ESAB Group, Incorporated v. Zurich Insurance PLC

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ESAB GROUP, INCORPORATED, 
Plaintiff-Appellant,
v.
ZURICH INSURANCE PLC,
Defendant-Appellee,
and  No. 11-1243
ARROWOOD INDEMNITY COMPANY;
LIBERTY MUTUAL INSURANCE
COMPANY; TRYGG-HANSA
FORSAKRINGS AB; ZURICH
INSURANCE COMPANY,
Defendants.

2 ESAB GROUP v. ZURICH INSURANCE
ESAB GROUP, INCORPORATED, 
Plaintiff-Appellee,
v.
ZURICH INSURANCE PLC,
Defendant-Appellant,
and  No. 11-1655
ARROWOOD INDEMNITY COMPANY;
LIBERTY MUTUAL INSURANCE
COMPANY; TRYGG-HANSA
FORSAKRINGS AB; ZURICH
INSURANCE COMPANY,
Defendants.

Appeals from the United States District Court
for the District of South Carolina, at Florence.
Thomas E. Rogers, III, United States Magistrate Judge.
(4:09-cv-01701-TER)
Argued: May 17, 2012
Decided: July 9, 2012
Before WILKINSON, DIAZ, and FLOYD, Circuit Judges.
Affirmed by published opinion. Judge Floyd wrote the opin-
ion, in which Judge Wilkinson and Judge Diaz concurred.
Judge Wilkinson wrote a separate concurring opinion.
ESAB GROUP v. ZURICH INSURANCE 3
COUNSEL
ARGUED: Mark William Mosier, COVINGTON & BURL-
ING, LLP, Washington, D.C., for Appellant/Cross-Appellee.
Richard Mancino, WILLKIE, FARR & GALLAGHER, LLP,
New York, New York, for Appellee/Cross-Appellant. ON
BRIEF: Andrew A. Ruffino, COVINGTON & BURLING
LLP, New York, New York; Mark W. Buyck, Jr., WILLCOX,
BUYCK & WILLIAMS, PA, Florence, South Carolina; Wil-
liam F. Greaney, COVINGTON & BURLING, LLP, Wash-
ington, D.C., for Appellant/Cross-Appellee. J. Boone Aiken,
III, AIKEN, BRIDGES, ELLIOTT, TYLER & SALEEBY,
PA, LLP, Florence South Carolina; Benjamin P. McCallen,
WILLKIE, FARR & GALLAGHER, LLP, New York, New
York; Joseph G. Davis, WILLKIE, FARR & GALLAGHER,
LLP, Washington, D.C., for Appellee/Cross-Appellant.
OPINION
FLOYD, Circuit Judge:
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 (1976); see also Japan Line, Ltd.
v. Cnty. of L.A., 441 U.S. 434, 448–49 & n.14 (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 legisla-
tion—pursuant to the McCarran-Ferguson Act, a federal stat-
ute directed at protecting state insurance regulations from
implied preemption by federal domestic commerce legisla-
tion. See Am. Ins. Ass’n v. Garamendi, 539 U.S. 396, 428
4 ESAB GROUP v. ZURICH INSURANCE
(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
We 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 reg-
ulation under the interstate commerce clause. See United
States v. S.-E. Underwriters Ass’n, 322 U.S. 533, 552–53
(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 (1978).
Accordingly, the likelihood developed that, through implied
preemption, federal statutes enacted to govern domestic com-
merce would oust states from insurance regulation.
In 1945, in response to South-Eastern Underwriters, Con-
gress enacted the McCarran-Ferguson Act, 15 U.S.C.
1
A magistrate judge handled all proceedings below. For readability, we
refer to the lower court as the district court.
ESAB GROUP v. ZURICH INSURANCE 5
§§ 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 (1993); Life Partners, Inc. v. Morrison, 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., 132
S. Ct. 1261, 1266 (2012). The McCarran-Ferguson Act, how-
ever, "transformed the legal landscape by overturning the nor-
mal rules of pre-emption." Fabe, 508 U.S. at 507.
The Act first declares that congressional silence "shall not
be construed to impose any barrier" to state regulation or tax-
ation 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 pre-
emption" of generally applicable federal statutes by state laws
enacted for the purpose of regulating the business of insur-
ance. 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, 131 S. Ct. 65 (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 fed-
eral policy in favor of the enforcement of arbitration agree-
ments in maritime and commercial contracts. See
CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 668–69
(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
6 ESAB GROUP v. ZURICH INSURANCE
in foreign tribunals or awards granted by such tribunals. For
this, the United States entered into a multilateral treaty guar-
anteeing the reciprocal enforcement of such arbitration agree-
ments 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, Acces-
sion 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 arbi-
tration 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 agree-
ment 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 con-
tractual 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 inca-
pable of being performed.
ESAB GROUP v. ZURICH INSURANCE 7
Id. art. II. Article III addresses signatories’ obligations to
enforce foreign arbitral awards. It states that "[e]ach Contract-
ing 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 Presi-
dent Nixon approved the accession in September 1970. Presi-
dential Proclamation on the United States of America’s
Accession to the Convention on the Recognition and Enforce-
ment 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 conference] felt certain provisions of the
[C]onvention were in conflict with some of our domestic
laws." S. Exec. Rep. No. 90-10, at 1 (1968). Thus, the Presi-
dent 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
2
The United States ultimately acceded to the Convention with two reser-
vations: (1) it would apply the Convention on a reciprocal basis, and (2)
it would apply the Convention only to "legal relationships . . . which are
considered as commercial" under United States law. Presidential Procla-
mation, supra, at *5. The parties agree that neither reservation bars the
application of the Convention in the present action.
8 ESAB GROUP v. ZURICH INSURANCE
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 representa-
tive 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 prob-
lems." 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 jurisdic-
tion 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 "re-
move such action or proceeding" from state court to federal
district court. Id. §§ 203, 205. Other provisions of the Con-
vention Act permit federal district courts to "direct that arbi-
tration be held" and "appoint arbitrators" in accordance with
the parties’ agreement, id. § 206, and to confirm foreign arbi-
tral awards falling under the Convention, id. § 207.
C.
Like federal policy, South Carolina policy favors arbitra-
tion. Grant v. Magnolia Manor-Greenwood, Inc., 678 S.E.2d
ESAB GROUP v. ZURICH INSURANCE 9
435, 437 (S.C. 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.
§ 15-48-10(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 Dis-
trict Court for the District of South Carolina and the South
Carolina Court of Appeals have held that, pursuant to the
McCarran-Ferguson 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. Hey-
ward, 272 F. Supp. 2d 578, 582–83 (D.S.C. 2003); Cox v.
Woodmen of the World Ins. Co., 556 S.E.2d 397, 399–402
(S.C. Ct. App. 2001). ESAB Group’s appeal presents the con-
comitant question with respect to the Convention and Con-
vention Act: does the McCarran-Ferguson Act apply such that
state law can reverse preempt federal law and invalidate a for-
eign arbitration agreement?
II.
A.
ESAB Group is a South Carolina-based manufacturer of
welding materials and equipment. During the time period rel-
evant to this appeal, it has had several foreign corporate par-
ents. 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 Inter-
national plc, an Irish company. Throughout this time, ESAB
Group has maintained its principal place of business in Flor-
10 ESAB GROUP v. ZURICH INSURANCE
ence, South Carolina, where it has a manufacturing plant,
executive offices, and sales, engineering, and research devel-
opment 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 poli-
cies, 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 dis-
putes in Swedish arbitral tribunals in accordance with Swed-
ish 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 Poli-
cies to Zurich Insurance Company through a 1998 loss portfo-
lio transfer agreement. Zurich Insurance Company then
transferred these obligations to ZIP, an Irish insurer, in 2005.
B.
ESAB Group is currently facing numerous products liabil-
ity suits arising from alleged personal injuries caused by
exposure to welding consumables manufactured by ESAB
Group or its predecessors. These suits presently are proceed-
ing 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 v. ZURICH INSURANCE 11
ESAB Group requested that its insurers defend and indem-
nify 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 pursu-
ant 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 McCarran-Ferguson Act per-
mits South Carolina law, which would invalidate the arbitra-
tion clauses in the 1989–1993 ZIP Policies, to reverse
preempt the Convention Act. ESAB Group therefore con-
tended 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 per-
sonal jurisdiction. ZIP emphasized its limited contacts with
South Carolina. A ZIP representative attested that ZIP main-
tains 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
3
Trygg-Hansa and Zurich Insurance Company were among the initial
defendants in this action. But after ZIP agreed to assume all obligations
under the ZIP Policies, the parties agreed to the dismissal of Trygg-Hansa
and Zurich Insurance Company.
12 ESAB GROUP v. ZURICH INSURANCE
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 rele-
vant 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 pre-
emption 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 juris-
diction 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 arbi-
tration.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
4
ZIP argued before the district court that the claims regarding coverage
under the 1994–1995 ZIP Policies were also arbitrable pursuant to the
clauses in the earlier contracts. The district court rejected this contention
and declined to send these claims to arbitration. ZIP initially raised this
issue in its cross-appeal.
While the instant action was proceeding in the state and federal courts
below, ZIP brought suit in Stockholm District Court to compel arbitration.
The Swedish Court referred claims under all of the ZIP policies, including
the 1994–1995 Policies, stating that it was "not evident that there [were]
no legal grounds for arbitration" of these claims. The Swedish arbitral
panel handling this matter subsequently dismissed for lack of jurisdiction
the claims related to the 1994–1995 ZIP Policies. As a result, ZIP has
withdrawn this aspect of its cross-appeal, and we do not consider it here.
ESAB GROUP v. ZURICH INSURANCE 13
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, chal-
lenging 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 jurisdic-
tion over the present action or whether, as ESAB Group
claims, South Carolina law reverse preempts federal law and
eliminates the basis 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 legisla-
tion 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 legisla-
tion—here, the Convention Act. And because the Convention
Act is a federal statute that does not speak directly to insur-
ance, ESAB contends, it is subject to reverse preemption
under the McCarran-Ferguson 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. Ameri-
can International Insurance Co., 66 F.3d 41 (2d Cir. 1995).
Citing only the Convention Act, the Stephens court stated,
14 ESAB GROUP v. ZURICH INSURANCE
"[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 implement-
ing 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 pre-
empt 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 Sover-
eign 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 Con-
vention 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 Con-
vention 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 rea-
soned that the McCarran-Ferguson Act applied only to stat-
utes, 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
ESAB GROUP v. ZURICH INSURANCE 15
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
that, as to non-self-executing treaties, "commentators over-
whelmingly 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 preemp-
tive 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 McCarran-Ferguson; 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 Conven-
tion by reference, must be the source of the potentially pre-
emptive federal law to which McCarran-Ferguson’s reverse-
preemption rule might apply. Id. The proper question, accord-
ing 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
16 ESAB GROUP v. ZURICH INSURANCE
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 indi-
cated the Convention Act was intended as implementing leg-
islation, 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 conten-
tion 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, inten-
tion, or aim of adjusting, managing, or controlling the busi-
ness of insurance." Fabe, 508 U.S. at 505 (quoting Black’s
Law Dictionary 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 Arti-
cle II of the Convention 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.
ESAB GROUP v. ZURICH INSURANCE 17
Neilson, 27 U.S. (2 Pet.) 253, 314 (1829), overruled on other
grounds by United States v. Percheman, 32 U.S. (7 Pet.) 51
(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," pro-
vided that "it operates of itself, without the aid of any legisla-
tive provision" (i.e., it is self-executing). Id.; see also
Medellin v. Texas, 552 U.S. 491, 505–06 (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.’" (alter-
ations in original) (quoting Whitney v. Robertson, 124 U.S.
190, 194 (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 pre-
emptive 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, 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.
Judge Clement, in her Safety National concurrence, see 587
F.3d at 734–35, and the United States, in opposing the peti-
tion for certiorari in that case, see Brief for United States as
Amicus Curiae at 9, La. Safety Ass’n of Timbermen Self Insur-
ers Fund v. Certain Underwriters at Lloyd’s, London, 131 S.
Ct. 65 (2010) (No. 09-945), 2010 WL 3375626, adopted the
18 ESAB GROUP v. ZURICH INSURANCE
view that the instructive language in Article II rendered it
self-executing.
But, as Judge Clement noted, there is an emerging pre-
sumption 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 Conven-
tion’s provisions. See S. Exec. Rep. No. 90-10, at 5–6 (state-
ment 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.
Although Judge Clement urged that the Convention Act
served to implement other provisions of the Convention (par-
ticularly Article III), see Safety Nat’l, 587 F.3d at 736–37, this
is hardly clear because nothing in the Convention Act or leg-
islative 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,
589 F.2d at 876 ("The self-execution question is perhaps one
of the most confounding in treaty law."); Curtis A. Bradley,
Intent, Presumptions, and Non-Self-Executing Treaties, 102
Am. J. Int’l L. 540, 540 (2008) ("[B]oth the theory behind the
self-execution doctrine and its mechanics have long befuddled
courts and commentators."). Indeed, scholars and jurists con-
tinue to debate the proper means for determining a treaty’s
status. See, e.g., Igartua v. United States, 626 F.3d 592, 623
(1st Cir. 2010) (Torruella, J., concurring in part and dissenting
in part) (urging a predominantly textual approach); David L.
Sloss, Executing Foster v. Neilson: The Two-Step Approach
to Analyzing Self-Executing Treaties, 53 Harv. Int’l L.J. 135
(2012); Carlos Manuel Vazquez, The Four Doctrines of Self-
Executing Treaties, 89 Am. J. Int’l L. 695 (1995).
ESAB GROUP v. ZURICH INSURANCE 19
But we need not wade into these murky waters to resolve
the question before us. To the contrary, we hold that, even
assuming Article II of the Convention is non-self-executing,
the Convention Act, as implementing legislation of a treaty,
does not fall within the scope of the McCarran-Ferguson Act.
Instead, as detailed below, Supreme Court precedent dictates
that McCarran-Ferguson is limited to legislation within the
domestic realm, and prior precedent of this court and our sis-
ter circuits supports a narrow reading of the Act.
Our aim in analyzing the McCarran-Ferguson Act, as in all
matters of statutory interpretation, is to implement Congress’s
intent. United States v. Abdelshafi, 592 F.3d 602, 607 (4th
Cir. 2010). We do so by examining the text of the statute, and
absent clear congressional intent to the contrary, we will give
the statute its plain meaning. Id.; see also Stephens ex rel.
R.E. v. Astrue, 565 F.3d 131, 137 (4th Cir. 2009) ("In inter-
preting the plain language of a statute, we give the terms their
‘ordinary, contemporary, common meaning, absent an indica-
tion Congress intended [them] to bear some different
import.’" (quoting N.C. ex rel. Cooper v. Tenn. Valley Auth.,
515 F.3d 344, 351 (4th Cir. 2008))).
Where a statute touches upon foreign relations and the
United States’ treaty obligations, we must proceed with par-
ticular care in undertaking this interpretive task. As the
Supreme Court observed in considering a prior potential con-
flict between the Convention Act and a federal statute, "[i]f
the United States is to be able to gain the benefits of interna-
tional accords and have a role as a trusted partner in multilat-
eral endeavors, its courts should be most cautious before
interpreting its domestic legislation in such manner as to vio-
late international agreements." Vimar Seguros y Reaseguros,
S.A. v. M/V Sky Reefer, 515 U.S. 528, 539 (1995). We seek,
when possible, to "construe . . . statute[s] consistent with our
obligations under international law." Kofa v. U.S. INS, 60
F.3d 1084, 1090 (4th Cir. 1995) (en banc) (citing Murray v.
Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804)).
20 ESAB GROUP v. ZURICH INSURANCE
ESAB Group urges that we must construe "Act of Con-
gress," as that term is used in the McCarran-Ferguson Act, to
apply to every federal statute, irrespective of the international
implications. But the Supreme Court has recently explained
that, in enacting the McCarran-Ferguson Act, Congress
plainly did not intend the law to apply so broadly. In Gara-
mendi, the Supreme Court specified that McCarran-Ferguson
was "directed to implied preemption by domestic commerce
legislation." 539 U.S. at 428; see also id. ("As the text itself
makes clear, the point of McCarran–Ferguson’s legislative
choice of leaving insurance regulation generally to the States
was to limit congressional preemption under the commerce
power, whether dormant or exercised.").
Although in Garamendi the Court was examining the inter-
action between state law and an executive agreement, the
Court’s statements regarding congressional intent guide our
understanding of Congress’s intent to limit the Act’s scope.
Specifically, that case demonstrated that Congress did not
intend for the McCarran-Ferguson Act to permit state law to
vitiate international agreements entered by the United States.
Cf. FTC v. Travelers Health Ass’n, 362 U.S. 293, 300 (1960)
(stating that McCarran-Ferguson was not intended to permit
a state to "regulate activities carried on beyond its own bor-
ders"), cited in Garamendi, 539 U.S. at 428.
On several occasions, moreover, Courts of Appeals have
refused to give the McCarran-Ferguson Act the broad scope
urged by ESAB Group. For example, we have previously
expressed our skepticism that Congress intended the
McCarran-Ferguson Act to apply to statutes governing federal
subject-matter jurisdiction. Gross v. Weingarten, 217 F.3d
208, 222 (4th Cir. 2000). And several of our sister circuits
have joined in this view or held that such statutes are not sub-
ject to reverse preemption. See Safety Nat’l, 587 F.3d at 724
n.39 (expressing skepticism); Hawthorne Sav. F.S.B. v. Reli-
ance Ins. Co. of Ill., 421 F.3d 835, 843–44 (9th Cir. 2005)
(holding that the diversity jurisdiction statute "is not reverse-
ESAB GROUP v. ZURICH INSURANCE 21
preempted"), amended 433 F.3d 1089 (9th Cir. 2006); Martin
Ins. Agency, Inc. v. Prudential Reinsurance Co., 910 F.2d
249, 254 (5th Cir. 1990) (holding that the McCarran-Ferguson
Act "did not remove diversity jurisdiction from the federal
courts in insurance matters"); Grimes v. Crown Life Ins. Co.,
857 F.2d 699, 702–03 (10th Cir. 1988) (finding no preemp-
tion of diversity jurisdiction statute).
The Second Circuit has found several substantive statutes
outside of McCarran-Ferguson’s reverse-preemption rule. It
first held that the McCarran-Ferguson Act could not permit
state law to exempt an insurer from compliance with Title VII
of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq.
Spirt v. Teachers Ins. & Annuity Ass’n, 691 F.2d 1054,
1064–66 (2d Cir. 1982), vacated, 463 U.S. 1223, remanded to
735 F.2d 23 (2d Cir. 1984). But see Murff v. Prof’l Med. Ins.
Co., 97 F.3d 289, 292 n.4 (8th Cir. 1996) (questioning Spirt’s
holding); NAACP v. Am. Family Mut. Ins. Co., 978 F.2d 287,
294–95 (7th Cir. 1992) (same). It reasoned that Title VII’s
"broad and explicit pre-emptive provision" evinced congres-
sional intent to displace all contrary state laws. Spirt, 691 F.2d
at 1065.
Likewise, as noted previously, the Second Circuit subse-
quently held that McCarran-Ferguson’s reverse-preemption
rule was inapplicable to the FSIA. Nat’l Distillers, 69 F.3d at
1231. The "international-law origins of the FSIA," it declared,
were "so different from the kind of congressional statutory
action that the McCarran-Ferguson Act was enacted to deal
with," that they "virtually compel[led] the conclusion" that the
McCarran-Ferguson Act did not authorize state law to dis-
place the FSIA. Id. In addition, it concluded that the
McCarran-Ferguson Act did not alter the rules of preemption
"so drastically as to force a federal law that clearly intends to
preempt all other state laws to give way simply because the
22 ESAB GROUP v. ZURICH INSURANCE
insurance industry is involved." Id. at 1233. And it found that
the FSIA evidenced such an intent.5 Id. at 1232.
The Convention Act, which provides, without exception,
that the Convention "shall be enforced in United States
courts," 9 U.S.C. § 201, similarly intends to replace all con-
trary state laws. The Supreme Court has opined that the Con-
vention and Convention Act demand that courts "subordinate
domestic notions of arbitrability to the international policy
favoring commercial arbitration." Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 639 (1985).
Thus, although the Court acknowledges that the Convention
permits Congress to "specify categories of claims it wishes to
reserve for decision by our own courts," it has "decline[d] to
subvert the spirit of the United States’ accession to the Con-
vention by recognizing subject-matter exceptions where Con-
gress has not expressly directed the courts to do so." Id. at 639
n.21.
The McCarran-Ferguson Act contains no such express direc-
tion.6 Indeed, the Supreme Court has told us that the aim of
McCarran-Ferguson is not arbitration or treaties, but "domes-
tic commerce legislation." Garamendi, 539 U.S. at 428. We
therefore hold that the Convention Act, as legislation imple-
menting a treaty, is not subject to reverse preemption, so
insurance disputes are not exempt from the Convention Act
pursuant to McCarran-Ferguson’s reverse-preemption rule.
5
As we recounted above, the National Distillers panel acknowledged
that its decision was in tension with the Second Circuit’s earlier decision
in Stephens v. American International because this reasoning might also
apply to the Convention Act, but it found no need to revisit that holding
in the case before it. See Nat’l Distillers, 69 F.3d at 1233 n.6.
6
Of course, to the extent the McCarran-Ferguson Act and Convention
Act are in irreconcilable conflict, the more recent Convention Act would
prevail. See Branch v. Smith, 538 U.S. 254, 273 (2003); cf. Whitney v.
Robertson, 124 U.S. 190, 194 (1888) (establishing that if a self-executing
treaty and statute are inconsistent, "the one last in date will control the
other").
ESAB GROUP v. ZURICH INSURANCE 23
As we have observed, the federal government must be per-
mitted to "speak with one voice when regulating commercial
relations with foreign governments." Michelin Tire Corp., 423
U.S. at 285. With the Convention and Convention Act, the
government has opted to use this voice to articulate a uniform
policy in favor of enforcing agreements to arbitrate interna-
tionally, even when "a contrary result would be forthcoming
in a domestic context." Mitsubishi Motors, 473 U.S. at 629.
To allow "parochial refusal[s]" to enforce foreign arbitration
agreements would frustrate the very purposes for which the
Convention was drafted: achieving the predictable and orderly
resolution of disputes "essential to any international business
transaction" and ensuring parties are not haled into hostile or
inappropriate forums. Scherk v. Alberto-Culver Co., 417 U.S.
506, 516–17 (1974); see also Mitsubishi Motors, 473 U.S. at639 n.21.
Congress might opt to exclude insurance disputes from the
Convention. But it has not done so with the McCarran-
Ferguson Act. Nothing in McCarran-Ferguson suggests that,
by enacting that statute, Congress intended to delegate to the
states the authority to abrogate international agreements that
this country has entered into and rendered judicially enforce-
able. We will not read it to do so.
Because the Supreme Court has made clear that McCarran-
Ferguson is limited to domestic affairs, we hold the Conven-
tion Act falls outside of its scope.7 Hence, we affirm the dis-
trict court’s exercise of subject-matter jurisdiction.
7
This is not to say that, in enacting the McCarran-Ferguson Act, Con-
gress merely "‘turn[ed] back the clock’ to the time prior to South-Eastern
Underwriters"; the Court has made clear that it did not. Fabe, 508 U.S.
at 506–08. We recognize that, within the domestic context, McCarran-
Ferguson broadly empowered states to tax and regulate insurance. Id. at
508. Here, we are simply heeding the Court’s instruction in Garamendi
that McCarran-Ferguson did not extend states’ authority over foreign
affairs or allow them "to regulate activities carried on beyond [their] own
borders." 539 U.S. at 428 (quoting Travelers Health Ass’n, 362 U.S. at
300) (internal quotation marks omitted).
24 ESAB GROUP v. ZURICH INSURANCE
In addition, as the 1989–1993 ZIP Policies contain valid
arbitration clauses subject to the Convention and Convention
Act, we find the district court properly compelled arbitration
in Sweden of ESAB Group’s claims under these Policies.
IV.
Having established that the district court had jurisdiction
over the subject matter of this action, we now consider the
issues presented by ZIP’s cross-appeal.
A.
ZIP avers that the district court lacked personal jurisdiction
over it. It notes that it maintains no office, employees, or
agents in South Carolina, and it owns no property there. It fur-
ther stresses that the ZIP Policies were executed outside of the
United States between foreign companies, and these contracts
designate Swedish law for the resolution of disputes. Thus,
ZIP urges that, although the ESAB Group and its predecessors
were covered under the ZIP Policies, its contacts with the
state are too weak to provide a basis for jurisdiction and that
the exercise of jurisdiction is otherwise unreasonable.
We review de novo the exercise of personal jurisdiction
over a defendant, although we accept the district court’s
underlying factual findings absent clear error. Consulting
Eng’rs Corp. v. Geometric Ltd., 561 F.3d 273, 276 (4th Cir.
2009). The plaintiff bears the burden to make a prima facie
showing of a basis for jurisdiction. Id.In general, "[a] federal district court may only exercise per-
sonal jurisdiction over a foreign corporation if such jurisdic-
tion is authorized by the long-arm statute of the state in which
it sits and application of the long-arm statute is consistent
with the due process clause of the Fourteenth Amendment."8
8
At oral argument, counsel for ESAB Group suggested that we should
consider ZIP’s contacts with the United States, rather than its South Caro-
ESAB GROUP v. ZURICH INSURANCE 25
Id. at 277. Because the scope of South Carolina’s long-arm
statute is coextensive with the Due Process Clause, see Cock-
rell v. Hillerich & Bradsby Co., 611 S.E.2d 505, 508 (S.C.
2005), we proceed directly to the constitutional analysis, see
ESAB Grp., Inc. v. Centricut, Inc., 126 F.3d 617, 623 (4th Cir.
1997).
We employ a three-part inquiry to determine whether the
exercise of specific jurisdiction over a party comports with
due process. Consulting Eng’rs, 561 F.3d at 278. Under this
test, "we consider (1) the extent to which the defendant pur-
posefully availed itself of the privilege of conducting activi-
ties in the State; (2) whether the plaintiff[’s] claims arise out
of those activities directed at the State; and (3) whether the
exercise of personal jurisdiction would be constitutionally
reasonable." Id. (quoting ALS Scan, Inc. v. Digital Serv. Con-
sultants, Inc., 293 F.3d 707, 712 (4th Cir. 2002)) (internal
quotation marks omitted). We agree with the district court
that, as to ZIP, each prong of this test is satisfied.
To meet the first prong, the court must find that the defen-
dant has established "minimum contacts" with the forum state
by "purposefully avail[ing itself] of the privilege of conduct-
ing business under the [state’s] laws." Id. A defendant’s
actions that are directed at the forum state in only "a random,
fortuitous, or attenuated way" are insufficient to support juris-
diction. ESAB Grp., 126 F.3d at 625. Thus, the Supreme
Court has rejected the exercise of jurisdiction where a defen-
dant has merely placed a product into the stream of commerce
lina contacts. But because we conclude that ZIP would be subject to juris-
diction in a court of general jurisdiction in South Carolina, as required for
jurisdiction under Federal Rule of Civil Procedure 4(k)(1)(A), we need not
consider ZIP’s nationwide contacts. See CFA Inst. v. Inst. of Chartered
Fin. Analysts of India, 551 F.3d 285, 292 (4th Cir. 2009) (declining to ana-
lyze the possibility of jurisdiction based on nationwide contacts pursuant
to Federal Rule of Civil Procedure 4(k)(2) because Rule 4(k)(1)(A) autho-
rized jurisdiction).
26 ESAB GROUP v. ZURICH INSURANCE
foreseeing that it might ultimately reach the forum state. See
J. McIntyre Mach., Ltd. v. Nicastro, 131 S. Ct. 2780, 2785
(2011) (plurality opinion). But where a defendant has "tar-
geted the forum" with its goods, sufficient contacts exist. Id.
at 2788.
In Rossman v. State Farm Mutual Automobile Insurance
Co., 832 F.2d 282, 286–87 (4th Cir. 1987), we identified
unique aspects of the business of insurance relevant to the
evaluation of an insurer’s contacts with a forum. Litigation,
we observed, is often a necessary part of the insurance busi-
ness. Id. at 286. Therefore, by agreeing to furnish a defense
to its policyholder within a specified policy territory, an
insurer indicates its willingness to be haled into court in for-
eign forums within this territory. Id. And because the insurer
offers "broad coverage to induce customers to buy its policies
and to pay higher premiums for them," these contacts "are
neither fortuitous nor incidental." Id. at 287. Based on these
principles, we determined in Rossman that a district court in
Virginia could exercise jurisdiction over a foreign insurer
based on an automobile liability insurance contract written,
issued, and delivered in Illinois, because the contract’s policy
territory included Virginia. See id. at 286–87.
Not only do the ZIP Policies9 include South Carolina in the
policy territory, which is worldwide, but the Policies also
identify as covered insureds ESAB Group and its predeces-
sors, companies based in South Carolina. We infer that ZIP
obtained financial benefits, in the form of higher premiums,
for agreeing to provide this coverage. These facts demonstrate
that ZIP targeted the forum state and purposefully availed
9
It is of no moment that Trygg-Hansa, rather than ZIP, originated these
Policies. In agreeing to assume Trygg-Hansa’s obligations under the ZIP
Policies, ZIP knowingly entered into an agreement to defend ESAB
Group, a company headquartered in South Carolina, in courts throughout
the world. Thus, ZIP’s successor status does not lessen its contacts with
the state.
ESAB GROUP v. ZURICH INSURANCE 27
itself of the privilege of conducting business under South Car-
olina law. Accordingly, the first prong, minimum contacts, is
satisfied. The parties also agree that the suit arises out of these
contacts, fulfilling the second prong.
The third prong, constitutional reasonableness, protects a
party from "litigation ‘so gravely difficult and inconvenient’
that [the] party unfairly is at a ‘severe disadvantage’ in com-
parison to [its] opponent." Burger King Corp. v. Rudzewicz,
471 U.S. 462, 478 (1985) (quoting The Bremen v. Zapata Off-
Shore Co., 407 U.S. 1, 18 (1972); McGee v. Int’l Life Ins. Co.,
355 U.S. 220, 223 (1957)). To defeat jurisdiction on this
basis, a defendant must establish, despite the presence of
minimum contacts, "a compelling case that the presence of
some other considerations would render jurisdiction unreason-
able." Id. at 477.
It is clear that the burden on ZIP of litigating in South Car-
olina is not so great—particularly in relation to the interests
of South Carolina and of ESAB Group—to render the exer-
cise of jurisdiction unreasonable. We are cognizant that
requiring a party to defend itself in a "foreign legal system"
imposes "unique burdens" that "should have significant
weight in assessing the reasonableness of stretching the long
arm of personal jurisdiction over national borders." Consult-
ing Eng’rs, 561 F.3d at 282 n.12 (quoting Asahi Metal Indus.
Co. v. Superior Ct., 480 U.S. 102, 114 (1987)) (internal quo-
tation marks omitted). But in contracting to defend ESAB
Group worldwide, ZIP indicated that the burden of appearing
in a forum in South Carolina is not exceedingly onerous. See
Rossman, 832 F.2d at 287.
In contrast, South Carolina "has a manifest interest in pro-
viding effective means of redress for its residents when their
insurers refuse to pay claims." McGee, 355 U.S. at 223. And
ESAB Group, as a company based in South Carolina and fac-
ing litigation throughout the United States, has a substantial
interest in the convenience of litigating in South Carolina.
28 ESAB GROUP v. ZURICH INSURANCE
Foster v. Arletty 3 SARL, 278 F.3d 409 (4th Cir. 2002), cited
by ZIP, does not dictate otherwise. In that case, Foster, a
French citizen, first sought relief in France, and he brought
suit in South Carolina only after the French courts issued an
adverse decision. See id. at 416. Thus, Foster, unlike ESAB
Group, could not show that South Carolina was his forum of
choice, and it was clearly convenient for Foster to litigate in
France. See id.We will affirm the district court with respect to personal
jurisdiction.
B.
The Convention Act provides that "[a]n action or proceed-
ing falling under the Convention shall be deemed to arise
under the laws and treaties of the United States," and it grants
federal district courts "original jurisdiction over such an
action or proceeding." 9 U.S.C. § 203. Seizing on this lan-
guage, ZIP contends that the district court had original juris-
diction over all claims against it in this action, regardless of
whether each claim involved a contract containing a foreign
arbitral agreement. Thus, it argues that the court erred when,
after referring the claims pertaining to the 1989–1993 ZIP
Policies to arbitration, it exercised its discretion under 28
U.S.C. § 1367, the statutory grant of supplemental jurisdic-
tion, to remand the remaining, nonarbitrable claims to state
court.
We review for abuse of discretion a district court’s decision
to remand state law claims after declining to exercise supple-
mental jurisdiction. Jordahl v. Democratic Party of Va., 122
F.3d 192, 203 (4th Cir. 1997). Of course, an error of law is,
by definition, an abuse of discretion. Koon v. United States,
518 U.S. 81, 100 (1996).
We find that the district court had authority to decline to
exercise jurisdiction over the nonarbitrable claims and to
ESAB GROUP v. ZURICH INSURANCE 29
remand these claims to state court. Although § 203 refers to
jurisdiction over an "action or proceeding," the statutory grant
of federal-question jurisdiction, 28 U.S.C. § 1331, similarly
confers upon district courts "original jurisdiction of all civil
actions arising under the Constitution, laws, or treaties of the
United States." Notwithstanding the potential breadth of this
language, the Supreme Court has interpreted § 1331 to require
supplemental jurisdiction (or its antecedents) over certain
claims within a constitutional case that do not themselves give
rise to federal jurisdiction.
In United Mine Workers of America v. Gibbs, 383 U.S. 715(1966), the Court articulated the theory of pendent jurisdic-
tion, the precursor to supplemental jurisdiction, by adopting
an "expansive interpretive approach" to § 1331. Exxon Mobil
Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 553 (2005).
Under this approach, so long as one claim in an action pre-
sented a federal question on the face of the well-pleaded com-
plaint, a court could exercise jurisdiction over the entire con-
stitutional case or controversy. See id. at 552–53. It does not
follow, however, that the federal court had original jurisdic-
tion over the entire case; rather, it had original jurisdiction
over at least one claim, allowing the exercise of supplemen-
tal/pendent jurisdiction over the remaining claims. And the
Supreme Court subsequently recognized that, when the exer-
cise of pendent jurisdiction over these claims became "inap-
propriate," district courts had inherent authority to remand
them to state courts. Carnegie-Mellon Univ. v. Cohill, 484
U.S. 343, 351 (1988).
With 28 U.S.C. § 1367, Congress largely codified the doc-
trine of pendent jurisdiction (and the related doctrine of ancil-
lary jurisdiction) as supplemental jurisdiction. See § 1367(a)
("[I]n any civil action of which the district courts have origi-
nal jurisdiction, the district courts shall have supplemental
jurisdiction over all other claims that are so related to claims
in the action within such original jurisdiction that they form
part of the same case or controversy . . . ."). Section 1367(c)
30 ESAB GROUP v. ZURICH INSURANCE
recognizes courts’ authority to decline to exercise supplemen-
tal jurisdiction in limited circumstances, including, as
occurred here, where the court dismisses the claims over
which it has original jurisdiction. Id. § 1367(c); see also Hin-
son v. Norwest Fin. S.C., Inc., 239 F.3d 611, 616 (4th Cir.
2001). And we have held that district courts retain inherent
authority, once they have decided under § 1367(c) not to exer-
cise jurisdiction, to remand these claims to state court. Hin-
son, 239 F.3d at 616–17.
In light of this history, we read § 203 to authorize federal
jurisdiction over all claims within an action, but, as to those
claims not falling under the Convention, this jurisdiction is
supplemental in nature. And when those claims falling within
a court’s original jurisdiction are no longer in the case—here,
because they have been referred to arbitration—the court has
authority under § 1367(c) to decline to exercise such supple-
mental jurisdiction and inherent authority to remand the
remaining claims to state court. Thus, the district court com-
mitted no error of law in finding it had authority to do so here.
Nor did the district court abuse its discretion in exercising
this authority. ZIP urges that 9 U.S.C. § 3 obligated the dis-
trict court to stay the remaining claims pending arbitration.
But we have held that, as to nonarbitrable claims, the decision
to stay under § 3 is discretionary. Am. Recovery Corp. v.
Computerized Thermal Imaging, Inc., 96 F.3d 88, 97 (4th Cir.
1996). Although a district court may be compelled to stay
nonarbitrable issues within an otherwise arbitrable claim, see
Aggarao v. MOL Ship Mgmt. Co., 675 F.3d 355, 376 & n.18
(4th Cir. 2012), there is no like requirement that the court
exercise supplemental jurisdiction over nonarbitrable claims
where all claims within the court’s original jurisdiction have
been sent to arbitration. Accordingly, the district court was
well within the scope of its discretion to remand the nonarbitr-
able claims in this action.
ESAB GROUP v. ZURICH INSURANCE 31
V.
For the foregoing reasons, we affirm.
AFFIRMED
WILKINSON, Circuit Judge, concurring:
I am happy to concur in Judge Floyd’s fine opinion in this
case. At oral argument, I expressed the view that appellant’s
able counsel was leading this court into a nest of "machine
gun fire."
Here’s why. To hold that the McCarran-Ferguson Act
empowers state law to displace the Convention on the Recog-
nition and Enforcement of Foreign Arbitral Awards would (1)
ignore the Convention’s express statement that contracting
states "shall recognize an agreement in writing under which
the parties undertake to submit to arbitration," and its direc-
tive that "[t]he court of a Contracting State . . . shall, at the
request of one of the parties, refer the parties to arbitration,"
art. II, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3
(emphases added); (2) ignore the implementing legislation’s
instruction that "[t]he Convention . . . shall be enforced in
United States courts," 9 U.S.C. § 201 (emphasis added), and
its conferral of jurisdiction to federal district courts for "ac-
tion[s] [and] proceeding[s] falling under the Convention," id.§ 203; (3) require this court to interpret the phrase "Act of
Congress," as used in the McCarran-Ferguson Act, to encom-
pass a treaty, see Safety Nat’l Cas. Corp. v. Certain Under-
writers at Lloyd’s, London, 587 F.3d 714, 722-23 (5th Cir.
2009); (4) cause a treaty to lose its character as a treaty simply
because it has been implemented by federal legislation, see
id.; (5) contradict American Insurance Ass’n v. Garamendi,
539 U.S. 396 (2003), where the Supreme Court indicated that
the McCarran-Ferguson Act "was not intended to allow a
State to ‘regulate activities carried on beyond its own bor-
ders’" and "cannot sensibly be construed to address preemp-
32 ESAB GROUP v. ZURICH INSURANCE
tion by executive conduct in foreign affairs," id. at 428(citation omitted); see ante at 20; (6) ignore the intent of Con-
gress, as expressed in the Federal Arbitration Act, to establish
a "liberal federal policy favoring arbitration agreements, not-
withstanding any state substantive or procedural policies to
the contrary," Moses H. Cone Mem’l Hosp. v. Mercury Con-
str. Corp., 460 U.S. 1, 24 (1983) (citing 9 U.S.C. § 2); (7)
ignore the repeated admonitions of the Supreme Court that
arbitration provisions are a valid way of resolving interna-
tional commercial disputes, see, e.g., Mitsubishi Motors Corp.
v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 638-40
(1985); Scherk v. Alberto-Culver Co., 417 U.S. 506, 516-17
(1974); (8) cause the nation to speak with more than one
voice in a matter of international commercial trade by
enabling each of the fifty states to employ its own arbitration
regime, see generally Crosby v. Nat’l Foreign Trade Council,
530 U.S. 363, 376-77, 381-82 (2000); (9) cause other nations
to doubt this country’s commitment to its international cove-
nants; and (10) invite retaliation when an American insurer
(or, for that matter, any American company) seeks to enforce
an arbitration agreement with an insured (or an agreement that
relates to any number of commercial matters) in another
country.
One might go on, but there is something to be said for end-
ing at a round number, and so I do here.