American Insurance Association v. Garamendi

Ambiguities in American Insurance Association v. Garamendi leave unanswered questions about federalism, foreign affairs and authority over foreign affairs within the federal government

In American Insurance Association v. Garamendi, — U.S.— (June 23, 2003), the Supreme Court held that a California statute, the Holocaust Victim Insurance Relief Act of 1999 (HVIRA), was preempted and thus unenforceable because it interfered with the federal government’s conduct of foreign affairs. The decision, joined by only a bare majority of the Justices, raises intriguing questions about the Court’s views about the relationship between federalism and foreign affairs as well as about the distribution of authority over foreign affairs within the federal government.

One aspect of the Nazi persecution of Jews before and during World War II was the wholesale appropriation of Jewish assets, including the value of insurance policies; in some instances the Nazi regime effectively shared the proceeds of this appropriation with the insurance companies, and even after the war insurers often refused to honor unappropriated policies on a variety of technical grounds. The California legislature enacted HVIRA as part of ongoing state, federal and international efforts to prompt or require insurers to pay claims by survivors of the persecutions and the Holocaust. In particular, in July 2000, President Clinton and German Chancellor Schröder signed an executive agreement (the German Foundation Agreement) under which the German government agreed to create a publicly and privately-funded foundation to afford compensation to anyone who had “suffered at the hands of German companies during the National Socialist era.” The American executive branch, in turn, pledged itself to inform American courts in which such claims were raised that United States foreign policy interests would “favor dismissal [of the claim] on any valid legal ground.”

The specific requirement the state legislature enacted as HVIRA requires broad disclosure by insurers doing business in California of information relating to all insurance policies issued “to [all] persons [– not just Holocaust survivors –] in Europe, which were in effect between 1920 and 1945" by any company currently related to the insurer, even if the company was not related during the relevant period. After HVIRA’s passage, the deputy secretary of state repeatedly informed California officials that its enforcement might interfere seriously with the compensation scheme established pursuant to the German Foundation Agreement, but the state government nonetheless announced its intention to enforce HVIRA fully. In response, several insurers and a national trade association sought an injunction to prevent enforcement, prevailing in the district court but losing before the Ninth Circuit. In an opinion written by Justice Souter, the Supreme Court reversed the court of appeals; Justice Ginsburg dissented in an opinion joined by Justices Stevens, Scalia, and Thomas.

Justice Souter’s analysis of the issue before the Court proceeded in three main steps. He first reasoned that it is beyond dispute that “at some point” state actions may interfere with the federal government’s conduct of foreign policy; that the executive branch has “authority to decide what that policy should be”; that in particular the Court has long recognized the president’s authority to enter into executive agreements with other governments, and to do so to settle private claims; and that “valid” executive agreements can preempt state legislation. However, as Souter noted, neither the German Foundation Agreement nor any other executive agreement included a preemption clause, and as a consequence the plaintiffs had relied in their attack on HVIRA on a 1968 Supreme Court decision, Zschernig v. Miller.

The second step in Souter’s analysis, therefore, was to examine Zschernig, a split decision on which the Court has not relied subsequently and the cogency of which has often been in question. As Souter read Zschernig, the justices in that case differed over whether it was appropriate to analyze a state action impinging on foreign affairs under the theory of field preemption (where the federal government has “occupied the field” of legislation at issue) or conflict preemption (where the state action interferes with a specific federal rule or policy). However, Souter argued, the Zschernig justices had agreed on the proposition that “the likelihood that state legislation will produce something more than incidental effect in conflict with express foreign policy of the National Government would require preemption of the state law,” and that this agreement on the applicability of conflict preemption provided the analytical framework for deciding Garamendi.

The third step in Justice Souter’s analysis was to examine “how serious” the conflict between HVIRA and the executive branch’s foreign policy was, taking into account “the strength of the state interest, judged by standards of traditional practice.” Souter’s answer for the Court majority was that HVIRA “undercuts the President’s diplomatic discretion and the choice he has made in exercising it” in an area (claims settlement) of traditional executive discretion, and did so in the pursuit of objectives far from the traditional scope of state regulation of the insurance business. “California seeks to use an iron fist where the President has consistently chosen kid gloves,” and as a consequence HVIRA is an unenforceable roadblock to the president’s conduct of foreign affairs. The opinion also rejected some rather feeble arguments that federal statutory law prevented such “preemption by executive conduct in foreign affairs.”

In dissent, Justice Ginsburg did not disagree with Justice Souter’s first, general step, but she sharply criticized both his reliance on Zschernig and his evaluation of the federal and state interests in play. The decision in Zschernig, in her view, stemmed from the fact that the state action in question involved state court judgments about the policies and even the legitimacy of existing foreign governments, an issue quite “dissimilar” to that presented by HVIRA. Apart from its reliance on Zschernig, the majority’s analysis wrongly downplayed the state’s “broad authority to regulate the insurance industry”and significantly exaggerated the impact of HVIRA on any policy that the president had clearly endorsed. In the absence of any mention of preemption of state provisions like HVIRA in the German Foundation Agreement or any other presidential statement, to hold HVIRA preempted on the basis of statements by “individual sub-Cabinet members of the Executive Branch” was not to protect the president’s “ability to speak with one voice for the Nation” but rather to undermine it. “To the contrary, by declining to invalidate the HVIRA ... we would reserve foreign affairs preemption for circumstances where the President, acting under statutory or constitutional authority, has spoken clearly to the issue at hand.”

Garamendi is a case as interesting for its ambiguities as for its holding. To begin with an obvious point, the Court divided along unusual lines. It is no surprise to find Justice Souter, this Court’s most committed common-law style doctrinalist, and Justice Scalia, the Court’s self-appointed textualist skeptic, on opposite sides, but the remaining members of the Court arranged themselves in a rather unfamiliar pattern: perhaps the fact that the Court as a whole either agreed on or avoided taking a clear position on the big issues of federalism and separation of powers lying under the case’s surface led the Justices to reach their respective views on more specific or more subtle grounds. This supposition is supported, perhaps, by the remarkably tentative language both opinions used at critical points in their arguments. There is, for example, an obvious sense in which the case takes a broad view of the president’s independent authority in the area of foreign affairs. The Court reaffirmed earlier statements about that authority and appeared to cabin-in its 1994 statement, in Barclays Bank v. Franchise Tax Board, that because of the grant to Congress of power over foreign commerce it is Congress, not the president, which in that area sets national policy: “in the field of foreign policy, the President has the ‘lead role.’” But Justice Souter left opinion-writers in future cases plenty of leeway, particularly in his discussion of Zschernig and field versus conflict preemption. (Zschernig predated modern preemption terminology and Souter’s reading of the case involved a substantial recasting of both the terminology and the presuppositions of the opinions in the case. This is not a criticism nor a claim that Souter misread Zschernig, but it does suggest that Zschernig itself can provide little guidance to future judges dealing with Souter’s deliberate ambiguities.) Souter’s opinion repeatedly declined to treat the choice of field versus conflict preemption as clear or necessarily categorical, suggesting in a long footnote that the decision about which analytical approach to employ might itself depend on balancing the respective federal and state interests in a given case. And Souter’s application of conflict preemption in Garamendi expressly relied on evaluative judgments about the clarity of the executive’s policy choices and the weight of the state’s concerns which could easily come out otherwise in a different case by a Court expressly following Garamendi’s doctrine.

Justice Ginsburg’s dissent also left its share of uncertainty: was she rejecting reliance on Zschernig (“We have not relied on Zschernig since it was decided, and I would not resurrect that decision here”) or just refusing to “extend” it, as she later wrote? Did she intend to indicate that even an express preemption clause in an executive agreement involving claims settlement might be ineffective – a possibility her language repeatedly suggests – or was the real point of her dissent the lack of any “executive text” in which “the President himself has ... taken a clear stand?” How important to the dissenters was their subsidiary disagreement with the majority over the bona fides of HVIRA as a state regulation of the insurance industry?

One issue on which Garamendi does not appear to be ambiguous passed without notice. Neither Justice Souter nor Justice Ginsburg evinced any discomfort with the conclusion that at least some executive agreements, at least with regard to some claims settlements, are valid rules of federal law which, under the Supremacy Clause, preempt conflicting state laws although they have no statutory basis but rest solely on the president’s independent authority over foreign affairs. That, to be sure, was the Court’s holding in the old cases of Belmont (1937) and Pink (1942), but those decisions were not only old but readily distinguishable (as involving the president’s specific and textually express authority to receive ambassadors); more recently, in Dames & Moore v. Regan (1981), as Ginsburg noted, the Court went out of its way to assert the narrowness of its decision upholding such a claims-settlement agreement and seemed to put considerable weight on the existence of tacit congressional approval. It would appear that the central proposition for which the opinion of the Court in the famous Steel Seizure Case stands – that the president has no independent authority to make what amounts to domestic law – is truly dead. From a certain sort of legal-realist (or Realpolitik?) perspective this is no surprise, but it is one more indication of the freedom with which the Court treats its own precedents, even the most celebrated.

The author, Jeff Powell, is a professor of Constitutional law and history at Duke Law School. His recent book, The President's Authority Over Foreign Affairs: An Essay in Constitutional Interpretation (2002), addresses the distribution of authority over foreign affairs within the federal government.

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