Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_18-cv-00006/USCOURTS-azd-2_18-cv-00006-4/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Jacob Benson, et al.,

Plaintiffs,

v. 

Casa De Capri Enterprises LLC, et al.,

Defendants.

No. CV-18-00006-PHX-DWL

ORDER 

Now pending before the Court for the second time is Defendant Continuing Care 

Risk Retention Group, Inc.’s (“CCRRG”) renewed motion to compel arbitration. (Doc. 

63.) This order addresses the parties’ arguments regarding preemption under the Liability 

Risk Retention Act of 1986 (“LRRA”). (Docs. 119, 120, 123.) For the following reasons, 

CCRRG’s motion is denied. 

RELEVANT BACKGROUND 

I. Facts

Jacob Benson is a disabled vulnerable adult who received skilled nursing care at a 

now-defunct facility called Casa de Capri Enterprises, Inc. (“Capri”). (Doc. 1-1 at 6.) In 

December 2012, Benson and other family members (together, “Plaintiffs”) brought a 

negligence action against Capri in Maricopa County Superior Court. (Id. at 5-15.) At the 

time, Capri had a “Claims Paid & Reported Liability” insurance policy, which was issued 

by CCRRG. (Doc. 56-1.) Pursuant to this policy, CCRRG assumed Capri’s defense of the 

lawsuit. (Doc. 56 ¶¶ 20-21.) 

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Capri had purchased a number of successive annual “claims-paid” insurance 

policies from CCRRG. The policies for the 2012-2013 and 2013-2014 periods contained 

arbitration provisions. (Doc. 13-1 at 41-42; Doc. 56-1 at 30.) Capri and CCRRG also 

entered into a Subscription Agreement (Doc. 13-1 at 53-73) in September 2009 containing 

an arbitration provision (id. at 72), which was incorporated into the policies. (Doc. 13-1 at 

6; Doc. 56-1 at 37). These arbitration provisions provided that arbitration would take place 

in Sonoma County, California. (Doc. 13-1 at 41-42, 72; Doc. 56-1 at 30.) 

Capri canceled its policy with CCRRG effective August 1, 2013 (Doc. 13-1 at 49) 

and then filed for bankruptcy on August 19, 2013 (2:13-bk-14269-EPB). Following 

Capri’s cancellation of the policy, CCRRG withdrew from defending Capri in Plaintiffs’ 

lawsuit. (Doc. 56 ¶ 47.) 

On November 29, 2017, Plaintiffs obtained a $1,501,069.90 judgment against Capri. 

(Doc. 1-2 at 231-32.) 

On December 18, 2017, Plaintiffs sought a writ of garnishment against CCRRG in 

an attempt to recover on the judgment. (Id. at 233-35.) 

On January 2, 2018, the garnishment action was removed to this Court. (Doc. 1.)

II. Procedural Background

On January 9, 2018, CCRRG moved to dismiss, or, alternatively, to stay litigation 

and compel arbitration. (Doc. 13.) CCRRG’s motion was premised on three main 

contentions: (1) the arbitration agreements were valid; (2) Plaintiffs’ “claims [were] fully 

encompassed within the scope of the agreement[s]”; and (3) Plaintiffs “are claiming rights 

that [Capri] had under the CCRRG Policy as assignees of [Capri], thus they stand in the 

shoes of [Capri] and are subject to the arbitration agreement[s] between CCRRG and 

[Capri].” (Id. at 9-10.) Plaintiffs responded on January 20, 2018, contending that (1) they 

were strangers to the arbitration clauses and therefore could not be bound; (2) the clauses 

were contrary to Capri’s reasonable expectations; and (3) the clauses were procedurally 

and substantively unconscionable. (Doc. 17 at 2.) 

On August 17, 2018, Judge Logan issued an order denying CCRRG’s motion. (Doc. 

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27.)1 The order stated that “no circumstances appear to suggest that any of the contract or 

agency principles that would provide an exception binding the Plaintiffs to arbitration per 

the terms of the insurance agreement apply.” (Id. at 4.) It further stated that “Plaintiffs 

never assumed the insurance contract between the Defendant and [Capri], and the 

Defendant does not set forth any evidence that the Plaintiffs received any benefit from the 

agreement between the Co-Defendants.” (Id.) 

After that order was issued, Plaintiffs moved to amend their complaint to add claims 

for (1) a declaratory judgment regarding coverage for the underlying judgment and (2) 

insurance bad faith. (Doc. 40-1 at 8-10.) Plaintiffs also moved for summary judgment on 

their garnishment claim. (Doc. 55.)

On April 18, 2019, CCRRG filed a renewed motion to compel arbitration. (Doc. 

63.) CCRRG argued that, although Plaintiffs asserted in their response to the initial motion 

to compel arbitration that they weren’t seeking to collect from CCRRG as an assignee of 

Capri’s contract, Plaintiffs had since made clear their “intent to pursue claims as assignees” 

by (1) seeking “broad discovery on issues related to the proposed breach of contract and 

bad faith claims,” (2) seeking to add breach of contract and bad faith claims in an amended 

complaint, and (3) “mov[ing] for summary judgment seeking to void certain provisions in 

the CCRRG Policy.” (Id. at 1-4, 6-9, 11.) In response, Plaintiffs asserted the same main 

argument they made in response to the initial motion: the garnishment action is not 

premised on an assignment of Capri’s claims under the insurance contract, and therefore 

Plaintiffs, as non-signatories to the contracts between Capri and CCRRG, could not be 

compelled to arbitrate the garnishment claim. (Doc. 70 at 6.) In a similar vein, Plaintiffs 

argued that CCRRG’s renewed motion was a “repeat” of its previous motion to compel 

arbitration that Judge Logan denied and “the law of the case doctrine applies to preclude a 

rehash of same.” (Id. at 2.)

On May 31, 2019, the Court requested supplemental briefing regarding the 

1 This case was originally assigned to Judge Logan and was transferred to the 

undersigned judge on October 31, 2018. (Doc. 35.)

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applicability of equitable estoppel under Arizona law in the circumstances of this case. 

(Doc. 79.) After a full briefing (Docs. 81, 82), the Court heard oral argument on July 25, 

2019 (Doc. 87). Before oral argument, Plaintiffs withdrew their motion to amend the 

complaint to add new claims. (Doc. 80.) 

On July 30, 2019, the Court granted CCRRG’s renewed motion to compel 

arbitration, concluding that Plaintiffs, as non-signatories to the contract, were bound by its 

terms under the Arizona doctrine of direct benefits estoppel. (Doc. 88.) Based on this 

ruling, the Court also denied, as moot, four other motions that were pending at the time, 

including Plaintiffs’ motion for summary judgment on the core disputed issue in this case—

whether Plaintiffs’ negligence claim against Capri is covered by Capri’s CCRRG insurance 

policy, and by extension whether Plaintiffs may recover from CCRRG via the law of 

garnishment. (Id. at 18.) 

Plaintiffs appealed the order compelling arbitration. (Doc. 93.) The Ninth Circuit, 

in turn, certified a question of law to the Arizona Supreme Court. In January 2022, the 

Arizona Supreme Court resolved that question in Plaintiffs’ favor, holding that “the 

doctrine of direct benefits estoppel can[not] be applied in an Arizona garnishment 

proceeding.” Benson v. Casa de Capri Enters., LLC, 502 P.3d 461, 465 (Ariz. 2022). 

Based on this ruling, the Ninth Circuit issued an amended memorandum decision in March 

2022 concluding that “the district court erred in granting CCRRG’s motion to compel 

arbitration under the doctrine of direct benefits estoppel.” Benson v. Casa de Capri Enters., 

LLC, 2022 WL 822126, *1 (9th Cir. 2022). In a footnote, the Ninth Circuit added: 

“CCRRG alternatively argues that the [LRRA] preempts state law governing the operation 

of risk retention groups, and apparently by extension precludes Arizona from limiting 

arbitration provisions in insurance policies provided by a risk retention group. The district 

court did not address this argument and [Plaintiffs] argue that CCRRG did not adequately 

raise it below. We leave these matters to the district court in the first instance, with the 

benefit of the Arizona Supreme Court’s new guidance.” Id. at *2 n.1.

On June 7, 2022, after reviewing post-remand briefing from the parties (Docs. 112, 

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113), the Court stated that it intended to rule on the LRRA preemption issue based on the

existing briefing. (Doc. 115 at 3-4.) Two days later, the parties filed a joint request to 

further brief the LRRA preemption issue. (Doc. 117.) The Court granted that motion (Doc. 

118), and the issue is now fully briefed (Docs. 119, 120, 123).

2

DISCUSSION

I. Legal Standard 

A motion to compel arbitration is decided according to a standard similar to that 

used when resolving summary judgment motions. Scott-Ortiz v. CBRE Inc., 501 F. Supp. 

3d 717, 721 (D. Ariz. 2020). “The court shall grant summary judgment if [a] movant shows 

that there is no genuine dispute as to any material fact and the movant is entitled to 

judgment as a matter of law.” Fed. R. Civ. P. 56(a). “A fact is ‘material’ only if it might 

affect the outcome of the case, and a dispute is ‘genuine’ only if a reasonable trier of fact 

could resolve the issue in the non-movant’s favor.” Fresno Motors, LLC v. Mercedes Benz 

USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 2014). The court “must view the evidence in the 

light most favorable to the nonmoving party and draw all reasonable inference in the 

nonmoving party’s favor.” Rookaird v. BNSF Ry. Co., 908 F.3d 451, 459 (9th Cir. 2018).

“Summary judgment is improper where divergent ultimate inferences may reasonably be 

drawn from the undisputed facts.” Fresno Motors, 771 F.3d at 1125.

A. Preemption 

The Supremacy Clause provides that federal law “shall be the supreme Law of the 

Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution 

or Laws of any state to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2. It follows 

that “[s]o long as it acts within the scope of its enumerated powers, Congress may preempt 

inconsistent state law.” Nat’l Warranty Ins. Co. RRG v. Greenfield, 214 F.3d 1073, 1076 

(9th Cir. 2000). “In determining whether federal law preempts a state statute, we look to 

congressional intent. Preemption may be either express or implied, and is compelled 

2 CCRRG’s request for oral argument is denied because the issues have been fully 

briefed and oral argument will not aid the decisional process. See LRCiv 7.2(f).

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whether Congress’ command is explicitly stated in the statute’s language or implicitly 

contained in its structure and purpose.” Id. (quoting FMC Corp. v. Holliday, 498 U.S. 52, 

56-57 (1990)). “There are two presumptions underlying any preemption analysis. First, 

the states are independent sovereigns in our federal system, and preemption will not be

easily found. In all preemption cases, and particularly in those in which Congress has 

legislated in a field which the States have traditionally occupied, we start with the 

assumption that the historic police powers of the States were not to be superseded by the 

Federal Act unless that was the clear and manifest purpose of Congress. Second, the 

analysis of the scope of the statute’s preemption is guided by the oft-repeated comment 

that the purpose of Congress is the ultimate touchstone in every preemption case.” Id. at 

1076-77 (cleaned up). 

B. Federal Arbitration Act

The Federal Arbitration Act (“FAA”) applies to contracts “evidencing a transaction 

involving commerce.” 9 U.S.C. § 2. The FAA provides that written agreements to arbitrate 

disputes “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at 

law or in equity for the revocation of any contract.” Id. The final phrase of that sentence, 

known as the “savings clause,” “permits agreements to arbitrate to be invalidated by 

‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but 

not by defenses that apply only to arbitration or that derive their meaning from the fact that 

an agreement to arbitrate is at issue.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 

339 (2011) (quoting Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). Thus, 

absent a valid contractual defense, the FAA “leaves no place for the exercise of discretion 

by a district court, but instead mandates that district courts shall direct the parties to proceed 

to arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter

Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (emphasis omitted).

In general, a district court’s role under the FAA is “limited to determining 

(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement 

encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 

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1126, 1130 (9th Cir. 2000). These two issues are sometimes referred to as the “gateway” 

questions of arbitrability. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68-69 (2010). 

When a party challenges an arbitration agreement as unenforceable, a federal court must 

“ascertain from all the available data what the state law is and apply it.” Poublon v. C.H. 

Robinson Co., 846 F.3d 1251, 1266-67 (9th Cir. 2017).

C. Liability Risk Retention Act

“In response to escalating product liability insurance premiums in the late 1970s and 

early 1980s, manufacturers began to bypass conventional insurance companies and to 

obtain product liability insurance from insurance cooperatives known as RRGs [risk 

retention groups].” Nat’l Warranty Ins. Co., 214 F.3d at 1075. Congress ultimately 

enacted two related statutes to address this development: the Product Liability Risk 

Retention Act (“PLRRA”) (in 1981) and the LRRA (in 1986). Id. More specifically, 

Congress first enacted the PLRRA “to encourage the formation and growth of RRGs by 

reducing state regulation of RRGs, thereby reducing the expenses of RRGs and the cost of 

insurance to RRG members.” Id. (internal citations omitted). “Under the PLRRA, an RRG 

is permitted to provide product liability insurance in all states, free of insurance regulation 

by those states, if it complies with the insurance laws of the state it chooses as its ‘chartering 

jurisdiction.’” Id. (quoting 15 U.S.C. § 3901(4)(C)(i)). “In the words of the House Report 

accompanying the PLRRA, the preemption of regulation by non-chartering states enables 

‘the efficient operation of risk retention groups by eliminating the need for compliance 

with numerous non-chartering state statutes that, in the aggregate, would thwart the 

interstate operation [of] . . . risk retention groups.’” Id. (citation omitted)). Next, “[i]n 

1986, Congress enacted the LRRA, amending the PLRRA to allow RRGs, which had 

previously been limited to product liability insurance, to provide additional kinds of 

liability insurance.” Id. “Under the LRRA, an RRG is defined as ‘any corporation or other 

limited liability association . . . whose primary activity consists of assuming, and spreading 

all, or any portion, of the liability exposure of its group members.’” Id. (quoting 15 U.S.C. 

§ 3901(a)(4)(A)). 

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Together, “[t]he PLRRA and LRRA create a ‘tripartite’ regulatory scheme for risk 

retention groups.” Allied Pros. Ins. Co. v. Anglesey, 952 F.3d 1131, 1134 (9th Cir. 2020). 

“First, at the federal level, the statutes preempt state laws regulating the operation of risk 

retention groups. Second, at the state level, they authorize the chartering state to regulate 

the groups’ formation and operation. Finally, also at the state level, they ‘sharply limit[] 

the secondary regulatory authority of nondomiciliary states over risk retention groups to 

specified, if significant, spheres.’” Id. (citation omitted).

Also relevant in this context is the McCarran-Ferguson Act, under which “Congress 

hereby declare[d] that the continued regulation and taxation by the several States of the 

business of insurance is in the public interest, and that silence on the part of the Congress 

shall not be construed to impose any barrier to the regulation or taxation of [insurance] by 

the several States.” 15 U.S.C. § 1011. “The McCarran-Ferguson Act is generally 

understood to protect state regulation of insurance.” Allied Pros. Ins. Co., 952 F.3d at 

1134. However, the Ninth Circuit has “repeatedly held that the LRRA is an exception to 

the McCarran-Ferguson Act’s preference for state regulation of insurance.” Id. 

II. LRRA Preemption

A. The Parties’ Arguments 

CCRRG asks the Court to find that the LRRA “preempt[s] the anti-arbitration 

provisions of Arizona’s garnishment laws as to foreign RRGs operating within the state” 

for two related reasons: (1) “arbitration is a key component of the claims administration 

procedures of CCRRG,” so “all Arizona state laws that directly or indirectly regulate or 

otherwise interfere with CCRRG’s operations, including its claim administration 

procedures, are preempted”; and (2) “the LRRA leaves regulation of RRGs, including their 

claims administration procedures, to the state where the RRG is chartered, and broadly 

preempts any nonchartering state law, rule, regulation, or order to the extent that such law, 

rule, regulation, or order would make unlawful, or regulate, directly or indirectly, the 

operation of an RRG.” (Doc. 119 at 2, 5-7, 10-14.) CCRRG acknowledges that “there are 

several exceptions to the LRRA’s broad preemption of non-chartering state laws with 

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which a foreign RRG must comply” but argues that “none of these exceptions apply to save 

the anti-arbitration provisions of Arizona’s garnishment laws from preemption” because 

they only “concern unfair claim settlement laws, false practices laws, taxes, registration 

requirements, and financial stability regulation.” (Id. at 2, 14-16.) CCRRG also points to 

various decisions by the Ninth Circuit and other courts as “controlling precedents [that] 

make clear that Arizona cannot, directly or indirectly, void or otherwise invalidate the 

arbitration provision of CCRRG’s policy.” (Id. at 2, 8-10.)

In response, Plaintiffs first identify various reasons why CCRRG should be deemed 

to have waived its ability to pursue arbitration in general and arbitration based on LRRA 

preemption in particular. (Doc. 120 at 2-6.) Next, on the merits, Plaintiffs argue that 

LRRA preemption is inapplicable here because the “LRRA’s exemption only applies to a 

state insurance law or regulation and not any generally applicable state law.” (Id. at 7-12.) 

According to Plaintiffs, the “myriad cases cited by CCRRG are inapposite as they deal with 

laws or regulations specifically applicable to just insurance policies or insurance 

companies” and “[n]o case cited by CCRRG . . . authorizes preemption of a state law 

generally applicable to all persons or corporations.” (Id. at 7.) In a related vein, Plaintiffs 

contend that Arizona’s garnishment statute applies “to garnishments based upon any 

judgment and any debt regardless of whether related to an insurance policy or the insurance 

business” and that the Arizona Supreme Court’s decision was not limited to the insurance 

context. (Id. at 8-9.) Plaintiffs also contend that Congress’ purpose in enacting the LRRA 

was to free RRGs from state insurance regulation, rather than all state regulation, and that

the broad exemption in subsection (a)(4) applies to the entire section by virtue of Congress’ 

use of “subsection” in other places in the statute. (Id. at 8 & n.8.) Plaintiffs also analogize 

this case to ERISA cases holding that state laws were not preempted because the statutes 

were generally applicable garnishment provisions. (Id. at 9-11.) Next, Plaintiffs argue that 

to the extent the factors in Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119 (1982), which 

govern whether a practice is part of the “business of insurance,” are relevant, they support 

Plaintiffs’ position given that the focus is on the relationship between insurer and insured, 

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not insurer and judgment creditor. (Id. at 10-11.) Finally, Plaintiffs argue that “[e]ven if 

there was no waiver and LRRA preemption could apply in some bizarre fashion,” 

CCRRG’s motion would still fail because that FAA only requires parties to arbitrate to the 

extent they have agreed to arbitrate under state law, but here Plaintiffs are not parties to the 

relevant insurance policies and never agreed to arbitrate. (Id. at 12-17.)

In reply, CCRRG begins by arguing that Plaintiffs’ waiver arguments are precluded 

by the law of the case and outside the scope of the supplemental briefing authorized by the 

Court. (Doc. 123 at 1-2.) Next, CCRRG argues that “before [Plaintiffs] can ‘garnish’ the 

Policy’s indemnity benefits, they must prove that there are in fact benefits to garnish, i.e., 

CCRRG is holding property that [Capri] is entitled to under the Policy.” (Id. at 2-5.) Next, 

CCRRG contends that Plaintiffs are “simply wrong” in their contention that Arizona’s 

garnishment laws are not subject to preemption because they are laws of general 

applicability and that Plaintiffs’ reliance on § 3902(a)(4) is misplaced because that 

provision is “inapplicable.” (Id. at 5-7.) Alternatively, Plaintiffs argue that “even if 

§ 3904(a)(4) was relevant, Arizona’s garnishment statutes serve as [a] vehicle for directly 

naming insurance carriers to proceedings they would not otherwise be a party to and are 

thus no different than the numerous direct-action statutes from across the country that had 

been declared preempted by the LRRA.” (Id. at 7-10.) Finally, CCRRG clarifies that it 

“only contends that Arizona law banning arbitration in garnishments involving insurance 

coverage disputes is preempted as applied to foreign RRGs that have arbitration provisions 

in their policies” and does not argue that the “entirety of Arizona’s garnishment law is 

preempted.” (Id. at 10-11.) 

B. Analysis 

As an initial matter, the Court notes that the question of whether CCRRG has 

forfeited its ability to seek to compel arbitration based on LRRA preemption is closer than 

the Court perceived it to be in earlier orders. Nevertheless, because CCRRG’s preemption 

arguments fail on the merits for the reasons discussed below, there is no need to resolve 

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the question of forfeiture as to that argument.

3

The Arizona Supreme Court and Ninth Circuit concluded that Plaintiffs are not 

bound by the arbitration agreements under the Arizona state-law doctrine of direct benefits 

estoppel. CCRRG now argues that this conclusion must be reconsidered because the 

LRRA preempts “Arizona law banning arbitration in garnishments involving insurance 

coverage.” (Doc. 123 at 10.) 

In evaluating this argument, the Court begins with the text of the relevant statutory 

provision. CSX Transp., Inc. v. Easterwood, 507 U.S. 658, 664 (1993) (“If the statute 

contains an express pre-emption clause, the task of statutory construction must in the first 

instance focus on the plain wording of the clause, which necessarily contains the best 

evidence of Congress’ pre-emptive intent.”). The parties agree on the relevant provisions. 

In 15 U.S.C. § 3902(a), Congress created a broad preemption provision, which appears in 

subdivision (a)(1), but also identified various “exemptions” to this preemption provision, 

which appear in subdivisions (a)(1)(A)-(I) and (a)(4):

Except as provided in this section, a risk retention group is exempt from any 

State law, rule, regulation, or order to the extent that such law, rule, 

regulation, or order would—

(1) make unlawful, or regulate, directly or indirectly, the operation

of a risk retention group except that the jurisdiction in which it 

3 With that said, CCRRG has forfeited the separate argument, raised in cursory 

fashion in a footnote in its supplemental brief, that “[t]o the extent Arizona’s antiarbitration statutes place an outright ban on arbitration and thus single out arbitration 

provisions in policies of insurance for suspect status, such statutes violate Section 2 of the 

[FAA].” (Doc. 119 at 4 n.2.) The only question related to arbitrability that the Ninth 

Circuit authorized this Court to entertain on remand was the question of LRRA preemption. 

Benson, 2022 WL 822126 at *2 n.1. Otherwise, the Ninth Circuit held that “the district 

court erred in granting CCRRG’s motion to compel arbitration under the doctrine of direct 

benefits estoppel.” Id. Accordingly, CCRRG cannot ask this Court to affirm its previous 

(and now reversed) decision compelling arbitration on other grounds. Hall v. City of Los 

Angeles, 697 F.3d 1059, 1067 (9th Cir. 2012) (“The rule of mandate is similar to, but 

broader than, the law of the case doctrine. A district court that has received the mandate 

of an appellate court cannot vary or examine that mandate for any purpose other than 

executing it . . . [and] is limited by our remand when the scope of the remand is clear. 

Violation of the rule of mandate is a jurisdictional error.”) (citations and internal quotation 

marks omitted). See also United States v. Wright, 716 F.2d 549, 550 (9th Cir. 1983)

(“When a party could have raised an issue, in a prior appeal but did not, a court later hearing 

the same case need not consider the matter.”). Additionally, CCRRG’s inclusion of this 

argument in its supplemental brief violated the Court’s June 14, 2022 order, which limited 

the scope of any supplemental briefing to “the issue of LRRA preemption regarding the 

arbitration clause.” (Doc. 118.)

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is chartered may regulate the formation and operation of such 

a group and any State may require such a group to—

(A) comply with the unfair claim settlement practices law 

of the State;

(B) comply with the unfair claim settlement practices law 

of the State;

(C) pay, on a nondiscriminatory basis, applicable premium 

and other taxes which are levied on admitted insurers 

and surplus lines insurers, brokers, or policyholders 

under the laws of the State;

(D) participate, on a nondiscriminatory basis, in any 

mechanism established or authorized under the law of 

the State for the equitable apportionment among 

insurers of liability insurance losses and expenses 

incurred on policies written through such mechanism

. . . .

or

(4) otherwise discriminate against a risk retention group or any of 

its members, except that nothing in this section shall be 

construed to affect the applicability of State laws generally 

applicable to persons or corporations.

Additionally, in 15 U.S.C. § 3902(b), Congress provided further guidance concerning the 

scope of these exemptions:

The exemptions specified in subsection (a) apply to laws governing the 

insurance business pertaining to—

(1) liability insurance coverage provided by a risk retention group 

for—

(A) such group; or

(B) any person who is a member of such group;

(2) the sale of liability insurance coverage for a risk retention 

group; and

(3) the provision of—

(A) insurance related services;

(B) management, operations, and investment activities; or

(C) loss control and claims administration (including loss 

control and claims administration services for uninsured 

risks retained by any member of such group);

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for a risk retention group or any member of such group with respect to 

liability for which the group provides insurance.

The Ninth Circuit has provided guidance on how to conduct a preemption analysis 

under these provisions. “When considering whether the LRRA preempts a state law, we 

first determine whether the challenged aspect of the state law offends the LRRA’s broad 

preemption language. If so, we consider whether one of the LRRA’s exceptions, which 

are contained in §§ 3902(a)(1) and 3905, applies to save the state law. If no exception 

applies, the law is preempted.” Att’ys Liab. Prot. Soc’y, Inc. v. Ingaldson Fitzgerald, P.C., 

838 F.3d 976, 980 (9th Cir. 2016). 

1. LRRA’s Broad Preemption Language 

“The LRRA’s preemption provision is broadly worded, and [the Ninth Circuit] has 

repeatedly held that the LRRA has a broad preemptive effect.” Allied Pros. Ins. Co., 952 

F.3d at 1135. “This broad effect requires that the term ‘operation’ be read generously.” 

Id. 

Several cases from the Ninth Circuit have remarked on the types of state action that

“regulate, directly or indirectly, the operation of a [RRG]” for purposes of the first step of 

the preemption analysis under § 3902(a)(1). For example, in Alliance of Nonprofits for 

Insurance Risk Retention Grp. v. Kipper, 712 F.3d 1316 (9th Cir. 2013), Nevada law 

required vehicle owners to obtain insurance that “compl[ied] with financial responsibility 

minimums.” Id. at 1319. Compatible policies were called “first dollar” liability policies

and, under Nevada’s Motor Vehicle Insurance and Financial Responsibility Act, vehicle 

owners could only obtain first dollar insurance from a provider “authorized to transact 

business” in Nevada. Id. (citations omitted). Authorized providers had to obtain a 

certificate of authority. Id. After the Nevada Insurance Commissioner issued an order 

prohibiting the plaintiff, which was an RRG, “from writing first dollar liability policies in 

Nevada,” the plaintiff challenged this ruling on the ground that it was preempted by the 

LRRA. Id. at 1320-21. The district court agreed with the plaintiff and the Ninth Circuit 

affirmed, holding that “the Commissioner’s order makes it unlawful for [the plaintiff], an 

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RRG, to operate in Nevada, to the extent [the plaintiff] sought to write first dollar liability 

insurance” and thus “plainly fits within the scope of LRRA preemption” under 

§ 3902(a)(1). Id. at 1321. The court added that, “[b]ecause the Order fits within the scope 

of LRRA preemption, it is invalid unless one of the LRRA’s exceptions from preemption 

applies.” Id. 

In Attorneys Liability Protection Society, an Alaska statute prohibited an insurer 

from recouping funds it spent on independent counsel to defend a non-covered claim

pursuant to a reservation of rights. 838 F.3d at 980. The Ninth Circuit concluded that this 

statute “‘regulates’ [the plaintiff RRG’s] operations in Alaska” and was therefore subject 

to preemption under § 3902(a)(1) unless one of the statutory exemptions applied. Id. at 

980-81. 

And again, in Allied Professionals, a Washington statute was interpreted by state 

courts as “prohibit[ing] binding arbitration agreements in insurance contracts in that state.” 

952 F.3d at 1132. Nevertheless, an RRG moved to compel arbitration of a claim for breach 

of an insurance contract, arguing that the statute barring arbitration of such claims was 

unenforceable because it was preempted under the LRRA. Id. When conducting the first 

step of the preemption analysis, the Ninth Circuit agreed with the RRG that the challenged 

statute “regulate[s], directly or indirectly, the operation of a risk retention group” for 

purposes of § 3902(a)(1) because it “places a restriction on risk retention groups that is not 

required by the LRRA or by all other states.” Id. at 1135. The court emphasized that the 

“LRRA was not enacted simply to keep states from discriminating against risk retention 

groups. Instead, . . . the LRRA was passed by Congress in an effort to support a struggling 

insurance market. In order to do so, the Act ‘eliminated the need for compliance with 

numerous non-chartering state statutes that, in the aggregate, would thwart the interstate 

operation risk retention groups.’” Id. at 1135-36 (cleaned up). 

Given this backdrop, the Court assumes that Arizona’s determination that direct 

benefits estoppel does not apply to bind a non-signatory third party to an arbitration 

agreement in a garnishment action, and instead requires both parties to submit to the power 

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of the court, “indirectly” “regulate[s]” the operation of an RRG for purposes of 

§ 3902(a)(1). Cf. Speece v. Allied Pros. Ins. Co., 853 N.W.2d 169, 179 (Neb. 2014)

(holding that an anti-arbitration statute for insurance policies regulated the business of 

insurance). But this assumption does not end the preemption analysis—it simply means 

the Court must proceed to the second step, which addresses whether any of the LRRA’s 

exemptions apply.

2. Exemptions

Plaintiffs argue that the Arizona Supreme Court’s decision in Benson announces a 

rule that falls within the exemption set forth at 15 U.S.C. § 3902(a)(4), which provides that 

states may not “otherwise discriminate against a risk retention group or any of its members, 

except that nothing in this section shall be construed to affect the applicability of State laws 

generally applicable to persons or corporations.” As explained below, the Court agrees.

The analysis is complicated by the fact that, although many courts have addressed 

the scope of the explicit exemptions listed in § 3902(a)(1)(A)-(I), which govern various 

state regulation mechanisms (such as requiring an RRG to submit to examination by the 

state), few cases address the meaning of the second clause of § 3904(a)(4)—that is, the 

proviso that “except that nothing in this section shall be construed to affect the applicability 

of State laws generally applicable to persons or corporations.” In National Warranty 

Insurance Co. RRG, the Ninth Circuit interpreted the first clause of § 3902(a)(4), 

concluding that the phrase “otherwise discriminates” means “differentiation without an 

acceptable justification.” 214 F.3d at 1077-81. The court clarified that differentiation not 

only includes laws that “facially or intentionally” differentiate but also includes “state laws 

that merely have the effect of differentiating” between “an RRG and an admitted insurance 

company.” Id. at 1081. Finally, in something of a passing reference, the court 

characterized the “concluding clause” of § 3902(a)(4) as “specifically allow[ing] regulation 

by state laws not specifically regulating insurance—that is, by state laws ‘generally 

applicable to persons and corporations.’” Id. Although this characterization is helpful to 

Plaintiffs’ position, it is not clear that it is dispositive.

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Yet even assuming that National Warranty does not control the issue, Plaintiffs have 

the better of this dispute. In concluding that the doctrine of equitable estoppel cannot be 

applied to compel arbitration in the garnishment context, the Arizona Supreme Court did 

not announce a rule that is specific to the insurance industry or to RRGs. Benson, 502 P.3d 

at 465 (“The Ninth Circuit asks whether the doctrine of direct benefits estoppel can be 

applied in an Arizona garnishment proceeding as an exception to the general rule that nonparties are not bound by the terms of a contract. We hold it cannot.”). Indeed, in Arizona’s 

statutory scheme, the garnishment procedures apply identically to any judgment debtor or 

creditor, regardless of the industry. See, e.g., A.R.S. § 12-1570 (defining judgment debtor 

as “a person or entity against which a money judgment has been awarded or against which 

an order for support of a person is due” and judgment creditor as “a person or entity that 

has a money judgment or an order for support of a person that is due”); id. § 12-1570.01 

(describing the scope of the garnishment article as applying generally to “[m]onies held by 

a garnishee on behalf of a judgment debtor” and “[i]ndebtedness owed to a judgment 

debtor”); id. § 12-1584 (describing the garnishment procedures in general terms of 

judgment debtors and creditors). Thus, the rule announced in Benson qualifies as a “State 

law[]generally applicable to persons and corporations” under § 3902(a)(4). 

CCRRG’s arguments to the contrary are unavailing. CCRRG contends that the 

second clause of subsection (a)(4) (i.e., “nothing in this section shall be construed to affect 

the applicability of State laws generally applicable to persons or corporations”) does not 

create an exemption for all laws of general applicability, but only for the subset of such 

laws specified in the first clause of subsection (a)(4) (i.e., laws that “otherwise, discriminate 

against a risk retention group or any of its members”). (Doc. 123 at 5-6.) Plaintiffs 

disagree, arguing that § 3902(a)(4) is a catch-all provision that encompasses the entirety of 

§ 3902(a). (Doc. 120 at 7-10.) 

Plaintiffs are correct. “[S]tatutory language must always be read in its proper 

context.” McCarthy v. Bronson, 500 U.S. 136, 139 (1991). For CCRRG to prevail, the 

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word “section” in the second clause of (a)(4) must refer only to “subsection” (a)(4). But 

such an interpretation necessarily fails given that § 3902(b)(1) uses the term “subsection” 

when specifically referring to subsection (a). 15 U.S.C. § 3902(b)(1) (“The exemptions 

specified in subsection (a) apply to laws governing the insurance business pertaining to 

. . . .”) (emphasis added). This language choice shows that, had Congress intended for the 

second clause of § 3902(a)(4) to apply only to the subset of laws covered by the first clause 

of subsection (a)(4), it would have said so directly. S.E.C. v. McCarthy, 322 F.3d 650, 656 

(9th Cir. 2003) (“It is a well-established canon of statutory interpretation that the use of 

different words or terms within a statute demonstrates that Congress intended to convey a 

different meaning for those words.”). Instead, it chose the word “section.” This suggests 

that “section” refers to all of § 3902. 

Subsection 3902(b) further supports the conclusion that, under § 3902(a)(4),

generally applicable laws are exempt from LRRA preemption. Subsection (b) defines the 

“Scope” of “[t]he exemptions specified in subdivision (a)” and states that those exemptions 

may apply to “laws governing the insurance business” pertaining to “liability insurance 

coverage,” “the sale of liability insurance,” and “the provision of . . . insurance related 

services; . . . management, operations, and investment activities; or . . . loss control and 

claims administration “for a risk retention group or any member of such group with respect 

to liability for which the group provides insurance.” Id. In other words, § 3902(b) clarifies 

that even some laws that expressly regulate the insurance industry may be exempt from 

preemption, depending on whether a specific exemption in § 3902(a) applies. See 

generally National Warranty, 214 F.3d at 1081 (noting that the exemptions set forth at 

§ 3902(a)(1)-(3) share the common characteristic that the permitted and prohibited laws

“specifically regulate insurance companies”). The first clause of subsection (a)(4), then, 

reinforces the insurance-focused readings of (a)(1)-(3) and § 3902(b) by confirming that 

laws that discriminate against RRGs, in the insurance context, are also prohibited. It is 

consistent with that statutory scheme for “State laws generally applicable to persons or 

corporations” to fall outside the LRRA’s preemption orbit because they do not purport to 

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regulate insurance at all (even if they “indirectly” have such a regulatory effect for purposes 

of the first step of the preemption analysis under § 3902(a)(1)). The Second Circuit has 

affirmed this interpretation, reasoning that “the Act prohibits states from enacting 

regulations of any kind that discriminate against risk retention groups or their members, 

but does not exempt risk retention groups from laws that are generally applicable to persons 

or corporations.” Wadsworth v. Allied Pros. Ins. Co., 748 F.3d 100, 103 (2d Cir. 2014);

4

see also Speece, 853 N.W.2d at 180 (rejecting the use of § 3902(a)(4) as a defense when 

the statute at issue applied to “insurance contracts” rather “than generally to persons or 

corporations”). 

For similar reasons, the Court is unpersuaded by CCRRG’s argument that “even if 

§ 3902(a)(4) was relevant, Arizona’s garnishment statutes serve as [a] vehicle for directly 

naming insurance carriers to proceedings they would not otherwise be a party to and are 

thus no different than the numerous direct-action statutes from across the country that have 

been declared preempted by the LRRA.” (Doc. 123 at 7.) CCRRG cites Wadsworth in 

support of this position. (Id. at 6-7). But as discussed above, Wadsworth contains passages 

suggesting that LRRA preemption does not apply to state laws of general applicability, 

such as the state-law rule announced in Benson. Additionally, the facts of Wadsworth are 

distinguishable. Wadsworth focused on a provision of “New York Insurance Law” that 

allowed an injured party to bring a direct action “against a tortfeasor’s insurer.” 748 F.3d 

at 104. Subsection (a)(4) had no application because New York’s law, unlike the rule 

announced in Benson, was expressly aimed at insurers. CCRRG’s other cited cases are 

distinguishable for the same reason—the statutes at issue in those cases were expressly 

directed at the insurance industry.5

4 Although the Ninth Circuit does not appear to have cited, with approval, this specific 

passage from Wadsworth, it has generally expressed its agreement with Wadsworth. Allied 

Pros. Ins. Co., 952 F.3d at 1134.

5 See, e.g., Reis v. OOIDA Risk Retention Grp., Inc., 814 S.E.2d 338, 343 (Ga. 2018) 

(“The direct action statutes subject insurers of motor carriers to lawsuits as parties, and 

thus, exposes them directly to liability and any consequent damages.”); Courville v. Allied 

Pros. Ins. Co., 174 So. 3d 659, 666 (La. Ct. App. 2015) (“Louisiana has enacted a statute 

that effectively prohibits the enforcement of arbitration provisions in the context of 

insurance disputes.”).

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The statutory text is the best indicator of what Congress intended with respect to 

preemption. CSX Transp., Inc., 507 U.S. at 663. The text here is clear. Congress intended 

to preempt certain state insurance regulations while leaving intact generally applicable state 

laws, even when they have the indirect effect of regulating RRGs. Arizona’s garnishment 

scheme is generally applicable to persons and corporations within the meaning of 

§ 3902(a)(4), as is Arizona’s doctrine of direct benefits estoppel. Therefore, LRRA 

preemption does not apply here.

6

Accordingly, 

IT IS ORDERED that CCRRG’s motion to compel arbitration (Doc. 63) is denied. 

The Court will rule on the parties cross-motions for summary judgment (Docs. 55, 125) in 

due course. 

Dated this 4th day of November, 2022.

6 The National Risk Retention Association, which has appeared as amicus curiae in 

this case, including the following passage in its amicus brief: “Not all state laws affecting

an LRRA insurer are tantamount to regulating its operations. Many state laws ‘affect’ a 

foreign RRG—everything from laws requiring drivers’ licenses to minimum wage 

statutes—but they do not ‘regulate’ the RRG’s business or operations as an insurer. Laws 

of general applicability are not preempted, while those regulating the ‘business of 

insurance’ are.” (Doc. 116 at 4.) If anything, this logic supports the Court’s conclusion 

that CCRRG is not entitled to compel arbitration based on its LRRA preemption 

arguments, because the state-law provisions giving rise to the arbitrability dispute are laws 

of general applicability that do not purport to specifically regulate the business of 

insurance.

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