CLMS Mgmt. Servs. Ltd. P'ship v. Amwins Brokerage of Ga., LLC

8 F.4th 1007

CLMS MANAGEMENT SERVICES LIMITED PARTNERSHIP ; Roundhill I, LP, Plaintiffs-Appellants,

v.AMWINS BROKERAGE OF GEORGIA, LLC; Amrisc, LLC; CJW & Associates, Inc.; Certain Underwriters at Lloyd's, Defendants-Appellees.

No. 20-35428

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 15, 2021 Seattle, Washington

Filed August 12, 2021

Michael A. Barcott (argued) and Daniel P. Barcott, Holmes Weddle & Barcott, Seattle, Washington, for Plaintiffs-Appellants.

Colleen V. McCaffrey (argued) and Shannon M. Benbow, Wood Smith Henning & Berman LLP, Seattle, Washington; Jeffrey S. Weinstein, Mound Cotton Wollan & Greengrass LLP, New York, New York; for Defendants-Appellees.

David S. Watnick, Covington & Burling LLP, San Francisco, California; Mark W. Mosier and Jordan V. Hill, Covington & Burling LLP, Washington, D.C.; for Amicus Curiae United Policyholders.

Before: Michael Daly Hawkins, M. Margaret McKeown, and Morgan Christen, Circuit Judges.

OPINION

CHRISTEN, Circuit Judge:

This appeal presents an issue of first impression in this circuit that lies at the intersection of international, federal, and state law: whether the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 – 15, allows a Washington statute to reverse-preempt the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a multilateral treaty. We conclude that the relevant provision of the Convention is self-executing, and therefore not an "Act of Congress" subject to reverse-preemption by the McCarran-Ferguson Act. Accordingly, we affirm the district court's order compelling arbitration.

I

In 2016, Plaintiffs CLMS Management Services Limited Partnership (CLMS) and Roundhill I, LP, domestic entities, entered into an insurance contract (the Policy) through defendant Amrisc, LLC. The Policy provided coverage for a townhome complex in Texas that Roundhill owns and CLMS operates. The relevant portion of the Policy was underwritten by defendants Certain Underwriters at Lloyd's London (Lloyd's), members of a foreign organization, and it contains a mandatory arbitration provision:

All matters in difference between the Insured and the Companies (hereinafter referred to as "the parties") in relation to this insurance, including its formation and validity, and whether arising during or after the period of this insurance, shall be referred to an Arbitration Tribunal in the matter hereinafter set out ....

The seat of the Arbitration shall be in New York and the Arbitration Tribunal shall apply the law of New York as the proper law of this insurance. ...

The award of the Arbitration Tribunal shall be in writing and binding upon the parties who covenant to carry out the same. If either of the parties should fail to carry out any award the other may apply for its enforcement to a court of competent jurisdiction in any territory in which the party in default is domiciled or has assets or carries on business.

In August 2017, Hurricane Harvey caused an estimated $5,660,000 in damages to the townhome complex. Plaintiffs submitted a claim under the Policy, but in May 2018 defendant CJW & Associates (CJW), a third-party claims administrator for Lloyd's, responded that the Policy's deductible was $3,600,000.

Plaintiffs filed a complaint in the Western District of Washington asserting three claims: breach of contract, failure to communicate policy changes, and unfair claims handling practices in violation of Washington law.¹ The primary allegation underlying plaintiffs’ claims is that "[u]nder the Policy, the deductible should be $600,000, not $3,600,000."

Lloyd's and CJW filed a motion to compel arbitration and stay proceedings in the district court. The motion argued that the Policy's arbitration provision falls within the scope of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention), by which the United States committed to enforce arbitration agreements between foreign and domestic entities. Lloyd's and CJW argued that the Convention required the district court to refer plaintiffs’ claims to arbitration.

Plaintiffs did not contest that the arbitration provision falls within the Convention's scope, but argued the provision is unenforceable because Washington law specifically prohibits the enforcement of arbitration clauses in insurance contracts and the McCarran-Ferguson Act operates to reverse-preempt the Convention, such that Washington law controls. Therefore, plaintiffs argued, the arbitration provision is unenforceable.

The district court granted Lloyd's and CJW's motion. The court reasoned that Article II, Section 3 of the Convention is self-executing, and therefore is not an "Act of Congress" subject to reverse-preemption pursuant to the McCarran-Ferguson Act. The district court held that it was required to enforce the arbitration provision pursuant to the Convention.

The court recognized that the parties’ dispute presents a question of first impression in this circuit, and certified its order for interlocutory review. A motions panel of our court granted plaintiffs’ petition for permission to appeal. We have jurisdiction pursuant to 28 U.S.C. § 1292(b).

II

We review de novo a district court's order compelling arbitration. Bushley v. Credit Suisse First Boston , 360 F.3d 1149, 1152 (9th Cir. 2004). The district court explained that enforcement of the arbitration clause turns on a clash between two sources of law: a Washington statute that prohibits mandatory pre-dispute arbitration clauses in insurance contracts, and Article II, Section 3 of the Convention, which, with few exceptions, requires United States courts to enforce written arbitration agreements like the one at issue here, between foreign and domestic entities.

As the district court aptly observed, the McCarran-Ferguson Act lies "[a]t the fulcrum" of Washington law and the Convention. In most instances, the Supremacy Clause mandates that a state law gives way to conflicting federal law, but the McCarran-Ferguson Act "provides that state insurance law preempts conflicting federal law." Thus, the question central to this appeal is whether Washington law, by operation of the McCarran-Ferguson Act, reverse-preempts the Convention.

Wash. Rev. Code § 48.18.200 provides:

(1) ... [N]o insurance contract delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state, shall contain any condition, stipulation, or agreement ...

(b) depriving the courts of this state of the jurisdiction of action against the insurer ....

(2) Any such condition, stipulation, or agreement in violation of this section shall be void, but such voiding shall not affect the validity of the other provisions of the contract.

The Washington Supreme Court has interpreted § 48.18.200 to "prohibit[ ] binding arbitration agreements in insurance contracts," and held that pre-dispute binding arbitration provisions in insurance contracts are unenforceable. State, Dep't of Transp. v. James River Ins. Co. , 176 Wash.2d 390, 292 P.3d 118, 123 (2013). We are bound by the Washington Supreme Court's interpretation of § 48.18.200. See Ticknor v. Choice Hotels Int'l, Inc. , 265 F.3d 931, 939 (9th Cir. 2001) ("[F]ederal courts are bound by the pronouncements of the state's highest court on applicable state law.").

The Convention is a multilateral treaty crafted during a 1958 United Nations conference. ESAB Grp., Inc. v. Zurich Ins. PLC , 685 F.3d 376, 381 (4th Cir. 2012). The United States participated in the Convention's drafting, but did not accede to the Convention until 1970. GE Energy Power Conversion Fr. SAS, Corp. v. Outokumpu Stainless USA, LLC , ––– U.S. ––––, 140 S. Ct. 1637, 1644, 207 L.Ed.2d 1 (2020). Article II of the Convention provides in full:

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.

2. The term "agreement in writing" shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.

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.²

The Convention art. II, June 10, 1958, 21 U.S.T. 2517 (emphasis added). "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." ESAB Group , 685 F.3d at 381.

Congress amended Title 9 of the U.S. Code to accommodate implementation of the Convention. The Convention Act, 9 U.S.C. § 201 et seq. , states that the Convention "shall be enforced in United States courts in accordance with this chapter." 9 U.S.C. § 201. As the Supreme Court has explained, the Convention Act also "grants federal courts jurisdiction over actions governed by the Convention, § 203; establishes venue for such actions, § 204; authorizes removal from state court, § 205; and empowers courts to compel arbitration, § 206." GE Energy , 140 S. Ct. at 1644. If the Convention and Washington state law were the only provisions in play, the parties agree that Washington's law would be preempted pursuant to ordinary Supremacy Clause principles. U.S. Const. art. VI, cl. 2 ("This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States , shall be the supreme Law of the Land." (emphasis added)).

But in response to the Supreme Court's...