Petition for Writ of Certiorari — Lipcon v. Underwriters at Lloyd's London

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Supreme Court, U.S.

S @ Bade

98 TSGNV2 19%

No.

a he OFFICE OF THE GLERK

Supreme Court Of The United States

October Term 1998

IRMGARD LIPCON, MITCHELL LIPCON,

CHARLES R. LIPCON and BARBARA LIPCON,

Petitioners,

vs.

UNDERWRITERS AT LLOYD'S LONDON a/k/a

the CORPORATION OF LLOYD'S a/k/a SOCIETY OF -

LLOYD'S; a/k/a LLOYD'S OF LONDON,

Respondent.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Eleventh Circuit

PETITION FOR WRIT OF CERTIORARI

CHARLES LIPCON SHARON L. WOLFE

2480 One Biscayne Tower Counsel of Record

Two S. Biscayne Blvd. COOPER & WOLFE, P.A.

Miami, Florida 33131 200 S. Biscayne Blvd.

Telephone: (305) 373-3016 Suite 3580

Miami, Florida 33131-2316

Telephone: (305) 371-1597

Counsel for Respondent

2 mene. gh ating

QUESTIONS PRESENTED FOR REVIEW

Whether the anti-waiver provisions of the

United States securities laws preclude en-

forcement of certain choice-of-law clauses in

international agreements?

Whether the Eleventh Circuit’s conclusion

that spouses were bound by choice of law

clauses they did not sign and to which they

did not agree conflicts with this Court’s deci-

sion in First Options of Chicago, Inc. v.

Kaplan, 514 U.S. 938 (1995)(aff'g 19 F.3d

1503 (3d Cir. 1994))?

ee eee OM a eee gy

PARTIES TO THE PROCEEDING

The following persons and entities have an interest in

the outcome of this case:

Irmgard Lipcon

Charles R. Lipcon

Mitchell Lipcon

Barbara Lipcon

Underwriters at Lloyd’s Lendon a/k/a

the Corporation of Lloyd’s a/k/a Society of Lloyd’s

a/k/a Lloyd’s of London

TABLE OF CONTENTS

Page

SS OEE PERT EE EET i

ee sg a 5 ESS o We did loiak odes ii

eS at, foie tara A Wo vile d's ol Heat iv

Citations of Opinions Below .................. 1

Statement of Grounds for Invoking Jurisdiction ...... i

Statutory Provisions Involved.................. l

Statement of the Case and Facts ................ 2

Reasons for Granting the Writ ................. 13

ole Shas Ue a's |b 6a 6 0: 0.0°6 0 5-0 68 29

EE Alita iba sos so CORRE UD ewe E MES A-1l

TABLE OF AUTHORITIES

Cases Page

Allen v. Lloyd’s of London,

96 P36 5Gs Ge Cer. 1996)... . 8s as. HO 18,19

Bonny v. Society of Lloyd’s,

ee I: SI i 55s ook ence eeie a de 19,21

Carnival Cruise Lines, Inc. v. Shute,

5D UE Be a a HA IS is 23,25

Dayhoff, Inc. v. H.J. Heinz Co.,

ge ee ee reer eer 27,28

First Options of Chicago, Inc. v. Kaplan,

514 U.S. 938 (1995)

(aff g 19 F.3d 1503 (3d Cir. 1994))......... i,2,27,29

Hayden v. McDonald,

Van eee ae Ce Ge FOOD) nnn 6c cece SECS 22

Haynesworth v. The Corporation,

iB A GL rr er re 18

Hugel v. Corporation of Lloyd’s,

og Pe Rare ere ee 29

In re Interactive Video Resources, Inc. ,

go 8 Mee FR rer 28

Jadoff v. Gleason,

ME Fs CEs BOA) cc cece tae cies 22

Knott v. Botany Mills,

ee ae Gog ws CAE Oe 4 25

Kusner v. First Pennsylvania Corp.,

aos F.Be tte OC IST er SL 22

Lipcon v. Underwriters at Lloyd’s,

148 F.3d 1285 (11th Cir. 1998)........ 1,13,19,22,29

Manetti-Farrow, Inc. v. Gucci Am., Inc.,

fm RF Se | ae ee a are 29

McMahan & Co. v. Wherehouse Entertainment, Inc.,

859 F.Supp. 743 (S.D.N.Y. 1994), aff'd in part

rev'd in part on other grounds,

Cp Poe SNe GAIN on so EA BUN Sea 22

Meyers v. C & M Petroleum Producers, Inc.,

476 F.208 427 GECe. 1973) 2.4.5 Pee ees. i PR 23

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,

SIS. UD, GIGI ot BSL 14,15,16,20,25

Morewitz v. The West of England Ship Owners Mutual

Protection and Indemnity Ass’n,

Geen oe See Ga. Boe O) oes Sk Ak 28

Packer v. TDI Sys., Inc.,

Son Fae. 192 G.DNiY. 1997) 5 Se 28

Richards v. Lloyd’s of London,

B07 F.38 1422 CO Cer.. 1997) 2.02 2 cessed ee 18,26

Richards v. Lloyd’s of London,

135 F.3d 1289 (9th Cir. 1998)(en bamc) ........... 18

Riley v. Kingsley Underwriting Agencies, Ltd. ,

969 F.2d 953 (10th Cir. 1992) .............. 18,19

Roby v. Corporation of Lloyd’s,

996 F.2d 1353 (2d Cir. 1993) .............. 18,20

Rodriguez de Quijas v. Shearson/American Express, Inc..,

Re ES Ae ee ee ae 14,16,17

Rogen v. Illikon Corp..,

Pe eer 22

Scherk v. Alberto-Culver Co..,

te 0 An arin, ai 14,15,20

Shearson/American Express Inc. v. McMahon,

Ge a ED Kae DS eacc ce eeee 15,16,17,23

Shell v. R.W. Sturge, Lid.,

~ FR Fy sf Le | BR ee eee. eee 18,19

Special Transp. Serv., Inc. v. Balto,

325 F.Supp. 1185 (D.Minn. 1971) .............. 22

Stewart Organization, Inc. v. Ricoh Corp.,

Sok By OV egy Se 21

Swensens’ Ice Cream Co. v. Corsair Corp..,

a ee Is BOUED ccc esc cc cccccccs 28

Synalloy Corp. v. Gray,

816 F.Supp. 963 (D.Del. 1993) ................ 22

The Bremen v. Zapata Off-Shore Co..,

EEE 18

Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer,

559 VRS: SOS. Ceseue Lees 24,26

Statutes

15 U.S.C. §§ 77e, 771 & 770, Securities Act

GE Sos Se ee ee be PE SABOL TOR SU... 13

15 U.S.C. § 77n, Securities Act of 1933,§ 14 ...... 2

15 U.S.C. § 77v, Securities Act of 1933, § 22(a)..... 1

15 U.S.C. § 78aa, Securities Act of 1934, § 27 ...... 1

15 U.S.C. 78cc, Securities Exchange Act of

Se aed e Ae Cee RG 2b aaa oa KM 2

15 U.S.C. § 78) & 78t, Securities Exchange Act

ee ET OS UL Ee ea Lee E eee 13

Bp SD Shen 5 is ES OS SSS 13

I iG biag ats Wigs Wi oW.e 6 6 euie 2 ce's-e 1

On ea eis aes 6 seb alee 65° oe 1

FEUDS. $6 1990 SB. 6 06 6 HAH.

ES k's dork ey chee axes 640d aoe

MOB Te oko BERR RELAY HE ERG

No Way Out: An Argument Against Permitting

Parties to Opt Out of U.S. Securities Law In

International Transactions,

ee RS OS, , A aera ar

PETITION FOR WRIT OF CERTIORARI

Petitioners Irmgard Lipcon, Mitchell Lipcon, Charles

R. Lipcon and Barbara Lipcon petition for writ of certiorari

to review the decision of the United States Eleventh Circuit

Court of Appeals which affirmed the judgment of the United

States District Court for the Southern District of Florida.

CITATIONS OF OPINIONS BELOW

The opinion is reported at Lipcon v. Underwriters at

Lloyd’s, London, 148 F.3d 1285 (11th Cir. 1998). The dis-

trict court's order is unreported and is reproduced here in the

Appendix at A-33.

STATEMENT OF GROUNDS FOR

INVOKING JURISDICTION

Jurisdiction in this Court is sought pursuant to 28

U.S.C. § 1254 to review the United States Court of Appeals

for the Eleventh Circuit’s judgment entered August 5, 1998.

The district court’s subject matter jurisdiction over

federal law claims was invoked under 15 U.S.C. § 77v, Se-

curities Act of 1933 § 22(a); 15 U.S.C. § 78aa, Securities

Exchange Act of 1934 § 27; 18 U.S.C. § 1964(c)(Racketeer

Influenced and Corrupt Organizations Act); 28 U.S.C. §§

1331 & 1332(a). Petitioners are citizens or residents of vari-

ous states in the United States and Respondents are citizens

or subjects of a foreign state. The amount in controversy

exceeds $50,000 exclusive of interest and costs.

STATUTORY PROVISIONS INVOLVED

change Acts are at issue here.

15 U.S.C. § 77n, Securities Act of 1933 § 14

Any condition, stipulation, or provision bind-

ing amy person acquiring any security to

waive. compliance with any provision of this

title or of the rules and regulations of the

Commission shall be void.

15 U.S.C. 78cc(a), Securities Exchange Act of 1934

§ 29(a)

Any condition, stipulation, or provision bind-

ing any person to waive compliance with any

provision of this chapter or of any rule or reg-

ulation thereunder, or of any rule of an ex-

change required thereby shall be void.

STATEMENT OF THE CASE AND FACTS

I. Presentation of federal questions below.

This is a civil case which arises out of a judgment

rendered by the United States District Court for the Southern

District of Florida, affirmed “sy the United States Eleventh

Circuit Court of Appeals. The federal questions presented

were timely raised in the district court: (1) whether the anti-

waiver provisions of the United States securities laws pre-

clude enforcement of certain choice-of-law clauses in interna-

tional agreements? and (2) whether the Eleventh Circuit mis-

construed this Court’s decision in First Options of Chicago,

Inc. v. Kapian, 514 U.S. 938 (1995) when it held that the

spouses of the signatories to the contract were bound by the

choice of law provisions they did not sign?

II. Introduction.

Lloyd’s came to the United States and solicited thou-

sands of individuals, including the Lipcons, to invest in in-

surance syndicates. Lloyd’s made numerous misrepresenta-

tions to these individuals to get their money to cover substan-

tial losses it was about to incur from asbestos and pollution

claims. These misrepresentations violated the registration

and anti-fraud provisions of the federal securities laws. In-

siders at Lloyd’s knew about the asbestos claims; the newly-

solicited United States investors did not have a clue. After

Lloyd’s obtained substantial investments, and before infor-

mation about the losses became public, Lloyd’s convinced

Parliament to exempt it from English securities laws.

Lloyd’s then made all previous United States investors sign

another agreement which required any litigation to be

brought in English courts under English law - a substantial

change from the initial agreement and one which completely

eliminated the investors’ rights under United Siates law. See

generally (R5-108-2-9). But the United States securities laws

have simple, straightforward anti-waiver provisions: any

agreement to waive compliance with those laws is void. The

Lloyd’s agreement should have been void. But the district

court dismissed the case. It enforced the choice of law pro-

visions. The Eleventh Circuit reluctantly affirmed.

Ill. Facts and procedural history.

A. Lloyd’s generally. Llioyd’s is an unincorpo-

rated association composed of individual members called

"Names" who underwrite insurance pursuant to Lloyd’s’

rules and procedures. There are two categories of Names:

Working Names, who are insiders employed by Lloyd’s; and

External Names, who are passive investors. The United

States individuals Lloyd’s solicited in this case were External

Names. (R5-108-12 { 21).

Lloyd’s is self-regulating. Underwriting members are

exempt from the English Insurance Companies Act and

Lloyd’s is exempt from the English Financial Services Act, a

disclosure law similar to United States securities laws. (RS5-

108-4-5 n.1).

Names are solicited to join Lloyd’s by Members’

Agents. (R5-108-12 4 23). The Name must then select an

agent through whom all of their business is conducted.

Those agents also advise them on syndicate selection each

year. (R5-108-13, 15 44 25, 34). Most Names select the

soliciting agent as their Members’ Agent. That is what the

Lipcons did. (R5-108-12-13 ¢ 24).

Once an individual becomes a Name, she or he must

sign a series of non-negotiable agreements, including a Gen-

eral Undertaking and Deed of Trust in favor of Lloyd’s.

(R5-108-20 ¢ 49). The General Undertaking is a master

agreement in which Lloyd’s imposes obligations on the

Names during the entire course of their investment. Names

must also execute documents which govern their relation-

ships with their agents and other Names. (Id. 4 50).

Each Name determines the amount of underwriting

she or he wishes to undertake each year. She or he then puts

up funds at Lloyd’s, typically a letter of credit, to support the

chosen level. (R5-108-27 4 66, 67). However, the Name’s

actual liability is effectively unlimited and may well exceed

the amount of the letter of credit. In fact, during the relevant

period of this suit, Names placed their entire net worths at

risk. (R5-108-12, 46, 47 44 22, 112, 114).

Names are grouped together annually to form syndi-

cates for the year. Each Name is individually/severally re-

sponsible for her share of the risk. Each syndicate is man-

aged by a Managing Agent who employs brokers. (R5-08-

13,15-16 {{ 25, 26, 33, 34).

A syndicate year of account (SYA) operates on an

annual basis as to the risk accepted. But it generally remains

"open" for three years to process all premiums and claims

received for the insuring year. Traditionally, each SYA was

closed at the end of three years by reinsurance from a suc-

ceeding SYA. The amount of premium to close is deter-

mined by the managing agent from whom the premium is

collected when reinsurance is obtained. The agent must fully

disclose all material facts about the risks to be re-insured so

the Names who underwrite the reinsurance in any subsequent

SYA are paid an adequate premium. If Lloyd’s cannot quan-

tify any outstanding liability in an SYA with sufficient accu-

racy to ensure there are adequate reserves and an adequate

premium it should not close the SYA. Lloyd’s had an obli-

gation to assure adequate disclosure of the open accounts,

i.e., long-tail risks, to Names. (R5-108-16, 17 {{ 35-39).

B. The Lipcons become Names. Lloyd's’

agents came to the United States to solicit members. (R5-

108-18 ¢ 44). In 1983, Lloyd’s, through its agent Barder &

Marsh, solicited Irmgard Lipcon to become a Name. (R1-1

Ex. B 3/29/96 Aff. of Charles Lipcon q 4; Aff. of Mitchell

Lipcon ¢{ 3, 4) The Lipcons were introduced by an insur-

ance broker in Miami. They all had several lunch and dinner

meetings in Miami to discuss her membership. (Id.).

After Irmgard became a Name, Barder & Marsh reg-

ularly came to Florida to discuss her underwriting from 1984

to date. The same was true for Mitchell. (R1-1 Ex. B Aff.

of Charles Lipcon { 11; Aff. of Mitchell Lipcon { 11).

The Lipcons also had substantial contacts with

Llioyd’s from their residence in Vail, Colorado. (R1-1 Ex. B

Aff. of Charles Lipcon { 16A).

i The fraudulent scheme. After hundreds of

years of respectable business dealings and profitable opera-

tions, Lloyd’s discovered, beginning in the late 1960's, prob-

lems in its internal operations and finances. Its response was

less than forthcoming: Lloyd’s tried to hide the problems

and tried to find innocent investors to cover the losses.

There were several areas of fraud: (1) the Cromer report on

internal operations; (2) staggering asbestos and pollution los-

ses; (3) Lioncover, the cover-up of a managing agent’s

fraud; (4) L M X spiral, the ultimate reinsurance cover-up;

and (5) Lloyd’s misdealings in the monies the Names depos-

ited in Lloyd’s American Trust Fund.

(1) The Cromer report. In 1968, Lloyd’s

put together the Cromer Report, which disclosed material

problems in Lloyd’s’ operations, including a decline in un-

derwriting standards and a conflict of interest between bro-

kers and underwriters. Lloyd’s did not disclose this report to

the Names it solicited in the United States. (R5-108-30-33

73). The Lipcons were unaware of the report. (R5-108-33 {

74).

(2) Asbestos liability. In the late 1970's,

Lloyd’s became aware. of the potential flood of asbestos liti-

gation. It had underwritten a substantial portion of the risks

in the United States market in the 1950's. By the mid-1960's

and 1970's, Lloyd’s became aware of the link between inha-

lation of asbestos and diseases in asbestos workers. (R5-108-

33-34 44 75, 76). Around 1980, Lloyd’s established an As-

bestos Working Party to deal with these claims. It discov-

ered the claims would be huge. But it decided to cover up

the scope of the exposure. (R5-108-35, 36, 37-38 44 81-84,

87). As a result, Names ended up unknowingly reinsuring

asbestos liability. (R5-108-38 { 88).

In 1995, the House of Commons Treasury and Civil

Service Committee found this nondisclosure improper.

An efficient regulator, even if it did not have

detailed knowledge of the scale of the losses

arising from this source, should have warned

potential investors in Lloyd’s of the existence

of specific risks. This did not happen and

some Names ended up paying for losses, the

existence of which, if not the scale was appar-

ent to some participants in the Market, who

managed their affairs, before the Names

joined.

Significantly the conclusions of the Working

Party were not revealed to external Names . .

. . the lack of knowledge over the scale of

long-tail losses does not absolve an efficient

regulator from imsuring the disclosure of the

existence of such risks and evidence suggests

that such disclosure did not fully occur.

(RS-108-38-40 { 89-90)(emphasis deleted).

Worse yet, some Names, including the Lipcons, spe-

cifically told their agents they did not want to underwrite

asbestos liability. The agents told these Names they would

not be in such syndicates; that was not true. Those Names

were unknowingly included in underwriting asbestos liabil-

ity. (R5-108-40 { 91-92; R1-1 Ex. B Aff. of Charles Lipcon

q 5, 18; Aff. of Mitchell Lipcon { 6, 18).

(3) Lioncover. In the early 1980's, a

Lloyd’s managing agent was involved in a fraud that resulted

in massive losses to certain syndicates. Lloyd’s created

Lioncover Insurance Company, Ltd. to settle the dispute with

the Names in these syndicates and to reinsure the outstanding

liabilities. Lloyd’s actively failed to disclose to Names mate-

_Tial information about this fraud and the unquantifiable liabil-

ity claims placed in Lioncover. The practical effect of the

manner in which Lloyd’s set up Lioncover was that Names

became jointly liable for the liabilities reinsured through

Lioncover, though Lloyd’s had always represented that its

members’ liability would be several only. (R5-108-40-43 ¢{

93-99; R5-119-2 5).

(4) |LMxX spiral. Lioyd’s developed this

new investment product in the mid-1980's; it was simply re-

insurance of re-insurance. No single managing agent could

know what risk a particular syndicate assumed. It virtually

guaranteed that all Names would participate in asbestos risks.

And, by passing claims through successive syndicates multi-

ple times, Names would be obligated to pay the claims multi-

ple times. Lloyd’s cannot verify the amounts requested to

pay such claims and has failed to provide material informa-

tion to Names so they can determine the nature and extent of

their liabilities. (R5-108-43-44 {{ 100-05).

(5) Lioyd’s American Trust Fund.

Lloyd’s has to hold certain premium income in trust so that it

can underwrite insurance risks in the United States. The

Deed of Trust required Lloyd’s to account individually for

the funds. It has not; the funds of all Names are commin-

gled. Where funds were unavailable to meet the obligations

of some individual Names, Lloyd’s "borrowed" funds held in

trust for other Names. The Deed of Trust did not permit

such borrowing. The commingling and borrowing were

breaches of fiduciary duty. As a result, Names have been

saddled with joint liability for other Names’ losses. (RS5- -

108-44-46 ¢¢ 106-11).

Many Names were placed in SYA’s that had long-

standing asbestos exposure buried in layers of reinsurance.

The Names are trapped in potentially unlimited liability,

even if they resign their membership in Lloyd’s and even if

they die. (R5-108-17-18, 46-49 {4 40, 41, 112-17).

At the meetings the Lipcons had with the agent before

they became Names, Charles Lipcon specifically asked Sam

Barder and Derek Wills about potential problems with asbes-

tos claims. Barder and Wills told him there were no prob-

lems because the limits of the policies that covered asbestos

were exhausted and the effect on Lioyd’s of any unpaid

claims would be insignificant. Agents repeated the same

information over the ensuing years. (R1l-1 Ex. B Aff. of

Charles Lipcon ¢ 5, 18; Aff. of Mitchell Lipcon { 6, 18).

Lloyd’s repeatedly represented to the Lipcons that it

operated under a standard of "utmost good faith." This was

not true. (R5-108-9 n.2). Lioyd’s knew it had massive un-

reported losses for asbestos and pollution claims. It hid

those losses. It successfully lobbied to change English law to

exempt Lloyd’s from the Financial Services Act, a law which

regulates business standards and conduct and requires disclo-

sures similar to United States securities laws. Before the

massive asbestos and pollution claims were declared, insiders

at Lloyd’s were able te get out of the syndicates and put new

investors on the risks by reinsuring them from the years in

which the insiders had participated to the new years in which

the new investors would participate. (R5-108-4-6).

D. Fraud and overreaching in the choice claus-

es. In 1986, Lloyd’s drafted a revised General Undertaking,

a one and a half page document The only matters of sub-

stance in this document were the choice clauses. The first

half page contained recitations about the parties and the con-

sideration. The first paragraph of the agreement stated that

the member would comply with all relevant English legisla-

tion. The second paragraph stated that the parties’ rights and

obligations would be governed by the laws of England. The

third paragraph was a choice of law clause.

The rights and obligations of the parties aris-

ing out of or relating to the Member’s mem-

bership of, and/or underwriting of insurance

business at, Lloyd’s and any other matter re-

ferred to in this Undertaking shall be gov-

erned by and construed in accordance with the

laws of England.

(R5-119 Ex. C). The fourth paragraph stated that the choice

of law and jurisdiction clauses continue in full force even if a

Member stopped underwriting. (Id.).

These clauses were not in the agreements the Lipcons

originally signed in 1983 and 1984. (R5-119 49). The orig-

inal agreements only provided for arbitration in London.

And those arbitration clauses did not apply to disputes

against Lloyd’s itself. (R5-119 | 9 & Ex. A).

All Names, regardless of when they became mem-

bers, had to execute the revised General Undertaking, and a

new Premiums Trust Deed, as a condition of their continued

membership. They could not negotiate any of its terms.

Lloyd’s specifically threatened Mitchell Lipcon and Irmgard

Lipcon that they could not continue as investors in Lloyd’s if

they did not sign these clauses. (R5-108-6-7). See also (R5-

108-22 ¢ 53).” The Lipcons had already invested much

time, money and effort into becoming Names. They did not

want that to be wasted. (Id.). See generally (R1-20-4). A

Name could not simply withdraw entirely from Lloyd’s.

Lloyd’s would retain all funds paid, including letters of cred-

it established, until the withdrawing Names paid all their

accounts and substantial "winding up fees." (R5-108-17-18,

22 44 41, 54). The Lipcons executed the revised General

Undertaking in 1986. (R5-119 { 9).

5 Lioyd’s also fraudulently told the Lipcons the purpose of the

documents was “to bring the agreements into line with . . .the new

Lloyd’s legislation” and some of the new provisions were "mainly of a

technical nature" which would “not affect them greatly on a day to day

basis." (R5-103-3-4 { 4). The provisions were far from “technical.” The

choice clauses deprived the investors of all their rights under United

States laws. It gave the investors no rights under English law either.

And the only new law on the books was the Financial Service Act, from

which Lloyd’s was exempted. (R2-51). The Act did not refer to choice of

law clauses. The clauses were not necessary to “bring the agreements

into line" with any new legislation.

The State of Colorado issued a temporary injunction

against Lloyd’s to prevent it from calling letters of credit.”

(Ri-1 Ex. B Aff. of Charles Lipcon 4 16A & Ex. 5)(tran-

script of Colorado injunction order). Similar restraining or-

ders were issued in Ohio, Arizona, Illinois, California, Mis-

souri, West Virginia and Pennsylvania. See (R1-1 Ex. B

Aff. of Charies Lipcon q 16A, B; Aff. of Irmgard Lipcon {

5A; Aff. of Mitchell Lipcon q 8).

Interestingly, Lloyd’s presently operates as if it is

subject to United States securities laws. (R5-121)(e.g.,

"[tJhose promoting schemes must provide . . . a legal opin-

ion covering compliance with relevant federal and state secu-

rities laws").

E. The spouses. Charles Lipcon, Name

Irmgard’s husband, and Barbara Lipcon, Name Mitchell's

wife, signed several documents including notes and mort-

gages on their homes to secure letters of credit in favor of

Lioyd’s that were necessary for their respective spouses to

join in 1983. (R5-108-7 ¢ 5). The Names’ spouses did so

because Lloyd’s provided them with the same false and mis-

leading information it provided to the Names. Lloyd’s in-

cluded all spouses in all informational conferences and dis-

cussions of the investment program to promote the spouses’

financial support.

The spouses did not sign the original General Under-

. This injunction was based on findings that Lioyd’s violated

Colorado's securities acts, patterned after the federal acts, both by selling

unregistered securities and by fraud and misrepresentation in the sale of

securities. (Rl-1 Ex. B Ex. 5 at 12-13, 14-15). The Colorado court's

fraud findings mirror the fraud allegations of the complaint in this case.

taking. More importantly, they did not sign the subsequent

revised General Undertaking, or any other document, that re-

quired them to litigate in England or under English law.

(R5-108-8 ¢ 7).

F. Relief sought. The Lipcons sued Lloyd’s for

claims under the Securities Act of 1933, §§ 5, 12(1) & 15,

15 U.S.C. §§ 77e, 771 & 770, the Securities Exchange Act

of 1934, § 10(b) & 20, 15 U.S.C. § 78j & 78t; 18 U.S.C. §§

1961-1968 (the Racketeer Influenced and corrupt Organiza-

tions Act) and various provisions of Florida law.

Lioyd’s moved to dismiss the second amended com-

plaint on the ground that any claims had to be brought in

English courts under English law. (R5-117). The district

court dismissed the action. The Eleventh Circuit found the

issue raised to be an "important question" and "a close ques-

tion.” It closely examined the arguments presented in the

SEC’s amicus brief. But the Eleventh Circuit affirmed. 148

F.3d at 1287. The Lipcons timely filed this proceeding.

REASONS FOR GRANTING THE WRIT

I, THIS COURT SHOULD TAKE

JURISDICTION AND

DETERMINE THAT THE ANTI-

WAIVER PROVISIONS OF THE

UNITED STATES SECURITIES

LAWS PRECLUDE

ENFORCEMENT OF CERTAIN

CHOICE-OF-LAW CLAUSES IN

INTERNATIONAL

AGREEMENTS.

Investors can agree to have their disputes arbitrated.

They can agree to do so in foreign countries. And investors

can agree to have their disputes decided in foreign courts.

But this Court has never found it appropriate for parties to

waive their substantive rights under the United States securi-

ties laws through a choice of foreign law, as opposed to just

a choice of forum. This is not simply a question of judicial

determination of public policy. Nor is it a question of bal-

ancing the scope of the remedy in England against the scope

of the remedy in the United States. Congress has made the

choice; the plain language of the anti-waiver provisions pro-

hibits such a result. The Securities and Exchange Commis-

sion has filed amici curiae briefs in the last three cases which

challenged the Lloyd’s choice clauses. See A-46. In each

case, the SEC agreed the antiwaiver provisions vo'1 these

clauses. This Court should affirm the SEC’s interpretation.

A, This Court has left this issue open on

several previous occasions, but has

repeatedly indicated that it would in-

validate a choice of foreign law in

lieu of United States securities laws.

In Mitsubishi Motors Corp. v. Soler Chrysler-Plym-

outh, Inc., 473 U.S. 614 (1985) and Scherk v. Alberto-

Culver Co., 417 U.S. 506 (1974), this Court ruled on the

validity of choice of forum clauses that selected arbitration in

foreign countries. In each case, this Court noted that it was

not deciding the validity of a choice of law clause. - It indi-

cated that the validity of a choice of law clause would be

subject to a substantially different analysis; an agreement to

arbitrate would not waive substantive rights. 473 U.S. at

627. See also Rodriguez de Quijas v. Shearson/American

Express, Inc., 490 U.S. 477, 481 (1989); Shearson/American

Express Inc. v. McMahon, 482 U.S. 220 (1987). The

Mitsubishi Motors Court found that courts may not compel

arbitration if the plaintiff could not "effectively vindicate its

statutory cause of action in the [foreign] arbitral forum."

473 U.S. at 637. The Court stressed the fact that the arbitra-

tors would consider the plaintiff's United States antitrust

claims. Jd. at 637 n.19.

This case presents the question this Court did not ex-

plicitly decide in Mitsubishi or Scherk: Does a clause which

selects the law of another country to govern an agreement

violate the anti-waiver provisions of the Securities and Ex-

change Acts? This Court should take jurisdiction here to

resolve this open question.

Scherk ruled only on the issue of whether an arbitra-

tion clause violated the anti-waiver provisions of the Securi-

ties Exchange Act of 1934. It held that the Arbitration Act

overrode any contrary provision of the earlier Securities Ex-

change Act. It enforced the arbitration clause because that

choice was appropriate in the international transaction at is-

sue; that choice was did not a choice of law. The Court

noted several times that choice of law was not an issue.

The dissenting opinion raises the specter that

our holding today will leave American inves-

tors at the mercy of multinational corporations

with "vast operations around the world... ."

Our decision, of course, has no bearing on the

scope of the substantive provisions of the fed-

eral securities laws for the simple reason that

the question is not presented in this case.

417 U.S. at 518, n.12. See also id. at 519, n.13.

This Court continued its move in favor of arbitration

in Mitsubishi Motors. But it noted:

By agreeing to arbitrate a statutory claim, a

party does not forgo the substantive rights

afforded by the statute; it only submits to their

resolution in an arbitral, rather than a judicial,

forum.

473 U.S. at 627. It held that a United States court may not

compel arbitration if the plaintiff could not "effectively vindi-

Cate its statutory cause of action in the [foreign] arbitral fo-

rum." Jd. at 637. The Court stressed the fact that the arbi-

trators would consider the plaintiff's United States antitrust

claims. Jd. n.19.

Two more decisions followed which also emphasized

this distinction between the choice of forum and the substan-

tive law and emphasized the preeminence of the Arbitration

Act. Rodriguez de Quijas v. Shearson/American Express,

Inc., 490 U.S. 477 (1989); McMahon, 482 U.S. 220. There

is no doubt from the language of these decisions that the

Court based its conclusion on "[tjhe shift in the Court’s

views on arbitration. . . ." Rodriguez de Quijas, 490 U.S.

at 481. "By agreeing to arbitrate a statutory claim, a party

does not forgo the substantive rights afforded by the statute.

..." Id. (quoting Mitsubishi Motors, 473 U.S. at 628).

Our conclusion is reinforced by our assess-

ment that resort to the arbitration process does

not inherently undermine any of the substan-

tive rights afforded to petitioners under the

Securities Act.

Rodriguez de Quijas, 490 U.S. at 485-86. See also

McMahon, 482 U.S. at 226, 229-30 ("The Arbitration Act

thus establishes a "federal policy favoring arbitration," re-

quiring that "we rigorously enforce agreements to arbitrate" ;

the choice clause does not "weaken [the] ability [of investors]

to recover under the [securities laws]" nor deprive investors

of an "adequate means of enforcing [those]

provisions")(citations omitted).

In short, this Court on several occasions has noted the

question raised in this case and has indicated that an agree-

ment to apply foreign law in a foreign forum will not be

given effect if it eliminates plaintiffs’ rights under United

States law. This is particularly true where Congress has ex-

pressly forbidden the waiver of rights under a particular Uni-

ted States law, as in this case.

B. The circuit court decisions on the

meaning of the anti-waiver provision

in the context of the Lloyd’s litigation

are contrary to decisions of other

* It is interesting to note, as did the McMakun Court, that

[W]Jhere, as in this case, the prescribed procedures are

subject to the [SEC]’s § 19 authority, an arbitration

agreement does not effect a waiver of the protections of

the Act.

482 U.S. at 234. See also id. at 238 ("In this case, where the SEC has

sufficient statutory authority to ensure that arbitration is adequate to

vindicate Exchange Act rights, enforcement does not effect a waiver of

‘compliance with any provision’ of the Exchange Act under § 29(a)").

The SEC took a far different position as to Lloyd’s conduct here.

courts on the same question in other

- contexts and contrary to this Court’s

opinions on the validity of choice of

law clauses under _ such

circumstances.

A choice of law clause is presumptively valid unless

the clause is unreasonable under the circumstances. Such a

clause may be unreasonable where (1) the clause was incor-

porated in the agreement through fraud or overreaching; (2)

"trial in the contractual forum will be so gravely difficult and

inconvenient that [the plaintiff] will for all practical purposes

be deprived of his day in court;" (3) the fundamental unfair-

ness of the chosen law will deprive the plaintiff of a remedy;

or (4) enforcement would contravene a strong public policy

of the forum in which suit is brought, "whether declared by

Statute or by judicial decision." The Bremen v. Zapata Off-

Shore Co., 407 U.S. 1, 15, 16-17 (1972).

The fourth ground for unreasonableness is at issue

here. Eight circuits have ruled on the enforceability of the

specific clauses at issue here. A panel of the Ninth Circuit

found the clauses violated the anti-waiver provisions of the

Acts. Richards v. Lloyd’s of London, 107 F.3d 1422 (9th

Cir. 1997). However, the en banc court reversed that panel.

Richards v. Lloyd’s of London, 135 F.3d 1289 (9th Cir.

1998)(en banc). It followed the Second, Fourth, Fifth,

Sixth, Seventh and Tenth Circuits and enforced the clauses.

Roby v. Corporation of Lloyd’s, 996 F.2d 1353 (2d Cir.

1993); Allen v. Lloyd’s of London, 94 F.3d 923 (4th Cir.

1996); Haynesworth v. The Corporation, 121 F.3d 956 (Sth

Cir. 1997); Shell v. R.W. Sturge, Ltd., 55 F.3d 1227 (6th

Cir. 1995); Bonny v. Society of Lloyd’s, 3 F.3d-156 (7th Cir.

1993); Riley v. Kingsley Underwriting Agencies, Ltd., 969

F.2d 953, 958 (10th Cir. 1992). The Eleventh Circuit then

reached the same result here. Lipcon v. Underwriters at

Lloyd's, 148 F.3d 1285.

However, the numbers do not give a total picture. As

the Eleventh Circuit noted in this case, "the reasoning of

those courts has not been uniform." 148 F.3d at 1290. In

fact, only four circuits specifically analyzed the issue of

whether the anti-waiver provisions preclude enforcement of

the choice clauses.“ Of those circuits to address the issue,

three expressed serious concerns about violations of United

States public policy. The Eleventh Circuit is the latest of

those courts. The Eleventh Circuit commenced its analysis

by agreeing with the Lipcons’ position.

[A]ppellants’ argument finds strong support in

the plain language of the anti-waiver provi-

sions, which facially admit of no exceptions, .

148 F.3d at 1292. But the court concluded that precedent

and policy considerations in the international arena overrode

the plain language of the statute. Jd.

by The Tenth Circuit in Riley was the first circuit to address a

challenge to the clauses. But it addressed a different legal issue; the

Name there conceded that “the enforcement of choice of forum and

choice of law clauses is consistent with recent U.S. Supreme Court

decisions." 969 F.2d at 956-57. Allen is also of little assistance since it

was a suit brought by Names who claimed Lloyd’s failed to disclose

financial information in connection with a 1995 settlement offer. The

court did not rule on the effect of the anti-waiver statutes. 94 F.3d at

930. Shell likewise is irrelevant because suit was brought only under

Ohio law which has no anti-waiver provision.

The Second Circuit, the first circuit to actually ana-

lyze the question, began its decision with a similar view:

"We believe that there is a serious question whether United

States public policy has been subverted by the Lloyd’s claus-

es." Roby, 996 F.2d at 1363. It then stated:

We are concerned in the present case that the

Roby Names’ contract clauses may operate

"in tandem” as a prospective waiver of the

statutory remedies for securities violations,

thereby circumventing the strong and expan-

sive public policy in deterring such violations.

.. . [W]e do not believe that a United States

court can in good conscience enforce clauses

that subvert a strong national policy, particu-

larly one that for over fifty years has served

as the foundation for the United States finan-

cial markets and business community. . . .

We believe that if the Roby Names were able

to show that available remedies in England are

insufficient to deter British issuers from ex-

ploiting American investors through fraud,

misrepresentation or inadequate disclosure,

we would not hesitate to condemn the choice

of law, forum selection and arbitration claus-

es as against public policy.

Roby, 996 F.2d at 1364-65 (citing Mitsubishi, 473 U.S. at

636 n.19).” See also id. at 1364 n.3 (noting Scherk, 417

ad Roby upheld the clauses in part because the SEC had never

challenged Lloyd’s practices and had not claimed Lloyd’s was subject to

its jurisdiction. Subsequently, the SEC took the position that the clauses

(continued...)

U.S. 506 not contrary because "[nJowhere in the opinion is it

suggested that a choice of law clause invariably trumps the

public policies underlying the securities laws").

The Seventh Circuit expressed the same concerns:

[W]e have serious concerns that Lloyd’s

Clauses operate as a prospective waiver of

statutory remedies for securities violations.

By including the anti-waiver provisions in the

securities laws, Congress made clear that the

public policy of these laws should not be

thwarted... .

Bonny, 3 F.3d at 160-61.

Here, there is a statute which states in plain, straight-

forward language that amy document which waives compli-

ance with the United States securities laws is void. That lan-

guage provides a clear statement of Congressional policy that

must be enforced as written. Stewart Organization, Inc. v.

Ricoh Corp., 487 U.S. 22, 27, 28 (1988)(public policy anal-

ysis not controlling when Congress expressed its will in a

statute that addresses the issue before the Court; once Con-

gress has spoken, "that is the end of the matter"). See also

Note, No Way Out: An Argument Against Permitting Parties

to Opt Out of U.S. Securities Law In International Transac-

tions, 97 Colum.L.Rev. 57, 74-78 (1997).

Despite the admittedly plain language of the anti-

waiver provisions, the Eleventh Circuit and the circuits that

7 (...continued)

violate the anti-waiver provisions.

ruled before it all concluded that other policy considerations

in the international context outweighed the anti-waiver provi-

sions. See Lipcon, 148 F.3d at 1293 (finding this Court has

treated domestic and international transactions differently).

This conclusion is simply contrary to those decisions that

interpret the anti-waiver provisions in a domestic context.

But there is no basis for distinguishing between domestic and

international transactions.

United States courts have consistently refused to en-

force any kind of domestic agreement that waives unripened

securities claims. E.g., Kusner v. First Pennsylvania Corp..,

531 F.2d 1234, 1239 (3d Cir. 1976)(indenture provision that

barred certain suits could not bar action under § 10(b));

Rogen v. Illikon Corp., 361 F.2d 260 (ist Cir. 1966);

McMahan & Co. v. Wherehouse Entertainment, Inc., 859

F.Supp. 743 (S.D.N.Y. 1994)("no action” clause in securi-

ties is no defense to federal securities claims), aff'd in part,

rev'd in part on other grounds, 65 F.3d 1044 (2d Cir. 1995);

Synalloy Corp. v. Gray, 816 F.Supp. 963 (D.Del.

1993)(corporation could not waive right to recover under §

16(b), even if it berefitted from illegal conduct); Special

Transportation Serv., Inc. v. Balto, 325 F.Supp. 1185 (D.

Minn. 1971)(contractual provision limiting buyer’s remedies

for misstatements by seller of securities unenforceable);

Jadoff v. Gleason, 140 F.R.D. 330, 333-34 (M.D.N.C.

1991); Special Transp. Serv., Inc. v. Balto, 325 F.Supp.

1185, 1186 (D.Minn. 1971)(all invalidating non-reliance and

integration clauses which would preclude relief based on oral

misrepresentations). See also Hayden v. McDonald, 742

F.2d 423, 430 (8th Cir. 1984)(no waiver under Minnesota

Statute identical to federal anti-waiver statutes, though some

plaintiffs were attorneys familiar with securities laws and

others were represented by attorneys who specialized in se-

curities). The reasoning is simple: if the clause waives the

claim, it is invalid.

The anti-waiver provisions occupy a special position;

Congress has attached more importance to waiver of the Se-

curities Acts than to some constitutionally guaranteed rights.

We recognize, of course, that ordinarily one

may waive constitutionally guaranteed rights

if it is intentionally and voluntarily done.

As to the sale of unregistered securities, how-

ever, Congress has specifically placed waivers

in a different context.

Meyers v. C & M Petroleum Producers, Inc. , 476 F.2d 427,

429 (Sth Cir. 1973)(citations omitted). See also McMahon,

482 U.S. at 230 ("[iJf a stipulation waives compliance with a

statutory duty, it is void under [the anti-waiver provisions]

whether voluntary or not").

This straightforward analysis of the anti-waiver provi-

sions to render a particular clause unenforceable should ap-

ply to the enforceability of the choice of law clause in this

case. This analysis is not novel. This Court has applied the

same kind of analysis each time a party has cha’ienged a fo-

rum selection clause as violative of a United States statute.

In Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585

(1991), the plaintiffs challenged a forum selection clause

contained in a cruise ship ticket. They claimed the clause

violated 46 U.S.C. § 183c which prohibits clauses that limit

liability or "lessen, weaken, or avoid" a ciaimant’s right to

trial by a court of competent jurisdiction. The plaintiffs ar-

gued that the selection of Florida as the forum for a suit by

Washington State residents "lessenfed], weakenfed], or

avoic[ed]" their right to trial. In addressing the issue, this

Court looked at the plain language of the statute and deter-

mined that the clause simply required an action to be brought

in Florida, which is plainly a court of competent jurisdiction.

499 U.S. at 596. The Court also reviewed the statute’s legis-

lative history and determined that it was intended to preclude

passenger ticket conditions that tried to limited liability for

negligence, or remove cases to arbitration instead of courts.

The Court held that the forum selection clause did not violate

the plain language of the statute.

In Vimar Seguros y Reaseguros, S.A. v. M/V Sky

Reefer, 515 U.S. 528 (1995), the Court ruled that a foreign

arbitration clause in a bill of lading was valid under the Car-

riage of Goods by Sea Act (COGSA). COGSA contains a

provision similar to the anti-waiver provisions at issue here.

46 U.S.C. § 1303(8). The plaintiffs argued that enforcement

of a foreign arbitration clause lessened COGSA liability be-

Cause it increased the transaction costs of obtaining relief.

This Court rejected that argument. It distinguished between

“explicit statutory guarantees and the procedure for enforcing

them, between applicable liability principles and the forum in

which they are to be vindicated." 515 U.S. at 533. It con-

cluded that there was no problem in allowing foreign arbitra-

tors to decide the case because that choice was simply one of

forum, not substance.

Vimar Seguros also noted the issue of whether the

application of law other than COGSA would reduce liability

below that guaranteed by COGSA. 515 U.S. at 540.

"Whatever the merits of petitioner’s comparative reading of

COGSA and its Japanese counterpart, its claim is premature"

because the arbitrators had not yet decided which law they

would apply. The district court had retained jurisdiction

over the case and could rule on such matters at the enforce-

ment stage. Jd. But this Court indicated the conclusion it

would reach if the arbitrators applied Japanese law and that

law in fact lessened the COGSA liability:

Were there no subsequent opportunities for

review and were we persuaded that "the

choice-of-forum and choice-of-law clauses

operated in tandem as a prospective waiver of

a party’s right to pursue statutory remedies . .

. , we would have little hesitation in condemn-

ing the agreement as against public policy."

Id.(quoting Mitsubishi Motors, 473 U.S. at 637, n.19 and

citing Knott v. Botany Mills, 179 U.S. 69 (1900)(nullifying

choice-of-law clause under Harter Act, statutory precursor to

COGSA, where British law would enforce clause in bill of

lading that exempted carrier from liability for damage to

goods caused by its negligent loading and stowage).

Here, on the other hand, the choice-of-law clause

plainly runs afoul of the anti-waiver provisions. The choice

clause does not simply select a forum; it selects the law to be

applied in that forum. The anti-waiver statutes allow for no

exceptions. They prohibit waiver of "any provision of this

title or of the rules and regulations of the Commission."

This does not mean waiver is acceptable if the defendant

gives alternative remedies. It invalidates any waiver. The

choice clauses select English law; they eliminate any claims

under United States securities laws. Under the rationale of

Vimar Seguros, Mitsubishi and Shute, the clauses are invalid.

The legislative history of the anti-waiver provisions

further supports this conclusion. As the panel in Richards

noted:

Congress was not ignorant of the potential

international character of securities transac-

tions. Congress specifically modified the

1933 Act to cover transactions in foreign

commerce. S. Rep. No. 47, 73d Cong., Ist

Sess. (1933) (accompanying S. 875). A court

should not apply the reasonableness test or say

whether the clauses offended any policy of the

United States when Congress has expressly

made that determination.

107 F.3d at 1429.

In sum, this Court should grant this petition to answer

the question it has repeatedly left open. This Court should

determine that the plain language of the anti-waiver provi-

sions of the United States securities laws means what it says

and prohibits waiver of our laws in both domestic and inter-

national transactions.

ll THE ELEVENTH CIRCUIT

MISCONSTRUED FIRST OPTIONS

OF CHICAGO, INC. V. KAPLAN,

514 U.S. 938 (1995) WHEN IT

HELD THAT NON-SIGNATORIES

TO THE AGREEMENT WERE

BOUND.

The Eleventh Circuit held that the Names’ spouses

are bound by the choice-of-law clause, even though many

spouses, including the Lipcons, co-signed letters of credit

and notes years before Lloyd’s prevailed on the Names to

sign the choice clause. A party is only bound by the contract

clauses he or she signs, directly or through an agent. The

spouses did not sign any such clauses. They are entitled to

litigate in United States courts under United States law.

This Court recently held that parties are bound only

by contract clauses to which they agree, in documents they

sign. First Options of Chicago, Inc. v. Kaplan, 514 U.S.

938 (1995)(aff'g 19 F.3d 1503 (3d Cir. 1994)). See also

Dayhoff, Inc. v. H.J. Heinz Co., 86 F.3d 1287, 1294 (3d

Cir. 1996)("The Kaplans were not obligated to arbitrate be-

cause they had not agreed to do so").

In Kaplan, one of the individual defendants was the

president, director and sole shareholder of the defendant cor-

poration. He had signed a contract with an arbitration

Clause, solely on behalf of the corporation. The court did

not require the individual to arbitrate the claims against him

because he had not signed the agreement individually, even

though he had individually signed relatéd agreements. The

Third Circuit based this conclusion on a simple contract prin-

ciple, which this Court later approved:

Arbitration is fundamentally a creature of con-

tract .. . ‘arbitrators derive their authority to

resolve disputes only because the parties have

agreed in advance to submit such grievances

to arbitration.’

Kaplan, 19 F.3d at 1512, approved 514 U.S. 938.

The Third Circuit reached the same conclusion in

Dayhoff as to both an arbitration clause and a forum selection

clause: the clauses "can be enforced only by the signatories

to those agreements." 86 F.3d at 1296.

Other courts have applied the same principles and

concluded that non-signatories to contracts are not bound by

arbitration clauses in the contracts. Morewitz v. The West of

England Ship Owners Mutual Protection and Indemnity

Ass'n, 62 F.3d 1356, 1365 (11th Cir. 1995)(arbitration not

required unless parties actually agreed to it; arbitration

clause could not affect third party beneficiaries who claimed

under insurance policy where they did not sign insuring

agreement which was only between vessel and insurer);

Packer v. TDI Sys., Inc., 959 F.Supp. 192, 198 (S.D.N.Y.

1997)(where letter agreement did not state that terms of note

were incorporated by reference, forum selection clause in

note was not incorporated in letter agreement and party to

note who was not party to letter agreement was not bound by

clause); In re Interactive Video Resources, Inc., 170 B.R.

716 (S.D.Fla. 1994)(surety not signatory to underlying

agreement not bound by arbitration clause in that agreement).

Other courts have reached similar results in determin-

ing whether spouses can be required to arbitrate pursuant to

clauses in contracts the spouses did not sign. E.g.,

Swensens’ Ice Cream Co. v. Corsair Corp., 942 F.2d 1307,

1310 (8th Cir. 1991)(wife not compelled to arbitrate any dis-

pute that arose out of franchise agreements she did not sign;

her execution of guarantee for third franchise location did not

bind her to earlier agreements).

Here, the spouses did not sign either the original

General Undertaking or the revised General Undertaking.

They did not sign anything at all, much less anything that

contained a choice clause. The spouses should not be bound

by the choice-of-law clause in the revised General Undertak-

ing.

Despite this Court’s plain holding in First Options,

the Eleventh Circuit applied a broader view. It held:

"In order to bind a non-party to a forum selec-

tion clause, the party must be ‘closely related’

to the dispute such that it becomes ‘foresee-

able’ that it will be bound.”

148 F.3d at 1299 (quoting Hugel v. Corporation of Lloyd’s,

999 F.2d 206, 209 (7th Cir. 1993)(quoting Manetti-Farrow,

Inc. v. Gucci Am., Inc., 858 F.2d 509, 514 n.5 (9th Cir.

1988)). Hugel and Manetti-Farrow predate First Options.

The holding quoted above could not survive this Court’s

holding in First Options that the president, director and sole

shareholder of the corporation was not bound individually by

an agreement he signed only in his corporate capacity.

As can be seen from the cited cases, there are deci-

sions which enforce arbitration clauses and the like against

non-signatories because they are "closely related" to the dis-

pute. And there are decisions which apply a literal view and

enforce such clauses only against the person or entity who

actually signed the contract that contained the clause. This

Court apparently resolved the issue in First Options. But the

Eleventh Circuit ignored this Court’s decision. This Court

should take jurisdiction and resolve this conflict.

CONCLUSION

For the foregoing reasons, Petitioners Irmgard

Lipcon, Charles R. Lipcon, Mitchell Lipcon and Barbara

Lipcon respectfully request this Court to grant a Writ of Cer-

tiorari to review the judgment of the Eleverth Circuit.

Respectfully suomiutted,

SHARON L. WOLFE

Counsel of Record

COOPER & WOLFE, P.A.

200 S. Biscayne Bivd., #3580

Miami, Florida 33131-2316

Telephone: (305) 371-1597

CHARLES R. LIPCON

2480 One Biscayne Tower

Two S. Biscayne Blvd.

Miami, Florida 33131

Telephone: (305) 373-3016

Counsel for Respondent

APPENDIX

Irmgard LIPCON; Mitchell Lipcon; Charles R.

Lipcon; Barbara Lipcon,

Plaintiffs-Appellants,

: v.

UNDERWRITERS AT LLOYD'S, LONDON, a.k.a.

Corporation of Lloyd's, a.k.a. Society

of Lloyd's, a.k.a. Lloyd's of London, Defendants-

Appellees.

No. 97-5144,

United States Court of Appeals,

Eleventh Circuit.

Aug. 5, 1998.

Before HATCHETT, Chief Judge, BLACK, Circuit Judge,

and KRAVITCH, Senior Circuit Judge.

KRAVITCH, Senior Circuit Judge:

In this appeal, we are confronted with the important

question of whether the anti-waiver provisions of the United

States securities laws preclude enforcement of certain choice-

of-law and forum-selection clauses ("choice clauses") in

international agreements. Although we recognize that it is a

close question, we follow the weight of circuit authority and

conclude that the choice clauses are enforceable despite the

anti-waiver provisions. In addition, we conclude that the

agreements in this case satisfy scrutiny for fundamental

fairness and do not contravene public policy. Finally, we

conclude that Irmgard, Mitchell, Charles, and Barbara

Lipcon (collectively, "appellants" or "the Lipcons") all are

bound by their agreement with Underwriters at Lloyd's

A-1

London ("Lloyd's"). Accordingly, we affirm the district

court's decision to dismiss the Lipcons' complaint against

Lloyd's.

Lloyd's is a large insurance market in which more

than three hundred Underwriting Agencies compete for

underwriting business. Pursuant to the British Lloyd's Acts

of 1871 and 1982, Lloyd's oversees and regulates the

competition for underwriting business in the insurance

market; according to the amicus curiae brief of the British

Government, Lloyd's "has statutory powers granted by

Parliament to regulate the affairs of the international

insurance market in London...."' Lloyd's itself, however,

does not accept premiums or insure risks. Instead,

Underwriting Agencies, which act as syndicates, compete for

the insurance business. Each Underwriting Agency is

controlled by a Managing Agent, who is responsible for the

financial status of its agency. The Managing Agent must

attract not only underwriting business from brokers but also

the capital with which to insure the risks that are

underwritten.

Managing Agents recruit "Names" to provide the

underwriting capital. A Name becomes a Member of the

| Society of Lloyd's through a series of agreements, proof of

| financial means, and the deposit of an irrevocable letter of

| credit in favor of Lloyd's. By becoming a Member, a Name

| obtains the right to participate in the Lloyd's Underwriting

Agencies. The Names, however, do not deal directly with

| Lloyd's or with the Managing Agents. Instead, the Names

' British Government Br. Amicus Curiae at 3.

A-2

are represented by Members’ Agents, who, pursuant to

agreement, act as fiduciaries for the Names. Upon becoming

a Name, an individual selects the underwriting agencies in

which he wishes to participate. The Names generally join

more than one underwriting agency in order to spread their

risks across different types of insurance. In large part

because of the experience of the Members’ Agents, Names

generally rely on the advice of their Members’ Agents in

deciding in which syndicates to invest. Selecting well is of

the utmost financial importance because a Name is

responsible for his share of an agency's losses.

In addition to providing the indicia of financial

security mentioned above, to become a Name one must

travel to England to acknowledge the attendant risks of

participating in a syndicate by signing a standard-form

"General Undertaking." The General Undertaking is a two-

page document containing the choice-of-forum and choice-of-

law clauses (collectively the "choice clauses"), which form

the basis for this dispute. The choice clauses provide:

The rights and obligations of the parties

arising out of or relating to the Member's

membership of, and/or underwriting of

insurance business at, Lloyd's and any other

matter referred to in this Undertaking shall be

governed by and construed in accordance with

the laws of England.

Each party hereto irrevocably agrees that the

courts of England shall have exclusive

jurisdiction to settle any dispute and/or

controversy of whatsoever nature arising out

of or relating to the Member's membership

A-3

of, and/or underwriting of insurance business

at, Lloyd's and that accordingly any suit,

action or proceeding ... arising out of or

relating to such matters shall be brought in

such courts... ?

Irmgard and Mitchell Lipcon are Names who entered

into underwriting agreements, and Charles and Barbara

Lipcon, who signed letters of credit to provide collateral for

the Names, are their spouses. Irmgard and Mitchell first

became Names in 1983 and 1984, respectively, and in 1986

signed a revised General Undertaking that contains the

choice clauses set out above.

After it became clear that the Names would be

responsible for massive losses for asbestos and pollution

claims, appellants brought suit in United States District

Court for the Southern District of Florida alleging that: (1)

Lloyd's actively sought investors from the United States to

fill an urgent need to build up capital; (2) concealed

information regarding the possible consequences of the risks

undertaken; and (3) deliberately and disproportionately

exposed the Names to massive liabilities for which sufficient

underwriting capital or reinsurance was not available. The

Lipcons stated claims under the Securities Act of 1933, §§ 5,

12(1), & 15, 18 U.S.C. §§ 77e, 77], & 770; the Securities

Exchange Act of 1934, §§ 10(b) & 20, 15 U.S.C. §§ 78) &

78t; the Racketeer Influenced and Corrupt Organizations Act

("RICO"), 18 U.S.C. §§ 1961-1968; and various provisions

of Florida law. The district court granted the motion to

dismiss brought by Lloyd's, finding that the choice clauses

are enforceable and preclude litigation arising out of the

> R:1-8, Ex. B.

iim iieiaieii iat i

SP RN TPR STAs

Lipcons' agreement with Lloyd's in United States courts. In

addition, the district court concluded that Charles and

Barbara Lipcon, who signed letters of credit in favor of

Lloyd's but never entered into any agreement with Lloyd's,

are bound by the choice clauses.

As in numerous similar cases in the courts of appeals

involving these choice clauses, "[t}his appeal does not

address the merits of the underlying claims. It addresses only

the Names’ contention that their disputes with Lloyd's

Should be litigated in the United States despite contract

Clauses binding the parties to proceed in England under

English law." Richards v. Lloyd's of London, 135 F.3d

1289, 1292 (9th Cir. 1998).

Il.

As a preliminary matter, we note that some

uncertainty exists as to both the appropriate vehicle for

motions to dismiss on the basis of forum-selection clauses

and the proper standard of review for district court decisions

granting such motions to dismiss. See Haynsworth v.

Lloyd's of London, 121 F.3d 956, 961 & n.8 (Sth Cir. 1997)

(citing cases); 5A Charles Alan Wright & Arthur R. Miller,

Federal Practice and Procedure § 1352 (2d ed. Supp. 1998).

In the case before us, Lloyd's styled its motion as a Rule

12(6)(3) motion to dismiss for improper venue.

Fed.R.Civ.P. 12(b)(3).

The Ninth Circuit has treated such motions as

motions brought pursuant to Fed.R.Civ.P. 12(b)(3) to

dismiss for lack of venue, see Ri :

London, 135 F.3d 1289, 1292 (9th Cir.1998); cf. Hugel v.

Corporation of Lloyd's, 999 F.2d 206, 207 (7th Cir.1993)

A-5

(affirming district court's grant of defendant's Rule 12(b)(3)

motion to dismiss for improper venue in case involving

forum-selection clause); Commerce Consultants Int'l v.

Vetrerie Riunite, 867 F.2d 697, 698 (D.C.Cir. 1989) (same),

and has reviewed district court decisions to enforce forum-

selection and choice-of-law clauses for abuse of discretion,

see id.; accord Sun World Lines. Lid. v. March Shipping

Corp., 801 F.2d 1066, 1068 & n.3 (8th Cir.1986). The

Second Circuit, on the other hand, has treated such motions

as motions to dismiss for lack of subject matter jurisdiction

under Rule 12(b)(1). See AVC Nederland B.V. v. Atrium

Inv. Partnership, 740 F.2d 148, 153 & n.8 (2d Cir.1984).

Finally, several circuits have avoided resolving the issue of

the appropriate form of pleading for a motion to dismiss

| based upon choice clauses and instead have held simply that

“the enforceability of a forum selection clause is a question

| of law reviewable de novo.” Haynsworth, 121 F.3d at 961;

| see id. (electing not to reach “the considerably more

| enigmatic question of whether motions to dismiss on the

| basis of forum selection clauses are properly brought as

motions under Fed.R.Civ.P. 12(b)(1), 12(6)(3), or 12(6)(6),

or 28 U.S.C. § 1406(a)"); Shell v. R.W. Sturge, Lid., 55

F.3d 1227, 1229 (6th Cir.1995); Riley v. Kingsley

Underwriting Agencies, Lid., 969 F.2d 953, 956 (10th

Cir.1992) (noting that "[a] motion to dismiss based on a

forum selection clause frequently is analyzed as a motion to

dismiss for improper venue under Fed.R.Civ.P. 12(b)(3),”

but failing to resolve issue).

In our view, motions to dismiss based upon forum-

selection clauses ordinarily are not properly brought

pursuant to Rule 12(b)(1), which permits motions to dismiss

for lack of subject matter jurisdiction, because the basis upon

which the defendants seek dismissal-namely, that the

A-6

| ee

agreement of the parties prohibits the plaintiff from bringing

suit in the particular forum-is unrelated to the actual basis of

the case before us, appellants stated claims under, inter alia,

the federal securities laws, a sufficient basis for federal

subject matter jurisdiction that is not affected by the parties’

agreement to litigate elsewhere. See. e.g., Bell v. Hood, 327

U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946): Blue Cross &

Blue Shield of Ala. v. Sanders, 138 F.3d 1347, 1352 (11th

Cir.1998) (noting that under Bell, "a federal court may

dismiss a federal question claim for lack of subject matter

jurisdiction only if: (1) ‘the alleged claim under the

Constitution or federal statutes clearly appears to be

immaterial and made solely for the purpose of obtaining

jurisdiction’; or (2) ‘such a claim is wholly insubstantial and

frivolous’ ") (quoting Bell, 327 U.S. at 682-83, 66 S.Ct. at

776) (emphasis omitted); Central Contracting Co. v.

Maryland Cas. Co., 367 F.2d 341, 345 (3d Cir. 1966)

(stating that a forum-selection clause “does not oust the

jurisdiction of the courts; in effect it merely constitutes a

stipulation in which the parties join in asking the court to

give effect to their agreement by declining to exercise its

jurisdiction"). Instead, we hold that motions to dismiss upon

the basis of choice-of-forum and choice-of-law clauses are

properly brought pursuant to Federal Rule of Civil

Procedure 12(b)(3) as motions to dismiss for improper

venue.

We are aware that the First Circuit has treated

motions to dismiss upon the basis of forum selection clauses

as Rule 12(6)(6) motions urging dismissal for failure to state

a claim upon which relief can be granted. See Lambert v.

Kysar, 983 F.2d 1110, 1112 n.1 (1st Cir.1993); LEC

A-7

Lessors, Inc. v. Pacific Sewer Maintenance, 739 F.2d 4, 6-7

(Ist Cir. 1984). Although we perceive no significant

doctrinal error in that approach, we consider Rule 12(b)(3) a

more appropriate vehicle through which to assert the motion

to dismiss. We find support for this conclusion in the

Supreme Court's decision in Stewart Org., Inc. v. Ricoh

Corp., 487 U.S. 22, 32, 108 S.Ct. 2239, 2245 (1988), in

which the Court held that 28 U.S.C. § 1404(a), which vests

in the district court discretion to transfer a civil action to

“any other district or division where it might have been

brought," controls the request of a party in a diversity suit to

give effect to a contractual forum- selection clause by

transferring the action. Although the Supreme Court did not-

decide the precise question presented in the case before us,

the Court's conclusion that the federal transfer-of-venue

statute governs district court decisions in enforcing forum-

selection clauses provides support for our view that motions

to dismiss based upon forum-selection clauses are cognizable

as motions to dismiss for improper venue. See id. at 29-30,

108 S.Ct. at 2244 ("The flexible and individualized analysis

Congress prescribed in § 1404(a) thus encompasses

consideration of the parties’ private expression of their venue

preferences.") (emphasis added); see also 15 Charles Alan

Wright, Arthur R. Miller & Edward H. Cooper, Federal

Practice and Procedure § 3803.1 (2d ed. 1986 & Supp.

1998) (discussing forum-selection clauses as “Contractual

Modification" of venue).°

* Unlike in Stewart, however, the federal statutory provisions

governing transfer of venue from one United States District Court

to another, see 28 U.S.C. § 1404(a) (providing that district court

“may transfer any civil action to any other district or division

where it might have been brought") (emphasis added); 28 U.S.C.

(continued...)

A-8

Although ordinarily we review "the dismissal of a

lawsuit for improper venue under the standard of abuse of

discretion," Home Ins. Co. v. Thomas Indus.. Inc., 896

F.2d 1352, 1355 (11th Cir.1990), we conclude that there is

good reason to treat district court decisions regarding the

enforceability of forum-selection and choice-of-law

provisions in international agreements as decisions of law

reviewable de novo. Not only do such decisions at times

require interpretation of the provisions of a contract

determinations that we review de novo, see. ¢.g., Zaklama

vy. Mt. Sinai Med. Center, 906 F.2d 650, 652 (11th

Cir. 1990)--but such decisions also, at least in the context of

international agreements, require a complex analysis of

fundamental fairness and public policy, see infra, section III-

-determinations that are quintessentially legal. We therefore

hold that the enforceability of forum-selection and choice-of-

law provisions in international agreements are questions of

law that we review de novo.

We note at the outset that although this circuit has not

yet ruled on the validity of the Lloyd's choice clauses at

issue in this case, we do not write on a clean slate. Thus far.

> (...continued)

§ 1406(a) (“The district court of a district in which is filed a case

laying venue in the wrong division or district shall dismiss, or if it

be in the interest of justice, transfer such case to any district or

division in which it could have been brought.”) (emphasis added),

do not apply in cases that involve a forum-selection clause that

requires litigation in another country.

A-9

the Second*, Fourth’, Fifth®, Sixth’, Seventh*, Ninth’, and

Tenth” Circuits have addressed the enforceability of the

precise choice clauses that we confront today, and although

the reasoning of those courts has not been uniform, all seven

courts of appeals have concluded that the clauses are valid

and enforceable. See generally D. Hall, Note, No Way Out:

An Argument Against Permitting Parties to Opt Out of U.S.

Securities Laws in International Transactions, 97 Colum.

L.Rev. 57, 68 (1997).

* See Roby v. Corporation of Lloyd's, 996 F.2d 1353 (2d Cir.),

cert. denied, 510 U.S. 945, 114 S.Ct. 385, 126 L.Ed.2d 333

(1993).

* See Allen v. Lloyd's of London, 94 F.3d 923 (4th Cir. 1996).

| ‘ See Haynsw v._ The a LI

| London, 121 F.3d 956 (5th Cir.1997).

" See Shell v. R.W. Sturge, Ltd., 55 F.3d 1227 (6th Cir. 1995)

(upholding choice clauses as basis for dismissing claims under

Ohio securities laws).

| ‘See Bonny v. Society of Lloyd's, 3 F.3d 156 (7th Cir.1993),

cert. denied, 510 U.S. 1113, 114 S.Ct. 1057, 127 L.Ed.2d 378

(1994).

® See Richards v. Lloyd's of London, 135 F.3d 1289, 1292 (9th

Cir. 1998).

953 (10th Cir.), cert. denied, 506 U.S. 1021, 113 S.Ct. 658, 121

L.Ed.2d 584 (1992).

a A-10

Appellants’ first argument is that the choice Clauses,

which make United States law inapplicable to disputes

arising between them and Lloyd's, are unenforceable under

the anti-waiver provisions of the United States securities

laws. The Securities Act of 1933 provides: "Any condition,

stipulation, or provision binding any person acquiring any

security to waive compliance with any provision of this

subchapter or of the rules and regulations of the Commission

Shall be void." 15 U.S.C. § 77n. The Securities Exchange

Act of 1934 contains a similar provision. See 15 U.S.C. §

78cc(a) ("Any condition, stipulation, or provision binding

any person to waive compliance with any provision of this

chapter or of any rule or regulation thereunder, or of any

rule of an exchange required thereby shall be void.").

According to the Securities and Exchange Commission

("SEC"), which filed an amicus curiae brief, "These

provisions are essential to the enforcement of the securities

laws in that they prevent persons from avoiding their

obligations under those laws through the simple expedient of

requiring investors to waive their rights under those laws as

a condition to engaging in securities transactions.""!

The district court rejected appellants' and the SEC's

argument that the anti- waiver provisions categorically

render unenforceable the choice clauses in the Lipcons'

contract. Instead, the district court reviewed the clauses

under the framework for evaluating choice provisions in

international agreements first announced in M/S Bremen v.

Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907 (1972). In

Bremen, an admiralty case that did not involve the securities

laws, the Court enforced a choice-of-forum clause that

required litigation in the courts of London. Because "[w]e

'' SEC Br. Amicus Curiae (hereinafter "SEC Br.") at 2.

A-11

cannot have trade and commerce in world markets and

international waters exclusively on our terms, governed by

our laws, and resolved in our courts," id. at 9, 92 S.Ct. at

1913, the Court concluded that forum-selection clauses in

international agreements "are prima facie valid and should be

enforced unless enforcement is shown by the resisting party

to be ‘unreasonable’ under the circumstances," id. at 10, 92

S.Ct. at 1913; see id, at 15, 92 S.Ct. at 1916 ("[I]}n the light

of present-day commercial realities and expanding

international trade we conclude that the forum clause should

control absent a strong showing that it should be set aside.").

| Although the contract at issue in Bremen provided for a

| forum in which to litigate, as opposed to the substantive law

| that would apply to, any dispute, the Court noted that the

choice-of-forum clause likely would have the effect of a

choice-of-law clause:

[I]t is the general rule in English courts that

the parties are assumed, absent- contrary

indications, to have designated the forum with

the view that it should apply its own law...

It is therefore reasonable to conclude that the

forum choice clause was also an effort to

obtain certainty as to the applicable

substantive law.

Id. at 14 n.15, 92 S.Ct. at 1915 n.15.

In giving content to Bremen's "strong showing"

standard for invalidating international choice-of-forum

clauses, courts have announced that those provisions will be

found “unreasonable under the circumstances," Bremen, 407

U.S. at 10, 92 S.Ct. at 1913 (internal quotations omitted),

and thus unenforceable only when: (1) their formation was

A-12

I saeeeereeeniiniianeiiiiiiiaiiaananiiiiaaaiaiiililia

induced by fraud or overreaching; (2) the plaintiff

effectively would be deprived of its day in court because of

the inconvenience or unfairness of the chosen forum: (3) the

fundamental unfairness of the chosen law would deprive the

plaintiff of a remedy; or (4) enforcement of the provisions

would contravene a strong public policy. See Carnival

Cruise Lines, Inc. v. Shute, 499 U.S. 585, 594-95, 111

S.Ct. 1522, 1528 (1991); Bremen, 407 U.S. at 15-18, 92

S.Ct. at 1916-17; Roby v. Corporation of Lloyd's, 996 F.2d

1353, 1363 (2d Cir.), cert. denied, 510 U.S. 945 (1993).

Applying this test (hereinafter "the Bremen test"), the district

court concluded that the choice clauses in this case are

enforceable.

Appellants and the SEC contend that the Bremen test

is inapplicable when Congress has spoken directly as to

whether it is permissible to waive United States statutory

remedies. They argue that to apply the Bremen test--which

requires courts to assess public policy, see Bremen, 407

U.S. at 15, 92 S.Ct. at 1916 ("A contractual choice-of-forum

Clause should be held unenforceable if enforcement would

contravene a strong public policy of the forum in which suit

is brought, whether declared by statute or judicial

decision.")--is tantamount to treating "the anti-waiver

provisions [of the securities laws] as merely reflecting a

Congressional direction to the courts to decide whether 'the

public policies incorporated into’ the securities laws would

be undermined.""* This approach is incorrect, the SEC

argues, because "[t]he anti-waiver provisions ... are not

simply an expression of public policy that favors the United

States securities laws unless other comparable laws are

available. Rather, they are an express and unequivocal

SEC Br. at 14.

A-13

directive that the rights and obligations under the securities

laws cannot be waived." See also Richards v. Lloyd's of

London, 135 F.3d 1289, 1297-98 (9th Cir.1998) (Thomas,

J., dissenting).

Although appellants’ argument finds strong support in

the plain language of the anti-waiver provisions, which

facially admit of no exceptions, precedent and policy

considerations compel us to conclude that Bremen 's

framework for evaluating choice clauses in international

agreements governs this case. We turn first to an

examination of Supreme Court precedent.

In Scherk v. Alberto-Culver Co., 417 U.S. 506, 94

S.Ct. 2449, 41 L.Ed.2d 270 (1974), "the Supreme Court

explicitly relied on Bremen in a case involving a securities

transaction." Richards v. Lloyd's of London, 135 F.3d

1289, 1293 (9th Cir.1998). Scherk involved an international

transaction to sell a company, where that transaction was

based upon a contract that included arbitration and choice-of-

law clauses that provided for the application of Illinois law

by an arbitrator in France. When the deal soured, one of the

parties challenged the enforceability of the arbitration

provision. In enforcing the provisions, the Court relied in

large part upon the nature of international agreements:

[I]n the absence of the arbitration provision

considerable uncertainty existed at the time of

the agreement, and still exists, concerning the

law applicable to the resolution of disputes

'3- SEC Br. at 14.

A-14

arising out of the contract. Such uncertainty

will almost inevitably exist with respect to

any contract touching two or more countries,

each with its own substantive laws and

conflict-of-laws rules. A contractual

provision specifying in advance the forum in

which disputes shall be litigated and the law

to be applied is, therefore, an almost

indispensable precondition to achievement of

the orderliness and predictability essential to

any international business transaction.

Scherk, 417 U.S. at 516, 94 S.Ct. at 2455; see id. at 516-

17, 94 S.Ct. at 2456 ("A parochial refusal by the courts of

one country to enforce an international arbitration agreement

would ... invite unseemly and mutually destructive jockeying

by the parties to secure tactical litigation advantages.").

We recognize that Scherk differed from the case

before us in that the choice clause before the Court in Scherk

provided, by designating Illinois law as the governing law,

for the application of United States securities law, see id. at

519 n.13, 94 S.Ct. at 2457 n13 ("Under some

circumstances, the designation of arbitration in a certain

place might also be viewed as implicitly selecting the law of

that place to apply to that transaction. In this case, however,

‘the laws of the State of Illinois' were explicitly made

applicable to the arbitration agreement."), and thus that the

Court in Scherk had no Opportunity to decide if an

international choice-of-law provision is enforceable if it

conflicts with the anti-waiver provisions of the United States

securities laws. Nevertheless, the Court's statement in

Scherk that a choice-of-forum clause is "an almost

indispensable precondition to achievement of the orderliness

A-15

and predictability essential to any international business

transaction," 417 U.S. at 516, 94 S.Ct. at 2455, combined

with the Court's observation that a forum-selection clause

"might also be viewed as implicitly selecting the law of that

place to apply to that transaction,” id. at 519 n.13, 94 S.Ct.

at 2457 n.13; see also Bremen, 407 U.S. at 13 n.15, 92

S.Ct. at 1915 n.15 (noting that in light of English law, it is

"reasonable to conclude that the forum clause was also an

effort to obtain certainty as to the applicable substantive

law"), indicates that international agreements-—even those

that render United States securities law inapplicable--are sui

generis. '*

Appellants nevertheless point our attention to a line

of Supreme Court cases that they contend indicate the

Court's disapproval of choice provisions that waive the

substantive protections of United States law. Supreme Court

precedent, however, does not resolve the precise issue

presented in this case: namely, whether an international

agreement may, through the interaction of choice-of-forum

and choice-of-law clauses, prospectively waive the

protections of the United States securities laws.

Appellants claim that the Court in Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 105 S.Ct.

'* We think it clear that the agreement in this case is “truly

international," Scherk, 417 U.S. at 515, 94 S.Ct. at 2455, as that

term was used in Scherk. In this case, the parties to the

agreement are from different countries, the negotiations leading up

to the agreement took place in the United States whereas the

closing took place in England, and the subject matter of the

transaction concerned investment in an international insurance

market.

A-16

3346 (1985), indicated its unwillingness to permit choice

provisions to eliminate United States Statutory remedies. In

Mitsubishi, the Court held that the Sherman Act did not

render unenforceable a forum-selection provision in an

international agreement, because "[b]y agreeing to arbitrate a

statutory claim, a party does not forgo the substantive rights

afforded by the statute; it only submits to their resolution in

an arbitral, rather than a judicial, forum." Id. at 628, 105

S.Ct. at 3354 (emphasis added); see id. at 637, 105 S.Ct. at

3359 ("[S]o long as the prospective litigant effectively may

vindicate its statutory cause of action in the arbitral forum,

the statute will continue to serve both its remedial and

deterrent function."). Appellants rely in particular on the

Court's statement that "in the event the choice-of-forum and

choice-of-law clauses operated in tandem as a prospective

waiver of a party's right to pursue the Statutory remedy for

antitrust violations, we would have little hesitation in

condemning the agreement as against public policy." Id. at

637 n.19, 105 S.Ct. at 3359 n.19. In Mitsubishi, however,

the Court was not confronted with the scope of the anti-

waiver provisions of the United States securities laws. See

id. at 616, 105 S.Ct. at 3348 ("The principal question

presented by these cases is the arbitrability, pursuant to the

Federal Arbitration Act and the Convention on the

Recognition and Enforcement of Foreign Arbitral Awards of

Claims arising under the Sherman Act and encompassed

within a valid arbitration clause in an agreement embodying

an international commercial transaction. ") (internal citations

omitted). More important, the Court in Mitsubishi

recognized and affirmed Scherk's policy of treating

international commercial agreements as sui generis. See

Mitsubishi, 473 U.S. at 629, 105 S.Ct. at 3355 ("As in

Scherk..., we conclude that concerns of international comity,

respect for the capacities of foreign and transnational

A-17

ae ne

tribunals, and sensitivity to the need of the international

commercial system for predictability in the resolution of

disputes require that we enforce the parties' agreement, even

assuming that a contrary result would be forthcoming in the

domestic context.").

Appellants rely as well upon Shearson/American

Express, Inc.. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332

(1987), in which the Court held that the anti-waiver

provision of the Securities Exchange Act of 1934 did not

render an arbitration agreement unenforceable, because "[b]y

its terms, [section 78cc(a)] only prohibits waiver of the

substantive obligations imposed by the Exchange Act." Id. at

288, 107 rs >. at a Gas sar anew

490 U. S. 471, 485- 86, "109 S. Ct. 1917, 1922 (1989) (holding

that arbitration clause was not invalid under anti-waiver

provisions of Securities Act; stating that "[ojur conclusion is

reinforced by our assessment that resort to the arbitration

process does not inherently undermine any of the substantive

rights afforded to petitioners under the Securities

Act")(emphasis added). McMahon, however, involved the

enforceability of an arbitration clause in a domestic securities

agreement. Although appellants contend that McMahon

makes clear the Court's categorical unwillingness to permit

waiver of the substantive remedies of the securities laws, we

do not think that McMahon controls the case before us. As

stated above, the Court consistently has treated “truly

international agreements," Scherk, 417 U.S. at 515, 94 S.Ct.

at 2455, differently than domestic transactions, which

indisputably are subject to the anti-waiver provisions of the

securities laws, see McMahon, 482 U.S. at 230, 107 S.Ct. at

2339.

A-18

<ainidl hii table din ia, 5c aD

Supreme Court precedent thus suggests that the

enforceability of choice clauses in international agreements

should be determined by a framework designed specifically

for the international commercial context. Because the

Supreme Court has not ruled on whether the anti-waiver

provisions of the United States securities laws categorically

render unenforceable choice-of-law clauses in international

agreements, however, we turn to policy considerations.

Underlying the Supreme Court's conclusions in

Bremen and Scherk were two main concerns: (1) ensuring

"the orderliness and predictability [that are] essential to any

international business transaction," Scherk, 417 U.S. at 516,

94 S.Ct. at 2455; see Bremen, 407 U.S. at 15, 92 S.Ct. at

1916 (stating importance of "present-day commercial

realities and expanding international trade"), and (2)

furthering international comity, see Scherk, 417 U.S. at 516,

94 S.Ct. at 2456 (condemning "parochial refusal[s] by the

courts of one country to enforce ... international

agreement(s]"); Bremen, 407 U.S. at 9, 92 S.Ct. at 1913

("We cannot have trade and commerce in world markets and

international waters exclusively on our terms, governed by

our laws, and resolved in our courts."). See also Mitsubishi,

473 U.S. at 629, 105 S.Ct. at 3355 (relying on "concerns of

international comity, respect for the capacities of foreign and

transnational tribunals, and sensitivity to the need of the

international commercial system for predictability in the

resolution of disputes....").

To conclude that the anti-waiver provisions of the

United States securities laws categorically preclude

sophisticated parties from entering into international

A-19

agreements--agreements that by definition involve parties and

subject matter that would be subject to the laws of more than

one nation if the parties did not contract ex ante for

provisions governing choice of forum and choice of law--

would undermine both policies upon which Bremen and

Scherk were based. As the Ninth Circuit has observed,

appellants’ assertion that the statutory anti-waiver provisions

categorically invalidate the choice clauses in the agreement

with Lloyd's would, if correct, expand the reach of United

States securities law to “any and ali such transactions, no

matter how remote from the United States." Richards v.

Lloyd's of London, 135 F.3d 1289, 1293 (9th Cir.1998);

see also Allen v. Lloyd's of London, 94 F.3d 923, 929 (4th

Cir. 1996) ("[W]e do not believe that Congress intended that

the disclosure requirements of the United States securities

law be exported and imposed as governing principles on

markets conducted entirely in other countries simply because

membership in such markets is solicited in the United

States.").

We also find in the content of the Bremen test itself

support for our conclusion that the anti-waivey provisions of

the United States securities laws do not preclude application

of the Bremen test to determine the validity of the choice

clauses. A court will invalidate a choice clause in an

international agreement when "enforcement would

contravene a strong public policy of the forum in which the

suit is brought...." Bremen, 407 U.S. at 15, 92 S.Ct. at

1916; see infra section III.C; Richards, 135 F.3d at 1293;

Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1363 (2d

Cir.1993). Thus, "{iJn Bremen itself, the Supreme Court

contemplated that a forum selection clause may conflict with

relevant statutes." Richards, 135 F.3d at 1293.

A-20

Although we do not deny that there is some force to

appellants’ argument that the anti-waiver provisions preclude

application of the Bremen test, we believe that to invalidate

the choice provisions for that reason in effect would be to

conclude that "the reach of the United States securities laws

[is) unbounded," Richards, 135 F.3d at 1293, and to ignore

the Supreme Court's caveat that "[w]e cannot have trade and

commerce in world markets and international waters

exclusively on our terms, governed by our laws, and

resolved in our courts," Bremen, 407 U.S. at 9, 92 S.Ct. at

1913. Because we are unwilling so to conclude, we hold

that the anti-waiver provisions of the United States securities

laws do not categorically render unenforceable the Lloyd's

choice clauses, and we join the seven other courts of appeals

that have addressed the issue in holding that the Bremen test

controls our resolution of the enforceability of the Lloyd's

choice clauses. See Richards, 135 F.3d at 1292-94:

Vv ,

121 F.3d 956, 962 (Sth Cir.1997);

London, 94 F.3d 923, 928 (4th Cir.1996); Shell v. R.W.

Sturge, Ltd., 55 F.3d 1227, 1229-30 (6th Cir.1995); Bonny

v. Society of Lloyd's, 2 F.3d 156, 159 (7th Cir. 1993), cert.

denied, 510 U.S. 1113 (1994); v

Lloyd's, 996 F.2d 1353, 1362-63 (2d Cir.), cert. denied,

510 U.S. 945 (1993); i v. Ki iti

Agencies, Lid., 969 F.2d 953, 957 (10th Cir.), cert. denied,

506 U.S. 1021 (1992).

Il.

Appellants contend on appeal that even if the anti-waiver

provisions of the United States securities laws do not per se

invalidate the choice clauses, the district court erred in

concluding that the Bremen test was satisfied and that the

A-21

choice clauses in this case are enforceable. We disagree and

conclude that the district court correctly applied the Bremen

test.

As noted supra, section II.B, forum-selection and

choice-of-law clauses "are presumptively valid where the

underlying transaction is fundamentally international in

character." Roby v. Corporation of Lloyd's, 996 F.2d 1353,

1362 (2d Cir.) (citing Bremen, 407 U.S. at 15, 92 S. Ct. at

1916), cert. denied, 510 U.S. 945 (1993). "This presumption

of validity may be overcome, however, by a clear showing

that the clauses are ‘unreasonable under the circumstances.'"

Roby, 996 F.2d at 1363 (quoting Bremen, 407 U.S. at 10,

92 S.Ct. at 1913 (internal quotation omitted)). Choice

clauses will be found “unreasonable under the

circumstances," Bremen, 407 U.S. at 10, 92 S.Ct. at 1913

(internal quotations omitted), and thus unenforceable only

when: (1) their formation was induced by fraud or

overreaching; (2) the plaintiff effectively would be deprived

of its day in court because of the inconvenience or unfairness

of the chosen forum; (3) the fundamental unfairness of the

chosen law would deprive the plaintiff of a remedy; or (4)

enforcement of such provisions would contravene a strong

public policy. See Carnival Cruise Lines, Inc. v. Shute, 499

| U.S. 585, 594-95, 111 S.Ct. 1522, 1528 (1991); Bremen,

| 407 U.S. at 15-18, 92 S.Ct. at 1916-17; Roby, 996 F.2d at

1363. Appellants contend that the choice clauses in this case

are unreasonable under the first, third, and fourth Bremen

factors.

Appellants first contend that the choice clauses were

the product of fraud and overreaching. The only specific

A-22

aan niiiiiaaiiaoiaaniiiaiiiaie

allegation in the complaint of fraud is that Lloyd's "tricked

and fraudulently induced [the Lipcons] to sign on or about

Nov. 5, 1986 a forum selection clause" by making

"fraudulent statements" that included the following:

The purpose, in both instances, is to bring the

agreements into line with ... the new Lloyd's

legislation.

* * * *£ k &

The new Premiums Trust Deed will

incorporate some new provisions which are

mainly of a technical nature, and will not

affect you greatly on a day to day basis.'°

Appellants contend that allegation of these statements

is sufficient to invalidate the choice clauses.

In Scherk, the Court stated:

In The Bremen we noted that forum-selection

Clauses "should be given full effect" when "a

freely negotiated private international

agreement [is] unaffected by fraud...." This

qualification does not mean that any time a

dispute arising out of a transaction is based

, upon an allegation of traud, as in this case,

iH the clause is unenforceable. Rather, it means

that an arbitration or forum-selection clause in

a contract is not enforceable if the inclusion

of that clause in the contract was the product

'* Second Am. Compl. at 3-4, ¢ 4.

A-23

of fraud or coercion.

417 U.S. at 519 n.14, 94 S.Ct. at 2457 n.14 (emphasis in

original)(internal citations omitted). By requiring the

plaintiff specifically to allege that the choice clause itself was

included in the contract due to fraud in order to succeed in a

claim that the choice clause is unenforceable, courts may

ensure that more general claims of fraud will be litigated in

the chosen forum, in accordance with the contractual

expectations of the parties.

We conclude that the allegations in the Lipcons'

complaint are insufficient to satisfy Scherk's rigorous

standard for pleading fraud. The first alleged statement by

Lloyd's (or, presumably, by an agent of Lloyd's)-- that

"[t]he purpose, in both instances, is to bring the agreements

into line with ... the new Lloyd's legislation"’°-is in no way

fraudulent or misleading. Indeed, the General Undertaking,

which the Lipcons signed on the day that Lloyd's allegedly

made this statement, specifically provides that "[t]hroughout

the period of his membership of Lloyd's the Member shall

comply with the provisions of Lloyd's acts 1871-1982 [and]

any subordinate legislation made or to be made

thereunder...."'’ An allegation that the defendant made a

statement that accurately brings to the attention of the

plaintiff the substantive provisions of the contract is

insufficient to support a claim that the choice clauses were

‘© It is not clear what the phrase "in both instances" refers to,

but we assume arguendo that the phrase refers at least in part to

the General Undertaking, as well as to the choice clauses

specifically.

7 R:1-8, Ex. B.

A-24

included in the contract as a result of fraud.

The second allegedly fraudulent statement--that " [t]he

new Premiums Trust Deed will incorporate some new

provisions which are mainly of a technical nature, and will

not affect you greatly on a day to day basis"-- likewise fails

to satisfy Scherk 's standard. Appellants contend that the

insertion of the choice clauses in the General Undertaking

was a Change of more than simply "a technical nature" and

that the statement thus was misleading and fraudulent.

According to the original agreement, which was signed in

October 1984 by Mitchell Lipcon and Lloyd's, the Premiums

Trust Deed governs the disposition of "[a]ll premiums and

other moneys collected on behalf of the Name" and provides

that all such funds "shall be held upon the trusts declared in

the Trust Deed.""* An allegation that the Lipcons were

induced--even fraudulently induced--to make changes in the

Premiums Trust Deed is insufficient to support a claim that

the choice clauses, which are contained in a separate

agreement (the General Undertaking), were induced by

fraud. As stated above, this court will invalidate a choice

clause only if "the inclusion of that clause in the contract was

the product of fraud or coercion." Scherk, 417 U.S. at 519

n.14, 94 S.Ct. at 2457 n.14 (emphasis in original).

Appellants have not satisfied this standard.

Appellants also contend that the remedies provided by

English law are inadequate. They argue that no cause of

action exists under the laws of England analogous to an

action under Section 12(1) of the Securities Act of 1933 for

* R:1-8, Ex. C.

A-25

securities registration violations. See Bonny v. Society of

Lloyd's, 3 F.3d 156, 162 (7th Cir.1993), cert. denied, 510

U.S. 1113 (1994). Appellants also contend that their

remedies under English law for misrepresentations made in

connection with the sale of a security are inferior to those

aveilable under Section 12(2) of the Securities Act of 1933

because Section 14 of the Lloyd's Act of 1982 immunizes

Lloyd's from any claims under the English

Misrepresentations Act, absent a showing of bad faith.

Finally, appellants assert that Lloyd's is immune from

liability under England's Financial Services Act of 1986,

which provides private remedies for fraud in connection with

securities transactions, and that unlike United States

securities law, see 15 U.S.C. § 770, English law does not

recognize controlling person liability.

We have little doubt that "the United States securities

laws would provide [appellants] with a greater variety of

defendants and a greater chance of success due to lighter

scienter and causation requirements...." Roby, 996 F.2d at

1366. We will not invalidate choice clauses, however,

simply because the remedies available in the contractually

chosen forum are less favorable than those available in the

courts of the United States. Instead, we will declare

unenforceable choice clauses only when the remedies

available in the chosen forum are so inadequate that

enforcement would be fundamentally unfair. See Carnival

Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595, 111 S.Ct.

1522, 1528 (1991); Roby, 996 F.2d at 1360-61 ("In the

absence of other considerations, the agreement to submit to

arbitration or the jurisdiction of the English courts must be

enforced even if that agreement tacitly includes the forfeiture

of some claims that could have been brought in a different

forum."); Riley v. Kingsle erwriting Agencie

A-26

969 F.2d 953, 958 (10th Cir.), cert. denied, 506 U.S. 1021

(1992)("The fact that an international transaction may be

subject to laws and remedies different and less favorable than

those of the United States is not a valid basis to deny

enforcement, provided that the law of the chosen forum is

not inherently unfair.").

Like the seven other courts of appeals that have

addressed this issue, we hold that English law provides

remedies adequate to address the complaints of the aggrieved

Names. Although Section 14 of the Lloyd's Act of 1982

exempts Lloyd's, its officers, and its employees from

liability under the English Misrepresentations Act, no other

entities within Lloyd's--such as the Members’ Agenis and

Managing Agents, both of whom owe a fiduciary duty to the

Names--are exempt. See Roby, 996 F.2d at 1365;

Richards, 135 F.3d at 1296 ("The Names have recourse

against both the Member and Managing Agents for fraud,

breach of fiduciary duty, or negligent misrepresentation. g.

(citing v. eltri itin

Agencies, Ltd., 3 Re LR 145 (H.L.1994)); Shell v. R.W.

Sturge, Ltd., 55 F.3d 1227 (6th Cir.1995) (noting that

"England's highest appellate court recently upheld a lower

court's ruling that Members' Agents can be contractually

liable for negligent underwriting by the Managing Agents

who run the insurance syndicates at Lloyd's") (citing Deeny

vy. Gooda Walker Ltd., slip op. (Q.B. Div'l Ct. Apr. 12,

1994), appeal dismissed, slip op. (H.L. July 25, 1994)). In

addition, even Lloyd's itself is not immune from liability if

appellants can make a credible showing of bad faith. We

therefore conclude that the contractually chosen law is not

fundamentally unfair and thus does not provide a basis upon

which to deny enforcement of the choice clauses.

A-27

Appellants argue that enforcement of the choice

clauses would contravene a strong public policy, namely the

policy expressed in the anti-waiver provisions of the United

States securities laws that substantive remedies be available

for securities violatious. We already have rejected

appellants’ argument that the anti-waiver provisions

categorically render invalid the choice clauses. See supra

section II.B. We now mist decide whether enforcement of

the choice clauses, which would require appellants to litigate

in England under English remedies, would undermine the

public policies more generally expressed in the United States

securities laws. In so doing, we are mindful that at least one

commentator has criticized the decisions of some other

courts of appeals on the ground that the public policy inquiry

| "necessitates an exploration of foreign legal regimes about

| which U.S. courts are likely to know little or nothing” and

requires courts to "determine which of two

incommensurables is greater." See D. Hall, Note, No Way

Out: An Argument Against Permitting Parties to Opt Out of

U.S. Securities Laws in International Transactions, 97

Colum. L.Rev. 57, 83 (1997). Nevertheless, we cannot

avoid our duty to ensure, by determining whether

enforcement of the choice clauses would contravene public

policy, that enforcement of the choice clauses is not

"unreasonable under the circumstances." Bremen, 407 U.S.

at 10, 92 S.Ct. at 1913 (internal quotation omitted).

Although we share the concern of the Second and

Seventh Circuits that "the contract clauses may operate ‘in

tandem’ as a prospective waiver of the statutory remedies for

securities violations," Roby, 996 F.2d at 1364 (quoting

Mitsubishi Motors Corp. v. Soler Chrysler-Plymc *h, 473

A-28

ee ee

ad Hera ions fc cabning ands tin shea Hehe

U.S. 614, 637 n.19, 105 S.Ct. 3346, 3359 n.19 (1985));

accord Bonny, 3 F.3d at 160-61, we agree with those courts

and the other five circuits that have addressed the issue that

enforcement of the Lloyd's choice clauses does not

contravere public policy. We reach this conclusion in part

for the reasons stated by t 2 other courts of appeals and in

part for the reasons state: in section III.B--that English

remedies are adequate to provide redress for the alleged

actions that gave rise to appellants' United States securities

Claims.

In Roby and Bonny, the Second and Seventh Circuits,

respectively, concluded that "[t]he framers of the securities

laws were concerned principally with reversing the common

law rule favoring 'caveat emptor,' " Roby, 996 F.2d at 1364

(citing SEC v. Arthur Young & Co., 584 F.2d 1018, 1025

n.51 (D.C.Cir.1978)), and accordingly that the United States

securities laws embody the policies of "insuring full and fair

disclosure by issuers and deterring the exploitation of United

States investors," Bonny, 3 F.3d at 161. Appellants and the

SEC do not disagre:: that the securities laws were intended to

ensure disclosure and deter exploitation, but they argue that

the Second and Seventh Circuits, as well as the district court

in this case, ignored the compensatory function of private

actions under the securities laws.

We agree with the SEC that private actions under the

securities laws "serve as an important means of providing

recompense to investors who have been harmed by

wrongdoers."'? We are more confident than the SEC,

however, that the compensatory policy underlying United

States securities law will be vindicated by litigation in

'9 SEC Br. at 24.

A-29

English courts under English law; this is especially so given

our conclusion that English law provides adequate remedies

to appellants in this case. See supra, section III.B. Because

we conclude that "the available remedies and potentia’

damage recoveries suffice to deter deception of American

investors[,] to induce the disclosure of material information

to investors,” Bonny, 3 F.3d at 162, and to provide redress

to aggrieved Names, we hold that the choice clauses satisfy

the public-policy prong of the Bremen test. We thus

conclude that the district court did not err in finding that the

choice clauses are enforceable.”

IV.

Finally, appellants argue that the district court erred

in concluding that Charles and Barbara Lipcon, who signed

letters of credit to provide collateral for their spouses but did

not sign the General Undertaking, are so closely related to

the dispute that they are bound by the choice clauses. We

hold that the district court did not err and that the spouses

must litigate their claims in English courts under English

law, in accordance with the choice clauses. ;

"In order to bind a non-party to a forum selection

clause, the party must be ‘closely related’ to the dispute such

cause of action under RICO. See Richards, 135 F.3d at 1296

("The addition of RICO claims does not alter our conclusion.");

Roby, 996 F.2d at 1366 ("Although the remedies [in England] and

disincentives [to deter English issuers from exploiting American

investors] might be magnified by application of RICO, we cannot

say that application of English law would subvert the policies

underlying that statute.").

A-30

ri a .

that it becomes ‘foreseeable’ that it will be bound." Hugel

v. Corporation of Lloyd's, 999 F.2d 206, 209 (7th Cir. 1993)

(quoting Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d

509, 514 n.5 (9th Cir.1988)); see also Manetti-Farrow, 858

F.2d at 514 n. 5 ("[A] range of transaction participants,

parties and non-parties, should benefit from and be subject to

forum selection clauses."). In Huge], which involved a suit

brought by a Name against Lloyd's, the Seventh Circuit

affirmed the district court's finding that two non-signatory

corporations were bound by the Name's assent to the Lloyd's

choice clauses. See 999 F.2d at 209-10. The district court

based its finding upon the fact that the Name owned 99% of

one corporation, which owned 100% of the other. See id.

The court of appeals noted that "[w]hile it may be true that

third-party beneficiaries to a contract would, by definition,

satisfy the ‘closely related’ and 'foreseeability' requirements,

a third-party beneficiary status is not required." Id. at 209-

10 n.7; cf. Dayhoff Inc. v. H.J. Heinz Co., 86 F.3d 1287,

1297 (3d Cir. 1996) (holding that a sister corporation that did

not sign an arbitration agreement could not be bound by the

agreement, but noting that if the “corporation's interests

were directly related to, if not predicated upon, the

[signatory's] conduct," the corporation would have been

subject to agreement).

Because, as the district court found, the interests of

the spouses in this dispute are completely derivative of those

of the Name plaintiffs—and thus "directly related to, if not

predicated upon" the interests of the Name plaintiffs, see

Dayhoff, 86 F.3d at 1297--we affirm the district court's

conclusion that the spouses are bound by the choice clauses.

A-31

Our conclusion that the Lipcons are bound by the

choice clauses does not in any way reflect our view of the

merits of their substantive claims. We hold simply that the

Lipcons must "honor [their] bargains," Mitsubishi, 473 U.S.

at 640, 105 S.Ct. at 3361 (quoting Alberto-Culver Co. v.

Scherk, 484 F.2d 611, 620 (7th Cir.1973) (Stevens, J.,

dissenting), rev'd, 417 U.S. 506, 94 S.Ct. 2449 (1974)), and

attempt to vindicate their claims in the English courts under

English law.

The judgment of the district court is AFFIRMED.

A-32

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF FLORIDA

Case No. 96-1137-CIV-MORENO

IRMGARD LIPCON; MITCHELL LIPCON;

CHARLES R. LIPCON; and BARBARA

LIPCON,

Plaintiffs,

vs.

UNDERWRITERS AT LLOYD'S LONDON a/k/a

the CORPORATION OF LLOYD'S, a/k/a

SOCIETY OF LLOYD'S, a/k/a LLOYD'S OF

LONDON, FIRST UNION NATIONAL BANK OF

FLORIDA, and UNITED NATIONAL BANK,

Defendants.

MEMORANDUM OPINION

Plaintiffs Mitchell Lipcon and Irmgard Lipcon,

Underwriting Members in Lloyd's of London, and their

spouses, Charles Lipcon and Barbara Lipcon, bring this

Complaint against Defendants Lloyd's of London, First

Union National Bank of Florida, and United National Bank

alleging causes of action under both Florida and federal law.

Although the claims presented here have not been

adjudicated under both Florida and federal law in one action,

similar claims have been raised in numerous jurisdictions

throughout the nation. Echoing the nearly unanimous

conclusion reached in courts throughout the country, this

Court finds that the Plaintiffs' claims are subject to a valid

A-33

and enforceable forum selection clause. Therefore, the

Complaint is dismissed in its entirety and the Plaintiffs may

properly present their claims in the Courts of England.

Il. BACKGROUND

The Society of Lloyd's is a regulator of a market

analogous to the New York Stock Exchange, and is one of

the largest insurance markets in the world. Over 300

hundred syndicates, each formed to insure a broad range of

risks, compete within Lloyd's for underwriting business.

Investors in Lloyd's have the right to participate in Lloyd's

insurance underwriting syndicates by virtue of their status as

Underwriting Members ("Names"). The “Managing

Agents"--those who assemble the syndicates, collect

premiums from the insureds, assess the Names, manage the

risks, and provide annual accounting to the Names--owe a

contractual duty to the Names to manage their syndicates

with reasonable care and skill. Names are not allowed to deal

directly with Lloyd's; rather, each Name must designate a

"Member's Agent" to handle the Name's affairs. By

agreement, Members' Agents owe a fiduciary duty to their

Names and are obliged to act in the sole interest of their

principal Names.

To become a member of Lloyd's, a prospective Name

must enter into a series of contracts, including: i) the

General Undertaking, which is a contract between the

Society of Lloyd's and the Name; 2) a Members’ Agent

Agreement, which is a contract between the Name and the

Name's chosen Members' Agent; and 3) one or more

Managing Agent's agreements, which define the relationship

between the Name and the Managing Agent of each

syndicate the Name chooses to join.

A-34

Names deposit security via an irrevocable letter of credit

issued by a Lloyd's-approved bank in favor of Lloyd's.

When insurance claims exceed the available premiums,

Lloyd's makes “cash calls" upon the Names responsible for

those claims. If the cash calls are not paid, the Name's

security can be used for that purpose. Names assume

unlimited personal liability for their respective shares of the

risks insured by the policies they underwrite and cannot

resign from the market until all of their obligations are

discharged.

Plaintiffs Mitchell and Irmgard Lipcon ("the Plaintiff

Names"), along with their spouses ("the Plaintiff spouses"),

issued irrevocable letters of credit in favor of the Society and

Council of Lloyd's. These letters were secured, issued and

confirmed by the banks which are named defendants. The

syndicates in which the plaintiffs participated ultimately

experienced large losses.

On November 5, 1986, Plaintiff Names signed a

Revised Prezaiums Trust Deed and General Undertaking,

which included a provision that required litigation to take

place in the courts of England. The documents also stated,

among other things, that:

The purpose, in both instances, is to bring the

agreements into line with ... the new Lloyd's

legislation ...

The new Premiums Trust Deed will incorporate

some new provisions which are mainly of a

technical nature, and will not affect you greatly ona

day to day basis.

A-35

The Plaintiff Names claim that these statements are untrue

because the forum selection clause limited litigation to the

Courts of England and consequently deprived the Plaintiff

Names of remedies that are available in Unites States courts

but not English courts. The Plaintiff Names also allege that

the forum selection clause was made with knowledge of

massive unreported losses for asbestos and pollution claims.

The Plaintiff Names allege causes of action under Florida

securities law and unspecified "United States securities

laws," see Complaint {4 135, 140, and 142, and “Federal

law," id. 4 127, 130, 132, and 139.

fl. LEGAL STANDARD

A court will not grant a motion to dismiss unless the

plaintiff fails to prove any facts that would entitle the

plaintiff to relief. Conley v. Gibson, 355 U.S. 41 (1957).

When ruling on a motion to dismiss, a court must view the

complaint in the light most favorable to the plaintiff and

accept the plaintiff's wellpleaded facts as true. Scheur v.

Rhodes, 416 U.S. 232 (1974); St. Joseph's Hospital, Inc. v.

Hospital Corp. of America, 795 F.2d 948 (11th Cir. 1986).

Ii. FORUM SELECTION CLAUSE

The principle that choice of forum and choice of law

provisions are presumptively valid is well-established. M/S

Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9 (1972).' See

“The expansion of American business and industry will hardly

be encouraged if, notwithstanding solemn contracts, we imsist on a

parochial concept that all disputes must be resolved under our laws and in

| our courts. ... We cannot have trade and commerce in world markets and

international waters exclusively on our terms, governed by our laws, and

(continued...)

A-36

also Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer,

115 S.Ct. 2322, 2329 (1995). However, this presumption

may be overcome by a clear showing that the forum selection

and choice of law provisions are "'unreasonable, under the

circumstances." M/S Bremen, 407 U.S. at 10. Choice of

forum and law provisions may be found unreasonable if:

1) their formation was induced by fraud or

overreaching;

2) the complaining party “wili for all practical

purposes be deprived of his day in court"

because of the grave inconvenience or unfairness

of the selected forum;

3) the fundamental unfairness of the chosen law

may deprive the plaintiff of a remedy; or

4) their enforcement would contravene a strong

public policy of the forum state.

See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595

(1991).

A. Frauu or overreaching: The Plaintiff Names

contend that the Defendant fraudulently procured the forum

selection and choice of law clauses. Fraud will only

invalidate a forum selection clause "if the inclusion of that

Clause in the contract was the product of fraud or coercion."

Scherk v. Alberto-Culver Company, 417 U.S. 506, 519

(1974) (emphasis added). Other courts examining similar

challenges to this same forum selection clause have

' (...continued)

resolved in our courts.” M/S Bremen, 407 U.S. at 9.

A-37

concluded that the claims must fail.” See, e.g., Riley v.

Kingsley Underwriting Agencies, Ltd., 969 F. 2d 953, 960

(10th Cir.) cert. denied, 506 U.S. 1021 (1992) (upholding

forum selection clause because the Plaintiff did not plead that

the specific choice provisions at issue were obtained by

fraud); Haynsworth v. Lloyd's of London, 933 F.Supp.

1315, 1322 (S.D. Tex. 1996) (rejecting allegation of fraud

because Plaintiffs failed to allege that they were "tricked into

signing the forum selection clause").

The Plaintiff Names allege that the Defendant

fraudulently procured their consent to the forum selection

clause by stating that the purpose of the General Undertaking

is "to bring the agreements in line with [] new Lloyd's

legislation," and that the "new provisions [] are mainly of a

technical "new provisions [] are mainly of a technical nature.

However, these statements merely indicate that the Plaintiff

Names were fraudulently induced into signing the General

Undertaking, not specifically the forum selection and choice

of law clauses. Even if the court were to conclude that the

Plaintiff Names specifically relied on these statements in

agreeing to the forum selection clause, as opposed to

agreeing to the entire General Undertaking, the Plaintiff

Names' claim would still fail. As stated by another court

addressing a motion to dismiss:

[t]he complaint's fatal deficiency is its lack of

evidence demonstrating a link between Lloyd's

. Other courts, in upholding this same forum selection clause,

specifically noted that the Plaintiffs did not allege fraud. See Allen v

Lloyd's of London, 94 F.3d 923, 928 (4th Cir. 1996); Shell v. R.W.

Sturge, Lid., 55 F.3d 1227 (6th Cir. 1995); Roby v. Corporation of

Lloyd's, 996 F.2d 1353, 1363 (2d Cir.), cert. denied, 114 S.Ct. 385

(1993).

A-38

F.,

‘

cid

knowledge relating to asbestosis claims and other

long-tail liabilities and its intentional use of the

choice clauses to preclude Plaintiffs from bringing

valid securities law claims against Lloyd's.

Tufts v. The Corporation of Lloyd, No. 95-3480, 1996 U.S.

Dist. LEXIS 12606 at *15 (S.D. N.Y. August 12, 1996)

(finding no evidence that the inclusion of the forum-selection

clause was an intended part of a :cheme to defraud). The

Court further conciudes that it is not unreasonable to enforce

the forum selection clause. See id. *18 (concluding that, the

Plaintiffs could and should have examined the forum

selection clauses carefully, "especially given the unlimited

personal liability they assumed with the investments");

Bonny v. Society of Lloyd's, 3 F.3d 156, 160 (7th Cir.

1993), 114 S.Ct. 1057 (1994) ("a party to a contract has an

obligation to read its provisions .... Nothing excuses the

plaintiffs for not being aware of the substantive provisions of

English law that the forum selection clause incorporates into

their agreement") ; McDade v. Nationsbank of Texas, N.A..,

No. 94-3714, 1995 U.S. Dist. LEXIS 21095 at *5-7 (S.D.

Tex. June 28, 1995) (assuming that Plaintiff is a

"sophisticated business individual! capable of either

understanding the choice of law and forum selection clauses

in the General Undertaking or capable of obtaining legal

representation to assist him in understanding the document

prior to his signing"). See also Dayhoff, Inc. v. H.J. Heinz

Co., 86 F.3d 1287 (3d Cir. 1996), cert. denied. --- U.S. ---,

117 S.Ct. 583 (1996) ("The parties to the Agreements were

sophisticated business people and there is no indication that

Plaintiff was not aware, or could not have made itself aware,

of the consequences that would result from including the

forum selection clauses in the Agreements ...").

A-39

Plaintiff Names rely heavily on Leslie v. Lloyds of

London, No. 90-1907, 1995 WL 661090 at *21 (S.D. Tex.

August 20, 1995), in which one court in the Southern

District of Texas concluded that the Plaintiff's accession to

the forum selection clause was the product of fraud. In

Leslie, the court found that the Defendant's committed fraud

by failing to disclose material facts, including certain

enhanced insurance risks and the effect of Lloyd's recently-

obtained qualified immunity from civil liability from suits by

Names in English courts. Id. See also Lloyd's Act, 1982, ch.

14 (Eng.). However, the court also found that the Names'

reliance on Lloyd's assurances was unreasonable, a defect

that was not fatal because Texas law does not require

reasonable reliance on misrepresentations and

nondisclosures. Id. at *22. Even applying the Leslie

analysis, this Court must uphold application of the forum

selection clause because reasonable reliance is an essential

element of a fraudulent inducement claim under Florida law.

See Avila South Condo. Ass'n, Inc. v. Kappa Corp., 347

So.2d 599, 604 (Fla. 1977); Avila South Condo. Ass'n, Inc.

v. Kappa Corp., 347 So. 2d 599, 604 (Fla. 1977);

Peninsular Fla. dist. council v. Pan Am. Inv., 450 So.2d

1231, 1232 (Fla. 4th DCA 1984) ("When fraud in the

inducement is alleged, plaintiff need not plead that he was

precluded from discovering the truth as to misrepresented

facts, provided that the complaint alleges reasonable reliance

on material [mis]representations of existing fact"). See also

Tufts, 1996 U.S. Dist. LEXIS 12606 at *20 (refusing to

follow Leslie because New York law requires reasonable

reliance).

B. Denial of remedy, fundamental fairness, and

public policy: The Court is persuaded by the abundance of

authority concluding that Names have several remedies in

~A-40

England, particularly where bad faith can be shown. See

e.g., Shell, 55 F.3d at 1231; Bonny, 3 F.3d at 161; Riley,

969 F.2d at 958. Furthermore, United States courts

consistently have found English courts to be neutral an¢ ‘ust

forums. See e.g., Roby, 996 F.3d at 1363; Riley, 969 *.2d

at 960. Finally, because remedies in England sufficiently

deter British issuers from exploiting American investors

through fraud, misrepresentation or inadequate disclosure,

enforcement of the choice of law and forum selection clauses

does not contravene public policy. See, e.g., Roby, 969 F.2d

at 1365; Allen, 94 F.3d at 930.

IV.__ COLLATERAL ESTOPPEL

Plaintiff Names also contend that Lloyd's motion to

dismiss is precluded by the decision in Leslie, No. 90-1907,

1995 WL 661090 (S.D. Tex. August 20, 1995). However,

the doctrine of collateral estoppel only precludes relitigation

of identical issues that were nerd mage in a prior

F.2d 1541, 1549 (11th Cir, 1986). pecus the Lestic court’ S

decision was based on Texas law, Defendants are not

collaterally estopped from litigating the reasonable reliance

issue under Florida law.’

V. STANDING OF CHARLES AND BARBARA

LIPCON ~—

The Court notes that Charles and Barbara Lipcon never

. In view of the Court's conclusion that the forum selection clause

is valid and the doctrine of collateral estoppel does not apply, the Court

need rot reach the other issues raised in Defendant Lloyd's Motion to

Dismiss.

A-41

entered into any agreement with Lloyd's. "In order to bind a

non-party to a forum selection clause, the party must be

‘closely related' to the dispute such that it becomes

foreseeable, that it will be bound." Hugel v. ‘Corporation of

Lloyd's, 999 F.2d 206, 209 (7th Cir. 1993). Mitchell and

Barbara Lipcon, anticipating benefits flowing from their

spouses' membership in Lloyd's, signed letters of credit in

favor of Lloyd's to ensure that their spouses would become

Names. The Plaintiff spouses are thus so closely related to

this dispute that their claims are also subject to the forum

selection clause.* See Manetti-Farrow, Inc. v. Gucci

America, Inc., 858 F.2d 509, 514 n.5 (9th Cir. 1988) ("a

range of transaction participants, parties and non-parties,

should benefit from and be subject to forum selection

clauses") (quoting Clinton v. Janger, 583 F.Supp. 284, 290

(N.D. Ill. 1984); Coastal Steel Corp. v. Tilghman

Wheelabrator. Ltd., 709 F.2d 190, 203 (3d Cir. 1983).

The Supreme Court's recent decision in First Options of

Chicago, Inc, v. Kaplan, -- U.S. —, 115 S.Ct. 1920 (1995)

does not compel a contrary conclusion. In Kaplan, the

Supreme Court affirmed the Seventh Circuit's decision to

vacate an arbitration award against a party who had not

agreed to arbitrate. The Seventh Circuit had held that even

though the Kaplans had signed related contracts, the court

could not compel the Kaplans to arbitrate claims made

pursuant to other contracts because they had not individually

signed the specific contract containing the arbitration clause.

Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503,

1516 (3d Cir. 1994). Affirming the Seventh Circuit, the

: The Court notes that the Plaintiff spouses do not contend that

they would not be permitted to enforce the forum selection clause in

England. See Freitsch v. Refco, Inc., 56 F.3d 825, 827 (7th Cir. 1995).

A-42

Supreme Court stated that

arbitration is simply a matter of contract between

the parties; it is a way to resolve those disputes--but

only those disputes--that the parties have agreed to

submit to arbitration.

Kaplan, --- U S. at —-, 115 S.Ct. at 1924 (citations omitted).

While the Plaintiffs in Kaplan did not agree to have the

arbitrators decide the issue of arbitrability, here the Plaintiff

Names, by signing the revised General Understanding which

included the forum selection clause, agreed to have all

disputes resolved in England. In addition:

[a]t all times material hereto the spouses of Names

at Lloyd's were provided the same false, fraudulent,

and misleading information provided to the Names

at Lloyds. ... [The Plaintiff spouses] signed

documents, including notes and mortgages on their

personal residences, in order to secure letters of

credit in favor of Lloyd's in order for their

respective spouses to join.

Complaint ¢ 7. The Plaintiff spouses had full knowledge of

all information provided to the Plaintiff Names, and could

only receive a derivative benefit from their financial

commitment. Furthermore, Plaintiff spouses signed the

letters of credit in favor of Lloyd's more than two years

before the Plaintiff Names signed the Revised Premiums

Trust Deed and General Understanding, and the continued

existence of the (irrevocable) letter of credit was not

conditioned upon the Plaintiff spouses' consent to

modifications in the relationship between Lloyd's and the

A-43

Plaintiff Names. Based ou the Plaintiff spouses' close

relationship to the dispute, and because it was foreseeable

that the Plaintiff spouses would be bound by the forum

selection clause, the Court concludes that this forum

selection clause is also binding on the Plaintiff spouses.°

DONE AND ORDERED in Chambers at Miami,

Florida, this 27th day of February, 1997.

FEDERICO A. MORENO

UNITED STATES DISTRICT JUDGE

copies provided:

Charles R. Lipcon, Esq.

One Biscayne Tower, Suite 2480

2 South Biscayne Boulevard

: Dayhoff, Inc. v. H.J. Heinz Co., 86 F.3d 1287, 1297 3d Cir.

1986), is not dispositive. In Dayhoff, the Third Circuit, relying on

Kaplan, concluded that even though the corporate subsidiary had signed

an arbitration and forum selection clause with another contracting party

(Dayhoff), the subsidiary's corporate parents could not invoke the

arbitration and forum selection clauses by reason of their corporate

relationship. In addition, since the company which purchased the same

corporate subsidiary (Hershey) specifically did mot purchase the contracts

that included the arbitration and forum selection clauses, the Court

concluded that the arbitration and forum selecition clause could not be

enforced by Hershey against Dayhoff, but rather could only “be enforced

by the signatories to those agreements." Id. at 1296. However, the Court

specifically noted that where the claim of the nom-contracting party that is

seeking to enforce the arbitration agreement (or forum selection clause)

is “directly related to, if not predicated upon,” one of the contracting

parties, the claim is also subject to the arbitration provision or forum

selection clause. Id. at 1296-97.

A-44

Miami, FL 33131

Mitchell Lipcon Esq.

9100 S. Dadeiand Blvd. #400

Miami, FL 33156

Jon W. Zeder, Esq.

2601 South Bayshore Drive, Suite 1600

Miami, FL 33133

Lewis R. Cohen, Esq.

1399 S.W. ist Avenue, 4th Floor

Miami, FL 33130

Stephen B. Gillman, Esq.

200 S.E. 1st Street #1100

Miami, FL 33131

Sharon Wolfe, Esq.

A-45

UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

No. 97-5144

IRMGARD LIPCON, et al.,

Plaintiffs-Appellants,

UNDERWRITERS AT LLOYD’S LONDON, et al.,

Defendants-Appellees.

On Appeal from the United States District

Court for the Southern District of Florida

BRIEF OF THE SECURITIES AND EXCHANGE

COMMISSION, AMICUS CURIAE

RICHARD H. WALKER

General Counsel

JACOB H. STILLMAN

Associate General Counsel

ERIC SUMMERGRAD

Principal Assistant General Counsel

LESLIE E. SMITH

Of Counsel Senior Litigation Counsel

PAUL GONSON

Solicitor Securities and Exchanse Commission

Washington, D.C. 20549

JANUARY 1998

A-46

Certificate of Interested Parties and

Corporate Disclosure Statement

Counsel for amicus curiae, the Securities and Exchange

Commission, hereby certifies that the following is a complete

list of interested persons:

Adorno & Zeder, P.A.

Magistrate Judge Ted E. Bandstra

Cooper & Wolfe, P.A.

Lewis R. Cohen, Esq.

LeBoeuf, Lamb, Greene & MacRae, L.L.P.

David Lawrence III, Esq.

Gallwey, Gillman, Curtis

Stephen B. Gillman, Esq.

Barbara Lipcon

Charles Lipcon, Esq.

Irmgard Lipcon

Mitchell Lipcon, Esq.

Lloyd’s London

The Honorable Federico A. Moreno

Scharlin, Lanzetta, Cohen, Cobb & Ebin

Securities and Exchange Commission

Leslie Smith, Esq.

Jacob Stillman, Esq.

Eric Summergrad, Esq.

Sharon Wolfe, Esq.

Jon Zeder, Esq.

A-47

CERTIFICATE IDENTIFYING

SIZE AND STYLE OF TYPE

12 point Courier type, 10 characters per inch, is used in

this brief.

A-48

[TABLES OMITTED IN PRINTING]

A-49

STATEMENT OF THE ISSUE PRESENTED

Defendant Lloyd's of London, an English company, is

alleged to have violated registration and antifraud provisions

of the federal securities laws in soliciting the plaintiff

investors in the United States to buy its securities. The

district court dismissed the plaintiffs’ federal securities law

case on the basis of choice of forum and choice of law

provisions in agreements between Lloyd’s and its investors

which, taken together, would require litigation of any

disputes in an English forum under English law and would

preclude recovery under the United States securities laws.

The question presented is:

Whether, when a foreign company has committed

violations of the federal securities laws in the United States

in selling its securities to American investors, the antiwaiver

provisions of the federal securities laws -- which render

void any agreement binding a securities purchaser to waive

compliance with the federal securities laws -- prohibit a

United States court from giving effect to contractual

provisions that would preclude the purcfiasers from obtaining

relief under the federal securities laws.

INTEREST OF THE SECURITIES AND EXCHANGE

~ COMMISSION

The Securities and Exchange Commission is the agency

principally responsible for ithe administration and

enforcement of the federal securities laws. This case involves

the application of provisions of the Securities Act of 1933

and the Securities Exchange Act of 1934 that render void any

purported waiver of a person’s obligation to comply with

those laws. These antiwaiver provisions state:

A-50

Any condition, stipulation, or provision binding any

person acquiring any security to waive compliance

with any provision of this title or of the rules and

regulations of the Commission shall be void.’

These provisions are essential to the enforcement of the

securities laws in that they prevent persons from avoiding

their obligations under those laws through the simple

expedient of requiring investors to waive their rights under

those laws as a condition to engaging in securities

transactions.

The far-reaching effect of the district court’s holding is

apparent in light of the fact that it must be assumed, for

purposes of resolving the issue here, that the defendaits

committed the alleged securities law violations. Under the

district courts holding, the purchasers would have no remedy

under the federal securities laws to compensate them for

their losses even if the defendants conceded the violations.

The district court's holding is consistent with decisions

of several courts of appeals upholding Lloyd’s choice

clauses, * but is contrary to the position taken by a Ninth

P The quoted language is from Section 14 of the Securities Act, 15

U.S.C. 77n. The parallel provision in Section 29(a) of the Exchange

Act, 15 U.S.C. 78cc(a), is identical in all respects material to this case.

F.3d 956 (Sth cir, 1997); iitene kieats at hone, 94 F.3d 923 (4th

Cir. 1996); Roby v. Corporation of Lloyd’s, 996 F.2d 1353 (2d Cir.),

cert. denied, 510 U.S. 945 (1993); Bonny v. Society of Lloyd’s, 3 F.3d

156 (7th Cir. 1993), cert. denied, 510 U.S. 1113 (1994); and Riley v

Kingsley Underwriting Agencies, Lid., 969 F.2d 953 (10th Cir.), cert.

denied, 506 U.S. 1021 (1992) (the " Lloyd’s cases"). Cf. Shell v. R.W

(contianed....)

ST r——_)

A-51

Circuit panel in a case now pending before that court in

banc. Richards v. Lloyd’s of London, 107 F.3d 1422, reh’g

in_ banc granted, 121 F.3d 565 (9th Cir. 1997). The

Commission strongly urges this Court to follow the Ninth

Circuit panel decision and reverse the district court’s

erroneous dismissal of this action. * The district court’s

holding would seriously impair the ability of defrauded

investors to obtain compensation for their losses, and would

hamper the deterrent function of the federal securities laws

by discouraging private actions.

STATEMENT OF THE CASE

A. The Allegations and Factual Background

This is an appeal from the dismissal of an action brought

against Lloyd’s * under the federal securities laws by four

residents of the United States -- two individuals and their

spouses -- on behalf of themselves and others similarly

2 (... continued)

Sturge, Lid., 55 F.3d 1227, 1231 (6th Cir. 1995) (upholding choice

clauses as basis for dismissing claims under Ohio securities laws.)

The Commission is submitting this brief solely to address the

legal issue of the applicability of the antiwaiver provisions, and takes no

position on any other issue, including whether the defendants violated the

saceathent andi deunenee Weta ie bated

7 Underwriters at Lloyd’s London, an unincorporated association,

and the Corporation of Lloyd’s, aka the Society of Lloyd’s, aka Lloyd’s

of London, have been named as defendants. Together they are referred

to herein as “Lloyd’s."

A-52

situated. R5-108-1,7.° The case arises out of the plaintiffs’

investment in the Lloyd’s insurance enterprise. The plaintiffs

allege that Lloyd’s violated the registration requirements of

Section 5 of the Securities Act, 15 U.S.C. 77e, which is

actionable under Section 12(1) of that Act, 15 U.S.C. 771()).

R5-108-9, 49-50, 54-55. They also seek recovery under the

antifraud provisions of Section 12(2) of the Securities Act,

15 U.S.C. 771(2), Section 10(b) of tho Exchange Act, 15

U.S.C. 78j(b), and Commission Rule 10b-5 thereunder, 17

C.F.R. 240.10b-5. R5-108-9, 55-59, 61-63. The allegations

of fraud include the failure of Lloyd's to disclose the high

risks associated with asbestos and other liabilities that had

been assumed without adequate reserves by the syndicates in

which the United States investors were encouraged to invest.

R5-108-2-3.

Lloyd's differs from a typical United States insurance

company in that it does not underwrite insurance, but is

composed of individual members, referred to as "Names,"

who underwrite insurance pursuant to rules and procedures

established by Lloyd's. R5-108-11-12. Each Name must

determine the amount of insurance underwriting he wishes to

undertake each year, based on the amount of premiums that

can be accepted on his behalf. R5- 108-24. A Name must

then put up funds at Lloyds, typically a letter of credit, to

support the chosen level of underwriting. R5-108-27.

Although a Name limits his risk in the sense of limiting the

amount of premiums which can be received during the year,

the Name's actual liability is effectively unlimited and may

well exceed the amount of the letter of credit. R5-108-12,

17-18, 31, 44.

: "R. _ -__ refers to the volume and the docket number of the

district court record.

A-53

Individual Names group together annually to form

syndicates which act as joint ventures for the Names for the

year. R5-108-15. This generally enables the Names to spread

the risk of any particular underwriting among the various

members of the syndicate, each of whom is individually

responsible for his or her share of the risk. R5-108-16. Each

syndicate is managed by a Managing Agent. R5-108-13. The

Names are represented by Members' Agents who invite

individuals to become Names and who advise their Names on

syndicate selection each year. R5 108-12- 13, 14.

In order to become a Name an individual: must be

interviewed by a committee in London. R5-108-24.

Although each of the United States Names ultimately

travelled to London before becoming a Name, agents of

Lloyd's went to Florida to solicit Americans to become

Names and made alleged misrepresentations concerning

asbestos and other liabilities in the United States. RS-108-18-

19, 33, 38, 41, 105.

Each Name was required to enter into a General

Undertaking with Lloyd's and a Members’ Agent's

Agreement with his or her Members' Agent which contained

choice of law clauses providing that the rights and

obligations of the parties would be governed by English law

and choice of forum clauses providing that the courts of

England (or, in the case of the Members' Agent's

Agreement, English arbitrators) would have exclusive

jurisdiction to resolve any dispute. R5-108-7, R5-119-2-3. °

é The General Undertaking with Lloyd's provides:

The rights and obligations of the parties arising

(continued...)

A-54

B. The District Court's Decisi

The plaintiffs in this case initially claimed that Lloyd's

offered and sold the plaintiff Names and similarly situated

persons securities in violation of Florida's securities laws.

_ On February 28, 1997, the district court dismissed the

complaint based on the choice clauses in the agreements

between the Names and Lloyd's. R4-95-1. The court held

that such clauses are presumptively valid, and that the

“presumption may be overcome by a clear showing that the

forum selection and choice of law provisions are

""unreasonable’ under the circumstances" (R4-98-5, quoting

The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10

(1972). The court held, applying one of the Bremen criteria

for unreascnableness, that the Lloyd's clauses were not the

product of fraud in the inducement or overreaching by

Lloyd's (R4-98-6-9). And, it held, applying the remaiuing

Bremen criteria, that enforcement of the clauses wovid not

deny the plaintiffs a remedy, be fundamentally unfair, or

contravene public policy. In that regard, the court cited

® (...continued)

out of or relating to the Member's membership of,

and/or underwriting of insurance business at, Lloyd's

and any other matter referred to in this Undertaking

shall be governed by and construed in accordance with

the laws of England.

Each party hereto irrevocably agrees that the courts of

England shall have exclusive jurisdiction to settle any

dispute and/or controversy of whatsoever nature arising

out of or relating to the Member's membership of,

and/or underwriting of insurance business at, Lloyd's

and that accordingly any suit, action or proceeding ***

arising out of or relating to such matters shall be

brought in such courts***.

A-55

court of appeals decisions upholding the clauses and held:

The Court is persuaded by the abundance of

authority concluding that Names have several

remedies in England, particularly where bad faith

can be shown. Furthermore, United States courts

consistently have found English courts to be neutral

and just forums. Finally, because remedies in

England sufficiently deter British issuers from

exploiting American investors through fraud,

misrepresentation or inadequate disclosure, enforce-

ment of the choice of law and forum selection

clauses does not contravene public policy.

(R4-98-9-10 (citations Gmitted)).

On March 28, 1997, the court denied tk: plaintiffs’

motion for rehearing. R4-105-1. The court stated (R4-105-2)

that it would "ensure that, for purposes of appeal, Plaintiffs

have the opportunity to amend their complaint to include

counts that may not have been included in the original

complaint."

The plaintiffs thereafter filed a Second Amended

Complaint, which added federal claims for relief, including

claims under the federal securities laws, to the two Florida

State law claims contained in the original complaint. R5-108.

On May 9, 1997, the district court dismissed the Second

Amended Complaint "for the reasons stated in the

Memorandum Opinion dated February 28, 1997." R5-118-1-

A-56

SUMMARY OF ARGUMENT

In this case, the district court upheld the validity of

forum selection and choice of law provisions entered into

between the plaintiffs and Lloyd's. Those provisions, taken

together, require the plaintiffs, who were solicited in the

United States to purchase securities from Lloyd's, to bring

any action against Lloyd's in the courts of England under

English law. The district court upheld these clauses even

though it is virtually certain, and other courts have

recognized, that the English courts will not entertain the

plaintiffs' claims under the federal securities laws. The

district courts decision is contrary to the antiwaiver

provisions in the federal securities laws, which render void

contractual provisions that purport to deprive investors of

rights under the securities laws.

The district court, and other courts that have upheld the

Lloyd's choice clauses, primarily relied upon several

Supreme Court cases that upheld the validity of forum

selection clauses that required litigation or arbitration in

foreign forums. But nothing in those cases allows a United

States court to ignore the unambiguous Congressional

directive in the antiwaiver provisions that United States

securities laws be available to United States investors, and to

enforce contractual clauses that remove the protections of

those laws from persons solicited in the United States te buy

securities. In fact, the Supreme Court made clear in those

cases, and in others involving forum selection clauses, that

even absent a specific Congressional directive as is present

here it will not uphold choice provisions that result in

plaintiffs being deprived of substantive statutory rights under

United States law.

A-57

The courts of appeals in the earlier Lloyd's cases

appeared to recognize that plaintiffs’ rights under English

law are more restricted than under United States law.

Nevertheless, they reasoned that the rights available to

plaintiffs would be sufficient to meet what they saw as the

objectives of United States securities laws. But Congress has

made a legislative determination that the obligations and

rights in United States law are necessary to protect investors

in the United States, and has expressly directed that those

protections cannot be waived. It is not permissible for the

courts to substitute their policy views of what laws are

sufficient to protect United States investors for the choice

made by Congress.

Finally, even if this Court were to conclude that United

States law need not be available so long as the remedies

available under English law are comparable, the remedies

available to plaintiffs in this case are not comparable.

ARGUMENT

I. THE LLOYD'S FORUM SELECTION AND CHOICE

OF LAW CLAUSES ARE VOID AND

UNENFORCEABLE SINCE THEY OPERATE TO

DEPRIVE THE PLAINTIFFS OF SUBSTANTIVE

RIGHTS WHICH, UNDER PROVISIONS OF THE

FEDERAL SECURITIES LAWS, CANNOT BE

WAIVED.

A. The Choice of Forum and Choice of Law

Clauses Violate the Antiwaiver Provisions

Because, Taken Together, They Preclude Relief

Under the Federal Securities Laws.

A-58

requires the investors here to litigate claims against Lloyd's

in English courts. The choice of law provision provides that

any dispute arising out of the agreement "shall be governed

by and construed in accordance with the laws of England."

The effect of these provisions, taken together, is to

preclude investors from obtaining relief under the United

States federal securities laws. English conflict of law

principles apparently preclude enforcement by an English

court of the securities laws where the parties have agreed to

the application of English law. The court in Roby v.

, 996 F.2d 1353 (2d Cir.), cert.

denied, 510 U.S. 945 (1993), noted: "According to the

undisputed testimony of a British attorney, neither an

English court nor an English arbitrator would apply the

United States securities laws, because English conflict of law

rules do not permit recognition of foreign tort or statutory

law." 996 F.2d at 1362.

The fact that the investors agreed to these provisions is

irrelevant, since the very objective of the antiwaiver

provisions is to invalidate such agreements. As the Supreme

Court held in Shearson/American Express Inc. v. McMahon,

482 U.S. 220, 230 (1987), “[tJhe voluntariness of the

agreement is irrelevant to this inquiry: if a stipulation waives

A-59

compliance with a statutory duty, it is void under [the

antiwaiver provisions], whether voluntary or not." ’

It is the operation of the choice clauses in tandem that

runs afoul of the antiwaiver provisions. Although the

Supreme Court has hold that certain choice of forum clauses,

standing alone, may not violate the antiwaiver provisions,

that is only so if the clause does not "'weaken [the] ability

{of investors] to recover under the [securities laws]'" nor

deprive investors of an “adequate means of enforcing [those]

provisions.” McMahon, 482 U.S. at 229-30, quoting Wilko

vy. Swan, 346 U.S. 427, 432 (1953) (United States arbitral

forum). See Rodriguez de Quijas_v. Shearson/American

Express. Inc., 490 U.S. 477, 481-482 (1989) (United States

arbitral forum). In this case, the requirement that investors

litigate in England, coupled with the requirement that they

do so under English law, not only "weakens" the investors'

ability to recover, but in fact precludes any possibility of

recovery under the federal securities laws. These clauses are

plainly contrary to the antiwaiver provisions and should be

held void.

B. The Supreme Court Cases Relied on by the

District Court Do Not Warrant Overriding

Congress,’ Determination, in the Antiwaiver

‘ See ¢.g., Special Transportation Services, Inc. v. Balto, 325 F.

Supp. 1185 (D. Kinn. 1971) (refusing to enforce contractual provision

limiting buyer's remedies for misstatements by seller of securities);

Allied Artists Pictures Corp. v. Giroux, 312 F. Supp. 450 (S.D.N.Y.

1970) (holding invalid corporation's agreement to forgo recovery of

short-swing profits under Section 16(b) of the Exchange Act, 15 U.S.C.

78p(b)). Cf. Andrews v. Blue, 489 F.2d 367, 375 (10th Cir. 1973)

(plaintiff cannot be estopped from bringing antifraud claims by

contractual provisions).

A-60

Provisions, that the Securities Laws be Available

to Persons Solicited in the United States to Buy

In nonetheless upholding the choice of forum and choice

of law clauses, the district court and other courts mistakenly

have relied on certain Supreme Court cases in which the

Court upheld international choice of forum provisions. The

Bremen v. Zapata Off-Shore Co., 407 U.S. at 15 ("[I]n the

light of present-day commercial realities and expanding

international trade we conclude that the forum clause should

control absent a strong showing that it should be set aside.");

Scherk v. Alberto-Culver Co., 417 U.S. 506, 519-20 (1974)

("{W]e hold that the agreement of the parties in this case to

arbitrate any dispute arising out of their international

commercial transaction is to be respected and enforced * *

*"); Mitsubishi Motors Corp, v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614, 631 (1985) ("The Bremen and Scherk

establish a strong presumption in favor of enforcement of

freely negotiated contractual choice-of-forum provisions.").

See also Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585

(1991)(domestic choice of forum provision).

Specifically, the courts have looked to the Supreme

Court's statement in The Bremen that "[a] contractual

choice-of-forum clause should be held unenforceable if

enforcement would contravene a strong public policy of the

forum in which suit is brought." 407 U.S. at 15. They have

then looked to whether the Lloyd's clauses would contravene

what they term the public policy "incorporated into” the

antiwaiver provisions. In so holding, they have treated the

antiwaiver provisions as merely reflecting a Congressional

direction to the courts to decide whether "the public policies

incorporated into” the securities laws would be undermined.

A-61

Roby, 996 F.2d at 1364; accord Bonny v. Society of

Lloyd's, 3 F.3d 156 (7th Cir. 1993), cert. denied, 510 U.S.

1113 (1994) concluding that the English courts will provide

“sufficient,” albeit more restrictive, remedies to investors,

the courts have held that United States public policy is not

contravened by the choice of forum and choice of law

clauses. This was precisely the approach taken by the district

court below.

The antiwaiver provisions, however, are not simply an

expression of public policy that favors United States

securities laws unless other comparable laws are available.

Rather, they are an express and unequivocal directive that

the rights and obligations under the securities laws cannot be

waived. This determination has been made by Congress, and

the courts are not free to substitute their own public policy

Nothing in the Supreme Court cases on which the

district court and other courts rely allows a United States

court to ignore an unambiguous Congressional directive that

United States law be available to United States investors.

Indeed, only one of those cases, Scherk, even involved such

an express Congressional directive. In Scherk, the Court

upheld a contractual provision requiring arbitration of

securities claims in a foreign forum. But in so doing, the

Court specifically noted that the case did not present a

situation where an arbitration agreement designating

“arbitration in a certain place might also be viewed as

implicitly selecting the law of that place to apply to that

transaction” (417 U.S. at 519 n.13), since the parties’

agreement specified that it would be construed in accordance

A-62

with Illinois law. * As the Court later explained in

McMahon, in upholding comparable domestic arbitration

agreements:

The decision in Scherk thus turned on the Court's

judgment that under the circumstances of that case,

arbitration was an adequate substitute for

adjudication as a means of enforcing the parties’

that Wilko [v. Swan, 346 U.S. 427 (1953)] must be

read as barring waiver of a judicial forum only

where arbitration is imadequate to protect the

substantive rights at issue.

McMahon, 482 U.S. at 229. Here, in contrast, the

combination of the choice of forum and choice of law clauses

will totally deprive those plaintiffs of their substantive rights

under the federal securities laws. °

Rather than looking to whether the United States

? With respect to the parties’ agreement in Scherk to apply Illinois

law, the Fifth Circuit has recently observed, even while upholding the

Lioyd's choice clauses, that “[p]resumably, this meant that the parties

could rely on the protections of the federal securities laws as well * * *."

Haynsworth, 121 F.3d at 967.

. Scherk also relied on what it viewed as the need to allow parties

in international transactions to eliminate the uncertain or unexpected

application of a particular country's laws. 417 U.S. at 516. That concern

is not present here. The Lloyd's defendants can hardly claim surprise in

finding the United States securities laws to be applicable since they came

to the United States seeking investment by Americans. There can be no

dispute, for example, that they could be subject to law enforcement

action by the Commission based on the same conduct alleged in this

private action.

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securities laws will be available, the courts upholding the

choice clauses essentially have tried to discern whether

English law is "good enough.” In Roby, the Second Circuit

stated:

We believe that if the Roby Names were able to

show that available remedies in England are

insufficient to deter British issuers from exploiting

American investors through fraud,

misrepresentation or inadequate disclosure, we

would not hesitate to condemn the choice of law,

forum selection and arbitration clauses an against

public policy.

Roby, 996 F.2d at 1365. After examining various remedies

available under English law, the court in Roby determined

that English law was adequate to deter deception of

American investors and to induce disclosure of material

information. The district court in this case accepted the Roby

court's conclusion.

The courts upholding the Lloyds agreements have in

essence substituted their policy views of what laws are

sufficient to protect United States investors for the

determination made by Congress. That result in inconsistent

with Congress’ clear directive in the antiwaiver provisions.

This Court should refuse to enforce the choice clauses since

they operate as a waiver of the plaintiffs’ rights under the

federal securities laws. *°

" One of the courts upholding the choice clauses, the Fourth

Circuit in Allen, confused the question of the application of the

antiwaiver provisions with the separate, subject-matter jurisdiction,

(continued...)

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Il. EVEN ABSENT THE ANTIWAIVER PROVISIONS,

ENFORCEMENT OF THE CHOICE CLAUSES

CONTRAVENES PUBLIC POLICY.

Even if there were no antiwaiver provisions at issue

here, depriving these plaintiffs of their statutory rights under

the federal securities laws would contravene public policy.

10 (...continued)

question of the applicability of the United States securities laws to

transnational activities; and, in doing so, it erroneously construed the

latter principles, In addressing the latter issue, the Allen court indicated

that the “disclosure” requirements of the United States securities laws do

not apply to the solicitation in the United States of sales of foreign securi-

ties. The court was referring to the disclosure requirements under the

proxy provisions and, possibly, the registration provisions, not to the

antifraud provisions. Whatever the case may be where the sole claim is a

failure to comply with disclosure requirements of the securities laws, the

court's statement would not be true with respect to a claim under the

antifraud provisions that misrepresentations were made in the United

States.

Indeed, the cases cited in Allen (Leasco Data Processing Equip. Corp. v.

Maxwell, 468 F.2d 1326, 1334 (2d Cir. 1972), and Bersch v. Drexel

Firestone, Inc., 519 F.2d 974, 985 (2d Cir.), cert. denied, 423 U.S.

1018 (1975)), make clear that where a foreign issuer makes

misrepresentations to American investors, in the course of soliciting

investors to buy its securities, the United States courts have subject-

Partnership, 740 F.2d 148, 153 (2d Cir. 1984). Thus the court's

remarks in Allen are relevant, if at all, to the registration claim in this

case, but as to that claim also there is subject-matter jurisdiction. The

applicability of the Securities Act's registration provisions to

transnational activities is governed by the Commission's Regulation S,

under which the transactions in this case are within the subject-matter

jurisdiction of United States courts. See Commission Rule 901, 17

C.F.R. 230.901, and Offshore Offers and Sales (Release proposing

Regulation S), Securities Act Release No. 6779 (June 10, 1988), 53 Fed.

Reg. 22661, 22666, 1988 WL 239804 at *12.

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The Supreme Court cases relied on by the district court and

by the appellate decisions upholding the choice clauses do

not dictate a different result. To the contrary, in each of

those cases it was assumed for purposes of decision that

United States statutory remedies would be available. In fact,

the Supreme Court has stated that as a matter of public

policy, wholly apart from any statutory antiwaiver provision,

it would not uphold clauses that deprived persons of United

States statutory remedies.

Although the courts of appeals in the earlier Lloyd's

cases bave characterized the Supreme Court cases an

applying to both forum selection and choice of law clauses,''

those cases in fact only involved choice of forum clauses.

See The Bremen, 407 U.S. at 15 (upholding provision in a

maritime towage contract that all disputes arising out of

performance of the contract would be heard in London);

Scherk, 417 U.S. at 519-20 (upholding requirement that

United States company submit its United States securities

law claims to arbitration in a foreign forum); Mitsubishi, 473

U.S. at 640 (compelled arbitration of United States antitrust

claims in Japanese forum).

In none of the cases was it understood that the foreign

tribunal would fail .o apply United States law. To the

contrary, in Mitsubishi the Court held that a United States

court may not compel arbitration if persuaded that a plaintiff

would not be able “effectively [to] vindicate its statutory

cause of action in the (foreign] arbitral forum." Mitsubishi,

473 U.S. at 631. In Mitsubishi, the Court stressed that the

record established that the foreign forum would entertain the

7 See Riley, 969 F.2d at 957; Roby, 996 F.2d at 1362; and

Bonny, 3 F.3d at 160.

A-66

plaintiff's United States antitrust claims: "counsel for (the

foreign litigant) conceded that American law applied to the

antitrust claims and represented that the claims had been

submitted to the arbitration panel in Japan on that basis." Id.

at 637 n.19.

As recently as 1995, the Supreme Court reiterated its

commitment to preventing prospective waivers of statutory

rights in Vi

Reefer, 115 S. Ct. 2322 (1995), a case involving a foreign

arbitration clause in a bill of lading. Under the Carriage of

Goods by Sea Act (COGSA), 46 U.S.C. § 1300 et seg., any

clause in a biii of lading "lessening [a carrier's] liability" is

void. The Supreme Court noted that it had not been

established what law the foreign arbitrators would apply, and

that the district court had retained jurisdiction and would

have an opportunity at a later stage to ensure that the

plaintiff's legitimate interest in the enforcement of COGSA

had been addressed. Id. at 2329-30. Quoting Mitsubishi, the

Court held:

Were there no subsequent opportunity for review

and were we persuaded that “the choice-of-forum

and choice-of-law clauses operated in tandem as a

prospective waiver of a party's right to pursue

Statutory remedies ***, we would have little

hesitation in condemning the agreement as against

public policy."

Vimar, 115 S. Ct. at 2330 (quoting 473 U.S. at 637 n.19).

The waiver of rights threatened in Vimar is precisely

what will occur here if the choice clauses are upheld.

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Il. EVEN IF PUBLIC POLICY WOULD ALLOW

WAIVING THE PROTECTION OF UNITED STATES

SECURITIES LAWS WHERE EQUIVALENT

RIGHTS AND REMEDIES ARE AVAILABLE

UNDER FOREIGN LAW, THOSE PROTECTIONS

ARE NOT PRESENT HERE.

Even if this Court were to conclude that United States

law need not be available so long as comparable-remedies

are available under English law, the English law remedies

available to the plaintiffs in this case are not nearly as

favorable as their remedies under the federal securities laws.

English substantive law differs from the federal

securities laws in a number of significant respects. For

example, there is no cause of action under the laws of

England for the securities registration violations in the

United States. Thus, the effect of the choice of law provision

is to forfeit the plaintiffs' express rights to recover for

registration violations under Section 12(1) of the Securities

Act. See Bonny, 3 F.3d at 162.

As to Section 12(2) - which makes persons who sell a

security liable for untrue statements, negligent or intentional,

made in connection with the sale -- the plaintiffs’ remedies

would be severely compromised. Although English common

law, as well as England's Misrepresentations Act, 1967,

makes actionable certain types of misrepresentations,

including negligent misrepresentations, the protections

afforded are not adequate to provide the plaintiffs with

remedies equivalent to what they enjoy under United States

law. Specifically, Section 14 of the Lloyd's Act, 1982,

immunizes Lloyd's from any claims under _ the

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Misrepresentations Act, absent a shoving of bad faith. ”

Thus, there is no possibility that the plaintiffs could pursue

the claims they have alleged against Lloyd's for negligent

misrepresentation, such as are available to them under

Section 12(2) of the Securities Act.

Even as to plaintiffs' Section 10(b) and Rule 10b-5

claims, English law is not substantially equivalent. Although

the U.K.'s Financial Services Act, 1986, provides private

remedies for fraud in connection with securities transactions,

Lloyd's enjoys immunity from such liability. ° In addition,

unlike the federal securities laws in the United States,

= Section 14 provides that Lloyd's shall not be liable for damages

for negligence or other tort, breach of duty or otherwise, in

respect of any exercise of or omission to exercise any power,

duty or function conferred or imposed by Lloyd's Acts 1871 to

1982 * * *

(a) in so far as the underwriti

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