Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_00-cv-00506/USCOURTS-caed-2_00-cv-00506-0/pdf.json

Nature of Suit Code: 950
Nature of Suit: Contitutionality of State Statutes
Cause of Action: 42:1983 Civil Rights Act

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

GERLING GLOBAL REINSURANCE

CORP. OF AMERICA, et al.,

NO. CIV. S-00-0506 WBS JFM

Plaintiffs,

v. MEMORANDUM AND ORDER;

PRELIMINARY INJUNCTION

CHUCK QUACKENBUSH in his

capacity as COMMISSIONER OF

INSURANCE OF THE STATE OF

CALIFORNIA, 

Defendant.

___________________________/

AMERICAN INSURANCE ASSOCIATION

and AMERICAN RE-INSURANCE NO. CIV. S-00-0613 WBS JFM

CO.,

Plaintiffs,

v.

CHUCK QUACKENBUSH in his 

capacity as COMMISSIONER 

OF INSURANCE OF THE STATE 

OF CALIFORNIA, 

Defendant.

____________________________/

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1 Some of the plaintiffs use the term “HVIRA” to refer to

all statutes related to California Insurance Code sections 13800-

13807, including California Insurance Code section 790.15 and

California Code of Civil Procedure section 354.5. In fact, the

latter two sections were enacted before Insurance Code sections

13800-13807 and are not part of the HVIRA. When the court uses

the term “HVIRA,” it refers only to California Insurance Code

sections 13800-13807 and the accompanying regulations.

2

WINTERTHUR INTERNATIONAL

AMERICA INSURANCE CO., et al., NO. CIV. S-00-0779 WBS JFM

Plaintiffs,

v.

CHUCK QUACKENBUSH in his 

capacity as COMMISSIONER 

OF INSURANCE OF THE STATE 

OF CALIFORNIA, 

Defendant.

___________________________/

ASSICURAZIONI GENERALI S.p.A.,

NO. CIV. S-00-0875 WBS JFM

Plaintiff,

v.

CHUCK QUACKENBUSH in his 

capacity as COMMISSIONER 

OF INSURANCE OF THE STATE 

OF CALIFORNIA, 

Defendant.

___________________________/

----oo0oo----

In October 1999, California enacted the Holocaust

Victim Insurance Relief Act (“HVIRA”). See Cal. Ins. Code §§

13800-13807 and accompanying regulations, Cal. Code Regs. Tit. 10

§§ 2278-2278.5.1 The stated purpose of the HVIRA is for

insurance companies doing business in the State of California to

ensure that “any involvement they or their related companies may

have had with insurance policies of Holocaust victims are

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2 Gerling additionally moves for a preliminary injunction

against enforcement of California Civil Procedure Code section

354.5 and California Insurance Code section 790.15. The court

dismisses Gerling’s motion as to these two claims. (See Order

re: Motion to Dismiss, filed concurrently.) Hence, the court

only considers the parties’ motions for preliminary injunction

against enforcement of the HVIRA. 

Gerling also moves for summary judgment on the same

claims discussed in its motion for preliminary injunction. 

Because discovery is incomplete, and defendant has not responded

to that motion, the court does not consider it at this time. See

Fed. R. Civ. P. 56(f).

3

disclosed to the state and to ensure the rapid resolution of

these questions, eliminating further victimization of these

policyholders and their families.” Cal. Ins. Code § 13801(e). 

Each set of plaintiffs has moved against defendant Chuck

Quackenbush, the California Commissioner of Insurance, for a

preliminary injunction against enforcement of the HVIRA and

accompanying regulations on the grounds that they are

unconstitutional and that such enforcement will cause plaintiffs

irreparable harm. See Fed. R. Civ. P. 65.2

II. Facts

A. The Statutes

The disputed statutes and regulations relate to claims

asserted by Holocaust victims or their heirs or beneficiaries for

coverage under insurance policies issued in Europe between 1920-

1945. After the National Socialist (NAZI) party came to power,

it enacted a series of statutes authorizing governmental

confiscation of Jewish property and other assets, including

insurance proceeds. Under these NAZI statutes, German insurers

were required to pay the proceeds of insurance policies of Jewish

residents to “blocked accounts” controlled by the NAZI

government. A 1943 statute ordered confiscation of the estates

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of deceased Jews. Further, although many Holocaust victims had

insurance policies, many lost the papers during their

imprisonment. In many cases, the persons most knowledgeable

about the policy were killed, leaving heirs without a paper

trail. As a result, many Holocaust victims and their descendants

and heirs have never collected on insurance policies. 

The HVIRA requires insurance companies doing business

in California to file reports disclosing policies issued in

Europe during the period 1920-1945. See Cal. Ins. Code §§ 13800-

13807. Other statutes extend the statute of limitations for

filing such claims (Cal. Civ. Proc. Code § 354.5), and suspend

the license of insurance companies who have not paid valid claims

(Cal. Ins. Code § 790.15). 

1. California Insurance Code §§ 13800-13807 (“HVIRA”)

The HVIRA obligates insurers doing business in

California to file reports identifying insurance policies (life,

property, liability, health, annuities, dowry, educational, or

casualty) sold to persons in Europe between 1920 and 1945

directly or through a “related company.” Cal. Ins. Code §

13804(a). A “related company” is “any parent, subsidiary,

reinsurer, successor in interest, managing general agent, or

affiliate company of the insurer.” Cal. Ins. Code § 13802(b). 

Specifically, the statute requires the insurer or related company

to file with the registry: (1) the number of those insurance

policies; (2) the holder, beneficiary, and current status of

those policies; and (3) the city of origin, domicile, or address

for each policy holder. See Cal. Ins. Code § 13804(a). Further,

with regard to each policy, the insurer must certify one of the

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3 Defendant has represented that he will not attempt to

enforce the statute against plaintiffs until 20 days after the

motions for preliminary injunction have been heard. 

5

following: (1) that the proceeds of the policies have been paid

to the designated beneficiaries or their heirs where that person

or persons, after diligent search, could be located and

identified; (2) that the proceeds where the beneficiaries or

heirs could not, after diligent search, be located or identified,

have been distributed to Holocaust survivors or to qualified

charitable nonprofit organizations for the purpose of assisting

Holocaust survivors; (3) that a court of law has certified in a

legal proceeding resolving the rights of unpaid policyholders,

their heirs, and beneficiaries, a plan for the distribution of

the proceeds; or (4) that the proceeds have not been distributed

and the amount of those proceeds. See Cal. Ins. Code § 13804(b).

Under the regulations, these reports were to be filed

on or before April 7, 2000. See Cal. Code Regs. § 2278.4. Under

the statute, if the reports were not filed by the 210th day after

the HVIRA became effective (May 7, 2000), the Commissioner “shall

suspend the certificate of authority to conduct insurance

business in the state....” Cal. Ins. Code § 13806.3

2. California Civil Procedure Code § 354.5

Under this statute, any Holocaust victim or heir or

beneficiary who resides in the state may bring a legal action to

recover on any claim arising out of an insurance policy or

policies purchased or in effect in Europe before 1945 from an

insurer (defined term), “notwithstanding any other provision of

law.” Cal. Civ. Proc. Code § 354.5(b). Further, it forbids

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dismissal of any claim whether brought by a resident or

nonresident on statute of limitations grounds as long as the

action is commenced on or before December 31, 2010. See Cal.

Civ. Proc. Code § 354.5(c)

 3. California Insurance Code § 790.15

 This statute modifies the Insurance Code to empower

the Insurance Department of the State of California to suspend

the license of an insurer admitted to do business in California

if the Department concludes that an “affiliate” of the insurer

has failed to pay any valid claim from Holocaust survivors.

B. International Negotiations

The federal government, along with foreign governments

and insurance companies, is also grappling with the same goal of

giving Holocaust victims some compensation for lost monies from

insurance policies. 

The United States and German governments have recently

negotiated the formation of the Foundation for Remembrance,

Responsibility, and the Future (“Foundation”) funded by the

German government and German corporations to resolve the claims

of Holocaust victims. The Foundation is capitalized with

approximately $5 billion dollars toward payments of victims of

slave and forced labor, as well as payments on asserted claims

related to insurance, banking, taking of property, and medical

experiments. In a December 13, 1999 letter to Chancellor

Schroeder, President Clinton stated that the executive agreement

between the two countries shall state that the “Foundation should

be regarded as the exclusive remedy for all claims against German

companies arising out of the Nazi era.” (American: Sullivan

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4 Many of the exhibits appear in some or all of the

various plaintiffs’ papers. The court will only cite to one

location of each exhibit. 

7

Decl. Ex. 6, 12/13/99 Clinton letter to Schroeder)4. Deputy

Secretary of the Treasury Stuart Eizenstat is the principal

representative of the United States on these issues. 

A second organization, the International Commission on

Holocaust Era Insurance Claims (“ICHEIC”), chaired by former

Secretary of State Lawrence Eagleburger, was established as a

voluntary organization between European regulators, major

European insurance companies, representatives of Jewish and

Holocaust survivor organizations, Israel, and the National

Association of Insurance Commissioners in the United States. 

Generali and the Winterthur plaintiffs are members. 

The framework for the ICHEIC is set out in a Memorandum

of Understanding (“MOU”). Among other things, the MOU provides

that the ICHEIC shall conduct an investigatory process to

determine the current status of insurance policies issued to

Holocaust victims for which claims are filed with the ICHEIC and

shall establish a claims process to settle and pay individual

claims. (American: Sullivan Decl. Ex. 13, MOU). Eizenstat told

the House Banking Committee that “[t]he U.S. Government has

supported the International Commission on Holocaust Era Insurance

Claims since it began, and we believe it should be considered the

exclusive remedy for resolving insurance claims from the World

War II era.” (Winterthur: Grimm Decl. Ex. I, Eizenstat 2/9/00 at

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5 Defendant objects that Eizenstat’s statement lacks

foundation and is inadmissible hearsay. At the preliminary

injunction stage, however, the court may consider hearsay. “The

urgency of obtaining a preliminary injunction necessitates a

prompt determination and makes it difficult to obtain affidavits

from persons who would be competent to testify at trial. The

trial court may give even inadmissible evidence some weight, when

to do so serves the purpose of preventing irreparable harm before

trial.” Flynt Distrib. Co., Inc. v. Harvey, 734 F.2d 1389, 1394

(9th Cir. 1984). Consequently, the court does not discuss each

of defendant’s evidentiary objections.

6 The plaintiffs also discuss a 1995 agreement between

the United States and Germany to “settle compensation claims by

certain United States nationals who suffered loss of liberty or

damage to body or health as a result of National Socialist

measures of persecution directly against them.” This agreement

provided for two separate payments by Germany in settlement of

the claims. In return for the payments by the German government,

the United States “declare[d] all compensation claims against the

Federal Republic of Germany by United States nationals for damage

within the meaning of [the Agreement] to be finally settled.” 

This Agreement, although related in topic, is not directly

applicable because it deals with claims against Germany, not

against insurance companies, and does not appear to involve

insurance claims. 

8

House Banking Committee hearing).5 It is expected that the

German Foundation will recognize the ICHEIC as the exclusive

mechanism for resolving insurance claims. (Winterthur: Grimm

Decl. Ex. I, Eizenstat 2/9/00 at House Banking Committee

hearing).6

C. The Parties

Plaintiffs in all four cases are insurance companies

licensed to do business in California. Each set of plaintiffs

alleges that the statutes are unconstitutional. In all four

cases, defendant is Chuck Quackenbush in his capacity as the

Commissioner of Insurance of the State of California. 

///

///

///

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7 Assicurazioni Generali, a European Company, is also

represented by American Insurance, but files its own motion for

preliminary injunction.

9

1. Gerling Global Reinsurance Corporation of America

(“Gerling”)

Plaintiffs are five insurance companies licensed to do

business in California. They are “related to” or “affiliated”

with two German companies (Gerling-Konzern Allgemenine

Versicherungs-AG (“GKA”) and Gerling-Konzern LebensversicherungsAG (“GKL”) that issued policies in Europe during the proscribed

time period. Hence, they have to file reports. Gerling alleges

that the HVIRA is unconstitutional under: (1) the constitutional

grant of authority to the federal government over foreign

affairs; (2) the Commerce Clause; (3) the Due Process Clause; (4)

Bill of Attainder; (5) the Fourth Amendment; and (6) the

Contracts Clause. 

2. American Insurance Association and American ReInsurance Co. (together, “American”)

Plaintiffs are American Insurance Association (“AIA”)

and American Reinsurance Company (“AmRe”). AIA principally

represents American insurance companies that did not issue

insurance policies in Europe during the relevant period and do

not own or control any companies that did.7 Five members of AIA 

are related to European companies that issued the applicable

policies. AmRe is a large insurance company licensed to do

business in California. AmRe claims that neither it, nor any

subsidiary or affiliate over which it has control, issued

insurance policies that were in effect in Europe during 1920-

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1945. 

American claims that the statutes are unconstitutional

for three reasons: (1) the HVIRA treads on the federal

government’s exclusive power to conduct foreign relations; (2)

the HVIRA violates the Foreign Commerce Clause; and (3) the HVIRA

violates the Due Process clause.

3. Winterthur International American Insurance Co., et

al. (together, “Winterthur”)

Plaintiffs are nine insurance companies licensed to do

business in California. None of the companies ever issued

insurance policies in Europe during the applicable time period,

though each is “related” to such a company. Each plaintiff

claims, however, that it is not in possession, custody, or

control of any records pertaining to insurance companies sold by

“related companies.” 

Winterthur argues that the HVIRA is unconstitutional

because: (1) it is an unconstitutional invasion of the federal

government’s foreign affairs power; (2) it violates the Dormant

Commerce Clause; (3) it violates the Due Process Clause; (4) it

deprives plaintiffs of rights secured by the Equal Protection

Clause; (5) it is an unconstitutional bill of attainder; and (6)

implementation constitutes an unreasonable search and seizure. 

4. Assicurazioni Generali, S.p.A (“Generali”)

Generali is an Italian insurance company that issued

insurance policies in Europe during the applicable time period. 

Generali is represented by the AIA, but has filed separately

because it claims that the Insurance Commissioner has singled it

out for attack, even though it has been paying insurance claims

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from Holocaust victims for the last several years.

 Generali claims the HVIRA unconstitutionally violates

the Due Process and Commerce Clauses and invades the foreign

affairs power of the federal government.

D. Threatened Enforcement

The Commissioner has actively threatened enforcement

against all plaintiffs. He subpoenaed many insurance companies,

including plaintiffs and those represented by plaintiffs, to

appear at a hearing on December 1, 1999. At the hearing,

Quackenbush informed the insurance companies, “[t]his issue will

be resolved in California. I promised that for the last two

years. And on April 6th, you’re going to see just how serious

California is if you have not complied with this law.” 

(Generali: Tiberini Decl., Ex. 10, Transcript of 12/1/99

Investigatory Hearing, 14:16-20). He told Generali specifically,

“I want you to take back to your officers in Italy and everywhere

else, that you might want to consider seriously leaving the

State, because it’s obvious to me right now that you have no

intention of complying with the law.” (Generali: Tiberini Decl.,

Ex. 10, Transcript of 12/1/99 Investigatory Hearing, 49:12-16). 

At the end of questioning Generali, Quackenbush stated generally,

“[i]t is your choice now whether you’re going to work with this

Department of Insurance to bring your company in full compliance,

whether you’re going to leave the state voluntarily, or whether

I’m going to kick you out. That’s your three choices.” 

(Generali: Tiberini Decl., Ex. 10, Transcript of 12/1/99

Investigatory Hearing, 51:19-23).

///

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II. Standard

“To obtain a preliminary injunction, a party must

establish either: (1) probable success on the merits and

irreparable injury, or (2) sufficiently serious questions going

to the merits to make the case a fair ground for litigation with

the balance of hardships tipping decidedly in the movant’s

favor.” See Baby Tam & Co. v. City of Las Vegas, 154 F.3d 1097,

1100 (9th Cir. 1998). These two formulations represent two

points on a sliding scale in which the required degree of

irreparable harm increases as the probability of success

decreases. See id. The movant has the burden of proving each

element of either test. See Prescott v. County of El Dorado, 915

F. Supp. 1080, 1084 (E.D. Cal. 1996).

Under the doctrine of Ex Parte Young, 209 U.S. 123

(1908), it is appropriate for a party to move for a preliminary

injunction in federal court against state officers “who threaten

and are about to commence proceedings, either of a civil or

criminal nature, to enforce against parties affected an

unconstitutional act, violating the Federal Constitution....” 

Id. at 156. A preliminary injunction is particularly appropriate

when the moving party is faced with a “Hobson’s choice” of

continuing to violate the law, thus exposing itself to huge

liability, or to “violate the law once as a test case and suffer

the injury of obeying the law during the pendency of the

proceedings and any further review.” Morales v. Trans World

Airlines, Inc., 504 U.S. 374, 381 (1992). 

///

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III. Probability of Success on the Merits

Among them, the various plaintiffs make seven claims

regarding the constitutionality of the statutes. They claim that

the statutes violate: (1) the constitutional grant of authority

to the federal government over foreign affairs (all parties); (2)

Commerce Clause (all parties); (3) the Due Process Clause (all

parties); (4) Bill of Attainder (Gerling and Winterthur); (5) the

Fourth Amendment (Gerling and Winterthur); (6) the Contracts

Clause (Gerling); and (7) Equal Protection (Winterthur). The

court finds that plaintiffs have established a probability of

success under the foreign affairs doctrine and the Commerce

Clause. Accordingly, the court limits its analysis to these

claims, and it is unnecessary to address the other claims.

A. Foreign Affairs

The framers of the Constitution made clear that the

federal government was to have supreme power in the general field

of foreign affairs. See Hines v. Davidowitz, 312 U.S. 52, 62

(1941). James Madison, in addressing the people of the State of

New York, explained that the proposed Constitution contained a

“class of powers, lodged in the general government, consist[ing]

of those which regulate the intercourse with foreign nations....

This class of powers forms an obvious and essential branch of the

federal administration. If we are to be one nation in any

respect, it clearly ought to be in respect to other nations.” 

Madison, The Federalist Papers, No. 42. Alexander Hamilton

wrote, regarding the power of the federal judiciary over laws

which involve the peace of the confederacy: “the peace of the

WHOLE ought not be left at the disposal of a PART. The Union

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8 See also The Federalist Papers Nos. 3, 4. Here, John

Jay discusses the importance of the national government in

relation to keeping the peace with foreign powers. 

14

will undoubtably be answerable to foreign powers for the conduct

of its members. And the responsibility for an injury ought ever

be accompanied with the faculty of preventing it.” Hamilton, The

Federalist Papers, No. 80.8

The Supreme Court has clarified the federal

government’s control over foreign affairs. “The Constitution

entrusts [the nation’s foreign affairs and international

relations] solely to the Federal Government.” Zschernig v.

Miller, 389 U.S. 429, 436 (1968). “Power over external affairs

is not shared by the States; it is vested in the national

government exclusively.” United States v. Pink, 315 U.S. 203,

233 (1942). “Our system of government is such that the interest

of the cities, counties and states, no less than the interest of

the people of the whole nation, imperatively requires that

federal power in the field affecting foreign relations be left

entirely free from local interference.” Hines, 312 U.S. at 63.

Zschernig is the most recent case addressing the issue

of foreign affairs. This case involved an Oregon probate law

that conditioned inheritance rights of a nonresident alien upon

the alien’s ability to demonstrate that his country of origin

would grant reciprocal rights to a U.S. citizen and would not

confiscate any of the inherited property. See Zschernig, 389

U.S. at 430-431. The Court held that the statute “affect[ed]

international relations in a persistent and subtle way,” id. at

440, had “great potential for disruption or embarrassment,” id.

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9 The First Circuit applied and interpreted Zschernig in

National Foreign Trade Council v. Natsios, 181 F.3d 38 (1st Cir.

1999), cert. granted, 120 S. Ct. 525 (1999). There, the First

Circuit declared unconstitutional a Massachusetts law which

restricted the ability of Massachusetts and its agencies to

purchase goods or services from companies that do business with

Burma. See id. The First Circuit held that the law had “more

than an incidental or indirect effect in foreign countries,” 

Natsios, 181 F.3d at 52 (quoting Zschernig, 389 U.S. at 434), and

a “great potential for disruption or embarrassment” as evidenced

by the protests of America’s trading partners, id. at 54 (quoting

Zschernig, 389 U.S. at 435). 

15

at 435, and had “more than some incidental or indirect effect in

foreign countries,” id. at 434. Thus, the statute intruded into

“matters which the Constitution entrusts solely to the Federal

Government.” Id. at 436.9

1. The HVIRA’s Goal is International in Nature

The stated goal of the HVIRA is to exercise a power

exclusively entrusted to the national government. The statute

states that “[t]his chapter is necessary to ... encourage the

development of a resolution to these [insurance claim] issues

through the international process or through direct action by the

State of California, as necessary.” Cal. Ins. Code § 13801(f). 

Encouraging resolution through an international process clearly

implicates matters of foreign affairs, and, as such, is a

function vested in the national government. 

2. Effects on International Relations and Potential

for Disruption and Embarrassment

Plaintiffs have demonstrated a probability that the

HVIRA affects international relations. The United States federal

government has been actively involved in compensating Holocaust

victims since the end of World War II. In 1952, the United

States was a party to a treaty among France, England, the United

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States, and Germany transferring to the Federal Republic of

Germany the responsibility for implementing reparations. “The

Federal Republic [of Germany] acknowledges the obligation to

assure ... adequate compensation to persons persecuted for their

political convictions, race, faith or ideology, who thereby have

suffered damage to life, limb, health, liberty, property, their

possessions or economic prospects (excluding identifiable

property subject to restitution).” (Gerling: Appendix of

Authorities, Ex. A, Transition Agreement, Ch. 4 ¶ 1). Since that

treaty, the United States has been actively involved in Holocaust

victims compensation efforts. The HVIRA has a strong potential

of interfering with these efforts.

First, the HVIRA has the real potential of frustrating

the United States’ efforts in negotiating the German Foundation. 

This Foundation, capitalized at close to $5 billion, will provide

payments to victims of slave and forced labor as payments on

asserted claims related to insurance, banking, taking of

property, and medical experiments. On December 17, 1999,

Secretary of the Treasury Stuart Eizenstat, the Special

Representative of the Secretary of State and the President on

Holocaust-Related Issues Senate Foreign Relations Committee,

stated that “[i]n the context of a comprehensive German

Foundation, in all cases, consensual and non consensual, brought

against German companies for claims arising out of the Nazi-era,

we are prepared to say that the German Foundation should be

regarded as the exclusive remedy and that dismissal of such cases

would be in our foreign policy interests.” (American: Sullivan

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10 Defendant argues that the German Foundation is not in

place, and thus is not a federal policy. However, the very

negotiation for a German Foundation dedicated toward compensation

implicates foreign policy. 

17

Decl. Ex. 11, 12/17/99 Press Release).10 The German Foundation

cannot be the exclusive remedy if California’s HVIRA is also

applicable.

Second, the HVIRA has a potentially negative effect on

the ICHEIC, which is a voluntary organization of European

regulators, major European insurance companies, representatives

of Jewish and Holocaust survivor organizations, Israel, and the

National Association of Insurance Commissioners in the United

States insurance companies. The ICHEIC investigates Holocaust

era insurance policies and helps settle claims. Eizenstat wrote

Quackenbush in November 1999 that the HVIRA “has the unfortunate

effect of damaging the one effective means now at hand to process

quickly and completely unpaid insurance claims from the Holocaust

period, the International Commission on Holocaust Era Insurance

Claims....” (American: Sullivan Decl. Ex. 24, 11/30/99 Eizenstat

letter to Quackenbush). Further, Eizenstat informed Quackenbush,

“you should know that actions by California, pursuant to this

law, have already threatened to damage the cooperative spirit

which the International Commission requires to resolve the

important issue for Holocaust survivors.” (American: Sullivan

Decl. Ex. 24, 11/30/99 Eizenstat letter to Quackenbush). 

Eizenstat wrote Governor Davis on the same day, stating, “actions

by California, pursuant to this law, have already potentially

damaged and could derail both a settlement of forced and slave

labor negotiations and the progress already achieved by the

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International Commission on Holocaust Era Insurance Claims....” 

(American: Sullivan Decl. Ex. 23, 11/30/99 Eizenstat letter to

Governor Davis).

Former Secretary of State Lawrence Eagleburger, the

chair of the ICHEIC, testified that he believes that under the

terms of the MOU under which the ICHEIC was organized, each

insurance company that signed the MOU and is fully cooperating in

the ICHEIC process “is entitled to receive, and should receive,”

an exemption from the enforcement of legislation such as the

HVIRA. (Winterthur: Eagleburger Decl. ¶ 12). Section 10 of the

MOU requires signatories to “work to achieve exemptions from

related pending and future legislation ... for those insurers

that become signatories to this MOU and which fully cooperate

with the processes and funding of the IC.” (Winterthur:

Eagleburger Decl. Ex. A.). ICHEIC members include plaintiffs

Winterthur and Generali. 

Third, the HVIRA potentially conflicts with the January

29, 2000 Joint Statement issued by the United States and Swiss 

governments at the inaugural meeting establishing the Swiss-US

Joint Economic Commission (“Joint Statement”). Specifically, in

the Action Plan attached to the Joint Statement, the United

States government promised to “call on the U.S. State insurance

Commissioners and State legislative bodies to refrain from taking

unwarranted investigative initiatives or from threatening or

actually using sanctions against Swiss insurers.” (Winterthur:

Thalmann Supp. Decl. Ex. A, Joint Statement Action Plan at 3). 

Finally, the HVIRA potentially conflicts with the

national goal of creating “enduring legal peace.” Eizenstat

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referred to this goal in his November 30, 1999 letter to Governor

Davis. With regard to the German Foundation, Eizenstat stated,

“[c]learly, for this deal to work ... German industry and German

government need to be assured that they will get ‘legal peace’,

not just from class-action lawsuits, but from the kind of

legislation represented by the California Victim Insurance Relief

Act.” (American: Sullivan Decl. Ex. 23, 11/30/99 Eizenstat

letter to Governor Davis). President Clinton and Secretary of

State Madeline Albright each echoed this sentiment several weeks

later as the negotiations for the German Foundation began to

close. President Clinton, in a December 13, 1999 letter to

Chancellor Schroeder, wrote that “the Foundation should be

regarded as the exclusive remedy for all claims against German

companies arising out of the Nazi era. [The executive agreement]

will state further that both our countries desire all embracing

and enduring legal peace to advance our foreign policy

interests.” (American: Sullivan Decl. Ex. 6, 12/13/99 Clinton

letter to Schroeder). Albright, when addressing the Slave Labor

Meeting in Berlin on December 17, 1999 stated in relation to the

German Foundation that “[t]he United States is agreeing to assist

in providing legal peace to German companies, both in our courts

and from state and local action. To succeed in achieving legal

peace, it is essential that the Foundation be comprehensive.” 

(American: Sullivan Decl. Ex. 9, 12/17/99 Albright remarks). 

By conflicting so directly with the national

government’s policies and promises, the HVIRA not only affects

international relations, but also has “great potential for

disruption or embarrassment.” See Zschernig, 389 U.S. at 435. 

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11 Plaintiffs object on numerous grounds to parts of all

three declarations. Because the court does not rely on the

declarations, the court does not address the objections.

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The HVIRA is inconsistent with Eizenstat’s statements regarding

the German Foundation as the exclusive remedy for claims from the

Nazi era. It conflicts with the cooperative spirit of the

ICHEIC, which the United States supports. The HVIRA makes the

United States’ promises in the U.S.-Swiss Joint Economic

Statement appear to be unfulfilled. Finally, “legal peace”

cannot be achieved if California and each of the other states are

free to enact their own legislation forcing companies to report

insurance policies or lose their license. See Cal. Code Ins. §§

13800-13807.

Defendant argues that plaintiffs “have not demonstrated

that the Holocaust Statutes have an actual direct impact on

foreign relations. Indeed, plaintiffs cannot point to any

federal policy enactments that the Holocaust Statutes must give

way to.” (Opp’n. at 84). Defendant then cites to the

declarations of Robert Brown, the representative of the Minister

of Israeli Society in the World Jewish Community, Linda Gerstel,

a shareholder in a law firm representing Holocaust victims in

class action insurance cases, and Leslie Tick, staff counsel to

the Department of Insurance, and an attorney for defendant.11

Brown states that he took part in the negotiations of the German

Foundation settlement and claims that he does “not believe that

the [HVIRA] interfered with the negotiations of the Germany

Foundation settlement.” (Opp’n.: Brown Decl. ¶ 6). Gerstel

testified that she participated in the German Foundation

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negotiations and states that “[n]othing in the negotiations ...

was intended to effect or nullify the powers of the State

Insurance Commissioners or any related regulatory scheme

including, but not limited to, legislation enacted in

California.” (Opp’n.: Gerstel Decl. ¶ 7). Tick described the

formation of the ICHEIC and its work. Defendant has not made

clear which portion of her lengthy declaration and exhibit

supports defendant’s claim. 

Defendant’s argument is wholly unpersuasive. First of

all, as discussed above, several policy makers in the Executive

Branch have clearly stated the United States’ position with

regard to the compensation of Holocaust victims. The fact that

several participants in the German Foundation negotiations stated

that they do not think that negotiations were compromised by the

California statutes is irrelevant. The German Foundation

negotiations are simply an illustration of potential foreign

affairs that could be affected by the HVIRA. In any case, even

if the HVIRA did not actually affect the negotiations, it

certainly has the potential to affect foreign affairs and it is

embarrassing to the United States to have individual states

enacting legislation inconsistent with Executive promises and

negotiations. See Zschernig, 389 U.S. at 435. Thus, the HVIRA

interferes with the national government’s exclusive power over

external affairs. See Pink, 315 U.S. at 233.

Second, there does not have to be a formally stated

national policy in order for a state to impermissibly interfere

with foreign affairs. Under Zschernig, a state statute that

affected international relations in “a persistent and subtle way”

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was held unconstitutional for impacting the federal government’s

foreign affairs powers. Zschernig, 389 U.S. at 440. 

Finally, defendant’s argument confuses the preemption

doctrine with the foreign affairs power. A state cannot pass

statutes that interfere with foreign affairs whether or not the

national government has a stated policy. See Pink, 315 U.S. at

233 (“Power over external affairs is not shared by the States; it

is vested in the national government exclusively.”). 

Defendant cites to Clark v. Allen, 331 U.S. 503 (1947),

in support of his argument that plaintiffs must articulate a

specific national policy violated by the HVIRA. Clark, however,

does not stand for such a proposition. In Clark, the Supreme

Court held that, generally, rights to succession are determined

by local law. However, those rights may be affected by an

overriding federal policy. See id. at 517. In Clark, the Court

did not find an overriding federal policy, nor did the Court find

that the statute had anything more than an “incidental and

indirect effect in foreign countries.” See id. Therefore, the

statute did not impermissibly intrude on foreign affairs powers. 

Clark did not require that there be an overriding federal policy. 

The Supreme Court simply found that there was none. 

Defendant further argues that the German Foundation and

the ICHEIC are not as comprehensive as the HVIRA with regard to

reporting. Defendant points out that the German Foundation does

not have a reporting requirement and that the ICHEIC, as a

voluntary organization, does not encompass all the insurance

companies addressed by the HVIRA. These assertions may be true. 

However, foreign affairs remains the province of the national

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government; the states do not have authority to fill in perceived

gaps in international measures as they see fit. The United

States must be able to speak with one voice on matters of

international concern. 

3. More than an Incidental Effect on Foreign Countries

Defendant argues that the effect is on foreign

companies, not foreign governments, and thus the HVIRA does not

violate the foreign affairs policy. The language of Zschernig

requires that the statute have “more than some incidental or

indirect effect in foreign countries,” not foreign governments.

Zschernig, 389 U.S. at 434. “Experience has shown that

international controversies of the gravest moment, sometimes even

leading to war, may arise from real or imagined wrongs to

another’s subjects inflicted, or permitted by a government.” 

Zschernig 389 U.S. at 441 (quoting Hines 312 U.S. at 64). 

Plaintiffs have demonstrated a probability of success

in showing that the HVIRA has more than some incidental effect in

foreign countries. In addition to the interference with foreign

commerce and the interference with foreign relations, the

immediate effect of the statute is to require foreign companies

to do an extensive search of warehouses and then compile a

massive report, even if the company’s only connection with

California is through a subsidiary.

Plaintiffs have also raised a serious issue that the

statutes are in conflict with some European Privacy laws. For

example, in its Amicus brief, the Federal Republic of Germany

argues that the disclosure of information and documentation by

German insurers to the California Insurance Department without

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12 Simitis also notes that European Union has a Data

Protection Directive which “explicitly affirms the individual’s

right to determine the use of her or his data.” (Gerling Reif

Decl. Ex. 10, Simitis Decl. ¶ 11). 

13 Defendant also argues that the ICHEIC has already

published the names of some German companies policyholders on its

website. Defendant argues that it “defies logic” that the ICHEIC

would violate German laws. The question is not before the court

as to whether the ICHEIC’s actions violated German laws.

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the express authorization of policyholders or their beneficiaries

could place the German insurers in violation of the

Bundesdatenschutzgesetz (German Federal Data Protection Act,

“BDSG”). Federal Republic of Germany Amicus Brief at 6). 

Violation of the BDSG “may result in criminal as well as civil

penalties.” (Federal Republic of Germany Amicus Brief at 6). 

Gerling submits the Declaration of Dr. Spiros Simitis, a

professor at Yale Law School and a former Data Protection

Commissioner of the German State of Hesse. After an extensive

analysis of the BDSG, Simitis states that “under present

conditions, [Gerling’s] German affiliates are not allowed to

transfer the data requested.” (Gerling: Reif Decl. Ex. 10,

Simitis Decl. ¶ 28).12 

Defendant argues that in fact, the HVIRA and related

statutes do not conflict with the BDSG. Defendant submits the

declaration of Paul Schwartz, a professor at Brooklyn Law School. 

Schwartz states that he has been recognized as an expert on data

protection law. He disagrees with Simitis’ final conclusion and

gives his own lengthy interpretation of the BDSG. (Opp’n.:

Schwartz Decl. ¶ 6).13

There is an obvious dispute as to whether the HVIRA

conflicts with the German BDSG and other European laws. The very

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14 Defendant cites Trojan Technologies v. Commonwealth of

Pennsylvania, 916 F.2d 903 (3rd Cir. 1990) in an attempt to

distinguish Zschernig. In Trojan, the Third Circuit examined a

Pennsylvania “buy American” statute. This statute required

agencies of the Commonwealth when constructing public works to

include a provision in all contracts that steel used in the

projects must be produced in the United States. See id. at 904. 

The Third Circuit found this statute did not interfere with the

federal government’s exercise of the Foreign Affairs power

because “[t]he Pennsylvania statute exhibits none of the dangers

attendant on the statute reviewed in Zschernig.” Id. at 913. 

The Third Circuit noted that the statute was evenhanded in its

application, applying to steel from any foreign source “without

respect to whether the source country might be considered friend

of foe.” Id. Here, while the HVIRA is arguably evenhanded, it

does exhibit other “dangers” not at issue in Trojan, and thus

violates the Foreign Affairs power. Among other things, the

HVIRA is inconsistent with several of the national government’s

statements, policies, and promises, and it potentially violates

foreign laws. Thus, it affects foreign relations, is potentially

disruptive and embarrassing, and has more than incidental effects

in foreign countries.

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fact that a state law requires a foreign company to do something

that arguably violates the laws of the countries in which it is

incorporated or does business shows that the law has an effect on

international relations which is more than “incidental.” 

Plaintiffs have made a persuasive showing that the

HVIRA interferes with foreign relations, has great potential for

disruption or embarrassment, and has more than an incidental

effect in foreign countries. Accordingly, plaintiffs have shown

a probability of success on their claim that the HVIRA interferes

with the federal government’s control over foreign affairs.14

B. Commerce Clause

The Commerce Clause reserves to Congress the right “to

regulate commerce with foreign Nations, and among the several

States....” U.S. Const. art. 1, § 8, cl. 3. “[E]ven in the

absence of specific action taken by the Federal Government,” the

Commerce Clause limits the powers of states to enact laws

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regulating interstate or foreign commerce. Wardair Canada, Inc.

v. Florida Dep’t. of Revenue, 477 U.S. 1, 7-8 (1986).

1. McCarran-Ferguson Act 

State regulation and taxation of insurance is often

excepted from Commerce Clause restrictions through the McCarranFerguson Act. This Act was passed in the wake of United States

v. South-Eastern Underwriters Association, 322 U.S. 533 (1944),

which held that insurance is “commerce” within the meaning of the

Commerce Clause. See Western and Southern Life v. State Board of

Equalization of Cal., 451 U.S. 648, 653-654 (1981). Congress,

believing “that the business of insurance is ‘a local matter, to

be subject to and regulated by the laws of the several States,’”

enacted the McCarran-Ferguson Act, which Congress intended to

restore state taxing and regulatory powers over the insurance

business to their pre South-Eastern Underwriters scope. See id.

at 654 (quoting H.R. Rep. No. 143, 79th Cong., 1st Sess., 2). 

Specifically, the Act states, “[t]he business of insurance, and

every person engaged therein, shall be subject to the laws of the

several States which relate to the regulation or taxation of such

business.” 15 U.S.C. § 1012(a). 

Defendant thus argues that the HVIRA is exempted from

Commerce Clause restrictions by the McCarran-Ferguson Act. The

HVIRA, however, does not appear to fall within the scope of

regulations intended to be exempted by the Act. 

In Federal Trade Commission v. Travelers Health

Association, 362 U.S. 293 (1960), the Supreme Court held that the

Federal Trade Commission could issue a cease and desist order

against certain insurance practices by a Nebraska insurance

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company. The company’s activities, selling insurance through an

interstate mail order insurance business, were extraterritorial,

and thus were not regulated by state law within the meaning of

the McCarran-Ferguson Act. See id. at 298. Thus, the insurance

practices were not immune from federal control. The court stated

that it is clear from the debate surrounding the implementation

of the McCarran-Ferguson Act “that Congress viewed state

regulation of insurance solely in terms of regulation by the law

of the State where occurred the activity sought to be regulated. 

There was no indication of any thought that a State could

regulate activities carried on beyond its own borders.” Id. at

300. 

The Ninth Circuit discussed the holding in Travelers in

its opinion in In re Insurance Antitrust Litigation v. Ace Check

Cashing Inc., 938 F.2d 919 (1991), aff’d in part, rev’d in part

by Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993). 

“[E]stablished law blocks regulation by one state of the United

States of the insurance business outside the borders of that

state.” Id. at 928. “[A] state does not have power to regulate

in any way contracts of insurance or reinsurance entered into

outside its jurisdiction even though the risks covered were risks

within the state.” Id. 

Here, the HVIRA attempts to regulate the decision

making authority of European insurance companies to pay or not to

pay claims on European policies. See Cal. Ins. Code. § 13801(f)

(“This chapter is necessary to ... encourage the development of a

resolution to these [Holocaust era insurance claim] issues

through the international process or through direct action by the

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State of California.”). The HVIRA specifically asks for

information about insurance policies sold “directly or through a

related company, to persons in Europe, which were in effect

between 1920 and 1945.” Cal. Ins. Code § 13804(a). Clearly the

“State where occurred the activity sought to be regulated” was

not California. Travelers, 362 U.S. at 300.

Further, in discussing the passage of the McCarranFerguson Act, the Supreme Court stated, “[o]ne of the major

arguments advanced by proponents of leaving regulation to the

States was that the States were in close proximity to the people

affected by the insurance business and, therefore, were in a

better position to regulate that business than the Federal

Government.” Id. at 302. Although some of the people affected

by the HVIRA may now be California residents, the HVIRA makes no

distinction between reporting insurance policies related to

California residents and insurance policies related to residents

of any other state or foreign county. There is no legitimate

reason why California should regulate the reporting of these

policies.

Under SEC v. National Secur. Inc., 393 U.S. 453, 460

(1969), licensing companies is considered the “business of

insurance” within the meaning of the McCarran-Ferguson Act. 

However, the gist of the HVIRA is not about licensing insurance

companies, but rather about forcing companies to report on

insurance policies issued in Europe and using the threat of

license suspension as an enforcement mechanism. 

The McCarran-Ferguson Act does not insulate the HVIRA

from analysis under the Commerce Clause. 

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2. Violations of the Commerce Clause

Plaintiffs have shown a probability that the HVIRA

violates the Commerce Clause. Although there is only one

Commerce Clause, “state restrictions burdening foreign commerce

are subjected to a more rigorous and searching scrutiny” than are

regulations on interstate commerce. South-Central Timber Dev.,

Inc. v. Wunnicke, 467 U.S. 82, 100 (1984). The section of the

commerce clause dealing with foreign commerce is often referred

to as “the Foreign Commerce Clause.” 

a. One Voice

The Foreign Commerce Clause is a subset of the broader

foreign affairs powers discussed above. “Foreign commerce is

pre-eminently a matter of national concern.” Japan Line, LTD. v.

County of Los Angeles, 441 U.S. 434, 448 (1979). “In

international relations and with respect to foreign intercourse

and trade the people of the United States act through a single

government with unified and adequate national power.” Id. “The

Federal Government must speak with one voice when regulating

commercial relations with foreign governments.” Id.

The HVIRA potentially prevents the federal government

from speaking with one voice in its expectations of foreign

insurance companies. Under the HVIRA, foreign insurance

companies must conduct an extensive and thorough search for

records. See Cal. Ins. Code §§ 13804(a) and 13804(b). Further,

the companies must certify whether or not claims of Holocaust

victims have been paid, and must certify whether or not they have

searched for the victims. See Cal. Ins. Code § 13804(b). These

demands emanate not from the national government, but from an

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15 Defendant points out that commerce is controlled by

Congress, not the Executive Branch. See Barclays Bank v.

Franchise Tax Bd., 512 U.S. 298, 329 (1994). However, Congress

“may delegate very large grants of its power over foreign

commerce to the President, who also possesses in his own right

certain powers conferred by the Constitution on him as Commanderin-Chief and as the Nation’s organ in foreign affairs.” Id.

(internal quotations omitted).

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individual state, and would be in conflict with the national

government’s promises to Germany that the German Foundation would

be the exclusive relief for claims from Holocaust victims.15

3. Commerce Outside State Borders

The Commerce Clause “precludes the application of a

state statute to commerce that takes place wholly outside of the

State’s borders, whether or not the commerce has effects within

the State.” Healy v. Beer Ins., 491 U.S. 324 (1989). Defendant

argues that the commerce does not take place wholly outside of

California’s borders. “The critical question is whether the

practical effect of the regulation is to control conduct beyond

the boundaries of the State.” Id. (citing Brown Forman

Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573,

579 (1986). 

The practical effect of the HVIRA is that insurance

companies that sold policies during the applicable time period

must make an extensive search of their warehouses to come up with

a list of individuals that might include Holocaust victims. It

is common sense that most, if not all, of the companies that sold

policies in Europe from 1920-1945 were European. They are being

asked to gather voluminous European records of policies sold to

Europeans and to report these records to California. The

required records are not in any way tailored toward California

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citizens. The only connection to California is that the statute

is enforced by taking away the company’s or its affiliate’s

California license and the reporting is done to California. 

Clearly, California is meddling in foreign commerce entirely

outside its borders.

Plaintiffs have shown a probability of success on the

merits that the HVIRA violates the Commerce Clause.

C. Other Constitutional Claims

Because the court finds that plaintiffs have

demonstrated a probability of success on the merits that the

HVIRA is unconstitutional based on a violation of the federal

foreign affairs power and a violation of the Commerce Clause, the

court does not address the remaining constitutional issues.

IV. Irreparable Injury

It is the plaintiff’s burden to demonstrate that the

balance of irreparable harm favors the plaintiff. See Carribean

Marine Servs. Co. v. Baldridge, 844 F.2d 668, 674 (9th Cir.

1988). “Speculative injury does not constitute irreparable

injury sufficient to warrant granting a preliminary

injunction.... a plaintiff must demonstrate immediate threatened

injury as a prerequisite to preliminary injunctive relief.”

Plaintiffs have met this burden.

The required reports under California Insurance Code

section 13804 were due April 7, 2000. See Cal. Code Regs. §

2278. Under section 13806, if the parties did not file the

reports by May 7, 2000, the Commissioner “shall suspend the

certificate of authority to conduct insurance business in the

state.” Cal. Ins. Code § 13806. 

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Plaintiffs have demonstrated that suspension of their

licenses to practice insurance in the state of California would

cause them irreparable harm. Such suspension could undermine the

goodwill of the company because the market may infer that the

company is unstable. Further, a suspension would prevent

plaintiffs from being able to renew contracts for their existing

policy holders causing further loss of goodwill. See Rent-aCenter, Inc. v. Canyon Television and Appliance, 944 F.2d 597,

603 (9th Cir. 1991) (affirming preliminary injunction and holding

that damage to the goodwill of a business supports a finding of

irreparable injury).

In addition, suspension is likely to cause reputational

injury resulting in a loss of market share. See United Services

Automobile Ass’n v. Muir, 792 F.2d 356, 362 (3rd Cir. 1986). 

Suspension might suggest marketplace fraudulent or illegal

activity or financial instability. See id. Plaintiffs point out

that suspending their licenses will imply publicly that the

companies are implicated with the wrongdoings of the Holocaust,

has acted illegally, or is not financially sound. Indeed, the

Commissioner has already made such implications. For example,

the California Department of Insurance has a website. One page

is dedicated to Winterthur. Next to Winterthur is a picture of a

concentration camp. The caption reads, “This company is an

affiliate of one of what could be many companies that have

outstanding, unpaid claims owed to Holocaust survivors, their

heirs and beneficiaries, for life and property loss resulting

from the atrocities committed during the Holocaust. It is time

for justice.” (Winterthur: Smith Decl. Ex 1;

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http://www.insurance.ca.gov/docs/FS-Holocau st.htm. Suspending

Winterthur’s license would further implicate the company, causing

irreparable harm. See Ross-Simons, Inc. v. Baccarat, Inc., 102

F.3d 12, 20 (1st Cir. 1996) (“By its very nature injury to

goodwill and reputation is not easily measured or fully

compensable in damages. Accordingly, this kind of harm is often

held to be irreparable.”). 

The public interest is also an important factor to be

considered in a suit for injunctive relief affecting the public

interest. See Miller v. California Pac. Med. Ctr., 991 F.2d 536,

540 (9th Cir. 1993). If plaintiffs’ licenses are suspended, the

companies would not be able to write any new business in

California. Although they would be obligated to service claims

on existing policies until those policies expired by their

natural terms, the companies would not be able to modify or renew

the existing policies. For example, if a policyholder wanted to

increase her policy limits, she would not be able to do so. 

In many cases, the existing policy will expire within

the year. At the end of the year, policyholders will be

scrambling to find new insurers. This task could become more

difficult due to the decreased number of insurance companies in

the state as a result of the suspension provisions of the HVIRA. 

Finally, license suspension would undoubtably affect

the insurance companies’ employees. Companies that could no

longer write policies in California would likely have to lay off

or fire their employees engaged in underwriting and sales.

Plaintiffs have demonstrated that irreparable harm will likely

occur if the HVIRA is enforced. 

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V. Conclusion

None of the plaintiffs deny that the Holocaust was a

terrible atrocity. And none of the plaintiffs deny that the

victims and their heirs and beneficiaries should be compensated

to the extent possible. However, even though the end goal of

such compensation is laudable, this goal may not be achieved

through unconstitutional means. Plaintiffs have shown a

probability of success on the merits of their claim and have

shown that irreparable harm will occur if the court does not

enjoin enforcement of the HVIRA. 

IT IS THEREFORE ORDERED that plaintiffs motions for

preliminary injunction be, and the same hereby are, GRANTED. 

Pending final judgment in these actions, defendant is

enjoined from enforcing the provisions of the Holocaust Victim

Insurance Relief Act and the accompanying regulations. Cal. Ins.

Code §§ 13800-13807 and Cal. Code Regs. §§ 2278-2278.5. 

DATED: June 9, 2000

 

WILLIAM B. SHUBB

UNITED STATES DISTRICT JUDGE

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