ESAB Group, Incorporated v. Zurich Insurance PLC

Affirmed by published opinion. Judge FLOYD wrote the opinion, in which Judge WILKINSON and Judge DIAZ concurred. Judge WILKINSON wrote a separate concurring opinion.

OPINION

The Supreme Court has long recognized the importance of preserving the United States’ ability to “speak with one voice” in regulating foreign commerce. Michelin Tire Corp. v. Wages, 423 U.S. 276, 285, 96 S.Ct. 535, 46 L.Ed.2d 495 (1976); see also Japan Line, Ltd. v. Cnty. of L.A., 441 U.S. 434, 448-49 & n. 14, 99 S.Ct. 1813, 60 L.Ed.2d 336 (1979). Appellant/Cross-Appellee ESAB Group, Inc., urges us to allow the various views of the states to replace the federal government’s singular voice regarding commercial arbitration of insurance disputes in foreign tribunals. Specifically, ESAB Group contends that South Carolina law “reverse preempts” federal law — namely, a treaty and its implementing legislation — -pursuant to the MeCarran-Ferguson Act, a federal statute directed at protecting state insurance regulations from implied preemption by federal domestic commerce legislation. See Am. Ins. Ass’n v. Garamendi, 539 U.S. 396, 428, 123 S.Ct. 2374, 156 L.Ed.2d 376 (2003). We find such a reading of the pertinent law untenable. For this reason, we affirm as to the district court’s exercise of subject-matter jurisdiction, and we find no error in the district court’s order compelling arbitration.1

*380We likewise reject the arguments of Appellee/Cross-Appellant Zurich Insurance PLC (ZIP) that the district court erred in exercising personal jurisdiction over it and in remanding nonarbitrable claims to state court. Finding both parties’ appeals to be without merit, we affirm.

I.

This appeal presents a complex question regarding the intersection of a treaty and federal and state statutory law. For this reason, we first provide an overview of the applicable law before discussing the factual background.

A.

In 1944, to the shock of observers and commentators, the Supreme Court held that insurance was subject to federal regulation under the interstate commerce clause. See United States v. S.-E. Underwriters Ass’n, 322 U.S. 533, 552-53, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). “Prior to that decision, it had been assumed ... that the issuance of an insurance policy was not a transaction in interstate commerce and that the States enjoyed a virtually exclusive domain over the insurance industry.” St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 538-39, 98 S.Ct. 2923, 57 L.Ed.2d 932 (1978). Accordingly, the likelihood developed that, through implied preemption, federal statutes enacted to govern domestic commerce would oust states from insurance regulation.

In 1945, in response to Southr-Eastern Underwriters, Congress enacted the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015, to restore the states’ preeminent position in insurance regulation. See U.S. Dep’t of Treasury v. Fabe, 508 U.S. 491, 500, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993); Life Partners, Inc. v. Morri son, 484 F.3d 284, 292 (4th Cir.2007). Typically, of course, the Supremacy Clause of the United States Constitution requires that a state law yield to a conflicting federal law. See U.S. Const. art. VI, cl. 2; Kurns v. R.R. Friction Prods. Corp., — U.S. -, 132 S.Ct. 1261, 1266, - L.Ed.2d-(2012). The McCarran-Ferguson Act, however, “transformed the legal landscape by overturning the normal rules of pre-emption.” Fabe, 508 U.S. at 507, 113 S.Ct. 2202.

The Act first declares that congressional silence “shall not be construed to impose any barrier” to state regulation or taxation of the business of insurance. 15 U.S.C. § 1011. It further provides that “[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance.” Id. § 1012(b). Thus, McCarran-Ferguson authorizes “reverse preemption” of generally applicable federal statutes by state laws enacted for the purpose of regulating the business of insurance. See Safety Nat’l Cas. Corp. v. Certain Underwriters at Lloyd’s, London, 587 F.3d 714, 720 (5th Cir.2009) (en banc), cert. denied, — U.S. -, 131 S.Ct. 65, 178 L.Ed.2d 22 (2010).

B.

While Congress acted to preserve the states’ dominance in insurance regulation, it moved to federalize policy regarding arbitration. In 1925, Congress enacted the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, which established a liberal federal policy in favor of the enforcement of arbitration agreements in maritime and com*381mercial contracts. See CompuCredit Corp. v. Greenwood, — U.S. -, 132 S.Ct. 665, 668-69, 181 L.Ed.2d 586 (2012). Although the original version of the FAA protected the enforceability of domestic arbitration agreements, it did not ensure that courts would enforce agreements to arbitrate in foreign tribunals or awards granted by such tribunals. For this, the United States entered into a multilateral treaty guaranteeing the reciprocal enforcement of such arbitration agreements and awards.

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention), adopted June 10, 1958, 21 U.S.T. 2517 (entered into force with respect to the United States Dec. 29, 1970), was crafted during a 1958 United Nations conference. See Leonard V. Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1059-60 (1961).

The Convention obligates signatories (1) to recognize and enforce written agreements to submit disputes to foreign arbitration and (2) to enforce arbitral awards issued in foreign nations. See id. arts. I-III. Article II of the Convention describes signatories’ responsibilities with respect to the enforcement of foreign arbitration agreements as follows:

1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

Id. art. II. Article III addresses signatories’ obligations to enforce foreign arbitral awards. It states that “[ejach Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles.” Id. art. III. In contrast with Article II, Article III omits an express instruction to courts to enforce these awards.

The United States, although a participant in the drafting conference, did not immediately accede to the Convention. See Quigley, supra, at 1059-60, 1074. Rather, the Senate gave its advice and consent to accession in 1968, and President Nixon approved the accession in September 1970. Presidential Proclamation on the United States of America’s Accession to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Presidential Proclamation), 1970 WL 104417, at *5 (Dec. 11, 1970). The Convention entered into force in the United States on December 29, 1970.2 Id.

According to contemporaneous legislative materials, this delay occurred because “the American delegation [to the drafting *382conference] felt certain provisions of the [Convention were in conflict with some of our domestic laws.” S. Exec. Rep. No. 90-10, at 1 (1968). Thus, the President and Congress believed that “[c]hanges in the Federal Arbitration Act (title 9 of the United States Code) [were] required before the United States bec[ame] party to the [C]onvention.” Id. at 2; see also H.R.Rep. No. 91-1181 (1970), reprinted in 1970 U.S.C.C.A.N. 3601, 3602 (“Even though the Convention was approved in October 1968, the instrument of accession will not be deposited until [chapter 2 of the FAA] is enacted into law.”). Specifically, a representative of the State Department’s Office of the Legal Advisor requested changes to the United States Code “to insure the coverage of the [FAA] extends to all cases arising under the treaty and some changes in Federal civil procedure to take care of related venue and jurisdictional requirement problems.” S. Exec. Rep. No. 90-10, at 5-6 (statement of Richard D. Kearney).

To address these concerns and to aid in the enforcement of the Convention, Congress enacted chapter 2 of the FAA (the Convention Act). The first section of this chapter states, “The Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, shall be enforced in United States courts in accordance with this chapter.” 9 U.S.C. § 201. The Convention Act then clarifies that arbitration agreements and awards arising out of commercial relationships, unless they are entirely between United States citizens and have no “reasonable relation with one or more foreign states,” fall under the Convention. Id. § 202.

Sections 203 through 205 provide rules regarding jurisdiction and venue. Notably, § 203 grants federal district courts original jurisdiction over any “action or proceeding falling under the Convention,” and § 205 allows a defendant to “remove such action or proceeding” from state court to federal district court. Id. §§ 203, 205. Other provisions of the Convention Act permit federal district courts to “direct that arbitration be held” and “appoint arbitrators” in accordance with the parties’ agreement, id. § 206, and to confirm foreign arbitral awards falling under the Convention, id. § 207.

C.

Like federal policy, South Carolina policy favors arbitration. Grant v. Magnolia Manor-Greenwood, Inc., 383 S.C. 125, 678 S.E.2d 435, 437 (2009). South Carolina law establishes that, in general, written arbitration agreements are “valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract.” S.C.Code Ann. § 15-8-10(a). But this rule does “not apply to ... any insured or beneficiary under any insurance policy.” Id. § 15-48-10(b)(4).

In analyzing the enforceability of domestic arbitration agreements in insurance policies, both the United States District Court for the District of South Carolina and the South Carolina Court of Appeals have held that, pursuant to the MeCarranFerguson Act, South Carolina’s law invalidating arbitration agreements in insurance policies reverse preempts chapter 1 of the FAA, 9 U.S.C. §§ 1-16, which governs domestic arbitration. E.g., Am. Health & Life Ins. Co. v. Heyward, 272 F.Supp.2d 578, 582-83 (D.S.C.2003); Cox v. Woodmen of the World Ins. Co., 347 S.C. 460, 556 S.E.2d 397, 399-402 (App.2001). ESAB Group’s appeal presents the concomitant question with respect to the Convention and Convention Act: does the McCarranFerguson Act apply such that state law can reverse preempt federal law and invalidate a foreign arbitration agreement?

*383II.

A.

ESAB Group is a South Carolina-based manufacturer of welding materials and equipment. During the time period relevant to this appeal, it has had several foreign corporate parents. From 1989 to 1994, ESAB Group and its predecessors operated as subsidiaries of ESAB AB, a Swedish company. In 1994, ESAB Group became an indirect subsidiary of Charter PLC, a British company. It remained as such until October 2008, when it became an indirect subsidiary of Charter International PLC, an Irish company. Throughout this time, ESAB Group has maintained its principal place of business in Florence, South Carolina, where it has a manufacturing plant, executive offices, and sales, engineering, and research development divisions.

Between 1989 and 1996, a Swedish insurer, Trygg-Hansa, issued seven global liability policies (the ZIP Policies or the Policies) to ESAB Group’s Swedish parent, ESAB AB. Under these Policies, Trygg-Hansa agreed to provide coverage, either as direct primary coverage or in excess of primary policies, to ESAB AB and its subsidiaries. Special endorsements in the Policies specifically extended coverage to ESAB Group and its predecessors. And according to the Policy Territory clauses contained in each Policy, the Policies applied to occurrences “worldwide.”

Five of the Policies, the 1989-1993 ZIP Policies, contain arbitration agreements, which mandate the resolution of disputes in Swedish arbitral tribunals in accordance with Swedish law. The other Policies, the 1994-1995 ZIP Policies, include Swedish choice-of-law provisions but omit arbitration clauses.

Trygg-Hansa transferred its obligations under the ZIP Policies to Zurich Insurance Company through a 1998 loss portfolio transfer agreement. Zurich Insurance Company then transferred these obligations to ZIP, an Irish insurer, in 2005.

B.

ESAB Group is currently facing numerous products liability suits arising from alleged personal injuries caused by exposure to welding consumables manufactured by ESAB Group or its predecessors. These suits presently are proceeding in numerous state and federal courts in the United States. As of June 12, 2009, ESAB Group had incurred more than $54 million in defense costs and suffered adverse verdicts in excess of $25 million.

ESAB Group requested that its insurers defend and indemnify it in these products liability actions. Several, including ZIP, refused coverage. As a result, ESAB Group brought suit against these insurers in South Carolina state court.3

The defendant insurers removed the case to the United States District Court for the District of South Carolina pursuant to the Convention and the Convention Act’s grant of removal jurisdiction. ESAB Group disputed the district court’s subject-matter jurisdiction. ESAB Group maintained that the Convention Act implements the Convention, so the Convention is judicially enforceable only as incorporated into the Act. And, it continued, the McCarranFerguson Act permits South Carolina law, which would invalidate the arbitration clauses in the 1989-1993 ZIP Policies, to reverse preempt the Convention Act. *384ESAB Group therefore contended that the ZIP Policies did not contain valid arbitration agreements, so they did not fall under the Convention. Thus, according to ESAB Group, the claims were not removable.

ZIP, in turn, challenged the district court’s exercise of personal jurisdiction. ZIP emphasized its limited contacts with South Carolina. A ZIP representative attested that ZIP maintains no offices or other facilities in South Carolina, owns no property there, is not licensed as an insurer by South Carolina, and does not regularly conduct business in the state. Although the ZIP Policies extended coverage to ESAB Group, ZIP argued this was an insufficient basis for personal jurisdiction because the contracts were negotiated, drafted, and executed in Sweden by two Swedish companies, ESAB AB and Trygg-Hansa.

The district court rejected both parties’ contentions. As to the issue of subject-matter jurisdiction, the district court acknowledged a split amongst our sister circuits concerning the interaction between the Convention, the Convention Act, and the McCarran-Ferguson Act. After considering the relevant precedent, the district court adopted the position of the Fifth Circuit, articulated in Safety National, 587 F.3d 714. Under this reasoning, it found that “the Convention, not the Convention Act, ... directs courts to enforce international arbitration agreements,” and because the McCarran-Ferguson Act’s text limits its scope to federal statutes, McCarran-Ferguson could not disrupt the application of traditional preemption rules.

The district court then found that ZIP had the requisite minimum contacts with the forum to permit the exercise of personal jurisdiction and that the exercise of jurisdiction over ZIP was otherwise reasonable. After concluding it had jurisdiction over both the subject matter and parties to the action, the district court enforced the arbitration agreements. It referred claims pertaining to the 1989-1993 ZIP Policies to arbitration.4

Because it had referred to arbitration all claims providing a basis for subject-matter jurisdiction, the district court declined to exercise supplemental jurisdiction over the remaining claims. It remanded the claims relating to the 1994-1995 ZIP Policies to state court.

ESAB Group timely appealed the district court’s exercise of subject-matter jurisdiction. ZIP filed a cross-appeal, challenging the district court’s exercise of personal jurisdiction and its authority to remand the nonarbitrable claims to state court.

III.

We first consider whether the federal courts have jurisdiction over the present action or whether, as ESAB Group claims, South Carolina law reverse preempts federal law and eliminates the *385basis for jurisdiction. Our review of questions of subject-matter jurisdiction is de novo. Dixon v. Coburg Dairy, Inc., 369 F.3d 811, 815 (4th Cir.2004) (en banc).

ESAB Group asserts that the Convention is a non-self-executing treaty, i.e., one that requires implementing legislation to be given effect in domestic courts. According to ESAB Group, it follows from this that the Convention has legal effect only as incorporated into its implementing legislation — here, the Convention Act. And because the Convention Act is a federal statute that does not speak directly to insurance, ESAB contends, it is subject to reverse preemption under the McCarranFerguson Act.

A.

Two of our sister circuits, the Second and the Fifth, have examined whether a state law may preempt the Convention or Convention Act pursuant to the McCarran-Ferguson Act and have reached divergent conclusions.

The Second Circuit visited the issue in Stephens v. American International Insurance Co., 66 F.3d 41 (2d Cir.1995). Citing only the Convention Act, the Stephens court stated, “[T]he Convention is not self-executing, and therefore, relies upon an Act of Congress for its implementation.” Id. at 45. The court then framed the question as whether the implementing legislation, the Convention Act, is subject to preemption by state law under the McCarran-Ferguson Act. See id. (“The Convention itself is simply inapplicable in this instance.”). Based on the text of the McCarran-Ferguson Act, the court concluded, without elaboration, that state laws precluding arbitration of disputes with a delinquent insurer reverse preempt the Convention Act. Id.

The Second Circuit soon called its holding into question, however. In Stephens v. National Distillers & Chemical Corp., 69 F.3d 1226 (2d Cir.1995), the court held that the McCarran-Ferguson Act did not apply to the Foreign Sovereign Immunities Act (FSIA), so the FSIA could preempt New York insurance law. See id. at 1231. It based this decision, in part, on clear congressional intent for the FSIA to preempt all contrary state law. See id. at 1232-34. Although the court noted in a footnote that this reasoning might apply to the Convention Act, in conflict with its earlier decision, it declined to consider the potential conflict at that time. See id. at 1233 n. 6.

The Fifth Circuit, sitting en banc, took up the issue of the interaction between the McCarran-Ferguson Act and the Convention in Safety National. The majority in that case held that, even assuming the Convention was non-self-executing (and therefore did not have legal effect in domestic courts absent implementing legislation), reverse preemption did not apply. See Safety Nat’l, 587 F.3d at 722-23. The majority first reasoned that the McCarran-Ferguson Act applied only to statutes, not treaties. See id. at 718 (“Congress did not intend to include a treaty within the scope of an ‘Act of Congress’ when it used those words in the McCarran-Ferguson Act.”). It then concluded that, despite the presence of implementing legislation, the Convention, not the Convention Act, was being “construe[d]” to supersede state law. Id. at 718, 724-25. And because the McCarran-Ferguson Act did not apply to treaties, that Act could “not cause [state law] to reverse-preempt the Convention.” Id. at 732.

Judge Elrod, joined by two other judges, provided a strident dissent. She too assumed that the treaty was non-self-executing, finding that the parties failed to preserve this issue. See id. at 751 n. 31 (Elrod, J., dissenting). But she observed *386that, as to non-self-executing treaties, “commentators overwhelmingly conclude that under current (and longstanding) law, it is only the implementing statute, not the non-self-executing treaty, that can be enforced by the courts so as to be capable of preemption.” Id. at 741-42 (citing sources). And because only the implementing legislation had preemptive effect, it was a statute — the Convention Act — that was being construed to supersede state law. See id. at 748.

The dissent charged that the majority had misconstrued the appropriate inquiry by analyzing whether a treaty was an “Act of Congress” for purposes of McCarranFerguson; Judge Elrod agreed it was not. See id. at 737, 747. She further claimed that the majority had engaged in a “play on words” in finding that the Convention itself was being “ ‘construed’ under the McCarran-Ferguson Act” to supersede state law. Id. at 747. The Convention, as a non-self-executing treaty, was not judicially enforceable, so it lacked the power to preempt (or supersede) state law. Id. at 746. Instead, the dissent argued, the Convention Act, which incorporated the Convention by reference, must be the source of the potentially preemptive federal law to which McCarran-Ferguson’s reverse-preemption rule might apply. Id. The proper question, according to the dissent, was whether the Convention Act was an “Act of Congress” within the meaning of McCarran-Ferguson, id. at 748, and the dissenters would have held that it was, id. at 749.

Judge Clement concurred in the judgment but rejected the majority’s analysis. See id. at 732-33 (Clement, J., concurring in the judgment). The dissent, she asserted, had “persuasively refute[d]” the majority’s position that the provisions of a non-self-executing, implemented treaty “have full preemptive effect.” Id. at 733. Judge Clement argued that the court should instead have found that Article II of the Convention was self-executing based on its plain-language directive to domestic courts to enforce foreign arbitral agreements. See id. at 733-34. Although she acknowledged that some factors indicated the Convention Act was intended as implementing legislation, she believed these were better explained by reading other portions of the Convention, particularly Article III, as non-self-executing. See id. at 736-37. If Article II was self-executing, then the treaty itself preempted state law, and the McCarran-Ferguson Act, applicable only to statutes, could not disrupt the traditional rules of preemption. See id. at 737.

B.

ZIP presents numerous arguments in support of its position that the McCarran-Ferguson Act does not authorize reverse preemption in this case. First, we quickly reject ZIP’s contention that the South Carolina statute is not subject to McCarran-Ferguson because it is not a “law enacted ... for the purpose of regulating the business of insurance.” The Supreme Court has instructed that this category of laws is a “broad” one, encompassing “laws that possess the end, intention, or aim of adjusting, managing, or controlling the business of insurance.” Fabe, 508 U.S. at 505, 113 S.Ct. 2202 (quoting Black’s Law Fictionally 1236, 1286 (6th ed. 1990)) (internal quotation marks omitted). We agree with the district court and the South Carolina Court of Appeals that South Carolina’s law, which governs the manner in which disputes regarding coverage are resolved, falls within this category. See Heyward, 272 F.Supp.2d at 582-83; Cox, 556 S.E.2d at 399-402.

The parties also spill significant ink disputing whether Article II of the Con*387vention is a self-executing treaty provision. Chief Justice Marshall first delineated the distinction between a self-executing and non-self-executing treaty in Foster v. Neilson, 27 U.S. (2 Pet.) 253, 314, 7 L.Ed. 415 (1829), overruled on other grounds by United States v. Percheman, 32 U.S. (7 Pet.) 51, 8 L.Ed. 604 (1833). He wrote that, because the Constitution establishes that treaties are the supreme law of the land, a court should regard a treaty as “equivalent to an act of the legislature,” provided that “it operates of itself, without the aid of any legislative provision” (i.e., it is self-executing). Id.; see also Medellin v. Texas, 552 U.S. 491, 505-06, 128 S.Ct. 1346, 170 L.Ed.2d 190 (2008) (“Only '[i]f the treaty contains stipulations which are self-executing, that is, require no legislation to make them operative, [will] they have the force and effect of a legislative enactment.’ ” (alterations in original) (quoting Whitney v. Robertson, 124 U.S. 190, 194, 8 S.Ct. 456, 31 L.Ed. 386 (1888))). But if “the treaty addresses itself to the political, not the judicial department,” Chief Justice Marshall directed, it is non-self-executing, and “the legislature must execute the contract, before it can become a rule for the court.” Foster, 27 U.S. at 314. It is well-established that a treaty may “contain both self-executing and non-self-executing provisions.” Lidas, Inc. v. United States, 238 F.3d 1076, 1080 (9th Cir.2001); see also United States v. Postal, 589 F.2d 862, 884 n. 35 (5th Cir.1979).

ZIP asserts that Article II of the Convention is self-executing and, therefore, should be enforced and given preemptive effect independent of the Convention Act. There is much to recommend this position. Most notably, the starting point of treaty interpretation is the text, Medellin, 552 U.S. at 506, 128 S.Ct. 1346, and the text of Article II instructs domestic courts to enforce foreign arbitral agreements. The Supreme Court has signaled that this sort of “directive to domestic courts” is indicative of .a self-executing treaty provision. Id. at 508, 128 S.Ct. 1346. Judge Clement, in her Safety National concurrence, see 587 F.3d at 734-35, and the United States, in opposing the petition for certiorari in that case, see Brief for United States as Amicus Curiae at 9, La. Safety Ass’n of Timbermen Self Insurers Fund v. Certain Underwriters at Lloyd’s, London, — U.S.-, 131 S.Ct. 65, 178 L.Ed.2d 22 (2010) (No. 09-945), 2010 WL 3375626, adopted the view that the instructive language in Article II rendered it self-executing.

But, as Judge Clement noted, there is an emerging presumption against finding treaties to be self-executing. See Safety Nat’l, 587 F.3d at 737. And the legislative history of the Convention Act indicates that Congress viewed the Act as implementing legislation, at least as to some of the Convention’s provisions. See S. Exec. Rep. No. 90-10, at 5-6 (statement of Richard D. Kearney) (referring to the proposed changes to the FAA as “implementing legislation”); H.R.Rep. No. 91-1181, reprinted in 1970 U.S.C.C.A.N. 3601, 3603 (same). Medellin, furthermore, cited the Convention Act as an example of implementing legislation. 552 U.S. at 521, 128 S.Ct. 1346. Although Judge Clement urged that the Convention Act served to implement other provisions of the Convention (particularly Article III), see Safety Nat’l, 587 F.3d at 736-37, this is hardly clear because nothing in the Convention Act or legislative history differentiates between Article II and the remainder of the treaty.

Moreover, the question of what constitutes a self-executing treaty has long confused courts and commentators. See Postal,