Ninth Circuit Embraces Foreign Affairs Field Preemption

Yesterday the Ninth Circuit, sitting en banc, has unanimously embraced the doctrine of foreign affairs field preemption. It will surely prove to be a controversial blockbuster case for foreign affairs law, with or without Supreme Court review.

The case of Movsesian v. Munich Re addressed a California statute, section 354.4, that authorized California courts to entertain various insurance claims brought by Armenian Genocide victims arising out of policies issued or in effect between 1875 and 1923. There was no clear conflict with a federal law, but rather a longstanding reluctance on the part of the federal government to formally recognize the Armenian Genocide for fear that it would offend U.S.-Turkish relations. Thus, one anticipated that the case would rely on cases such as Crosby, Garamendi and Medellin to determine whether the state law conflicted with a federal policy.

The Ninth Circuit did not take the path of conflict preemption, choosing instead to find that foreign affairs field preemption, (also known as dormant foreign affairs preemption), controlled the question.

First, the Ninth Circuit concluded that it was not enough that the California law concerned an area of traditional state responsibility, namely regulating insurance and passing laws providing state causes of action. One must look to the real purpose of the state law, which was to “provide potential monetary relief and a friendly forum for those who suffered from certain foreign events.” Focusing on the purpose of the statute led the court to conclude that the law did not concern an area of traditional state responsibility.

Second, the Ninth Circuit concluded that the law intruded on the federal government’s exclusive power to conduct and regulate foreign affairs:

The law establishes a particular foreign policy for California–one that decries the actions of the Ottoman Empire and seeks to provide redress for ‘Armenian Genocide victim[s]’ by subjecting foreign insurance companies to lawsuits in California….

The passage of nearly a century since the events in question has not extinguished the potential effect of section 354.4 on foreign affairs. On the contrary, Turkey expresses great concern over the issue, which continues to be a hotly contested matter of foreign policy around the world….

[S]ection 354.4 expresses a distinct point of view on a specific matter of foreign policy. Its effect on foreign affairs is not incidental; rather, section 354.4 is, at its heart, intended to send a political message on an issue of foreign affairs by providing relief and a friendly forum to a perceived class of foreign victims…. [T]he law imposes a concrete policy of redress for ‘Armenian Genocide victim[s],’ subjecting foreign insurance companies to suit in California by overriding forum-selection provisions and greatly extending the statute of limitations for a narrowly defined class of claims. Thus, section 354.4 ‘has a direct impact upon foreign relations and may well adversely affect the power of the central government to deal with those problems.’ Zschernig, 389 U.S. at 441. Section 354.4 therefore intrudes on the federal government’s exclusive power to conduct and regulate foreign affairs.”

Wow. I have been following this case for two years and would never have predicted that foreign affairs field preemption would control the result. The entire course of litigation appeared to be addressing questions of conflict preemption in the absence of a clear federal mandate or even an obvious federal policy with respect to the Armenian genocide.

One wonders, of course, whether the Ninth Circuit decided to embrace field preemption to avoid the problematic question of finding conflict preemption in the absence of a federal law on the matter. The broadest reading of Garamendi seemed to allow for the possibility of federal policy preemption, but Medellin arguably cut back on that position.

If field preemption governs the question of foreign affairs, one wonders why the Supreme Court bothered with its conflict preemption analysis in Crosby and Garamendi.

On the Ninth Circuit’s reading, with respect to any subject that intrudes on foreign affairs, all that matters is whether the real purpose of the state law is to respond to foreign events instead of pass laws of neutral applicability.

Of course, any number of state laws may now be preempted under foreign affairs field preemption. These might include, for example, long-arm statutes to address libel tourism, state laws regulating drug trafficking at international borders, ad hoc state tax credits to promote targeted foreign direct investment, emergency state funds for the benefit of Japanese tsunami victims, or state pension divestment rules such as those applied to address South African apartheid. In all such cases the purpose of the state law is to address specific issues arising from foreign events rather than pass neutral laws of general applicability. Therefore those laws too would be preempted under the Ninth Circuit’s expansive foreign affairs field preemption analysis.