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Affirming a trial court's provisional remedies award in a complex insurance dispute, a North Carolina appellate court held that the Federal Arbitration Act (FAA) does not preempt North Carolina's Revised Uniform Arbitration Act's (RUAA) provisional remedies provision.
In Scottish Re Life Corp v. Transamerica Occidental Life Insurance Co., No. COA06-1278, 2007 WL 1891168 (N.C. Ct. App. July 3, 2007), Scottish Re Life entered into reinsurance contracts with Annuity and Life Reassurance (ALR). Transamerica later assumed ALR's obligations. Scottish Re Life demanded some form of security that would allow it to receive credit after it discovered that New York had not licensed Transamerica. Transamerica asserted it had not agreed to assume certain liabilities and that Scottish Re Life had made false representations, thus entitling Transamerica to rescind the agreement.
The trial court, with both parties' assent, ordered arbitration. Additionally, the trial court issued a provisional remedies order. The order required Transamerica to repudiate its rescission claim or return assets it had received as part of the agreement to a qualifying trust. Transamerica appealed the provisional remedies order, arguing the FAA preempts the RUAA.
The Court held that the FAA does not preempt the RUAA's provisional remedies provision. As the Court observed, "[t]he FAA contains no express preemptive provision," and as such, the FAA preempts state law only "to the extent that it actually conflicts with federal law." Volt Info. Scis. v. Bd. of Trs., 489 U.S. 468, 477-478 (1989).
Further, the trial court's decision to apply the RUAA's provisional remedies provision protected the arbitration process because there was a danger the assets would be unavailable for restitution. Here, the parties were involved in a complex insurance dispute where it was difficult to convene a qualified arbitration panel. Without the trial court's relief, the arbitration panel would not have all available remedies at its disposal, as there was a possibility the assets at stake would dissipate.
Finally, the Court noted that even if the FAA did apply, the outcome would remain identical, as federal courts have authority to grant preliminary injunctions in cases where, without the injunction, the arbitrator could not possibly return the parties to the status quo ante.
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