327 P.3d 129 (Cal. 2014), cert.
denied, 135 S. Ct. 1155 (2015), that California’s purported “strong public policy”
against an insurer issuing a workers’ compensation policy or endorsement not pre-
approved by the CDI is grounds for deeming the Payment Agreements
“unenforceable on a ‘public protection’ basis” under Section 2 of the FAA. Resp.
Br. 65–69.
10
This argument should be rejected.
Respondents’ reliance on Iskanian is misplaced first because there is no
conflict between the FAA and California insurance law. The premise of
Respondent’s argument is that the FAA should not be held to “preempt[]” certain
generally applicable “state-law prohibition[s] of enforcement of [arbitration].”
Resp. Br. 66; see id. at 68–69. National Union does not contend that the FAA
preempts, let alone modifies, any aspect of the California insurance law. The FAA
merely speaks to who decides the threshold questions of enforceability under
10
See 9 U.S.C. § 2 (“A written provision in . . . a contract evidencing a transaction involving
commerce to settle by arbitration a controversy thereafter arising out of such contract or
transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to
submit to arbitration an existing controversy arising out of such a contract, transaction, or
refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract.”) (emphasis added).
32
California insurance law, and, as applied here, it mandates that those questions be
decided by the arbitrators. As discussed infra § II, that requirement is entirely
consistent with California insurance law.
But even on its own terms, Iskanian is entirely irrelevant. In Iskanian, the
California Supreme Court ruled that although the FAA required enforcement of the
parties’ waiver of a right to bring a private class action, 327 P.3d at 133, a plaintiff
nevertheless could bring a representative action under the “Labor Code Private
Attorneys General Act of 2004 (PAGA) (Lab. Code § 2698 et seq.),” id. The
Court explained that “the FAA’s goal of promoting arbitration as a means of
private dispute resolution does not preclude [the California] Legislature from
deputizing employees to prosecute Labor Code violations on the state’s behalf.”
Id. The court reasoned that “a PAGA claim lies outside the FAA’s coverage
because it is not a dispute between an employer and an employee arising out of
their contractual relationship;” rather, “[i]t is a dispute between an employer and
the state, which alleges directly or through its agents . . . that the employer has
violated the Labor Code.” Id. at 151 (emphasis in original).
11
11
Under PAGA, the private individual sues as “the proxy or agent of the state’s labor law
enforcement agencies,” and that “[o]f the civil penalties recovered, 75 percent goes to the Labor
and Workforce Development Agency,” id. at 146–47; see also Franco v. Arakelian Enters., Inc.,
184 Cal. Rptr. 3d 501, 515 (Cal. Ct. App. 2015) (“‘[A]n aggrieved employee’s action under the
[PAGA] functions as a substitute for an action brought by the government itself;’” “[t]he bulk of
any recovery under the PAGA goes to the state, not to the plaintiff-employee; and the judgment
in a PAGA action binds the state just as it binds the employer and the plaintiff-employee”)
(citation omitted).
33
Irrespective of whether these PAGA decisions correctly interpret the FAA,
12
their rationale does not apply here. Respondents have not brought any action
under PAGA. They do not seek to bring suit as a proxy for a government agency.
They do not seek to recover on behalf of any California governmental entity.
Indeed, in stark contrast to Iskanian, Respondents have brought a private lawsuit
that seeks recovery solely on their own behalf with no “recovery . . . go[ing] to the
state.” Franco, 184 Cal. Rptr. 3d at 515. Accordingly, these PAGA decisions do
not assist Respondents.
II. THE MCCARRAN-FERGUSON ACT DOES NOT DISPLACE THE FAA
ON THE ISSUE WHETHER ARBITRATORS DECIDE IF THE
ARBITRATION PROVISIONS IN THE PAYMENT AGREEMENTS ARE
ENFORCEABLE.
The McCarran-Ferguson Act does not displace the FAA’s requirement that,
in circumstances like those presented here, the arbitrator must decide whether the
parties’ agreements to arbitrate are enforceable. On that issue, Respondents bear
the burden of demonstrating “that the application of the Federal Arbitration Act
would ‘invalidate, impair or supersede any law enacted by [California] for the
12
As Respondents acknowledge, see Resp. Br. 68, the federal courts have rejected the rule that
PAGA claims are exempt from arbitration. See, e.g., Fardig v. Hobby Lobby Stores Inc., No.
SACV 14-00561 JVS, 2014 WL 4782618, at *4 (C.D. Cal. Aug. 11, 2014) (“Even in light of
Iskanian, the Court continues to hold that the rule making PAGA claim waivers unenforceable is
preempted by the FAA. There is nothing in Iskanian that persuades the Court otherwise, and the
Court is not bound by the California Supreme Court’s understanding of federal law.”); Ortiz v.
Hobby Lobby Stores, Inc., No. 2:13-CV-01619, 2014 WL 4961126, at *10 (E.D. Cal. Oct. 1,
2014) (joining the “majority of District Courts [that] have found representative PAGA action
waivers enforceable under the FAA”).
34
purpose of regulating the business of insurance.’ 15 U.S.C. § 1012(b).” Hamilton
Life Ins. Co. of N.Y. v. Republic Nat’l Life Ins. Co., 408 F.2d 606, 611 (2d Cir.
1969). Respondents cannot carry that burden because the FAA provision at issue
addresses the narrow procedural question of who must decide a challenge to
enforceability. That procedural requirement does not trigger the McCarran-
Ferguson Act because California insurance law permits arbitration and does not
speak to the issue of who must decide a challenge to enforceability. See Opening
Br. 45–61. Rather, the FAA acts in aid of California insurance law by supplying a
procedural framework to facilitate resolution of the parties’ dispute under
California insurance law.
Rather than trying to meet their burden, Respondents seek to change the
subject by arguing that National Union seeks to have the FAA “pre-empt state
regulation of insurance.” Resp. Br. 48; see id. at 48–54; id. at 51 (“National Union
continues to suggest that FAA pre-emption jurisprudence compels enforcement of
the arbitration provisions”); id. at 53 (“the provisions of the California Insurance
Code . . . are not preempted by the FAA”). National Union has done no such
thing. Rather, National Union has shown that the FAA’s only relevance here is to
resolve “who decides” whether the agreement to arbitrate is enforceable. In doing
so, National Union acknowledges that all of the provisions of the California
Insurance Code invoked by Respondents can be applied in arbitration.
35
As to National Union’s actual position in this case, Respondents do not cite
a single case holding that allowing an arbitrator to decide the enforceability of an
agreement to arbitrate would “impair, invalidate, or supersede” a California state
law concerning insurance, or another state’s similar insurance laws. See Resp. Br.
44–48, 54–58. Respondents are nearly silent in response to National Union’s
showing regarding the cases examining the interplay of the FAA and the
McCarran-Ferguson Act. See Opening Br. 48, 53–56; compare Resp. Br. 46–48
(acknowledging three of those cases); see infra § II.A. As National Union
demonstrated, in those states whose laws expressly prohibit the arbitration of
insurance contracts or vest courts with exclusive jurisdiction to decide insurance-
related disputes, the McCarran-Ferguson Act displaces the FAA. See Opening Br.
55–56 & n.14 (citing McKnight v. Chicago Title Ins. Co., 358 F.3d 854, 855 (11th
Cir. 2004), Standard Sec. Life Ins. Co. of N.Y. v. West, 267 F.3d 821, 823–24 (8th
Cir. 2001), In re Mut. Reinsurance Bureau v. Great Plains Mut. Ins. Co., 969 F.2d
931, 932–34 (10th Cir. 1992), and State Dep’t of Transp. v. James River Ins. Co.,
292 P.3d 118, 123 (Wash. 2013) (en banc)). By contrast, in those states where the
insurance law does not forbid arbitration—like California—the McCarran-
Ferguson Act does not conflict with the FAA. See id. at 53–55 (citing St. Paul,
270 F.3d at 623–25 (8th Cir.); Kong, 750 F.3d at 1303–04 (11th Cir.), and Miller v.
Nat’l Fid. Life Ins. Co., 588 F.2d 185, 187 (5th Cir. 1979)); see also id. at 48
36
(discussing Judge Rakoff’s decision in In re Arbitration Between Nat’l Union Fire
Ins. Co. of Pittsburgh, Pa. v. Personnel Plus, Inc., 954 F. Supp. 2d 239 (S.D.N.Y.
2013), in line with these cases). Here, California Insurance Code Section 11658
does not forbid (or even mention) arbitration and does not otherwise deprive
arbitrators of their ability to decide challenges to the enforceability of agreements
to arbitrate in the manner the FAA mandates.
This Court should follow established federal law concluding that the
McCarran-Ferguson Act does not preempt the FAA when state law does not
preclude arbitrators from deciding whether an agreement to arbitrate is
enforceable.
13
A. Respondents Have No Persuasive Response To Federal Court Cases
Holding That The FAA Is Not Reverse-Preempted By The
McCarran-Ferguson Act In States With Insurance Statutes Like The
California Statute At Issue Here.
National Union’s Opening Brief invited Respondents to identify any
California insurance law that prohibits arbitrators from resolving insurance
disputes, including challenges to the enforceability of arbitration provisions in
insurance-related contracts. See, e.g., Opening Br. 45–46, 51–52. Respondents
fail to do so. The only state insurance enactment Respondents and the First
13
See generally N.Y. Rapid Transit Corp. v. City of N.Y., 275 N.Y. 258, 265 (1937) (decisions of
lower federal courts interpreting federal issues are “entitled to great weight” despite not being
binding on this Court), aff’d, 303 U.S. 573 (1938); In re Fermaglich (Levine), 41 A.D.2d 70, 76
(3d Dep’t 1973) (“With certain possible exceptions the rule in New York State is that our courts
will give effect to the interpretations of a Federal statute by a Federal court.”).
37
Department identify, California Insurance Code Section 11658, requires only that
certain insurance-related documents be filed with California regulators. Even the
First Department majority acknowledged that “California Insurance Code § 11658
does not provide any prohibition against arbitration.” A-34. The FAA does not
invalidate, impair, or supersede Section 11658 because that California law does not
speak to whether the arbitrators or a court must resolve a challenge to
enforceability and because the arbitrators here would apply Section 11658 and all
other aspects of California insurance law. See Humana, 525 U.S. at 308 (rejecting
argument that McCarran-Ferguson Act imposes a “broad prescription against
applying federal law where a state has . . . chosen not to regulate”) (internal
quotation marks omitted).
National Union showed that where, as here, the state insurance statutes do
not prohibit arbitration or address the core FAA issue of who decides a challenge
to enforceability, federal courts have held uniformly that the McCarran-Ferguson
Act does not displace the FAA. See, e.g., Opening Br. 53–56; St. Paul, 270 F.3d at
625 (8th Cir.); Personnel Plus, 954 F. Supp. 2d at 248; Grove Lumber & Bldg.
Supply, Inc. v. Argonaut Ins. Co., No. SA CV 07-1396, 2008 WL 2705169, at *7
(C.D. Cal. July 7, 2008). For instance, based on an analysis of what the FAA
requires in a case where enforceability is challenged (i.e., that a particular
decisionmaker hear the challenge), see Personnel Plus, 954 F. Supp. 2d at 247, and
38
what California Insurance Code Section 11658 mandates, id. at 247–48 (discussing
the filing requirement), Judge Rakoff of the Southern District of New York
concluded that the two statutes “address completely different matters,” id. at 248.
The court explained: “The California statute requires submission of insurance
policies to a state agency before they may be enforced, which does not speak to
whether an arbitrator may be empowered to decide whether the insurance
agreement is unenforceable based on an alleged failure to follow the terms of the
statute.” Id. Thus, the court held that “the McCarran-Ferguson Act does not come
into play, and the Court applies the FAA.” Id.
Likewise, National Union showed that the Eighth Circuit has rejected the
argument that the McCarran-Ferguson Act displaced the FAA where, in alleged
violation of the Texas insurance statutes parallel to the California provisions here,
the agreements containing the arbitration provisions “were not filed and approved
under the Texas insurance laws.” St. Paul, 270 F.3d at 625; id. at 623 (recognizing
that the insured claimed that the “‘side agreement’ to arbitrate . . . is contrary to the
Texas insurance laws and therefore unenforceable”). The Eighth Circuit held that
the insurance laws requiring filing and approval of the agreements “are not
impaired by the agreement to arbitrate” and the “McCarran-Ferguson Act has no
impact on the issue of arbitrability.” Id. at 625 (“the dispute is arbitrable but [the
insurer’s] claim may be unenforceable”). In doing so, it recognized that “[i]f the
39
Texas insurance laws forbid the arbitration of insurance disputes . . . the [FAA]
would be ‘inversely preempted’ by the McCarran-Ferguson Act,” but held that the
McCarran-Ferguson Act did not reverse-preempt the FAA because, like California
law here, Texas insurance law did not “prohibit[] the arbitration of insurance
disputes.” 270 F.3d at 625; see Opening Br. 53–55.
Respondents have no persuasive answer to these showings. Respondents
gloss over the reasoning and holding in Personnel Plus. They instead intimate that
Judge Rakoff was reflexively following the overturned trial court decision in
Priority Business now on review here, and thus the contrary ruling by the First
Department sweeps aside Personnel Plus. See Resp. Br. 46. Respondents’
suggestion that Judge Rakoff failed to analyze independently this question of
federal law would be dubious even in the abstract, but it fares even worse under a
fair reading of Judge Rakoff’s analysis in Personnel Plus, which closely tracks St.
Paul and other federal court authority. Respondents’ further suggestion, id., that
Personnel Plus would have come out differently had Judge Rakoff considered the
CDI letter is pure revisionism. The CDI letter, A-458–60, was issued two years
before Judge Rakoff’s decision, and was specifically provided to Judge Rakoff by
the insured party in connection with its briefing and argument, see Nat’l Union
Fire Ins. Co. of Pittsburgh, Pa. v. Personnel Plus, Inc., No. 1:12-cv-04647-JSR,
Docket Entry 21-1 (CDI Letter, filed as Ex. A to Declaration of J. van Oordt in
40
Support of Opposition to Petition to Appoint an Umpire) (S.D.N.Y. filed July 27,
2012) (reproduced at RC-17–18); Personnel Plus, No. 1:12-cv-04647-JSR, Docket
Entry 20 (Memorandum of Law in Opposition to Appoint an Umpire) at 3 n.1, 4
(S.D.N.Y. filed July 27, 2012) (relying on the CDI letter) (reproduced at RC-11–
12).
14
Respondents seek to distinguish Grove Lumber on the same basis. But the
CDI letter does not address what Grove Lumber found to be determinative in
rejecting an argument that the McCarran-Ferguson Act displaced the FAA:
Section 11658 “does not . . . provide a procedural framework for resolution of
disputes,” and “[t]herefore, the procedural framework under § 2 of the FAA does
not invalidate, impair, or supersede Cal. Ins. Code § 11658(a), or any other
California statute governing the business of insurance.” Grove Lumber, 2008 WL
2705169, at *7.
15
McCarran-Ferguson does not reverse preempt application of the
14
Similarly, the insured submitted to Judge Rakoff the enforcement action the CDI brought
against Zurich, see Personnel Plus, No. 1:12-cv-04647-JSR, Docket Entry 21-4 (excerpted at
RC-21–22), and a copy of the CDI staff member’s affidavit that was filed in the Source One
action on appeal here, see Personnel Plus, No. 1:12-cv-04647-JSR, Docket Entry 21-3
(reproduced at RC-19–20); see also Personnel Plus, No. 1:12-cv-04647-JSR, Docket Entry 20
(Memorandum of Law in Opposition to Appoint an Umpire) at 3–5 (relying on those materials)
(reproduced at RC-11–13).
15
Respondents also attempt to distinguish Grove Lumber because it was decided before
Ceradyne, Inc. v. Argonaut Ins. Co., No. G039873, 2009 WL 1526071 (Cal. Ct. App. June 2,
2009). See Resp. Br. 46–47. But, as discussed below, Ceradyne did not address the McCarran-
Ferguson Act. Even if it did, Respondents would be wrong in contending that “Ceradyne
nullifies any precedential effect of Grove Lumber” because “‘[d]ecisions of the California Courts
of Appeals are to be followed by a federal court where the Supreme Court has not spoken on the
question.’” Id. (citation omitted). This rule applies to decisions of the California Courts of
Appeals where that court is applying a state law rule of decision. The question of whether
41
FAA where, as here, California has “chosen not to regulate” the procedural
framework for resolving challenges to the enforceability of arbitration agreements.
Humana, 525 U.S at 308 (internal quotation marks omitted).
Respondents’ efforts to distinguish St. Paul are equally flawed. Resp. Br.
47–48. First, Respondents ignore that the insured’s arguments in St. Paul
paralleled Respondents’ arguments here and instead recast that decision as
“set[ting] up a bright line rule that unless a state insurance statute prohibits
arbitration,” the McCarran-Ferguson Act does not displace the FAA. Id. at 47. St.
Paul does no such thing. The Eighth Circuit ruled, as discussed above, that the
Texas filing statute was distinguishable from insurance statutes that forbid
arbitration, but St. Paul turned on the fact that, as here, “[t]he Texas insurance laws
. . . are not impaired by the agreement to arbitrate.” 270 F.3d at 625. That is, they
allow arbitrators to assess enforceability, including where the challenge is
premised on a failure to satisfy a state law insurance filing requirement.
Second, Respondents also argue that the Eighth Circuit “misread the law of
Texas.” Resp. Br. 47. They contend that “were the St. Paul Fire court to apply
Texas law as construed by the Texas Court of Appeals, it would find [reverse-
McCarran-Ferguson reverse preempts the FAA is a question of federal law, one on which federal
courts have no obligation to follow state courts. E.g., Comm’r of Internal Revenue v. Estate of
Bosch, 387 U.S. 456, 465 (1967) (“[W]hen the application of a federal statute is involved, the
decision of a state trial court as to an underlying issue of state law should a fortiori not be
controlling. This is but an application of the rule of Erie . . . .”); In re CBI Holding Co., Inc., 529
F.3d 432, 447 (2d Cir. 2008) (Wesley, J.) (“To the extent that [the New York Appellate Division
case] interprets federal law, it is not binding on this Court.”).
42
preemption],” because In re Sthran, 327 S.W.3d 839, 845–46 (Tex. App. 2010)
“held squarely that McCarran-Ferguson reverse preempts the FAA with regard to
the Texas notice requirement.” Resp. Br. 48. Respondents are mistaken. Sthran
did not address St. Paul’s application of the Texas insurance law; indeed, the two
cases did not involve the same laws. St. Paul addressed a Texas Insurance Code
(former Section 5.57) provision with a filing requirement like California Insurance
Code Section 11658,
16
whereas Sthran addressed a provision of Texas Civil
Practice that required special notice for certain arbitration agreements between
health care providers and patients. See Sthran, 327 S.W.3d at 845–46 (discussing
Tex. Civ. Prac. & Rem. Code Ann. § 74.451). Moreover, Respondents fail to
mention that the Sthran’s McCarran-Ferguson analysis of the Texas Civil Practice
provision was overruled by the Texas Supreme Court before Respondents filed
their brief. Fredericksburg Care Co. v. Perez, --- S.W.3d ---, 2015 WL 1035343,
at *11 (Tex. Mar. 6, 2015) (“Section 74.451 of the Texas Civil Practice and
Remedies Code was not a law enacted by the Texas Legislature for the purpose of
regulating the business of insurance. . . . Accordingly, the [McCarran-Ferguson
16
See Brief for Appellant, St. Paul Fire and Marine Ins. Co. v. Courtney Enters., Inc., 270 F.3d
621 (8th Cir. 2001), available at 2000 WL 35543809 (arguing “Texas [] regulations requir[e] all
policies and related contracts to be submitted for approval by the Board of Insurance” and “[a]ny
agreement that is not filed for such approval is void and unenforceable”) (citing Tex. Ins. Code
Ann. art. 5.57).
43
Act] does not exempt section 74.451 from preemption by the FAA, and the trial
court should have granted Fredericksburg’s motion to compel arbitration.”).
In the end, the only authorities holding that the McCarran-Ferguson Act
displaces the FAA’s rules that arbitrators should resolve certain disputes are those
cases interpreting state laws that expressly forbid the arbitration of insurance
contracts or vest exclusive jurisdiction over insurance disputes in the state courts.
See, e.g., Opening Br. 55–56 & n.14 (collecting authority). Respondents fail to
discuss any of these cases or acknowledge the manner in which insurance laws
with outright prohibitions on arbitration—which necessarily bar arbitrators from
deciding whether an arbitration provision in an insurance contract is enforceable—
fundamentally differ from insurance laws like California’s that do not address
whether an arbitrator may decide the enforceability of an agreement to arbitrate.
Neither Respondents nor the court below have identified a case from any court that
holds the McCarran-Ferguson Act displaces the FAA due to insurance statutes
comparable to California Insurance Code Section 11658.
B. The California Authorities Upon Which Respondents Rely Fail To
Support Their Argument That The McCarran-Ferguson Act
Displaces The FAA Rules Here.
Given that the case law soundly rejects displacement of the FAA in
circumstances like these, Respondents attempt to cobble together an argument that
44
various California decisions support their McCarran-Ferguson argument. See
Resp. Br. 54–56; see also id. at 44–46. This is a failed effort.
Respondents contend that Ceradyne, 2009 WL 1526071, is the “[f]oremost”
case “considering the interplay between California regulations, the FAA and
McCarran-Ferguson.” Resp. Br. 54 (emphasis added). That assertion is baffling.
Ceradyne never mentions the McCarran-Ferguson Act, much less holds that it
displaced any aspect of the FAA. See Opening Br. 60–61. On the contrary,
Ceradyne misapplied the FAA by holding that a court had to decide a challenge to
arbitration because, although the basis for the challenge was that the insurer failed
to file the entirety of a side agreement, the insured sought to nullify “‘the
arbitration clause only.’” Id. at 60 (discussing Ceradyne).
17
As shown, that
conclusion is contrary to controlling precedent holding that the FAA requires
17
More generally, Respondents’ arguments misunderstand the difference between the roles
played by the FAA (i.e., determining who decides a challenge to arbitration without speaking to
the substantive standards governing a challenge to the enforceability of a particular contract) and
Section 11658 (i.e., allegedly setting forth circumstances in which a contract relating to
insurance will be unenforceable without speaking to who decides that question). Specifically,
they dispute the dissent’s conclusion that “‘California law does not restrict the power of an
arbitrator to address whether the Payment Agreements in these cases were required to be filed.’”
Resp. Br. 44 (quoting A-58). Although the dissent was correct because California law does not
touch on the “who decides” issue, Respondents assert that “the Ceradyne court and the CDI have
explicitly stated to the contrary.” Id. As just shown, Ceradyne does not hold that arbitrators
lacked power to decide any challenge to arbitration; rather, it (erroneously) concluded that the
nature of the challenge made it one for the court to decide under the FAA. And as described in
detail infra, the CDI also has not spoken to an arbitrator’s authority to decide challenges that
would fall under his or her jurisdiction pursuant to the FAA. Instead, the CDI has addressed
circumstances in which a substantive challenge to enforceability, based on failure to file, may
prevail.
45
arbitrators to decide a challenge to arbitration when a party’s challenge is based on
grounds that apply to the agreement as a whole. See supra § I.A.
Respondents then cite several California decisions (the “Smith-Imbler line of
cases,” Resp. Br. 56) concerning a provision of the California Health & Safety
Code that they argue “have found that McCarran-Ferguson applied to prevent
preemption of the California regulations by the FAA.” Resp. Br. 54 (emphasis
added); see id. at 54–55 (“health care providers sought to compel arbitration with
subscribers where there were alleged failures to meet the strict requirements of the
disclosure statute, claiming that the FAA preempted the statute”) (emphasis added);
see also id. at 8 (“whether the FAA overrides California’s requirements for filing
and pre-approval of arbitration provisions”). These cases are inapposite because
the FAA does not preempt any aspect of the California insurance laws.
The Smith-Imbler line of cases involved discrete challenges to the
enforceability of an arbitration clause because the “arbitration clause” itself “d[id]
not comply with statutory disclosure requirements applicable to such clauses”
under California law. Smith v. PacifiCare Behavioral Health of Cal., Inc., 113
Cal. Rptr. 2d 140, 142 (Cal. Ct. App. 2001); see Cal. Health & Safety Code
§ 1363.1 (requiring that health care service plans must “specifically” disclose
“whether the plan uses binding arbitration to settle claims of medical
malpractice”). Because the Health & Safety Code provision, by its terms, singled
46
out arbitration agreements for less favorable treatment than other contracts, the
California courts held that it normally would be invalidated or preempted by
Section 2 of the FAA. See, e.g., Smith, 113 Cal. Rptr. 2d at 152 (“[S]ection 1363.1
is obviously a regulatory provision applicable only to arbitration provisions, not to
contracts generally. As already noted, this is precisely what the FAA prohibits.”);
Imbler v. PacifiCare of Cal., Inc., 126 Cal. Rptr. 2d 715, 717 (Cal. Ct. App. 2002)
(“[S]ection 1363.1 . . . ‘conflicts with section 2 of the FAA’”); see generally
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996) (recognizing that
under FAA Section 2, “[c]ourts may not [] invalidate arbitration agreements under
state laws applicable only to arbitration provisions”) (emphasis in original) (quoted
in Smith, 113 Cal. Rptr. 2d at 151). Because the California law regulated
insurance, the courts held that the McCarran-Ferguson Act applied to prevent the
FAA from preempting the Health & Safety Code provision.
Those cases are irrelevant because the FAA does not preempt any aspect of
California insurance law, and thus application of the FAA would not invalidate,
impair, or supersede Section 11658 within the meaning of the McCarran-Ferguson
Act. Instead, under the FAA, the arbitrator would apply California insurance law
to determine whether the Payment Agreements must be filed under Section 11658,
and, if so, what the proper remedy is for the failure to file. The McCarran-
47
Ferguson Act is inapplicable here because California law does not address the
procedural issue of who decides enforceability. See Humana, 525 U.S. at 308.
18
C. Respondents Are Mistaken In Asserting That The McCarran-
Ferguson Act Must Displace The FAA Because The FAA Otherwise
Would Hinder The Goals Of The California Insurance Law.
Because the FAA does not preempt any provision of the California insurance
law, including California Insurance Code Section 11658 and the filing
requirements that Respondents contend apply to the Payment Agreements here,
Respondents’ assertion that the McCarran-Ferguson Act displaces the FAA boils
down to a generalized claim that allowing arbitrators to decide whether the
Payment Agreements are enforceable under California law would “frustrate” or
“contravene” the filing requirement of California Insurance Code Section 11658.
19
Nothing in the California insurance law suggests that allowing an arbitrator to
address the challenge to enforceability under California substantive insurance law
would frustrate or contravene California law.
18
Respondents’ reliance on Corcoran v. Ardra Insurance Co., 156 A.D.2d 70, 73 (1st Dep’t
1990), aff’d, 77 N.Y.2d 225 (1990), see Resp. Br. 56–57, fails for similar reasons. In Corcoran,
New York insurance law specifically legislated that the New York Supreme Court would have
“exclusive jurisdiction of all claims involving [] insolvent insurers.” 156 A.D.2d at 73.
19
See, e.g., Resp. Br. 3 (“Because enforcing arbitration provisions in unfiled California workers’
compensation insurance agreements would directly ‘frustrate’ California’s ‘declared state policy’
of forbidding arbitration unless pre-cleared by the State or agreed to by the parties at the time the
policy is bought, and would thus ‘interfere with’ California’s ‘administrative regime,’ the FAA is
reverse pre-empted by the McCarran-Ferguson Act[.]”); id. at 4 (“no arbitrator can be appointed
without violating . . . McCarran-Ferguson because arbitration, absent filing and pre-clearance, is
contrary to California insurance regulation”); id. at 8, 50 (similar).
48
According to Respondents, application of the FAA is preempted by
McCarran-Ferguson because (1) California law requires that the Payment
Agreements be filed; and (2) absent filing, any arbitration agreement contained in
the Payment Agreements is unenforceable. See, e.g., Resp. Br. 2–4. Respondents’
argument requires a court to resolve the merits of its substantive legal challenge
and ignores the antecedent question of who—the arbitrators or a court—should
decide whether the arbitration agreement is unenforceable. Nothing in California
law prohibits an arbitrator from making this threshold assessment regarding the
applicability and requirements of California Insurance Code Section 11658.
Further, Respondents’ suggestion that arbitrators will not fairly resolve that issue
ignores that California law encourages arbitration of private disputes and thus
rejects the hostility to arbitration inherent in Respondents’ argument.
Deciding who decides an enforceability dispute necessitates a default rule.
See Opening Br. 41–43. Under the FAA, the default rule requires that an arbitrator
address the enforceability dispute in this case. See id.; supra § I. Under
Respondents’ contrary rule, a court would be required to assess enforceability,
which in this case turns on the resolution of the merits of the parties’ dispute over
the applicability and requirements of California insurance law to the Payment
Agreements. Such an approach would require courts to analyze the requirements
of California insurance law simply to assess whether the arbitrator should be
49
permitted to resolve the parties’ substantive dispute. Respondents’ brief
underscores the complexity of the issue by devoting nearly half of its argument to
the requirements of California insurance law. See Resp. Br. 29–48. The contrary
default rule that arbitrators should decide disputes like the one here, however, has
been settled since Prima Paint. See Opening Br. 42–43.
20
Against this settled law, California, unlike a number of other states, has not
adopted a contrary rule that would require courts, rather than arbitrators, to address
the issue of whether the arbitration provisions are enforceable in these
circumstances.
21
Indeed, in the face of decades of settled FAA law, the California
Legislature has never sought to limit arbitration in the insurance setting in a
manner that would preclude arbitrators from making the threshold enforceability
20
Accord Buckeye, 546 U.S. at 448–49 (“It is true, as respondents assert, that the Prima Paint
rule permits a court to enforce an arbitration agreement in a contract that the arbitrator later finds
to be void. But it is equally true that respondents’ approach permits a court to deny effect to an
arbitration provision in a contract that the court later finds to be perfectly enforceable. Prima
Paint resolved this conundrum—and resolved it in favor of the separate enforceability of
arbitration provisions.”).
21
See, e.g., Ga. Code Ann. § 9-9-2 (prohibiting enforcement of arbitration clauses in any
contract of insurance); Kan. Stat. Ann. § 5-401 (arbitration provisions unenforceable as to
contracts of insurance, except for contracts between insurance companies); Ky. Rev. Stat. Ann.
§ 417.050 (similar); La. Rev. Stat. Ann. § 22:868 (prohibiting any insurance policy from
“depriving the courts of this state of jurisdiction of action against the insurer”); Mo. Rev. Stat.
§ 435.350 (recognizing the validity of agreements to arbitrate controversies except as to contracts
of insurance); Mont. Code Ann. § 27-5-114 (similar); Neb. Rev. Stat. § 25-2602.01 (similar);
P.R. Laws Ann. tit. 26 § 1119 (prohibiting any insurance policy from “depriving the courts of
Puerto Rico of jurisdiction of action against the insurer”); S.C. Code Ann. § 15-48-10 (state
provisions enforcing arbitration agreements shall not apply “to any insured or beneficiary under
any insurance policy or annuity contract”); S.D. Codified Laws § 21-25A-3 (providing that any
insurance policy provision requiring arbitration or restricting enforcement of the policy by legal
proceedings is “void and unenforceable”); Wash. Rev. Code Ann. § 48.18.200 (similar).
50
decision or vest the courts with exclusive jurisdiction to resolve challenges to
insurance-related disputes. California’s decision not to regulate this issue does not
displace application of the FAA under the McCarran-Ferguson Act. See Humana,
525 U.S. at 308. To the contrary, California courts have compelled arbitration of
insurance disputes under the FAA notwithstanding that an arbitrator could find
those contracts unenforceable based on common law or other state law grounds.
See, e.g., Homesite Ins., Inc. v. Dhaliwal, A131226, 2012 WL 1354528, at *3 (Cal.
Ct. App. Apr. 19, 2012) (affirming arbitration award in case where insured had
contended in arbitral forum that arbitration agreement was “unenforceable”); see
also Opening Br. 51–52 (citing California cases endorsing and compelling
arbitration of insurance disputes).
The California Legislature knows how to address the arbitration of insurance
disputes directly. When the California Legislature most recently did so, it did not
limit arbitrators’ ability to decide disputes as to the enforceability of arbitration
provisions. Opening Br. 54 n.13. Instead, recently enacted Section 11658.5
requires that “[a]n insurer that intends to use a[n] . . . arbitration agreement to
resolve disputes arising in California out of a workers’ compensation insurance
policy or endorsement issued to a California employer” must make certain
disclosures relating to choice of law and venue. Cal. Ins. Code § 11658.5(a)(1).
The Legislature directed that the remedy for a failure to do so would be “a default
51
to California as the choice of law and forum for resolution of disputes arising in
California.” Id. § 11658.5(c). As a result, the parties’ arbitration would still
proceed, but would do so in California under California choice of law
requirements. Respondents here ask the Court to read into California insurance
law a blanket prohibition against arbitrators deciding enforceability that the
California Legislature has declined to adopt. See Doe v. City of Los Angeles, 169
P.3d 559, 567 (Cal. 2007) (courts may not “rea[d] into” a statute language not
appearing in it).
Nor has the California Insurance Commissioner—assuming he has authority
to fill a statutory gap—issued regulations or other guidance that prohibit arbitrators
from considering the enforceability of an insurance-related contract alleged to be
void for failure to file it pursuant to Section 11658. Instead, when the CDI
addressed unfiled side agreements in a staff attorney’s letter, it focused on
substantive requirements of California law relevant to whether such agreements are
enforceable, not the procedural issue of who should decide a challenge to their
enforceability. See A-458–60 (CDI Letter) (discussing the enforceability of side
agreements generally); A-459 (discussing circumstances in which it considers the
terms of an arbitration provision “unenforceable”).
Further, in reaching its settlement with Zurich, the CDI’s own treatment of
enforceability focused specifically on provisions in Zurich’s former unfiled
52
agreements “that require[d] (i) that arbitration of disputes take place in
Schaumburg, Illinois, and (ii) the application of New York law to such disputes.”
A-493 ¶ 13. Consistent with the policy adopted by the California Legislature in the
enactment noted above, see supra at 50–51, the CDI’s negotiated settlement
required Zurich to agree that “[a]rbitration will take place in California and
California law and venue will apply in the arbitration of such disputes,” but
otherwise permitted Zurich to enforce the arbitration provisions in its prior unfiled
agreements when new disputes under those agreements arise. See A-493–94
¶¶ 13–14; Opening Br. 67–68 & n.24 (explaining different treatment of new
disputes and “current” disputes).
22
Those choice-of-law and venue considerations
are not at issue here because the Payment Agreements do not mandate application
22
Respondents also argue that with respect to “each and every ‘Current Dispute’ – defined in the
Zurich Settlement as a dispute that has not reached a final decision before May 1, 2013 – each
and every ‘California Employer’ may elect either to arbitrate or litigate.” Resp. Br. 39. That is
wrong. A “Current Dispute” does not include any matter that “has not reached a final decision.”
Id. Rather, the settlement defines “Current Dispute” to “include[] any dispute or claim for which
no final decision has been issued . . . and to which one of the following [three categories]
applies[.]” A-493 ¶ 14 (emphasis added). The first category is “[a]ny dispute or claim for which
Zurich has been put on notice prior to the Cutoff Date [May 11, 2013], and for which no written
arbitration demand has been made.” Id. at ¶ 14(1); see id. (explaining what constitutes
reasonable notice). The Zurich settlement was entered into in July 2013, and California has a
four-year statute of limitations; thus, there unquestionably could be claims that might be brought
against Zurich about which the “Employer [had not] taken sufficient steps to place Zurich
reasonably on notice of prior to” the May 11, 2013 “Cutoff Date,” id., and where no “written
arbitration demand ha[d] been made,” A-494 ¶ 14(2), that were not already “the subject of a
pending arbitration,” id. at ¶ 14(3). Any such matter would not qualify as a “Current Dispute”
under the settlement, and therefore Zurich could fully enforce its arbitration provisions with
regard to any such dispute. See A-493 ¶ 14 (granting employers the one-time option to opt out of
Zurich’s otherwise “binding arbitration provisions” only in matters defined as “Current
Dispute[s]”).
53
of New York law, Opening Brief 62–63; e.g., A-178,
23
and the choice-of-forum
provision does not require arbitration outside of California. See, e.g., Opening Br.
63 n.18; supra at 29; e.g., A-178.
24
III. RESPONDENTS’ ARGUMENTS ABOUT THE MERITS OF THE
ENFORCEABILTY DISPUTE ARE PROPERLY RESOLVED BY THE
ARBITRATORS.
As explained in National Union’s Opening Brief (at 61–62), because the
issue whether the agreements to arbitrate in the Payment Agreements are
enforceable is for the arbitrators to decide, the Court need not and should not
resolve whether (1) California Insurance Code Section 11658 required filing of the
Payment Agreements; or (2) if filing were required, whether the proper remedy
would be to void the arbitration provisions. Nonetheless, because Respondents
focus their brief on these merits issues and make a number of misstatements and
legal errors in doing so, National Union is compelled to respond to these
arguments.
1. With respect to whether the Payment Agreements had to be filed,
Respondents ignore that (1) no insurer operating in California had ever filed a side
23
Respondents now appear to concede as much. Resp. Br. 34 (“the arbitrators would be free to
apply New York or any other law if they so choose”) (emphasis added). Respondents ignore that
National Union agrees that California insurance law will apply under ordinary choice-of-law
provisions. See Opening Br. 50; supra at 9; see also Resp. Br. 34–36 (arguing that California
law should apply to the dispute under New York’s choice-of-law rules).
24
In demanding arbitration, National Union expressly stated that “Arbitration proceedings shall
take place in a location to be determined by the arbitration panel.” E.g., A-402.
54
agreement with the CDI or WCIRB until after the CDI issued its February 2011
letter—i.e., nearly a decade after the first Payment Agreement here was executed,
Opening Br. 22; and (2) the Legislature had concluded such side agreements “‘are
not required to be submitted to the Insurance Commissioner for approval,’” id. at
22 n.6 (quoting C-28 (Sen. Committee on Judiciary, Analysis of Assembly Bill No.
2490 (2009-2010 Reg. Sess.) as amended May 20, 2010, at 1 (June 29, 2010)));
compare Resp. Br. 38 (asserting that “National Union[] purposeful[ly] refus[ed] to
obey the California filing requirements”). The arbitrators would address these
competing arguments, the reasons underlying the filing requirement, and the
evidence regarding the California Legislature’s and the entire insurance industry’s
determination that the Payment Agreements did not need to be filed during the
time periods at issue here. Additionally, as discussed previously, Respondents
have no response to National Union’s showing, Opening Br. 62–63, that the
arbitration provisions in its agreements do not “oblig[ate]” Respondents to arbitrate
“in New York and under New York law,” A-41 (emphasis added). This is
significant because the First Department’s erroneous assumption to the contrary
was central to its analysis that the Payment Agreements were policies or
endorsements that had to be filed under California insurance law. See A-41 (“This
[purported choice-of-law and venue] requirement certainly modifies the parties’
obligations, and in a significant way.”).
55
2. As to remedy, Respondents erroneously claim that Ceradyne holds that a
violation of Section 11658 “categorically” requires that the unfiled agreement be
voided. Resp. Br. 48 (“the arbitration provisions are categorically unenforceable—
just as the Appellate Division and the Ceradyne court held regarding the unfiled
arbitration provisions at issue here”); see id. at 32. Respondents do not and cannot
identify any language in Ceradyne to support this proposition. Moreover, they
offer no response to National Union’s showing that Ceradyne rejected any such
“categorical approach.” Opening Br. 65–66 & n.22 (discussing and quoting
Ceradyne, 2009 WL 1526071 at *11–12). Respondents’ argument is irreconcilable
with the analysis in Ceradyne and the cases upon which Ceradyne relies.
The Ceradyne court made plain that the general rule directing that a contract
made in violation of “a regulatory statute is void” “is not an inflexible one to be
applied in its fullest rigor under any and all circumstances.” 2009 WL 1526071 at
*11 (quoting Malek v. Blue Cross of Cal., 16 Cal. Rptr. 3d 687, 707 (Cal. Ct. App.
2004), quoting in turn, Asdourian v. Araj, 696 P.2d 95, 105 (Cal. 1985) (en banc)
(emphasis added, internal quotation marks and alterations in original omitted)).
Instead, California law recognizes “a wide range of exceptions.” Asdourian, 696
P.2d at 105. Notably here, the California Supreme Court has explained that “the
rule will not be applied where the penalties imposed by the Legislature exclude by
implication the additional penalty of holding the contract void.” Id. As shown
56
above, in addressing arbitration of insurance disputes elsewhere, the Legislature
has chosen a more targeted approach that bars certain non-California choice-of-law
and choice-of-venue provisions that would govern the arbitration, but otherwise
allows the arbitration to proceed. Cal. Ins. Code § 11658.5.
Consistent with these principles, the Ceradyne court continued: “In each
case, the extent of enforceability and the kind of remedy granted depend upon a
variety of factors, including the policy of the transgressed law, the kind of illegality
and the particular facts.” 2009 WL 1526071 at *11 (emphases added, internal
quotation marks and citation omitted). This is the opposite of a categorical
approach. And, accordingly, the next sentence of the court’s opinion reflects its
fact-specific holding: “In this case, analysis of the above factors supports the
conclusion the arbitration clause should not be enforced.” Id. (emphases added).
The court stressed the unique circumstances that existed, stating “this is not a case
where equitable factors support upholding the arbitration clause. When this
litigation started, neither party was aware there was an arbitration clause and both
parties participated in the normal course of litigation for over six months until one
of [the insurer’s] lawyers stumbled upon the apparently well hidden arbitration
clause during the course of discovery.” Id. at *12.
The arbitrators should be permitted to assess the circumstances and
determine the appropriate remedy based on the “particular facts” if the arbitrators
57
conclude that Section 11658 applied to the Payment Agreements. For example,
unlike Ceradyne, the arbitration provisions here were not “well hidden” in
contracts or unknown to the insureds or the insurer, nor did the parties here litigate
the case for months in court. Id. The arbitration provisions were well marked in a
short document. E.g., A-173–74, A-187–88, A-203–04, A-207; Opening Br. 13–
14; see also A-178–79 (signature of Respondent’s President immediately after
paragraph amending “HOW WILL DISAGREEMENTS BE RESOLVED?
ARBITRATION PROCEDURES” provision) (emphasis in original); A-194–95,
A-220–21 (similar as to another Respondent’s CFO). And National Union invoked
arbitration promptly after the disputes arose. Opening Br. 1, 15; A-281–308, A-
337–48, A-391–97.
Further, the equities firmly cut against Respondents; they seek to cherry-pick
provisions of the Payment Agreements that benefit them while arguing that the
arbitration provision in the same contract is void. See Opening Br. at 10 & n.1, 31.
This is wrong as a matter of contract law and violates core equitable principles
under California law. See, e.g., NORCAL Mut. Ins. Co. v. Newton, 100 Cal. Rptr.
2d 683, 697 (Cal. Ct. App. 2000) (rejecting argument that arbitration provision was
unenforceable in insurance dispute because “having sought and accepted the
benefit of the insurance policy . . . respondent was required to abide by the policy’s
requirement of arbitration of disputes”); Sheen v. Lorre, No. SC111794, 2011 WL
58
2349074 (Cal. Super. Ct. June 15, 2011) (holding that party was “estopped to deny
application of [a contractual] arbitration clause to his claims” after bringing suit
based on an allegation “that he is a third party beneficiary of the [same] contract”).
25
3. Respondents misapprehend the meaning of and the deference accorded to
the CDI letter and the Zurich settlement under California law.
Specifically, Respondents claim the CDI letter and the Zurich settlement are
given “great weight” by California courts, that they “‘will be followed if not
clearly erroneous,’” Resp. Br. 41, and that “heightened” deference is due because
the regulatory scheme is complex, id. at 42. Each of these contentions is mistaken.
See Opening Br. 67 n.23.
First, Respondents (at 42) cite Yamaha Corp. of America v. State Board of
Equalization, 960 P.2d 1031 (Cal. 1998), but Yamaha holds that agency
“interpretation[s] of a statute” have a “diminished power to bind.” Id. at 1035,
1036 (quoted in Opening Br. 67 n.23). In fact, the Yamaha decision reversed the
California Court of Appeal precisely because the intermediate court had
erroneously held “that an agency interpretation of a statute carries the same weight
. . . as a quasi-legislative regulation.” Id. at 1034; see id. at 1036 (“Because an
25
Ceradyne is distinguishable as well because (1) the insured in Ceradyne both sued “under [the
workers’ compensation Policies” themselves and alleged that the insurer “breached the terms of
the policies,” 2009 WL 1526071, at *3; and (2) the insurer asserted that those policy-based
claims were subject to arbitration given the subsequently issued “Insurance Program Agreement”
that contained the arbitration provisions at issue. Id. at *1. Here, as described, the arbitration
agreement appears in the same Payment Agreements upon which the parties’ underlying claims
are based.
59
interpretation is an agency’s legal opinion, however ‘expert,’ rather than the
exercise of a delegated legislative power to make law, it commands a
commensurably lesser degree of judicial deference.”) (emphasis in original); id. at
1038–39 (agency’s statutory interpretation is relevant only to the extent that it is
itself persuasive).
26
Second, applying Yamaha, the California Supreme Court has held that “an
advice letter prepared by a single staff member,” like the CDI letter here,
commands even less deference than an agency’s statutory interpretation reflected
in a formal interpretive regulation. In re Lucas, 269 P.3d 1160, 1169 (Cal. 2012).
In the same vein, the California Court of Appeal has held that a staff report is “not
entitled to deference because [the agency’s] interpretation was not set forth in a
formal regulation,” POET, LLC v. Cal. Air Res. Bd., 160 Cal. Rptr. 3d 69, 116
(Cal. Ct. App. 2013), and has concluded that a staff member’s letter could be
“rejected categorically” as a basis for finding an “intervening change of law,” Bell
v. Farmers Ins. Exch., 9 Cal. Rptr. 3d 544, 560 (Cal. Ct. App. 2004).
27
26
Respondents also claim that deference is required because the Payment Agreements “implicate
matters of ‘rate making.’” Resp. Br. 42; see id. at 42–43. The issue of enforceability of the
agreement to arbitrate does not implicate any rate-making function, and Respondents have not
challenged any rate in the Payment Agreements.
27
The First Department failed to heed these principles in holding that these interpretations had to
be given “substantial weight.” A-32–33 (citing State Farm Mut. Auto. Ins. Co. v. Quackenbush,
91 Cal. Rptr. 2d 381, 385 (Cal. Ct. App. 1999) and Auto. Funding Grp., Inc. v. Garamendi, 7 Cal
Rptr. 3d 912, 915 (Cal. Ct. App. 2003)); see Resp. Br. 41 (quoting First Department’s reliance on
Quackenbush). Quackenbush and Automotive Funding Group involved review of administrative
adjudications where agency fact-finding was at issue, not an agency’s interpretation of a
60
Finally, the Zurich Settlement itself makes clear that it “is not to be used for
any other purpose” than resolving the Zurich investigation. A-497 ¶ 25. That is
consistent with California law, which holds that an agency’s interpretations set
forth in a settlement agreement should receive no weight. See S. Cal. Edison Co.
v. Peevey, 74 P.3d 795, 808 (Cal. 2003) (holding that agency’s approval of a
settlement did not establish a regulatory standard applicable to other companies);
see also Nat’l Fuel Gas Supply Corp. v. FERC, 811 F.2d 1563, 1571 (D.C. Cir.
1987) (holding deference to settlements is inappropriate where “the agency itself
[was] an interested party to the agreement”). In all events, Respondents’ insistence
that this settlement reflects “‘a categorical ban on the enforcement of unfiled
arbitration agreements,’” Resp. Br. 28–29, is simply mistaken. As the dissent
recognized, A-58, the Zurich settlement did not categorically void the settling
party’s unfiled agreements or their arbitration provisions; rather, they remained
“binding” in multiple circumstances. Opening Br. 67–68; see supra at 51–52 &
n.22.
California statute, much less a statutory interpretation embodied in a staff letter. See
Quackenbush, 91 Cal. Rptr. 2d at 385 (applying standard of review under Cal. Ins. Code
§ 1858.6, which governs “proceedings to review an administrative decision by the
Commissioner”); Auto. Funding Grp., 7 Cal. Rptr. 3d at 915 (“In administrative mandate actions,
the trial court’s inquiry is limited to whether the Department acted without or in excess of
jurisdiction, whether there was a fair trial, or whether there was a prejudicial abuse of discretion.
An abuse of discretion is established if the Department did not act in the manner required by law,
if its decision is not supported by the findings, or if the findings are not supported by the
evidence.”); see also Quackenbush, 91 Cal. Rptr. 2d at 385 (citing Yamaha and recognizing that
an agency’s “regulatory interpretation” turns on an “assessment of its merit”).
CONCLUSION
For these reasons, the decision of the Appellate Division should be reversed.
Dated: New York, New York
May 26,2015
Respectfully submitted,
SIDLE~
By: e::. L k..-- -
Andrew W. Stem
Nicholas P. Crowell
Eamon P. Joyce
Benjamin F. Burry
787 Seventh Avenue
New York, New York 10019
Tel: (212) 839-5300
Fax: (212) 839-5599
Peter D. Keisler (admitted pro hac vice)
Paul J. Zidlicky (admitted pro hac vice)
1501 K Street, N.W.
Washington, DC 20005
Tel: (202) 736-8000
Fax: (202) 736-8711
Attorneys for Appellant National Union
Fire Insurance Company of Pittsburgh, Pa.
61
xii
SUPPLEMENTAL DISCLOSURE PURSUANT TO RULE § 500.1(f)
Pursuant to Rule 500.1 of the Rules of the Court of Appeals, National Union
Fire Insurance Company of Pittsburgh, PA (“National Union”) respectfully
submits this disclosure of interest in addition to supra pp. i–ii.
National Union discloses the following affiliates:
1844 Market Street JV, LLC
1844 Market Street REIT, LLC
1844 Market Street, LLC
195-205 Tamal Vista Boulevard, LLC
303 Development Holdings, LLC
303 Development Partners, LLC
303 Development Venture, LLC
3700 McKinney Master Condominium Association, Inc.
6037 Joint Venture LLC
6037 Mezzanine LLC
6037 Property LLC
A.I. Credit Consumer Discount Company
A.I. Credit Corp.
AeroTurbine (Bermuda) 1 Ltd
AeroTurbine Asia Pte. Ltd.
Aeroturbine Europe Limited
AeroTurbine, Inc.
AGC Life Insurance Company
Agency Management Corporation
AGLA Services Company LLC
AIA Aurora LLC
AIA Capital Investment Co., Ltd.
AICCO, Inc. [Delaware]
AIG Advisor Group, Inc.
AIG Aerospace Adjustment Services, Inc.
AIG Aerospace Insurance Services, Inc.
AIG African Infrastructure Management LLC
AIG APAC HOLDINGS PTE. LTD.
AIG Asia Pacific Insurance Pte. Ltd.
AIG Asset Management (Asia) Limited
xiii
AIG Asset Management (Canada), LLC
AIG Asset Management (Europe) Limited
AIG Asset Management (Japan) Company Kabushiki Kaisha
AIG Asset Management (U.S.), LLC
AIG Assurance Company
AIG Australia Limited
AIG BG Holdings LLC
AIG Brazil Holding I, LLC
AIG Brazil Holding II, LLC
AIG Building (UK) Limited
AIG Business Consulting (Beijing) Co., Ltd.
AIG Business Partners Kabushiki Kaisha
AIG Capital Corporation
AIG Castle Holdings II LLC
AIG Castle Holdings LLC
AIG Central Europe & CIS Insurance Holdings Corporation
AIG Chile Compañia de Seguros Generales S.A.
AIG China Real Estate Investors Partner
AIG China Real Estate Investors, Ltd
AIG CIS Investments, LLC
AIG Claims Solutions Japan Kabushiki Kaisha
AIG Claims, Inc.
AIG Commercial Equipment Finance Company, Canada
AIG Commercial Equipment Finance, Inc.
AIG Consultoria e Servicos Ltda.
AIG Consumer Finance Group, Inc.
AIG Credit (Europe) Corporation
AIG Credit Corp.
AIG Credit Corp. of Canada
AIG Credit S.A.
AIG Cyprus Limited
AIG Data Services Private Limited
AIG Direct Insurance Services, Inc.
AIG Egypt Insurance Company S.A.E.
AIG Employee Services, Inc.
AIG Enterprise Services, LLC
AIG Equipment Finance Holdings, Inc.
AIG Europe (Services) Limited
AIG Europe Financing Limited
AIG Europe Holdings Limited
xiv
AIG Europe Limited
AIG Europe Sub Holdings Limited
AIG Federal Savings Bank
AIG Financial Advisor Services, Inc.
AIG Financial Products (Jersey) Limited
AIG Financial Products (Netherlands) B.V.
AIG Financial Products Corp.
AIG Financial Products Hong Kong Limited
AIG Financial Securities Corp.
AIG Finanzas, Sociedad Anonima de Credito Hipotecario
AIG Fuji Insurance Services Kabushiki Kaisha
AIG Fuji Life Insurance Company, Limited
AIG Funding, Inc.
AIG G5, Inc.
AIG Germany Holding GmbH
AIG Global Asset Management Holdings Corp.
AIG Global Capital Markets Securities, LLC
AIG Global Claims Services, Inc.
AIG Global Investment (Luxembourg) S.A.
AIG Global Management Company Ltd.
AIG Global Partners Co., Ltd.
AIG Global Real Estate Investment Corp.
AIG Global Reinsurance Operations
AIG Global Services (Malaysia) Sdn. Bhd.
AIG Global Services, Inc.
AIG Greece Representation of Insurance Enterprises S.A.
AIG Insurance (Guernsey) PCC Limited
AIG Insurance (Thailand) Public Company Limited
AIG Insurance Agency, Inc. - Puerto Rico
AIG Insurance Company China Limited
AIG Insurance Company of Canada
AIG Insurance Company, CJSC
AIG Insurance Company-Puerto Rico
AIG Insurance Hong Kong Limited
AIG Insurance Limited
AIG Insurance Management Services (Guernsey) Limited
AIG Insurance Management Services (Ireland) Limited
AIG Insurance Management Services, Inc.
AIG Insurance New Zealand Limited
AIG International Consulting (Shanghai) Co. Ltd.
xv
AIG International Holdings Limited
AIG International Inc.
AIG Israel Insurance Company Limited
AIG Japan Holdings Kabushiki Kaisha
AIG Kenya Insurance Company Limited
AIG Korea Inc.
AIG Latin America I.I.
AIG Lebanon SAL
AIG Life Holdings, Inc.
AIG Life Insurance Company (Switzerland) Ltd
AIG Life of Bermuda, Ltd.
AIG Life South Africa Limited
AIG Luxembourg Financing Limited
AIG Malaysia Insurance Berhad
AIG Management France S.A.
AIG Markets, Inc.
AIG Matched Funding Corp.
AIG MEA Holdings Limited
AIG MEA Limited
AIG Medical Management Services (UK) Limited
AIG Mexico Servicios, S.A. de C.V.
AIG Mortgage Capital, LLC
AIG Mortgage Risk Solutions Pty Ltd
AIG North America, Inc.
AIG Offshore Systems Services, Inc.
AIG Overseas Pool LLC
AIG Pakistan Insurance Company Limited
AIG PC European Insurance Investments Inc.
AIG PC Global Services, Inc.
AIG Philippines Insurance, Inc.
AIG PNG Limited
AIG Portfolio Solutions (Europe) Limited
AIG Portfolio Solutions LLC
AIG Procurement Services, Inc.
AIG Property Casualty Company
AIG Property Casualty Europe Financing Limited
AIG Property Casualty Insurance Agency, Inc.
AIG Property Casualty International, LLC
AIG Property Company Limited
AIG Receivables Management Limited
xvi
AIG Relocation, Inc.
AIG Resseguros Brasil S.A.
AIG S1, Inc.
AIG Securities Lending Corp.
AIG Seguros Brasil S.A.
AIG Seguros Colombia S.A.
AIG Seguros Guatemala, S.A.
AIG Seguros Mexico, S.A. de C.V.
AIG Seguros Panama, S.A.
AIG Seguros Uruguay S.A.
AIG Seguros, El Salvador, Sociedad Anonima
AIG Services Latin America (Sociedad Unipersonal)
AIG Shared Services - Business Processing, Inc.
AIG Shared Services (M) Sdn Bhd
AIG Shared Services Corporation
AIG Shared Services Corporation - Management Services
AIG Shared Services Corporation (Philippines)
AIG Sigorta A.S.
AIG South Africa Limited
AIG Southeast Asia Limited
AIG Specialty Insurance Company
AIG Spring Ridge I, Inc.
AIG Systems K.K.
AIG Taiwan Insurance Co., Ltd.
AIG Trade Finance Limited
AIG Trading Group Inc.
AIG Transaction Execution Limited
AIG Travel Assist, Inc.
AIG Travel Insurance Agency, Inc.
AIG Uganda Limited
AIG United Guaranty Agenzia di Assicurazione S.R.L.
AIG United Guaranty Insurance (Asia) Limited
AIG United Guaranty Mexico, S.A.
AIG United Guaranty Re Limited
AIG United Guaranty, Sociedad Limitada
AIG Uzbekinvest Limited
AIG Vida, Sociedad Anonima, Seguros de Personas
AIG Vietnam Insurance Company Limited
AIG Warranty Services of Florida, Inc.
AIG Warranty Services, Inc.
xvii
AIG WarrantyGuard, Inc.
AIG.COM, Inc.
AIG-FP Broadgate Limited
AIG-FP Capital Funding Corp.
AIG-FP Capital Preservation Corp.
AIG-FP Funding (Cayman) Limited
AIG-FP Investment Company (Bermuda) Limited
AIG-FP Matched Funding (Ireland) public limited company
AIG-FP Matched Funding Corp.
AIG-FP Pinestead Holdings Corp.
AIG-FP Private Funding (Cayman) Limited
AIG-FP Special Finance (Cayman) Limited
AIG-FP Structured Finance (Cayman) Limited
AIGGRE 950 Second Investor, LLC
AIGGRE Bellevue Investor, LLC
AIGGRE Corte Madera LLC
AIGGRE DC Ballpark Investor, LLC
AIGGRE EOLA LLC
AIGGRE Fairfax LLC
AIGGRE Forest City West Village Investor, LLC
AIGGRE Hyde Park LLC
AIGGRE Metro Place LLC
AIGGRE Mystic, LLC
AIGGRE NNP IV Chelsea, LLC
AIGGRE NNP IV Murray Hill, LLC
AIGGRE Peachtree LLC
AIGGRE Redmond Investor, LLC
AIGGRE Retail GP LLC
AIGGRE Retail Holdco LLC
AIGGRE Retail Investor I LLC
AIGGRE Riverfront LLC
AIGGRE Torrance LLC
AIGGRE Williamsburg LLC
AIG-Metropolitana Cía. de Seguros y Reaseguros S.A.
Aircraft 32A-1658 Inc.
Aircraft 32A-1695 Inc.
Aircraft 32A-1905 Inc.
Aircraft 32A-1946 Inc.
Aircraft 32A-2024 Inc.
Aircraft 32A-2594 Inc.
xviii
Aircraft 32A-2731 Inc.
Aircraft 32A-3147 Inc.
Aircraft 32A-3148 Inc.
Aircraft 32A-3424 Limited
Aircraft 32A-3454 Limited
Aircraft 32A-579 Inc.
Aircraft 32A-585 Inc.
Aircraft 32A-645 Inc.
Aircraft 32A-726 Inc.
Aircraft 32A-760 Inc.
Aircraft 32A-775 Inc.
Aircraft 32A-782 Inc.
Aircraft 32A-810 Inc.
Aircraft 32A-987 Inc.
Aircraft 32A-993, Inc.
Aircraft 33A-132, Inc.
Aircraft 33A-272 Inc.
Aircraft 33A-358 Inc.
Aircraft 33A-364 Inc.
Aircraft 34A-152 Inc.
Aircraft 34A-216 Inc.
Aircraft 34A-395 Inc.
Aircraft 34A-48 Inc.
Aircraft 34A-93 Inc.
Aircraft 73B-25374 Inc.
Aircraft 73B-25375 Inc.
Aircraft 73B-26315 Inc.
Aircraft 73B-26317 Inc.
Aircraft 73B-26323 Inc.
Aircraft 73B-28249 Inc.
Aircraft 73B-28252 Inc.
Aircraft 73B-30036 Inc.
Aircraft 73B-30645 Inc.
Aircraft 73B-30646 Inc.
Aircraft 73B-30661 Inc.
Aircraft 73B-30671 Inc.
Aircraft 73B-30730 Inc.
Aircraft 73B-31127 Inc.
Aircraft 73B-32796 Inc.
Aircraft 73B-32841 Inc.
xix
Aircraft 73B-33220 Inc.
Aircraft 73B-38821 Inc.
Aircraft 73B-41794 Inc.
Aircraft 73B-41796 Inc.
Aircraft 73B-41806 Inc.
Aircraft 73B-41815 Inc.
Aircraft 74B-27602 Inc.
Aircraft 74B-29375 Inc.
Aircraft 75B-26276 Inc.
Aircraft 75B-28833 Inc.
Aircraft 75B-28834 Inc.
Aircraft 75B-28836 Inc.
Aircraft 76B-26261 Inc.
Aircraft 76B-26327 Inc.
Aircraft 76B-26329 Inc.
Aircraft 76B-27597 Inc.
Aircraft 76B-27600 Inc.
Aircraft 76B-27613 Inc.
Aircraft 76B-27615 Inc.
Aircraft 76B-28132 Inc.
Aircraft 76B-28206 Inc.
Aircraft 77B-29404 Inc.
Aircraft 77B-29908 Inc.
Aircraft 77B-32717 Inc.
Aircraft 77B-32723 Inc.
Aircraft A330 143 Inc.
Aircraft A330 72 Inc.
Aircraft A330 98 Inc.
Aircraft Andros Inc.
Aircraft B757 29377 Inc.
Aircraft B757 29382 Inc.
Aircraft B767 29388 Inc.
Aircraft Lotus Inc.
Aircraft SPC-12, Inc.
Aircraft SPC-14, Inc.
Aircraft SPC-3, Inc.
Aircraft SPC-4, Inc.
Aircraft SPC-8, Inc.
Aircraft SPC-9, Inc.
AIU Insurance Company
xx
AIU Insurance Company, Ltd.
Alabaster Capital LLC
Alamo Manhattan Bellevue JV, LLC
Alamo Manhattan Bellevue, LLC
AM Holdings LLC
Ambler Holding Corp.
Ambrose 2012-1
Ambrose 2013-2
Ambrose 2013-3
Ambrose 2013-4
Ambrose 2013-5
Ambrosia No. 1 Limited
Ambrosia No. 2 Limited
Ambrosia No. 3 Limited
Ambrosia No. 4 Limited
Ambrosia No. 5 Limited
American Asiatic Underwriters, Limited
American Athletic Club, Inc.
American General Annuity Service Corporation
American General Assignment Corporation
American General Assignment Corporation of New York
American General Bancassurance Services, Inc.
American General Insurance Agency, Inc.
American General International, Inc.
American General Investment Management Corporation
American General Life Insurance Company
American General Life Insurance Of Bermuda, Ltd.
American General Life Services Company, LLC
American General Realty Investment Corporation
American Home Assurance Co., Ltd.
American Home Assurance Company
American Home Assurance Company Escritorio de Representacao no Brasil
Ltda.
American International Company Limited
American International Facilities Management, Inc.
American International Group Kabushiki Kaisha
American International Overseas Limited
American International Realty Corp.
American International Reinsurance Company, Ltd.
American International Underwriters (Guatemala), S.A.
xxi
American International Underwriters de Colombia, Ltda.
American International Underwriters del Ecuador S.A.
American International Underwriters para Representaciones y Mandatos en
la Argentina, S.A.
American International Underwriters S.A.
American International Underwriters, Limited
American Security Life Insurance Company Limited
AmericanGeneral.com, Inc.
Apollo Aircraft Inc.
Applewood Funding Corp.
Arabian American Insurance Company (Bahrain) E.C.
Artemis (Delos) Limited
Aruba AIG Insurance N.V.
Ascot Corporate Name Limited
Ballysky Aircraft Ireland Limited
Barnegat Funding Corp.
Belmar Bermuda Leasing Limited
Blackbird Investments LLC
Blackcap Investments LLC
Bluewood Investments LLC
Boggs Tract LLC
Braddock Metro Place LLC
Broadstone Fairfax, LLC
Broadstone Hyde Park, LLC
Broadstone Maple, LLC
Broadstone Peachtree, LLC
Brokat Leasing, LLC
C&I UK Investments Ltd.
C.A. de Seguros American International
CABREA, Inc.
Calliope Limited
CAL-MIRA MESA LIMITED
Camden Aircraft Leasing Trust
Capital Riverfront Hotel LLC
Capital Riverfront Hotel Partners XXII LLC
Carr Road GP LLC
Castle 2003-1 Trust
Castle 2003-2 Trust
CEF Lease Holding, LLC
Chardon/Hato Rey Partnership, S.E.
xxii
Charleston Bay SAHP Corp.
Charleville Aircraft Leasing Limited
Charmlee Aircraft Inc.
Chartis (Latin America), Inc.
Chartis Azerbaijan Insurance Company Open Joint Stock Company
Chartis Bonfire Corporation
Chartis Canada Holdings Inc.
Chartis Capital Recovery Brazil Limited
Chartis Croatia LLC
Chartis Excess Limited
Chartis Foreign Subsidiary Holdings LLC
Chartis Hong Kong Limited
Chartis Insurance Services Private Limited
CHARTIS Investment Holdings (Private) Limited
Chartis Iraq, Inc.
Chartis Jamaica Insurance Company Limited
Chartis Kazakhstan Insurance Company Joint Stock Company
Chartis Latin America Investments, LLC
Chartis Libya, Inc.
Chartis Memsa Holdings, Inc.
Chartis Romania S.A.
CHARTIS Takaful-Enaya B.S.C. (c)
Chartis Uzbekistan Insurance Company Joint Venture LLC
Chartis Warranty Services Company of Canada
Cherrywood Investments LLC
Columbia Pike Master Venture, LLC
Commerce and Industry Insurance Company
Compass Advisors Inc.
Connective Mortgage Advisory Company
Corte Madera JV (REIT), LLC
Corte Madera JV, LLC
Crest at Park Central JV, LLC
Cross Sale SA
Crossings SAHP Corp.
Curve Ventures LLC
DC Ballpark JV, LLC
Delos Aircraft Inc.
Design Professionals Association Risk Purchasing Group, Inc.
DIL/SAHP Corp.
DirectDME, Inc.
xxiii
Doheny Investment Holding Trust
Eaglestone Reinsurance Company
Eastcheap Investments (Cayman) Limited
Eastgreen, Inc.
Elgibright Investment Limited
Equiguard of Canada, Inc.
Equitable Investment Company (Hong Kong) Ltd.
Euclid Aircraft, Inc.
F 2000, Inc.
Fairfield LSU Exchange LLC
FC 3700 McKinney Owner, LLC
Financial Service Corporation
First Mortgage Insurance Company
Fischbach, LLC
Five Long Island Properties, LLC
Flamebright Investment Limited
Fleet Solutions Holdings Inc.
Flying Fortress Aruba Leasing A.V.V.
Flying Fortress Bermuda Leasing Ltd.
Flying Fortress Financing Inc.
Flying Fortress Inc.
Flying Fortress Investments Inc.
Flying Fortress Ireland Leasing Limited
Flying Fortress US Leasing Inc.
Forest City West Village, LLC
Forest SAHP Corp.
French Quarter Apartments Limited Partnership
FSC Agency, Inc.
FSC Securities Corporation
Fuji Facility Services Company Ltd.
Fuji Fire & Marine Management Services Limited
Fuji International Insurance Company Limited
Fuji Management Service Company Ltd.
Fujikasai Business Solutions Co., Ltd.
G.T.A. Finanzas, S.L.
Garanplus S.A. de C.V.
Gardens Development Owner, LLC
GDI Holding, Inc.
Geneva Triple Sept Leasing Limited
Global Information Services Private Limited
xxiv
Global Loss Prevention, Inc.
Grand Isle SAC Limited
Grand Savannah SAHP Corp.
Grand Staircase Aircraft Inc.
Granite State Insurance Company
Graphite Management LLC
Guam Insurance Adjusters, Inc.
Hansa GmbH
Hansa Grundstückverwaltungs GmbH & Co KG
Health Direct, Inc.
Hellas Insurance Co. S.A.
Hospital Plan Insurance Services
HPIS Limited
HRA Administrator LLC
Hyperion Aircraft Financing Inc.
Hyperion Aircraft Inc.
ILFC (Beijing) Services Co., Ltd
ILFC (Bermuda) 4, Ltd.
ILFC (Bermuda) 5, Ltd.
ILFC (Bermuda) 6, Ltd.
ILFC (Bermuda) 7, Ltd.
ILFC (Bermuda) III, Ltd.
ILFC Aircraft 32A-1808 Limited
ILFC Aircraft 32A-1901 Limited
ILFC Aircraft 32A-1905 Limited
ILFC AIRCRAFT 32A-2064 LIMITED
ILFC AIRCRAFT 32A-2076 LIMITED
ILFC Aircraft 32A-2180 Limited
ILFC Aircraft 32A-2279 Limited
ILFC AIRCRAFT 32A-2726 LIMITED
ILFC Aircraft 32A-2797 Limited
ILFC Aircraft 32A-3065 Limited
ILFC AIRCRAFT 32A-3070 LIMITED
ILFC Aircraft 32A-3114 Limited
ILFC Aircraft 32A-3116 Limited
ILFC Aircraft 32A-3124 Limited
ILFC Aircraft 32A-3179 LIMITED
ILFC Aircraft 32A-427 Limited
ILFC Aircraft 32A-4619 Limited
ILFC Aircraft 32A-550 Limited
xxv
ILFC Aircraft 32A-556 Limited
ILFC Aircraft 32A-591 Limited
ILFC Aircraft 32A-661 Limited
ILFC Aircraft 32A-666 Limited
ILFC Aircraft 32A-775 Limited
ILFC Aircraft 33A-1284 Limited
ILFC Aircraft 33A-253 Limited
ILFC Aircraft 33A-432 Limited
ILFC Aircraft 33A-444 Limited
ILFC Aircraft 33A-454 Limited
ILFC Aircraft 33A-469 Limited
ILFC Aircraft 33A-70 Limited
ILFC Aircraft 33A-822 Limited
ILFC Aircraft 33A-911 Limited
ILFC Aircraft 73B-28052 Limited
ILFC Aircraft 73B-29344 Limited
ILFC Aircraft 73B-29368 Limited
ILFC Aircraft 73B-29369 Limited
ILFC Aircraft 73B-30658 Limited
ILFC Aircraft 73B-30665 Limited
ILFC Aircraft 73B-30667 Limited
ILFC Aircraft 73B-30669 Limited
ILFC Aircraft 73B-30672 Limited
ILFC Aircraft 73B-30673 Limited
ILFC Aircraft 73B-30694 Limited
ILFC Aircraft 73B-30695 Limited
ILFC Aircraft 73B-30696 Limited
ILFC Aircraft 73B-30701 Limited
ILFC Aircraft 73B-35275 Limited
ILFC Aircraft 73B-38828 Limited
ILFC Aircraft 73B-41784 Limited
ILFC Aircraft 73B-41785 Limited
ILFC Aircraft 73B-41789 Limited
ILFC Aircraft 73B-41790 Limited
ILFC Aircraft 73B-41791 Limited
ILFC Aircraft 73B-41792 Limited
ILFC Aircraft 73B-41793 Limited
ILFC Aircraft 73B-41795 Limited
ILFC Aircraft 75B-26254 Limited
ILFC Aircraft 75B-26330 Limited
xxvi
ILFC Aircraft 75B-29381 Limited
ILFC Aircraft 76B-25137 Limited
ILFC Aircraft 76B-27610 Limited
ILFC Aircraft 76B-27616 Limited
ILFC Aircraft 76B-27619 Limited
ILFC Aircraft 76B-27958 Limited
ILFC Aircraft 76B-28111 Limited
ILFC Aircraft 76B-28207 Limited
ILFC Aircraft 76B-29435 Limited
ILFC Aircraft 77B-29908 Limited
ILFC Aruba A.V.V.
ILFC Australia Holdings Pty. Ltd.
ILFC Australia Pty. Ltd.
ILFC Aviation Consulting, Inc.
ILFC Aviation Services (Europe) B.V.
ILFC Cayman Limited
ILFC Dover, Inc.
ILFC France S.A.R.L.
ILFC Holdings, Inc.
ILFC Ireland 2 Limited
ILFC Ireland 3 Limited
ILFC Ireland Limited
ILFC Labuan ECA Ltd.
ILFC Labuan Ltd.
ILFC Singapore Pte. Ltd.
ILFC UK Limited
ILFC Volare, Inc.
Illinois National Insurance Co.
Informatica y Servicios LATEC, S.A.
Innovative Risk Management, Inc.
Interlease Aircraft Trading Corporation
Interlease Management Corporation
International Lease Finance Corporation
International Lease Finance Corporation (Sweden) AB
International Lease Finance Corporation, Ltd.
Intrepid Security, Inc.
Inversiones 601 C.A.
Inversiones Segucasai, C.A.
Iris Energy Holding GP LLC
Iris Energy Holding LP
xxvii
Iris Energy Holding LP LLC
Iris Energy LLC
Jefferson Eola LLC
Jefferson Eola Venture LLC
JI Accident & Fire Insurance Company, Ltd.
Johannesburg Insurance Holdings (Proprietary) Limited
JWA BMP LLC
Klementine Holdings, Inc.
Klementine Leasing, Inc.
Knickerbocker Corporation
La Meridional Compania Argentina de Seguros S.A.
Lavastone Capital LLC
Legacy Partners Town Square LLC
Legacy Partners Town Square Project Owner LLC
Lexington Insurance Company
Limited Liability Company with Foreign Investments Steppe Securities
Livetravel, Inc.
LMI Park Central, LLC
LSTREET I, LLC
Macori, Inc. [Delaware]
Macori, Inc. [Texas]
Maiden Leasing, LLC
Maitengrove Finance Corp.
Maksin Management Corporation
Managed Care Concepts of Delaware, Inc.
Manila Adjusters & Surveyors Company
MB Annex Condominium Association, Inc.
Medical Excess Insurance Services, Inc.
Medical Excess LLC
Melrose Vista Apartments, LLC
MEMSA Management Services Private Limited
Mentes I Ireland Leasing Limited
Mentes II Ireland Leasing Limited
Mentes III Ireland Leasing Limited
Mentes IV Ireland Leasing Limited
Mentes V Ireland Leasing Limited
Mentes VI Ireland Leasing Limited
Mentes VII Ireland Leasing Limited
Metropolis I, LLC
MG Reinsurance Limited
xxviii
MIP Mezzanine, LLC
MIP PE Holdings, LLC
MKS Cherry Creek LLC
MM Enhancement, LLC
Morefar Marketing, Inc.
MV Parkway Partners, LLC
New England Sports, Recreation & Entertainment RPG, Inc.
New Hampshire Insurance Company
New Hampshire Insurance Services, Inc.
NF Seven (Cayman) Limited
North 4th Place Holdings, LLC
North 4th Place JV, LLC
North 4th Place REIT, LLC
North 4th Place Venture, LLC
North 4th Place, LLC
Orangewood Investments LLC
Park Topanga Aircraft Inc.
Peachwood, LLC
Pearce & Pearce, Inc.
Pearwood, LLC
Pelican 35302, Inc.
Penrose Columbia Pike Associates of Delaware, LLC
Persimmon LLC
Pike 3400 Associates, LLC
Pine Street Real Estate Holdings Corp.
PineBridge Portable Alpha Fund SPC, solely on behalf of Class A -
PineBridge Relative Value/S&P 500 Portfolio
Platinum Asset Developments Limited
Plumwood, LLC
Poseidon Leasing (Bermuda) Limited
Prairie SAHP Corp.
Private Joint-Stock Company AIG Ukraine Insurance Company
PT AIG Insurance Indonesia
PT AIG Management Consulting
PT Tiara Citra Cemerlang
Quartz Holdings LLC
Risk Specialists Companies Insurance Agency, Inc.
Risk Specialists Companies, Inc.
Risk Specialists Company (Bermuda), Ltd.
Risk Specialists Company of Kentucky, Inc.
xxix
Riverfront Village Venture, LLC
Riverfront Village, LLC
Rokland Limited
Romandy Triple Sept LLC
Royal Alliance Associates, Inc.
SA Affordable Housing, LLC
SA Investment Group, Inc.
SAAHP GP Corp.
SAFG Retirement Services, Inc.
SagePoint Financial, Inc.
SAHP-Chancellor II, LLC
SAHP-Chancellor, LLC
SAHP-MBA LLC
SAHP-McSHA LLC
SAHP-Yarco LLC
SAI Deferred Compensation Holdings, Inc.
SCSP Corp.
Selkirk 2013-1
Selkirk 2013-2
Selkirk No. 1 Investments
Selkirk No. 2 Investments
Service Net Retail Solutions, LLC
Service Net Solutions of Florida, LLC
Service Net Warranty UK Ltd
Service Net Warranty, LLC
Seventh Street Funding LLC
Shallowford Falls Associates, L.P.
Shiloh Glen GP, LLC
Shrewsbury Aircraft Leasing Limited
SI Holding Inc.
Sierra Leasing Limited
Sierra US Leasing, Inc.
Slate Capital LLC
SLP Housing I LLC
SLP Housing II LLC
SLP Housing III LLC
SLP Housing IV LLC
SLP Housing V LLC
SLP Housing VI, LLC
SLP Housing VII, LLC
xxx
SN Warranty, LLC
SNAdmin (Canada), Inc.
SNAdmin (PR), Inc.
SNW Insurance Agency, LLC
Societe Hoteliere de Boisjolan S.A.
Solus Hotel Portfolio Holding Company, LLC
Solus Quorum Tampa, LLC
SP Columbia City LLC
SP Curve LLC
SPAIG Ventures I LLC
Spicer Energy II LLC
Spicer Energy LLC
Spicer Holding Corp.
States Aircraft, Inc.
Stoneland Limited
SubGen NT, Inc.
Sun Quorum L.L.C.
SunAmerica Affordable Housing Partners, Inc.
SunAmerica Asset Management, LLC
SunAmerica Capital Services, Inc.
SunAmerica Fund Services, Inc.
SunAmerica Investments (Cayman)
SunAmerica Life Reinsurance Company
SunAmerica Retirement Markets, Inc.
Tata AIG General Insurance Company Limited
Techmark Japan Kabushiki Kaisha
Temescal Aircraft Inc.
Thai CIT Holding Co., Ltd
Thai UIB Holding Co., Ltd
The AIG-FP Investment & Management XI General Partnership
The AIV Limited Partnership
The Fuji Fire and Marine Insurance Company, Limited
The Gulf Agency, Inc.
The Insurance Company of the State of Pennsylvania
The Stoneland Investment & Management General Partnership
The United States Life Insurance Company in the City of New York
The Variable Annuity Life Insurance Company
Top Aircraft, Inc.
Torrance Development Associates, LLC
Torrance Property Owner, LLC
xxxi
T-PEC Corporation
Travel Guard Americas LLC
Travel Guard Asia Pacific Pte. Ltd.
Travel Guard EMEA Limited
Travel Guard Europe Limited
Travel Guard Group Canada, Inc./Groupe Garde Voyage du Canada, Inc.
Travel Guard Group, Inc.
Travel Guard Worldwide, Inc.
U G Corporation
UBB-AIG Insurance Company AD
Underwriters Adjustment Company, Inc. [Panama]
United Guaranty Commercial Insurance Company of North Carolina
United Guaranty Corporation
United Guaranty Credit Insurance Company
United Guaranty Insurance Company
United Guaranty Mortgage Indemnity Company
United Guaranty Mortgage Insurance Company
United Guaranty Mortgage Insurance Company of North Carolina
United Guaranty Partners Insurance Company
United Guaranty Residential Insurance Company
United Guaranty Residential Insurance Company of North Carolina
United Guaranty Services, Inc.
United Guaranty Servicios Administrativos, S. de R.L. de C.V.
Universal Insurance Broker Company Limited
VALIC Financial Advisors, Inc.
VALIC Retirement Services Company
Villa Rosa gGmbH
Vision2020 Wealth Management Corp.
Webatuck Corp.
Western National Marketing Group, Inc.
Whitney France Leasing S.A.R.L.
Whitney Ireland Leasing Limited
Whitney Leasing Limited
Whitney UK Leasing Limited
Whitney US Leasing, Inc.
Willowgrove Finance Company Limited
WINGS International SAS
Wombat 30633 Leasing Pty Ltd
Wombat 30638 Leasing Pty Ltd
Wombat 30644 Leasing Pty Ltd
xxxii
Wombat 30648 Leasing Pty Ltd
Wombat 30658 Leasing Pty Ltd
Wombat 3474 Leasing Pty. Ltd.
Wombat 3495 Leasing Pty Ltd
Wombat 3547 Leasing Pty Ltd
Wombat 3668 Leasing Pty Ltd
Wombat V Leasing Pty Ltd
Wombat VI Leasing Pty Ltd
Woodbury Financial Services, Inc.
WYNONA 1837 GmbH
Yellowwood Investments LLC
